<PAGE>
As filed with the Securities and Exchange Commission on September 17, 1997
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
GEORGIA-PACIFIC CORPORATION
(Exact name of Registrant as specified in its charter)
GEORGIA 2400 93-0432081
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
133 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30303
(404) 652-4000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
JAMES F. KELLEY, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
GEORGIA-PACIFIC CORPORATION
133 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30303
(404) 652-5440
(404) 230-7543 (FAX)
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATIONS TO:
M. HILL JEFFRIES, ESQ. RAYMOND W. WAGNER, ESQ.
ALSTON & BIRD LLP SIMPSON THACHER & BARTLETT
1201 WEST PEACHTREE STREET 425 LEXINGTON AVENUE
ATLANTA, GEORGIA 30309-3424 NEW YORK, NEW YORK 10017-3909
(404) 881-7000 (212) 455-2568
(404) 881-4777 (FAX) (212) 455-2502 (FAX)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after approval by the shareholders.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AMOUNT PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1)(2) PER SHARE(2)(3) PRICE (2)(3) FEE(2)(3)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Georgia-Pacific Corporation--Timber
Group Common Stock, $.80 par value.. -- N/A N/A $100
- ------------------------------------------------------------------------------------------------------
Rights to Purchase Series C Junior
Preferred Stock, no par value....... N/A N/A N/A NA
- ------------------------------------------------------------------------------------------------------
Georgia-Pacific Corporation--
Georgia-Pacific Group Common
Stock, $.80 par value............... -- N/A N/A NA
- ------------------------------------------------------------------------------------------------------
Rights to Purchase Series B Junior
Preferred Stock, no par value....... N/A N/A N/A NA
</TABLE>
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- -------------------------------------------------------------------------------
(1) If the Letter Stock Proposal described herein is approved by the
shareholders, the shares of the Registrant's existing Common Stock, par
value $.80 per share (the "Existing Common Stock"), will be redesignated
as Georgia-Pacific Corporation--Georgia-Pacific Group Common Stock
("Georgia-Pacific Group Stock") and shares of Georgia-Pacific
Corporation--Timber Group Common Stock ("Timber Stock") will be
distributed to holders of the Georgia-Pacific Group Stock as a share
dividend on the basis of one share of Timber Stock for each share of
Georgia-Pacific Group Stock held. The number of shares of Georgia-Pacific
Group Stock and the number of shares of Timber Stock being registered are
equal to the number of shares of Existing Common Stock outstanding on the
date of the share dividend. In accordance with Rule 457(o) under the
Securities Act of 1933, as amended (the "Securities Act"), the number of
shares being registered is not included in the table.
(2) Prior to the occurrence of certain events, the rights to purchase Series
C Junior Preferred Stock and rights to purchase Series B Junior Preferred
Stock (collectively the "Rights") will not be evidenced or traded
separately from the related Timber Stock or Georgia-Pacific Group Stock.
Value, if any, of the Rights is reflected in the market price of the
related Timber Stock or Georgia-Pacific Group Stock. Accordingly, no
separate fee is paid.
(3) The shares will be distributed to shareholders without consideration.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[LETTERHEAD OF GEORGIA-PACIFIC CORP. APPEARS HERE]
, 1997
Dear Shareholder:
A Special Meeting of Shareholders of Georgia-Pacific Corporation will be
held on , , 1997, at the ,
, New York, New York. The meeting will begin promptly at 11:00
A.M., local time, and we hope that it will be possible for you to attend.
At the Special Meeting, shareholders will be asked to consider and approve a
proposal (the "Letter Stock Proposal"), which is being recommended by your
Board of Directors (the "Board"), to create two classes of Common Stock that
are intended to reflect separately the performances of Georgia-Pacific's
manufacturing businesses and of its timber business, including its
timberlands. If the Letter Stock Proposal is approved by the shareholders, the
Company will create a new class of Common Stock intended to reflect the
performance of the Company's timber business (the "Timber Stock") and each
authorized share of Georgia-Pacific's existing Common Stock (the "Existing
Common Stock") will be redesignated and converted into one share of a class of
Common Stock intended to reflect the performance of the Company's
manufacturing businesses (the "Georgia-Pacific Group Stock"). Immediately
following the Special Meeting, the Company will distribute as a share dividend
one share of Timber Stock for each share of Georgia-Pacific Group Stock then
outstanding. The transactions contemplated by the Letter Stock Proposal,
including the distribution of Timber Stock, are expected to be tax free for
both the Company and its shareholders.
The Letter Stock Proposal is designed to separate the business and cash
flows of the Company's timberlands from the rest of the Company's businesses,
enable better capital allocation decisions, charge the managers of each Group
with the responsibility of maximizing the returns from their businesses and
permit the creation of stock incentive plans providing more focused incentives
to those management teams. In addition, this new equity structure should
increase the Company's flexibility in raising capital and responding to
acquisitions and other strategic opportunities by enabling the Company to
issue either Georgia-Pacific Group Stock or Timber Stock as appropriate under
the particular circumstances.
By providing investors with separate classes of Common Stock intended to
reflect the respective performances of the Company's manufacturing businesses
and its timber business, the Letter Stock Proposal also should allow investors
and analysts to gain a better understanding of each business and enable
investors to invest in either or both securities depending upon their
individual investment objectives. Your Board believes that this should result
in greater market recognition of the value of each of these businesses, while
at the same time enabling the Company to preserve the operational and
financial benefits it currently enjoys as a single company.
If the Letter Stock Proposal is approved, the Board currently intends to pay
a quarterly dividend in the initial amount of $.25 per share on each of the
Georgia-Pacific Group Stock and the Timber Stock, which equals the current
quarterly dividend of $.50 per share on the Company's Existing Common Stock.
The Letter Stock Proposal will not result in a distribution or spin-off to
shareholders of any assets or liabilities of Georgia-Pacific Corporation or
its subsidiaries. Holders of Georgia-Pacific Group Stock and Timber Stock will
be common shareholders of the Company and, as such, will be subject to all
risks associated with an investment in Georgia-Pacific Corporation and all of
its businesses, assets and liabilities. Following
<PAGE>
implementation of the Letter Stock Proposal, there can be no assurance as to
whether or to what extent the market values of the Georgia-Pacific Group Stock
and the Timber Stock will reflect the separate performance of the Company's
manufacturing businesses and timber business, or that the combined market
values of the Georgia-Pacific Group Stock and the Timber Stock will equal or
exceed the market value of the Existing Common Stock. In addition,
implementation of the Letter Stock Proposal will, to an extent, make the
capital structure of the Company more complex and may give rise to occasions
when the interests of the holders of Georgia-Pacific Group Stock and the
holders of Timber Stock may diverge or conflict.
At the Special Meeting, shareholders will also be asked to consider and
approve three proposals related to the Letter Stock Proposal and one unrelated
proposal. Two of the related proposals would establish the Georgia-Pacific
Corporation/Georgia-Pacific Group 1997 Long-Term Incentive Plan and the
Georgia-Pacific Corporation/ Timber Group 1997 Long-Term Incentive Plan,
respectively. These two plans would permit the granting to employees of stock
options and similar rights to acquire Georgia-Pacific Group Stock and Timber
Stock, thereby providing more focused incentives to the management of the
Company's manufacturing businesses and timber business. The third related
proposal would amend and restate the Company's 1995 Shareholder Value
Incentive Plan to eliminate future grants of options under this plan and to
provide that each previously granted unexercised option to purchase Existing
Common Stock will be converted into two separate options, one to purchase
shares of Georgia-Pacific Group Stock and the other to purchase shares of
Timber Stock, in each case for the same number of shares and a total exercise
price equal to those specified in the original unexercised option. The one
unrelated proposal would amend certain provisions of the Company's Articles of
Incorporation to conform them to current Georgia corporate law.
YOUR BOARD HAS CAREFULLY CONSIDERED THE LETTER STOCK PROPOSAL AND EACH OF
THE OTHER PROPOSALS AND BELIEVES THAT THE APPROVAL OF EACH OF THE PROPOSALS BY
THE SHAREHOLDERS IS IN THE BEST INTERESTS OF THE COMPANY AND THE SHAREHOLDERS.
ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS APPROVE
THE LETTER STOCK PROPOSAL AND EACH OF THE OTHER PROPOSALS SET FORTH IN THE
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS, WHICH ARE DESCRIBED IN MORE DETAIL
IN THE ATTACHED PROXY STATEMENT AND PROSPECTUS.
To expedite the admissions process for the Special Meeting, please indicate
if you will be attending by marking the appropriate box on the enclosed proxy
card and returning it to our transfer agent, First Chicago Trust Company of
New York. Please also detach the enclosed admission card and bring it with you
to the Special Meeting.
Regardless of whether you plan to be present at the Special Meeting, your
shares should be represented and voted. THEREFORE, PLEASE COMPLETE, SIGN AND
RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED AT YOUR EARLIEST
CONVENIENCE, WHETHER OR NOT YOU PLAN TO ATTEND.
Sincerely,
/s/ A. D. Correll
-------------------------------------
A. D. Correll
Chairman, Chief Executive Officer and
President
2
<PAGE>
GEORGIA-PACIFIC CORPORATION
133 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30303
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Georgia-
Pacific Corporation will be held at the ,
, New York, New York, on , , 1997, at
11:00 A.M., local time, for the following purposes:
1. To consider and vote upon a proposal (the "Letter Stock Proposal") to (a)
amend the Company's existing Articles of Incorporation (the "Articles") to (i)
designate a new class of common stock as "Georgia-Pacific Corporation-Timber
Group Common Stock," $.80 par value per share (the "Timber Stock"), consisting
of 250 million authorized shares, each having the preferences, limitations and
relative rights described in the attached Proxy Statement and Prospectus; (ii)
redesignate each share of the Company's existing common stock, $.80 par value
per share (the "Existing Common Stock"), as, and convert each such share into,
one share of "Georgia-Pacific Corporation-Georgia-Pacific Group Common Stock,"
$.80 par value per share ("Georgia-Pacific Group Stock"), each having the
preferences, limitations and relative rights described in the attached Proxy
Statement and Prospectus; (iii) increase the number of shares of Georgia-
Pacific Group Stock authorized for issuance from 150 million to 400 million
shares; and (iv) delete or amend certain provisions of the Articles which are
inconsistent with the Letter Stock Proposal; and (b) authorize a share
dividend of one share of Timber Stock for each share of Georgia-Pacific Group
Stock outstanding on the dividend payment date;
2. To consider and vote upon a proposal to amend and restate the Company's
1995 Shareholder Value Incentive Plan (the "SVIP") to eliminate future grants
of options under this plan and to provide that each previously granted
unexercised option to purchase Existing Common Stock will be converted into
two separate options, one to purchase shares of Georgia-Pacific Group Stock
and the other to purchase shares of Timber Stock, in each case for the same
number of shares and a total exercise price equal to those specified in the
original unexercised option;
3. To consider and vote upon a proposal to adopt the Georgia-Pacific
Corporation/Georgia-Pacific Group 1997 Long-Term Incentive Plan;
4. To consider and vote upon a proposal to adopt the Georgia-Pacific
Corporation/Timber Group 1997 Long-Term Incentive Plan; and
5. To consider and vote upon a proposal to amend certain other provisions of
the Articles to conform them to current provisions of the Georgia Business
Corporation Code and to eliminate provisions that are no longer necessary as a
result of changes to the Georgia Business Corporation Code.
Information relating to the five proposals, including the full text of the
Articles as proposed to be amended and restated (the "Restated Articles"), is
contained in the attached Proxy Statement and Prospectus. As required by
Georgia law, the attached Restated Articles identify all amendments to be made
to the Articles in connection with the proposals set forth in this Notice of
Special Meeting of Shareholders and the transactions contemplated hereby.
Shareholders are urged to review the Proxy Statement and Prospectus prior to
voting their shares.
If Proposal 1 is not approved by the shareholders, Proposals 2, 3 and 4 will
not be implemented. Accordingly, a vote against Proposal 1 will have the
effect of a vote against Proposals 2, 3 and 4. If Proposal 1 is approved by
the shareholders, it will be implemented whether or not Proposals 2, 3, 4 or 5
are approved. If Proposal 5 is approved by the shareholders, it will be
implemented whether or not Proposals 1, 2, 3 or 4 are approved.
<PAGE>
The approval of Proposals 1 and 5 will require the affirmative vote of the
holders of a majority of the outstanding shares of Existing Common Stock.
Proposals 2, 3 and 4 will be approved if the number of shares of Existing
Common Stock voted in favor of the respective proposals exceeds the number of
shares of Existing Common Stock voted against the respective proposals.
Shareholders are not entitled to dissenters' rights with regard to any of the
proposals.
Only the holders of record of Existing Common Stock at the close of business
on , 1997, are entitled to notice of, and to vote at, the meeting
and any adjournment or postponement thereof.
By order of the Board of Directors,
/s/ Kenneth F. Khoury
-------------------------------
Kenneth F. Khoury
Vice President and Secretary
133 Peachtree Street, N.E.
Atlanta, Georgia 30303
, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY REVOKE THE PROXY AND VOTE
YOUR SHARES IN PERSON.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index of Defined Terms............... ii
Proxy Statement and Prospectus....... 1
Available Information............... 2
Incorporation of Certain Documents
by Reference....................... 2
Proxy Statement Summary............. 4
The Company........................ 4
The Special Meeting................ 4
The Letter Stock Proposal.......... 6
Georgia-Pacific Corporation--
Selected Financial Data........... 16
Georgia-Pacific Group--Selected
Financial Data.................... 17
Timber Group--Selected Financial
Data.............................. 18
Price Range of and Dividends on
Existing Common Stock............. 19
Cautionary Statement for Purposes of
the "Safe Harbor" Provisions of the
Private Securities Litigation
Reform Act of 1995................. 20
Risk Factors........................ 20
General............................. 27
Proposal 1--The Letter Stock
Proposal........................... 28
General............................ 28
Background of and Reasons for the
Letter Stock Proposal............. 29
Recommendation of the Board........ 32
Certain Management and Allocation
Policies.......................... 32
Dividend Policy.................... 37
Increase in Authorized Common
Stock............................. 37
Stock Exchange Listings............ 38
Exchange Procedures................ 38
Stock Transfer Agent and
Registrar......................... 38
Financial Advisor.................. 38
Description of Georgia-Pacific
Group Stock and Timber Stock...... 39
Restated Rights Agreement.......... 49
Certain Anti-Takeover Provisions of
Georgia Law and Georgia-Pacific's
Articles, Bylaws and Restated
Rights Agreement.................. 52
Certain United States Federal
Income Tax Considerations......... 55
Elimination or Revision of Certain
Provisions of the Articles........ 56
No Dissenters' Rights.............. 57
</TABLE>
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Vote Required.................... 57
Recommendation of the Board...... 57
Proposal 2--Restated 1995
Shareholder Value Incentive
Plan............................. 58
Proposals 3 and 4--Georgia-Pacific
Corporation/Georgia-Pacific Group
1997 Long-Term Incentive Plan and
Georgia-Pacific
Corporation/Timber Group 1997
Long-Term Incentive Plan......... 62
Proposal 5--Amendments to Articles
of Incorporation to Delete
Unnecessary Provisions and
Conform to Current Law........... 68
Solicitation Statement............ 68
Shareholder Proposals for 1998
Annual Meeting................... 69
Experts........................... 69
Legal Opinions.................... 69
Annex I--Restated Articles of
Incorporation.................... I-1
Annex II--Illustrations of Certain
Provisions of the Restated
Articles......................... II-1
Annex III--Georgia-Pacific
Corporation...................... III-1
Management's Discussion and
Analysis........................ III-2
Consolidated Financial
Statements...................... III-10
Annex IV--Georgia-Pacific Group... IV-1
Business......................... IV-2
Management's Discussion and
Analysis........................ IV-10
Combined Financial Statements.... IV-19
Annex V--Timber Group............. V-1
Business......................... V-2
Management's Discussion and
Analysis........................ V-18
Combined Financial Statements.... V-23
Annex VI--Amended and Restated
1995 Shareholder Value Incentive
Plan............................. VI-1
Annex VII--Georgia-Pacific
Corporation/Georgia-Pacific Group
1997 Long-Term Incentive Plan.... VII-1
Annex VIII--Georgia-Pacific
Corporation/Timber Group 1997
Long-Term Incentive Plan......... VIII-1
Annex IX--Management Compensation
and Amendments to Existing
Compensation Plans............... IX-1
</TABLE>
<PAGE>
INDEX OF DEFINED TERMS
Set forth below are certain defined terms used in this Proxy Statement and
the Annexes thereto, showing the pages on which each term is defined:
<TABLE>
<S> <C>
1995 SVIP............................................................... 58
Acquiring Person........................................................ 50
Articles................................................................ 4
Available Dividend Amount............................................... 41
Board................................................................... 1
Broker non-votes........................................................ 27
Business Combinations Provision......................................... 52
CERCLA.................................................................. IV-8
Cluster Rule............................................................ IV-7
Code.................................................................... 55
Commission.............................................................. 2
Committee............................................................... 62
Common Stock............................................................ 5
Company................................................................. 1
Composite Tape.......................................................... 19
Consideration Stock..................................................... I-33
Continuing Directors.................................................... 53
Conversion Date......................................................... I-31
Converted Stock......................................................... I-33
Convertible Securities.................................................. I-31
CWA..................................................................... V-13
Directors Plan.......................................................... III-29
Discretionary Grant..................................................... 59
Disposition............................................................. 41
Distribution............................................................ 5
ECF..................................................................... III-7
Effective Date.......................................................... 5
EPA..................................................................... III-7
ESA..................................................................... V-13
Exchange Act............................................................ 2
Existing Common Stock................................................... 1
Existing Certificates................................................... 38
Expiration Date......................................................... 50
EVA(R) ................................................................. 31
Fair Value.............................................................. I-31
Fair Price Provision.................................................... 53
First Chicago........................................................... 38
Georgia Business Code................................................... 5
Georgia-Pacific......................................................... 1
Georgia-Pacific Group................................................... 4
Georgia-Pacific Group Available Dividend Amount......................... 41
Georgia-Pacific Group Plan.............................................. 62
Georgia-Pacific Group Right(s).......................................... 50
Georgia-Pacific Group Stock............................................. 5
Georgia-Pacific Group Stock Option...................................... 58
Georgia-Pacific Group Stock Price....................................... 58
Georgia-Pacific Group Subsidiaries...................................... 44
Group(s)................................................................ 4
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
HCP....................................................................... V-13
Incentive Plan(s)......................................................... 62
Insider Shares............................................................ 52
Interested Shareholders................................................... 52
Letter Stock Proposal..................................................... 1
Liquidation Unit(s)....................................................... 48
LTIP...................................................................... IX-2
Market Capitalization..................................................... I-32
Market Value.............................................................. I-32
Market Value Ratio of the Converted Stock to the Consideration Stock...... I-32
MIP....................................................................... IX-1
Morgan Stanley............................................................ 28
Net Proceeds.............................................................. 43
NYSE...................................................................... 1
Optionee.................................................................. 58
Original Option(s)........................................................ IX-4
Original Option Price..................................................... IX-4
Original Right(s)......................................................... 49
OSB....................................................................... IV-2
OSHA...................................................................... IV-8
Principal Economic Terms.................................................. 51
PRPs...................................................................... IV-8
Proxy Statement........................................................... 1
Publicly Traded........................................................... I-33
Purchase Plan............................................................. IV-3
RCRA...................................................................... IV-8
Redemption Price.......................................................... 51
Registration Statement.................................................... 2
Related Business Transaction.............................................. 43
Restated Articles......................................................... 5
Restated Rights Agreement................................................. 49
Restated SVIP............................................................. 58
Retirement Plan........................................................... IX-3
Rights.................................................................... 50
Rights Agreement.......................................................... 49
Savings Plan.............................................................. IX-3
Securities Act............................................................ 2
Separation Date........................................................... 50
Series B Junior Preferred Stock........................................... 39
Series B Unit............................................................. 50
Series B Unit Purchase Price.............................................. 50
Series C Junior Preferred Stock........................................... 39
Series C Unit............................................................. 50
Series C Unit Purchase Price.............................................. 50
SERP...................................................................... IX-3
Service................................................................... 7
Special Meeting........................................................... 1
Stock Acquisition Date.................................................... 50
substantially all of the properties and assets............................ 42
SVIP...................................................................... 5
SVIP Option(s)............................................................ 58
Timber Group.............................................................. 4
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Timber Group Available Dividend Amount..................................... 41
Timber Group Plan.......................................................... 62
Timber Group Subsidiaries.................................................. 44
Timber Right............................................................... 50
Timber Stock............................................................... 4
Timber Stock Option(s)..................................................... 58
Timber Stock Price......................................................... 58
TMDL....................................................................... V-14
Total Shareholder Return................................................... 60
Trading Day................................................................ I-34
Valuation Period........................................................... II-3
</TABLE>
iv
<PAGE>
SUBJECT TO COMPLETION
DATED SEPTEMBER 17, 1997
GEORGIA-PACIFIC CORPORATION
------------
PROXY STATEMENT AND PROSPECTUS
------------
GEORGIA-PACIFIC GROUP TIMBER GROUP
COMMON STOCK, COMMON STOCK,
$.80 PAR VALUE $.80 PAR VALUE
------------
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD AT 11:00 A.M.,
EASTERN STANDARD TIME, ON , 1997
------------
This Proxy Statement and Prospectus (this "Proxy Statement") is provided in
connection with a Special Meeting of Shareholders (the "Special Meeting") of
Georgia-Pacific Corporation, a Georgia corporation ("Georgia-Pacific" or the
"Company"), which will be held at 11:00 A.M., Eastern Standard Time, on
, , 1997. The Special Meeting will be held at the
, , New York, New York. At the Special Meeting,
holders of the Company's Common Stock, par value $.80 per share (the "Existing
Common Stock"), will be asked to consider and approve, among other things, a
proposal (the "Letter Stock Proposal") to create two classes of Common Stock
that are intended to reflect separately the performance of the Company's
manufacturing businesses and of its timber business, including its timberlands.
This Proxy Statement relates to the Letter Stock Proposal and to four
additional proposals to be voted on by the shareholders at the Special Meeting,
as set forth in the Notice of Special Meeting of Shareholders. This Proxy
Statement also constitutes a prospectus of the Company with respect to the
shares of Georgia-Pacific Group Stock and Timber Stock (as such terms are
defined below) to be redesignated or issued pursuant to the Letter Stock
Proposal.
The solicitation of the enclosed proxy with respect to the matters to be
voted upon by the shareholders at the Special Meeting is made by the Board of
Directors of the Company (the "Board"). The Company commenced mailing this
Proxy Statement and the enclosed form of proxy to holders of Existing Common
Stock on or about , 1997. An Index of Defined Terms showing the
pages on which certain terms used in this Proxy Statement are defined is
included immediately following the Table of Contents of this Proxy Statement.
SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED IN CONNECTION WITH AN EVALUATION OF THE LETTER STOCK PROPOSAL AND
THE OTHER PROPOSALS DESCRIBED HEREIN.
The Existing Common Stock is traded on the New York Stock Exchange, Inc. (the
"NYSE"); however, there has been no prior market for the Georgia-Pacific Group
Stock or the Timber Stock. Application will be made to the NYSE for the
redesignation of the Existing Common Stock as Georgia-Pacific Group Stock and
the listing of the Timber Stock. See "Proposal 1--The Letter Stock Proposal--
Stock Exchange Listings."
Shareholders should note that if the Letter Stock Proposal is approved and
the Existing Common Stock is redesignated as Georgia-Pacific Group Stock,
holders will NOT have to send in their certificates representing shares of
Existing Common Stock to be exchanged for certificates representing shares of
Georgia-Pacific Group Stock. DO NOT MAIL YOUR EXISTING COMMON STOCK
CERTIFICATES TO EITHER THE COMPANY OR ITS TRANSFER AGENT IN CONNECTION WITH
THESE TRANSACTIONS.
THE BOARD HAS CAREFULLY CONSIDERED THE LETTER STOCK PROPOSAL AND EACH OF THE
OTHER PROPOSALS SET FORTH IN THE NOTICE OF SPECIAL MEETING OF SHAREHOLDERS AND
BELIEVES THAT THE APPROVAL OF EACH OF THESE PROPOSALS BY THE SHAREHOLDERS IS IN
THE BEST INTERESTS OF THE COMPANY AND THE SHAREHOLDERS. ACCORDINGLY, THE BOARD
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS APPROVE THE LETTER STOCK PROPOSAL
AND EACH OF THE OTHER PROPOSALS, WHICH ARE DESCRIBED IN MORE DETAIL IN THIS
PROXY STATEMENT.
------------
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. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Dated: , 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
AVAILABLE INFORMATION
Georgia-Pacific is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements, and other information filed by the Company can be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
Commission's Regional Offices at Seven World Trade Center, 13th Floor, New
York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, at prescribed rates or by accessing the
Commission's World Wide Web site at http://www.sec.gov. Such reports, proxy
statements and other information concerning the Company may also be inspected
at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
The Company has filed a registration statement on Form S-4 (referred to
herein, together with all amendments and exhibits, as the "Registration
Statement") with the Commission under the Securities Act of 1933, as amended
(the "Securities Act"), covering shares of Georgia-Pacific Group Stock and
shares of Timber Stock issuable in connection with the Letter Stock Proposal.
This Proxy Statement, which also constitutes the Prospectus of the Company
filed as part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and the exhibits thereto,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby
made to the Registration Statement, which is available for inspection and
copying as set forth above. Statements contained in this Proxy Statement as to
the contents of any contract or other document which is filed as an exhibit to
the Registration Statement are necessarily summaries thereof, and each such
statement is qualified in its entirety by reference to the full text of such
contract or document.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed by Georgia-Pacific with the
Commission (File No. 1-3506) are incorporated herein by reference: (i) Annual
Report on Form 10-K for the year ended December 31, 1996, as amended by Annual
Report on Form 10-K/A filed on March 17, 1997 and Annual Report on Form 10-
K/A-1 filed on March 25, 1997, (ii) Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1997 and June 30, 1997, and (iii) Current Reports on
Form 8-K dated October 17, 1996 and September 17, 1997. All documents filed by
the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Proxy Statement and prior to the date of the
Special Meeting shall be deemed to be incorporated by reference into this
Proxy Statement and to be a part hereof from the date any such document is
filed. 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 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.
GEORGIA-PACIFIC WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF
THIS PROXY STATEMENT IS DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON
AND BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS WITHIN ONE BUSINESS DAY
OF RECEIPT OF SUCH REQUEST, A COPY OF ANY OR ALL OF THE DOCUMENTS WHICH ARE
INCORPORATED BY REFERENCE HEREIN, OTHER THAN EXHIBITS TO SUCH DOCUMENTS
(UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH
DOCUMENTS). REQUESTS SHOULD BE DIRECTED TO INVESTOR RELATIONS, GEORGIA-PACIFIC
CORPORATION, 133 PEACHTREE STREET, N.E., ATLANTA, GEORGIA 30303;
(404) 652-4720. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BEFORE , 1997.
2
<PAGE>
Questions concerning the proposals to be acted upon at the Special Meeting
should be directed to the Company's Information Agent, Georgeson & Company
Inc., toll-free at 1-800-223-2064. Additional copies of this Proxy Statement
or the proxy card may be obtained from the Information Agent or the Company's
Investor Relations Department at its principal office.
----------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT IN CONNECTION WITH THE
SOLICITATION MADE AND RELATED TRANSACTIONS CONTEMPLATED HEREBY, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES DESCRIBED IN
THIS PROXY STATEMENT, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION OR
FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT NOR ANY DISTRIBUTION OF THE
SECURITIES OFFERED PURSUANT TO THIS PROXY STATEMENT SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION CONTAINED HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
3
<PAGE>
PROXY STATEMENT SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement and the Annexes hereto. Reference is made to, and this Summary
is qualified in its entirety by, the more detailed information contained or
incorporated by reference in this Proxy Statement and the Annexes hereto.
Unless otherwise defined herein, capitalized terms used in this Summary have
the respective meanings ascribed to them elsewhere in this Proxy Statement. See
"Index of Defined Terms" located immediately following the Table of Contents of
this Proxy Statement. Shareholders are urged to read carefully this Proxy
Statement and the Annexes hereto in their entirety. The Georgia-Pacific Group
and the Timber Group are sometimes referred to herein collectively as the
"Groups" and individually as a "Group."
THE COMPANY
<TABLE>
<C> <S>
THE GEORGIA-PACIFIC
GROUP................... The Georgia-Pacific Group is principally comprised of the
Company's paper and building products manufacturing and
distribution businesses. For the year ended December 31, 1996,
the Georgia-Pacific Group had net sales of $12.9 billion and net
income of $29 million. Its total assets at that date were $11.5
billion. See "--Selected Financial Data" and Annex IV--"Georgia-
Pacific Group."
THE TIMBER GROUP........ The Timber Group is principally comprised of the Company's
timberlands and its businesses of growing and selling timber and
wood fiber. For the year ended December 31, 1996, the Timber
Group had net sales of $547 million and net income of $127
million. Its total assets at that date were $1.3 billion. See
"--Selected Financial Data," and Annex V--"Timber Group."
</TABLE>
The principal executive offices of the Company are located at 133 Peachtree
Street, N.E., Atlanta, Georgia 30303. The Company's telephone number is (404)
652-4000.
<TABLE>
<S> <C>
THE SPECIAL MEETING
DATE, TIME AND PLACE OF
MEETING................. The Special Meeting will be held on , 1997, at 11:00
a.m., Eastern Standard Time, at the , New York,
New York.
RECORD DATE............. , 1997.
PROPOSALS TO BE
CONSIDERED AT THE
MEETING................. The following proposals will be considered and voted upon at the
Special Meeting:
. PROPOSAL 1--Adopting the Letter Stock Proposal, which, if
approved, will:
(1) amend the Company's existing Articles of Incorporation (the
"Articles") to designate a new class of common stock as
"Georgia-Pacific Corporation-Timber Group Common Stock," $.80
par value per share (the "Timber Stock"), consisting of 250
million authorized shares and having the preferences,
limitations and relative rights described in Annex I;
</TABLE>
4
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<TABLE>
<S> <C>
(2) amend the Articles to redesignate each authorized share of
Existing Common Stock as, and convert each such share into, one
share of "Georgia-Pacific Corporation--Georgia-Pacific Group
Common Stock," $.80 par value per share (the "Georgia-Pacific
Group Stock"), having the preferences, limitations and relative
rights described in Annex I;
(3) amend the Articles to increase the number of shares of
Georgia-Pacific Group Stock authorized for issuance from 150
million shares to 400 million shares;
(4) amend the Articles to delete or amend certain provisions
that are inconsistent with the Letter Stock Proposal; and
(5) authorize the distribution of Timber Stock to the holders of
Georgia-Pacific Group Stock as a share dividend on the basis of
one share of Timber Stock for each outstanding share of Georgia-
Pacific Group Stock on the dividend payment date (the
"Distribution").
It is the Company's intention that the Timber Stock issued
pursuant to the Distribution will represent 100% of the
Company's interest in the Timber Group on the date of the
Distribution (the "Effective Date"). However, the Letter Stock
Proposal will not result in a distribution or spin-off to
shareholders of any assets or liabilities of the Company or its
subsidiaries. For a description of the procedures pursuant to
which the Timber Stock and new certificates representing the
Georgia-Pacific Group Stock will be distributed to shareholders,
see "Proposal 1--The Letter Stock Proposal--Exchange
Procedures." The transactions contemplated by the Letter Stock
Proposal are expected to be tax free to both the Company and its
shareholders. See "Proposal 1--The Letter Stock Proposal--
Certain United States Federal Income Tax Considerations."
The Articles as amended and restated in connection with the
proposals set forth in the Notice of Special Meeting of
Shareholders are referred to herein as the "Restated Articles."
The Georgia-Pacific Group Stock and the Timber Stock are
sometimes referred to herein collectively as "Common Stock" and
individually as a class of Common Stock.
. PROPOSAL 2--Amending and restating the 1995 Shareholder Value
Incentive Plan (the "SVIP") to, among other things, eliminate
future grants and to convert each outstanding option to
purchase Existing Common Stock into two separate options to
purchase Georgia-Pacific Group Stock and Timber Stock and to
otherwise reflect the Letter Stock Proposal.
. PROPOSAL 3--Adopting the Georgia-Pacific Corporation/Georgia-
Pacific Group 1997 Long-Term Incentive Plan.
. PROPOSAL 4--Adopting the Georgia-Pacific Corporation/Timber
Group 1997 Long-Term Incentive Plan.
. PROPOSAL 5--Amending certain other provisions of the Articles
to conform them to current provisions of the Georgia Business
Corporation Code (the "Georgia Business Code") and to eliminate
provisions that are no longer necessary as a result of changes
to the Georgia Business Code.
IF THE LETTER STOCK PROPOSAL IS NOT APPROVED BY THE
SHAREHOLDERS, THE TIMBER STOCK WILL NOT BE CREATED, THE EXISTING
COMMON STOCK WILL NOT BE REDESIGNATED AND CONVERTED INTO
GEORGIA-PACIFIC GROUP STOCK, THE AUTHORIZED NUMBER OF SHARES OF
GEORGIA-PACIFIC
</TABLE>
5
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<TABLE>
<S> <C>
GROUP STOCK WILL NOT BE INCREASED AND NO DISTRIBUTION OF TIMBER
STOCK WILL BE MADE ON SHARES OF THE GEORGIA-PACIFIC GROUP STOCK.
In addition, if Proposal 1 is not approved by the shareholders,
Proposals 2, 3 and 4 will not be implemented. Accordingly, a
vote against Proposal 1 will have the effect of a vote against
Proposals 2, 3 and 4. If Proposal 1 is approved by the
shareholders, it will be implemented whether or not Proposals 2,
3, 4 or 5 are approved. If Proposal 5 is approved by the
shareholders, it will be implemented whether or not Proposals 1,
2, 3 or 4 are approved by the shareholders.
VOTE REQUIRED........... . Proposals 1 and 5--The affirmative vote of the holders of a
majority of the outstanding shares of Existing Common Stock.
. Proposals 2, 3 and 4--The number of shares of Existing Common
Stock voted in favor of the respective proposals must exceed
the number of shares of Existing Common Stock voted against the
respective proposals.
Each share of Existing Common Stock is entitled to one vote on
each of the five proposals. Under the Georgia Business Code,
holders of Existing Common Stock are not entitled to dissenters'
rights with regard to any of the proposals. See "Proposal 1--The
Letter Stock Proposal--No Dissenters' Rights." The directors and
executive officers of Georgia-Pacific beneficially own less than
one percent of the outstanding shares of Existing Common Stock.
RECOMMENDATION OF THE
BOARD................... THE BOARD HAS CAREFULLY CONSIDERED EACH PROPOSAL AND BELIEVES
THAT THE APPROVAL OF EACH OF THESE PROPOSALS BY THE SHAREHOLDERS
IS IN THE BEST INTERESTS OF THE COMPANY AND THE SHAREHOLDERS.
ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS APPROVE EACH OF THE PROPOSALS.
THE LETTER STOCK PROPOSAL
REASONS FOR THE LETTER
STOCK PROPOSAL..........
The Letter Stock Proposal is designed to separate the business
and cash flows of the Company's timberlands from the rest of the
Company, allow better capital allocation decisions, charge the
managers of each Group with the responsibility of maximizing the
returns from their businesses and permit the creation of stock
incentive plans providing more focused incentives to those
management teams. In addition, the new equity structure should
increase the Company's flexibility in raising capital and
responding to acquisitions and other strategic opportunities by
enabling the Company to issue either Georgia-Pacific Group Stock
or Timber Stock as appropriate under the particular
circumstances.
By providing investors with separate classes of Common Stock
that are intended to reflect the respective performances of the
Company's manufacturing businesses and its timber business, the
Letter Stock Proposal should allow investors and analysts to
gain a better understanding of each business and enable
investors to invest in either or both securities depending upon
their individual
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
investment objectives. The Board believes that this should
result in greater market recognition of the value of each of
these businesses, while at the same time enabling the Company to
preserve the operational and financial benefits it currently
enjoys as a single company.
TAX CONSIDERATIONS......
The Company has been advised by its tax counsel that no gain or
loss will be recognized by the Company or its shareholders as a
result of the implementation of the Letter Stock Proposal.
However, there are no court decisions bearing directly on
transactions similar to the Letter Stock Proposal. Further, the
Internal Revenue Service (the "Service") has included the
issuance of stock with characteristics similar to the Georgia-
Pacific Group Stock and the Timber Stock among the transactions
upon which it will not issue advance rulings. See "Proposal 1--
The Letter Stock Proposal--Certain United States Federal Income
Tax Considerations."
COMPARISON OF EXISTING
COMMON STOCK WITH
GEORGIA-PACIFIC GROUP
STOCK AND TIMBER
STOCK...................
The following is a comparison of the Existing Common Stock and
the proposed Georgia-Pacific Group Stock and Timber Stock. This
summary is qualified in its entirety by the more detailed
information contained in this Proxy Statement and the Annexes
hereto. See "Risk Factors" and "Proposal 1--The Letter Stock
Proposal--Description of Georgia-Pacific Group Stock and Timber
Stock."
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
THE LETTER STOCK PROPOSAL
---------------------- -----------------------------------------------
GEORGIA-PACIFIC GROUP
EXISTING COMMON STOCK STOCK TIMBER STOCK
---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
SHAREHOLDERS OF Holders of Georgia- Holders of Timber
ONE COMPANY: Pacific Group Stock Stock will continue to
will continue to be be subject to the
subject to the risks risks associated with
associated with an an investment in the
investment in the Company and all of its
Company and all of its businesses, assets and
businesses, assets and liabilities. Financial
liabilities. Financial effects arising from
effects arising from the Georgia-Pacific
the Timber Group that Group that affect the
affect the Company's Company's results of
results of operations operations or
or financial condition financial condition
could, if significant, could, if significant,
affect the results of affect the results of
operations or operations or
financial condition of financial condition of
the Georgia-Pacific the Timber Group or
Group or the market the market price of
price of the Georgia- the Timber Stock.
Pacific Group Stock.
Any net losses of Any net losses of
either Group, and either Group, and
dividends or dividends or
distributions on, or distributions on, or
repurchases of, either repurchases of, either
class of Common Stock class of Common Stock
or repurchases of or repurchases of
certain Preferred certain Preferred
Stock or Junior Stock or Junior
Preferred Stock, will Preferred Stock, will
reduce the assets of reduce the assets of
the Company legally the Company legally
available for payment available for payment
of future dividends on of future dividends on
the other class of the other class of
Common Stock. Common Stock.
CAPITALIZATION: One class of Common Each authorized share One share of Timber
Stock, comprised of of Existing Common Stock will be
91,522,062 outstanding Stock will be distributed as a share
shares as of September redesignated as, and dividend on each
12, 1997. converted into, one outstanding share of
share of Georgia- Georgia-Pacific Group
Pacific Group Stock. Stock.
STOCK EXCHANGE NYSE under the symbol Application will be Application will be
LISTING: "GP." made to the NYSE for made to the NYSE for
the redesignation of the listing of the
the Existing Common Timber Stock under the
Stock as Georgia- symbol " ."
Pacific Group Stock,
which will continue to
trade under the symbol
"GP."
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
THE LETTER STOCK PROPOSAL
--------------------- ----------------------------------
GEORGIA-PACIFIC GROUP
EXISTING COMMON STOCK STOCK TIMBER STOCK
--------------------- --------------------- ------------
<S> <C> <C> <C>
DIVIDENDS: The Company's The Company currently The Company currently
quarterly dividend is intends to pay a intends to pay a
currently $.50 per quarterly dividend of quarterly dividend of
share of Existing $ .25 per share on $ .25 per share on the
Common Stock. the Georgia-Pacific Timber Stock, which,
Group Stock, which, together with the
together with the intended initial
intended initial quarterly dividend
quarterly dividend payable on the
payable on the Timber Georgia-Pacific Group
Stock, equals the Stock, equals the
current quarterly current quarterly
dividend of $ .50 dividend of $ .50 per
per share on the share on the Existing
Existing Common Stock. Common Stock.
Dividends on the Dividends on the Dividends on the
Existing Common Stock Georgia-Pacific Group Timber Stock will be
are limited to assets Stock will be paid at paid at the discretion
of the Company legally the discretion of the of the Board based
available for the Board based primarily primarily upon the
payment of dividends upon the financial financial condition,
under the Georgia condition, results of results of operations
Business Code and are operations and and business
payable at the business requirements requirements of the
discretion of the of the Georgia-Pacific Timber Group and the
Board based primarily Group and the Company Company as a whole.
upon the financial as a whole. Dividends Dividends will be
condition, results of will be payable out of payable out of the
operations and the lesser of (i) the lesser of (i) the
business requirements assets of the Company assets of the Company
of the Company. legally available for legally available for
the payment of the payment of
dividends and (ii) the dividends and (ii) the
Georgia-Pacific Group Timber Group Available
Available Dividend Dividend Amount. See
Amount. See "Proposal "Proposal 1--The
1--The Letter Stock Letter Stock
Proposal--Dividend Proposal--Dividend
Policy." Policy."
The Board, subject to The Board, subject to
the limitations set the limitations set
forth above, may, in forth above, may, in
its sole discretion, its sole discretion,
declare and pay declare and pay
dividends exclusively dividends exclusively
on the Georgia-Pacific on the Timber Stock,
Group Stock, exclusively on the
exclusively on the Georgia-Pacific Group
Timber Stock or any Stock or any
combination thereof, combination thereof,
in equal or unequal in equal or unequal
amounts, amounts,
notwithstanding the notwithstanding the
amount of dividends amount of dividends
previously declared on previously declared on
either class, the either class, the
respective voting or respective voting or
liquidation rights of liquidation rights of
either class or any either class or any
other factor. other factor.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
THE LETTER STOCK PROPOSAL
--------------------- ----------------------------------
GEORGIA-PACIFIC GROUP
EXISTING COMMON STOCK STOCK TIMBER STOCK
--------------------- --------------------- ------------
<S> <C> <C> <C>
VOTING RIGHTS: One vote per share. One vote per share. Each share of Timber
Stock will have a
variable vote equal to
the ratio of the time-
weighted average
Market Value of one
share of Timber Stock
to the time-weighted
average Market Value
of one share of
Georgia-Pacific Group
Stock calculated over
the 20-trading day
period ending 10
trading days prior to
the record date for
each respective
meeting of
shareholders, and may
have more than, less
than or exactly one
vote per share.
Because each share of Because each share of
Timber Stock will have Timber Stock will have
a variable number of a variable number of
votes based upon a votes, the relative
ratio of the time- voting power per share
weighted average of Timber Stock and
Market Value of one Georgia-Pacific Group
share of Timber Stock Stock will fluctuate.
to the time-weighted It is expected that
average Market Value initially the Georgia-
of one share of Pacific Group Stock
Georgia-Pacific Group will have a
Stock, the relative substantial majority
voting power per share of the voting power of
of Georgia-Pacific the Company.
Group Stock and Timber
Stock will fluctuate.
It is expected that
initially the Georgia-
Pacific Group Stock
will have a
substantial majority
of the voting power of
the Company.
Except as otherwise Except as otherwise
described herein or as described herein, or
provided under the as provided under the
Georgia Business Code, Georgia Business Code,
the holders of the holders of Timber
Georgia-Pacific Group Stock and the holders
Stock and the holders of Georgia-Pacific
of Timber Stock will Group Stock will vote
vote together as a together as a single
single voting group. voting group.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
THE LETTER STOCK PROPOSAL
--------------------- ----------------------------------
GEORGIA-PACIFIC GROUP
EXISTING COMMON STOCK STOCK TIMBER STOCK
--------------------- --------------------- ------------
<S> <C> <C> <C>
RIGHTS ON None. If the Company If the Company
DISPOSITION OF disposes of all or disposes of all or
ASSETS OF A substantially all of substantially all of
GROUP: the properties and the properties and
assets of the Georgia- assets of the Timber
Pacific Group (i.e., Group (i.e., 80% or
80% or more on a Fair more on a Fair Value
Value basis), other basis), other than in
than in a Related a Related Business
Business Transaction, Transaction, the
the Company must Company must either
either (i) distribute (i) distribute to the
to the holders of holders of Timber
Georgia-Pacific Group Stock an amount in
Stock an amount in cash and/or securities
cash and/or securities or other property
or other property equal to the Fair
equal to the Fair Value of the Net
Value of the Net Proceeds of such
Proceeds of such disposition, either by
disposition, either by special dividend or by
special dividend or by redemption of all or
redemption of all or part of the
part of the outstanding shares of
outstanding shares of Timber Stock, or (ii)
Georgia-Pacific Group convert each share of
Stock, or (ii) convert Timber Stock into a
each share of Georgia- number of shares of
Pacific Group Stock Georgia-Pacific Group
into a number of Stock equal to 110% of
shares of Timber Stock the ratio of the
equal to 110% of the average Market Value
ratio of the average of one share of Timber
Market Value of one Stock to the average
share of Georgia- Market Value of one
Pacific Group Stock to share of Georgia-
the average Market Pacific Group Stock,
Value of one share of calculated over the 10
Timber Stock, trading day period
calculated over the 10 beginning on the 16th
trading day period trading day after
beginning on the 16th consummation of the
trading day after disposition
consummation of the transaction.
disposition
transaction.
The Company may, at The Company may, at
any time prior to the any time prior to the
first anniversary of a first anniversary of a
dividend on, or dividend on, or
partial redemption of, partial redemption of,
shares of Georgia- shares of Timber Stock
Pacific Group Stock following a
following a disposition of all or
disposition of all or substantially all of
substantially all of the properties and
the properties and assets of the Timber
assets of the Georgia- Group, convert each
Pacific Group, convert remaining outstanding
each remaining share of Timber Stock
outstanding share of into a number of
Georgia-Pacific Group shares of Georgia-
Stock into a number of Pacific Group Stock
shares of Timber Stock equal to 110% of the
equal to 110% of the ratio of the time-
ratio of the time- weighted average
weighted average Market Value of one
Market Value of one share of Timber Stock
share of Georgia- to the time-weighted
Pacific Group Stock to average Market Value
the time-weighted of one share of
average Market Value Georgia-Pacific Group
of one share of Timber Stock, calculated
</TABLE>
11
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<TABLE>
<CAPTION>
THE LETTER STOCK PROPOSAL
----------------------------------
GEORGIA-PACIFIC GROUP
EXISTING COMMON STOCK STOCK TIMBER STOCK
--------------------- --------------------- ------------
<S> <C> <C> <C>
RIGHTS ON Stock, calculated over over the 20 trading
DISPOSITION OF the 20 trading day day period ending five
ASSETS OF GROUP: period ending five trading days prior to
(cont'd) trading days prior to the date of the notice
the date of the notice of such conversion.
of such conversion.
The proceeds from any The proceeds from any
disposition of disposition of
properties and assets properties and assets
that do not comprise that do not comprise
all or substantially all or substantially
all of the properties all of the properties
and assets of the and assets of the
Georgia-Pacific Group Timber Group will be
will be assets of the assets of the Timber
Georgia-Pacific Group Group and will be used
and will be used for for its benefit,
its benefit, subject subject to the
to the policies policies described
described under under "Proposal 1--The
"Proposal 1--The Letter Stock
Letter Stock Proposal--Certain
Proposal--Certain Manage- ment and
Management and Allocation Policies."
Allocation Policies."
CONVERSION AT None. The Company may, at The Company may, at
OPTION OF any time, convert each any time, convert each
COMPANY: share of Georgia- share of Timber Stock
Pacific Group Stock into a number of
into a number of shares of Georgia-
shares of Timber Stock Pacific Group Stock
equal to 115% of the equal to 115% of the
ratio of the time- ratio of the time-
weighted average weighted average
Market Value of one Market Value of one
share of Georgia- share of Timber Stock
Pacific Group Stock to to the time-weighted
the time-weighted average Market Value
average Market Value of one share of
of one share of Timber Georgia-Pacific Group
Stock, calculated over Stock, calculated over
the 20 trading day the 20 trading day
period ending five period ending five
trading days prior to trading days prior to
the date of notice of the date of notice of
such conversion. such conversion.
The ratio of the The ratio of the
Market Value of one Market Value of one
share of Georgia- share of Timber Stock
Pacific Group Stock to to one share of
one share of Timber Georgia-Pacific Group
Stock could be Stock could be
affected by many affected by many
factors, including the factors, including the
results of operations results of operations
and financial and financial
condition of the condition of the
Company and each of Company and each of
the Groups, trading the Groups, trading
volume, share volume, share
issuances and issuances and
repurchases and repurchases and
</TABLE>
12
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<TABLE>
<CAPTION>
THE LETTER STOCK PROPOSAL
----------------------------------
GEORGIA-PACIFIC GROUP
EXISTING COMMON STOCK STOCK TIMBER STOCK
--------------------- --------------------- ------------
<S> <C> <C> <C>
CONVERSION AT general economic and general economic and
OPTION OF market conditions. market conditions.
COMPANY:
(cont'd)
REDEMPTION IN None. The Company may redeem The Company may redeem
EXCHANGE FOR the Georgia-Pacific the Timber Stock in
STOCK OF Group Stock in exchange for shares of
SUBSIDIARY: exchange for shares of the common stock of
the common stock of one or more wholly
one or more wholly owned subsidiaries of
owned subsidiaries of the Company that hold
the Company that hold all of the assets and
all of the assets and liabilities of the
liabilities of the Timber Group.
Georgia-Pacific Group.
LIQUIDATION: Holders of Existing Holders of Georgia- Holders of Timber
Common Stock are Pacific Group Stock Stock will be entitled
entitled to receive will be entitled to a to a portion of the
the net assets of the portion of the assets assets remaining for
Company, if any, remaining for distribution to
remaining for distribution to holders of Common
distribution to holders of Common Stock on a per share
holders of Existing Stock on a per share basis in proportion to
Common Stock. basis in proportion to the Liquidation Units
the Liquidation Units per share of Timber
per share of Georgia- Stock. Each share of
Pacific Group Stock. Timber Stock will have
Each share of Georgia- the number of
Pacific Group Stock Liquidation Units
will have one equal to the ratio of
Liquidation Unit, the time-weighted
subject to adjustment average Market Value
if shares of either of one share of Timber
class are subdivided, Stock to the time-
combined or weighted average
distributed as a Market Value of one
dividend. share of Georgia-
Pacific Group Stock
calculated over the
20-trading day period
ending on the 40th
trading day
immediately succeeding
the Effective Date.
The number of
Liquidation Units to
which the Timber Stock
is entitled is subject
to adjustment if
shares of either class
are subdivided,
combined or
distributed as a
dividend. After the
number of Liquidation
Units to which each
share of Timber Stock
is entitled has been
calculated in
accordance with this
formula, such number
will not otherwise be
changed without the
approval of
shareholders of each
Group.
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
RISK FACTORS............ When evaluating the Letter Stock Proposal, shareholders should
be aware of certain risk factors related thereto. Such risk
factors include: (i) the risks associated with an investment in
the Company and all of its businesses, assets and liabilities;
(ii) limited separate shareholder rights with respect to the two
classes of Common Stock, and the effect on the relative voting
power of the Georgia-Pacific Group Stock and the Timber Stock of
the vote per share of the Timber Stock, which will fluctuate
based on its time-weighted average Market Value compared to the
time-weighted average Market Value of the Georgia-Pacific Group
Stock; (iii) the lack of legal precedents delineating the
fiduciary duties of the board of directors of a company with two
classes of common stock, the rights of which are defined by
reference to specified businesses of the company; (iv) the
potential for shareholders of each class of Common Stock to have
diverging or conflicting interests; (v) the ability of the Board
to change certain management and allocation policies without
shareholder approval;
(vi) the fact that the allocation of financing costs between the
Groups may not reflect the actual borrowing costs of the
separate Groups; (vii) the potential effects of a possible
Disposition of assets of a Group, including a resulting
redemption or conversion of either class of Common Stock; (viii)
limitations on potential unsolicited acquisitions of either
Group and of a class of Common Stock; and (ix) no assurances as
to the proper market valuation and the resulting market price of
either the Georgia-Pacific Group Stock or the Timber Stock
following the implementation of the Letter Stock Proposal. For
additional information with respect to the foregoing
considerations, see "Cautionary Statement for Purposes of the
"Safe Harbor' Provisions of the Private Securities Litigation
Reform Act of 1995" and "Risk Factors."
CERTAIN MANAGEMENT AND
ALLOCATION POLICIES.....
The Company has established policies designed to separate the
business and operations of the Georgia-Pacific Group and the
Timber Group, to operate each Group on a stand-alone basis, to
allocate debt, corporate overhead, interest, taxes and other
charges between the two Groups on an objective basis and to
ensure that terms of intergroup transactions approximate the
terms that could be obtained from unaffiliated third parties.
The Timber Group and the Georgia-Pacific Group have negotiated
an operating policy governing future sales of timber and wood
fiber by the Timber Group to the Georgia-Pacific Group with an
initial term of three years. Under this policy, the Georgia-
Pacific Group will be required to purchase in the years 1998-
2000, on a take-or-pay basis, 60% of the volume of timber and
wood fiber harvested annually from the Timber Group's Southern
forests. In 1998, the Georgia-Pacific Group has a right of first
refusal to purchase up to 90% of the Timber Group's total annual
harvest from each forest (which amount must include the 60%
take-or-pay amount described above). In 1999 and 2000, the
volume subject to this right of first refusal will decrease to
80%, and the Georgia-Pacific Group must exercise its right not
later than October 15th of the preceding year. For 1998, the
Georgia-Pacific Group has exercised its right of first refusal
and agreed to purchase % of the Timber Group's total annual
harvest. All quantities of timber and wood fiber committed under
the take-or-pay arrangement described above, and all quantities
as to which the Georgia-Pacific Group exercises its right of
first refusal for a particular year, will be sold at
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
market prices determined quarterly. Such prices are
intended to approximate prices negotiated between
unaffiliated third parties in the open market and
will be based upon (i) an average of the actual
prices during the immediately preceding quarter
received by the Timber Group for sales made by it to
third parties, and prices paid by the Georgia-Pacific
Group for purchases made by it from third parties, in
the same forest region of timber and wood fiber of
the same species, grade and size, and (ii) the
benefit to the Georgia-Pacific Group of having access
to a committed quantity of high quality timber and
wood fiber in close proximity to its mills and
plants.
Other intergroup policies include the requirements that: (i)
earnings and cash flow generated from the businesses of the
Georgia-Pacific Group or the Timber Group will be used only for
reinvestment in the business of the Group generating such
earnings and related cash flow, for repayment of its debt or for
payment of dividends on, or for the repurchase of shares of,
Common Stock related to that Group; (ii) the Board review
capital expenditures and significant transactions of the
Georgia-Pacific Group and the Timber Group; (iii) corporate
opportunities be allocated in the best interests of the Company;
and (iv) the Groups not compete in each other's principal
businesses. See "Proposal 1--The Letter Stock Proposal--Certain
Management and Allocation Policies."
</TABLE>
15
<PAGE>
GEORGIA-PACIFIC CORPORATION
SELECTED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth Selected Financial Data of Georgia-Pacific
Corporation and subsidiaries and should be read in conjunction with the
Company's consolidated financial statements and notes thereto and the
discussion set forth in the Company's "Management's Discussion and Analysis"
included in Annex III of this Proxy Statement. The Selected Financial Data
presented below for the three years ended December 31, 1996 are derived from
the consolidated financial statements of Georgia-Pacific Corporation and
subsidiaries which have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report included in Annex III of this Proxy
Statement. The Selected Financial Data for the two years ended December 31,
1993 are derived from the audited consolidated financial statements of the
Company not included in this Proxy Statement. The Selected Financial Data for
the six-month periods ended June 30, 1997 and 1996 are derived from the
unaudited consolidated financial statements of the Company, which have been
prepared on the same basis as the Company's audited consolidated financial
statements and, in the opinion of management, contain all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations set forth
herein. The results of operations for the interim period ended June 30, 1997
are not necessarily indicative of the results to be obtained for the full
fiscal year.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31
--------------- -------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales.............. $ 6,471 $6,377 $13,024 $14,313 $12,738 $12,287 $11,847
Cost of sales,
excluding depreciation
and cost of timber
harvested............. 5,112 4,798 9,933 9,885 9,620 9,495 9,238
Depreciation and cost
of timber harvested... 467 460 937 926 913 953 948
Income (loss) before
extraordinary item and
accounting change..... 117 60 161 1,018 326 (18) (60)
Net income
(loss)(/1/)........... 117 55 156 1,018 310 (34) (124)
Income (loss) before
extraordinary item and
accounting change per
share................. 1.28 0.66 1.78 11.29 3.66 (0.21) (0.69)
Net income (loss) per
share................. 1.28 0.61 1.72 11.29 3.48 (0.39) (1.43)
Dividends per common
share................. 1.00 1.00 2.00 1.90 1.60 1.60 1.60
BALANCE SHEET DATA:
Total assets........... $13,071 $12,818 $12,335 $10,864 $10,545 $10,912
Total debt(/2/)........ 5,607 5,928 5,591 5,721 5,737 5,888
Total liabilities...... 9,507 9,297 8,816 8,244 8,143 8,404
Shareholders' equity... 3,564 3,521 3,519 2,620 2,402 2,508
Book value per common
share................. 38.95 38.52 38.54 28.95 26.60 28.47
OPERATING DATA:
EBITDA(/3/)............ $ 815 $ 904 $ 1,751 $ 3,114 $ 1,973 $ 1,544 $ 1,474
EBITDA margin(/3/)..... 13% 14% 13% 22% 15% 13% 12%
Property, plant and
equipment investment.. $ 270 $ 652 $ 1,059 $ 1,259 $ 850 $ 421 $ 347
Proceeds from asset
sales................. 331 35 132 59 249 260 55
</TABLE>
- --------
(1) Net income for the six months ended June 30, 1997 includes an after-tax
gain of $80 million (88 cents per share) from the sale of timberlands, a
sawmill and a particleboard plant. Net income for the six months ended June
30, 1996 includes an after-tax expense of $45 million (50 cents per share)
related to a voluntary early retirement program. Net income in 1994 and
1993 include after-tax gains of $39 million (44 cents per share) and $7
million (8 cents per share), respectively, from asset divestitures.
(2) Total debt for 1996, 1995, 1994, 1993 and 1992 include proceeds from the
accounts receivable sale program under the assumption that at the end of
the program the proceeds would be replaced by debt.
(3) EBITDA represents income before extraordinary item and accounting change,
interest, income taxes, other income or expense, depreciation and cost of
timber harvested and amortization. EBITDA margin represents EDITDA divided
by net sales. EBITDA and EBITDA margin should not be considered as an
alternative to net income for purposes of evaluating the Company's results
of operations. Furthermore, EBITDA and EBITDA margin presented herein are
not necessarily comparable to EBITDA or EBITDA margin presented by other
companies due to the fact that not all companies use the same definition.
16
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
SELECTED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth Selected Financial Data of the Georgia-Pacific
Group and should be read in conjunction with the Georgia-Pacific Group's
combined financial statements and notes thereto and the discussion set forth in
the Georgia-Pacific Group's "Management's Discussion and Analysis" included in
Annex IV of this Proxy Statement. The Selected Financial Data presented below
for the three years ended December 31, 1996 are derived from the combined
financial statements of the Georgia-Pacific Group which have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report included in Annex IV of this Proxy Statement. The Selected Financial
Data for the two years ended December 31, 1993 and for the six-month periods
ended June 30, 1997 and 1996 are derived from the unaudited combined financial
statements of the Georgia-Pacific Group, which have been prepared on the same
basis as the Georgia-Pacific Group's audited financial statements and, in the
opinion of management, contain all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations set forth herein. The results of operations
for the interim period ended June 30, 1997 are not necessarily indicative of
the results to be obtained for the full fiscal year.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31
--------------- -------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales.............. $ 6,417 $6,320 $12,901 $14,195 $12,624 $12,157 $11,715
Cost of sales,
excluding depreciation
and cost of timber
harvested............. 5,264 4,915 10,225 10,138 9,812 9,626 9,343
Depreciation and cost
of timber harvested... 442 437 880 871 868 911 910
(Loss) income before
extraordinary item and
accounting change..... (23) 16 34 921 265 (61) (91)
Net (loss)
income(/1/)........... (23) 11 29 921 249 (77) (155)
Pro forma (loss) income
before extraordinary
item and accounting
change per share...... (0.26) 0.17 0.38 10.21 2.98 (0.70) (1.05)
Pro forma net (loss)
income per share...... (0.26) 0.12 0.32 10.21 2.80 (0.88) (1.79)
Dividends per common
share................. 0.50 0.50 1.00 0.95 0.80 0.80 0.80
BALANCE SHEET DATA:
Total assets........... $11,910 $11,492 $10,987 $ 9,520 $ 9,194 $ 9,529
Total debt............. 4,607 4,612 4,226 4,348 4,365 4,518
Total liabilities...... 8,268 7,799 7,261 6,683 6,587 6,844
Group equity........... 3,642 3,693 3,726 2,837 2,607 2,685
Book value per common
share................. 39.80 40.40 40.81 31.35 28.87 30.48
OPERATING DATA:
EBITDA(/2/)............ $ 630 $ 753 $ 1,381 $ 2,788 $ 1,714 $ 1,300 $ 1,259
EBITDA margin(/2/)..... 10% 12% 11% 20% 14% 11% 11%
Property, plant and
equipment investment.. $ 270 $650 $ 1,055 $ 1,253 $ 843 $ 416 $ 342
Proceeds from asset
sales................. 56 26 105 35 221 213 54
</TABLE>
- -------
(1) Net income for the six months ended June 30, 1997 includes an after-tax
gain of $9 million (pro forma 10 cents per share) from the sale of a
sawmill and a particleboard plant. Net income for the six months ended June
30, 1996 includes an after-tax expense of $45 million (pro forma 50 cents
per share) related to a voluntary early retirement program. Net income in
1994 and 1993 include after-tax gains of $39 million (pro forma 44 cents
per share) and $7 million (pro forma 8 cents per share), respectively, from
asset divestitures.
(2) EBITDA represents income before extraordinary item and accounting change,
interest, income taxes, other income or expense, depreciation and cost of
timber harvested, and amortization. EBITDA margin represents EBITDA divided
by net sales. EBITDA and EBITDA margin should not be considered as an
alternative to net income for purposes of evaluating the Company's results
of operations. Furthermore, EBITDA and EBITDA margin presented herein are
not necessarily comparable to EBITDA or EBITDA margin presented by other
companies due to the fact that not all companies use the same definition.
17
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
SELECTED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND PRICES)
The following table sets forth Selected Financial Data of the Timber Group
and should be read in conjunction with the Timber Group's combined financial
statements and notes thereto and the discussion set forth in the Timber Group's
"Management's Discussion and Analysis" included in Annex V of this Proxy
Statement. The Selected Financial Data presented below for the three years
ended December 31, 1996 are derived from the combined financial statements of
the Timber Group which have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report included in Annex V of this
Proxy Statement. The Selected Financial Data for the two years ended December
31, 1993 and for the six-month periods ended June 30, 1997 and 1996 are derived
from the unaudited combined financial statements of the Timber Group, which
have been prepared on the same basis as the Timber Group's audited financial
statements and, in the opinion of management, contain all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations set forth
herein. The results of operations for the interim period ended June 30, 1997
are not necessarily indicative of the results to be obtained for the full
fiscal year.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31
------------- --------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales
Timber--Georgia-
Pacific Group........ $ 214 $ 183 $ 424 $ 375 $ 311 $ 243 $ 244
Timber--third parties,
delivered............ 34 43 89 89 91 93 90
Timber--third parties,
stumpage............. 8 3 7 7 6 22 27
Other................. 12 11 27 22 17 15 15
------- ------ ------ ------ ------ ------ ------
Total net sales...... 268 240 547 493 425 373 376
Cost of sales,
excluding depreciation
and cost of timber
harvested............. 62 66 132 122 119 112 139
Depreciation and cost
of timbered
harvested............. 25 23 57 55 45 42 38
Net income(/1/)........ 140 44 127 97 61 43 31
Pro forma net income
per share............. 1.54 0.49 1.40 1.08 0.68 0.49 0.36
Dividends per common
share................. 0.50 .50 1.00 0.95 0.80 0.80 0.80
BALANCE SHEET DATA:
Total assets........... $ 1,161 $1,326 $1,348 $1,344 $1,351 $1,383
Total debt............. 1,000 1,316 1,365 1,373 1,372 1,370
Total liabilities...... 1,239 1,498 1,555 1,561 1,556 1,560
Group deficit.......... (78) (172) (207) (217) (205) (177)
Book value per common
share................. (0.85) (1.88) (2.27) (2.40) (2.27) (2.01)
OPERATING DATA:
EBITDA(/2/)............ $ 185 $ 151 $ 370 $ 326 $ 259 $ 244 $ 215
EBITDA margin(/2/)..... 69% 63% 68% 66% 61% 65% 57%
Timber and timberlands
investment............ $ 20 $ 12 $ 48 $ 62 $ 37 $ 31 $ 29
Proceeds from sales of
timberlands........... 275 9 27 24 28 47 1
Volumes (thousand
tons):
Southern softwood
sawtimber............ 3,152 2,593 6,003 4,430 4,335 4,356 N/A
Western softwood
sawtimber............ 734 850 1,891 2,096 1,894 2,487 N/A
Softwood pulpwood..... 2,651 2,476 5,492 4,804 4,646 4,368 N/A
Hardwood sawtimber.... 149 127 415 320 323 307 N/A
Hardwood pulpwood..... 1,172 1,058 2,359 2,147 1,840 2,208 N/A
------- ------ ------ ------ ------ ------
Total................ 7,858 7,104 16,160 13,797 13,038 13,726 N/A
======= ====== ====== ====== ====== ======
Prices (per thousand
ton):
Southern softwood
sawtimber............ $ 46 $ 44 $ 42 $ 44 $ 38 N/A N/A
Western softwood
sawtimber(3)......... 75 73 76 84 81 N/A N/A
Softwood pulpwood..... 14 15 16 14 14 N/A N/A
Hardwood sawtimber.... 40 24 34 31 31 N/A N/A
Hardwood pulpwood..... 10 12 10 10 8 N/A N/A
Weighted average
price............... 33 32 32 34 31 N/A N/A
</TABLE>
- -------
(1) Net income for the six months ended June 30, 1997 includes an after-tax
gain of $71 million (pro forma 78 cents per share) from the sale of
timberlands.
(2) EBITDA represents income before interest, income taxes, other income or
expense, depreciation and cost of timber harvested, and amortization.
EBITDA margin represents EDITDA divided by net sales. EBITDA and EBITDA
margin should not be considered as an alternative to net income for
purposes of evaluating the Company's results of operations. Furthermore,
EBITDA and EBITDA margin presented herein are not necessarily comparable to
EBITDA or EBITDA margin presented by other companies due to the fact that
not all companies use the same definition.
(3) Prices for Western softwood sawtimber are on a delivered basis.
N/A--Not Available
18
<PAGE>
PRICE RANGE OF AND DIVIDENDS ON EXISTING COMMON STOCK
The following table sets forth the high and low sales prices of the Existing
Common Stock on the New York Stock Exchange Composite Tape (the "Composite
Tape") and the dividends paid per share on the Existing Common Stock during the
periods indicated.
<TABLE>
<CAPTION>
SALES PRICE
--------------
HIGH LOW DIVIDENDS PAID
------ ------- --------------
<S> <C> <C> <C>
1995
First Quarter.................................... $81.75 $71.125 $.40
Second Quarter................................... 86.75 75.875 .50
Third Quarter.................................... 95.75 84.25 .50
Fourth Quarter................................... 87.875 65.75 .50
1996
First Quarter.................................... $75.25 $ 63.00 $.50
Second Quarter................................... 78.50 67.625 .50
Third Quarter.................................... 79.75 69.75 .50
Fourth Quarter................................... 81.00 69.25 .50
1997
First Quarter.................................... $78.75 $ 71.00 $.50
Second Quarter................................... 90.25 70.50 .50
Third Quarter (through September 16, 1997)....... 96.625 85.625
</TABLE>
On September 16, 1997, the trading day prior to the Company's announcement of
the Letter Stock Proposal, and on , 1997, the trading day prior to the
printing of this Proxy Statement, the closing sales prices of the Existing
Common Stock, as reported on the Composite Tape, were $94.5625 and $ ,
respectively. As of September 12, 1997, there were 91,522,062 shares of
Existing Common Stock outstanding and 37,179 holders of record of Existing
Common Stock.
19
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements under the captions "Proxy Statement Summary--Proposal 1--
The Letter Stock Proposal," "Risk Factors," Annex III--"Georgia-Pacific
Corporation--Management's Discussion and Analysis," Annex IV--"Georgia-Pacific
Group--Business," Annex IV--"Georgia-Pacific Group--Management's Discussion
and Analysis," Annex V--"Timber Group--Business" and Annex V--"Timber Group--
Management's Discussion and Analysis," including statements regarding the
Georgia-Pacific Group's expectations regarding future environmental regulation
and the effects thereof on future timber supplies and prices, and the
realization of expected cost savings, and the Timber Group's projections
concerning growth rates of its forests, harvest plans, timber inventories and
timber prices, and its expectations regarding future demand for timber, levels
of environmental regulation, Canadian timber imports and timber sales by
United States government agencies and the effects thereof on future timber
supplies and prices, as well as other statements contained in this Proxy
Statement or in the Annexes hereto which are not historical facts, are
forward-looking statements (as such term is defined under the Private
Securities Litigation Reform Act of 1995) based on current expectations. The
accuracy of such statements is subject to a number of risks, uncertainties and
assumptions. In addition to the risks, uncertainties and assumptions discussed
in the "Business" descriptions contained in Annexes IV and V or elsewhere in
this Proxy Statement, factors that could cause or contribute to actual results
differing materially from such forward-looking statements include those other
risks, uncertainties and assumptions discussed in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996, as amended by the
Company's Annual Report on Form 10-K/A filed on March 17, 1997 and the
Company's Annual Report on Form 10-K/A-1 filed on March 25, 1997, the
Company's Quarterly Reports on Form 10-Q for the periods ended March 31, 1997
and June 30, 1997, and the Company's Current Reports on Form 8-K dated October
17, 1996 and September 17, 1997.
RISK FACTORS
SHAREHOLDERS OF ONE COMPANY; FINANCIAL EFFECTS ON ONE GROUP COULD AFFECT THE
OTHER
Holders of Georgia-Pacific Group Stock and Timber Stock will be shareholders
of a single company and will continue to be subject to all of the risks
associated with an investment in the Company and all of its businesses, assets
and liabilities, notwithstanding the allocation of assets and liabilities
(including contingent liabilities) and shareholders' equity between the
Georgia-Pacific Group and the Timber Group for the purpose of preparing their
respective financial statements. Such allocation and the change in the equity
structure of the Company contemplated by the Letter Stock Proposal will not
result in a distribution or spin-off to shareholders of any assets or
liabilities of the Company or otherwise affect ownership of any assets or
responsibility for the liabilities of the Company or any of its subsidiaries.
Financial effects arising from either Group that affect the Company's
consolidated results of operations or financial condition could, if
significant, affect the results of operations or financial condition of the
other Group and the market price of the Common Stock relating to the other
Group. In addition, any net losses of either Group and dividends or
distributions on, or repurchases of, either class of Common Stock or
repurchases of certain Preferred Stock or Junior Preferred Stock will reduce
the legally available funds of the Company available for payment of dividends
on each class of Common Stock. Accordingly, the Company's consolidated
financial information should be read in conjunction with the financial
information provided for each Group.
If the Letter Stock Proposal is approved by the shareholders and implemented
by the Board, the Company will provide to holders of Georgia-Pacific Group
Stock and Timber Stock, in addition to the information relating to the
consolidated Company currently provided to holders of Existing Common Stock,
audited financial statements, Management's Discussion and Analysis, business
descriptions and other information for each Group. The financial statements of
each Group will reflect the financial position, results of operations and cash
flows of the businesses included therein. Consistent with the Restated
Articles and relevant intergroup policies, each Group's financial statements
will also include allocated portions of the Company's corporate assets and
20
<PAGE>
liabilities, including contingent liabilities. See "Proposal 1--The Letter
Stock Proposal--Certain Management and Allocation Policies" and the financial
information of the Company, the Georgia-Pacific Group and the Timber Group set
forth in Annexes III, IV and V hereto, respectively.
LIMITED SEPARATE SHAREHOLDER RIGHTS; EFFECTS ON VOTING POWER
Holders of Georgia-Pacific Group Stock and Timber Stock will have only the
rights customarily held by common shareholders of the Company and will not
have any rights related to their corresponding Group except for (i) certain
rights with regard to dividends and liquidation, (ii) requirements for a
mandatory dividend, redemption or conversion upon the disposition of assets of
their corresponding Group described under "Proposal 1--The Letter Stock
Proposal--Description of Georgia-Pacific Group Stock and Timber Stock--
Conversion and Redemption--Mandatory Dividend, Redemption or Conversion of
Common Stock" and (iii) a right to vote on matters as a separate voting group
in the limited circumstances provided under the Georgia Business Code or by
stock exchange rules.
Under the Georgia Business Code, the holders of Georgia-Pacific Group Stock
and Timber Stock will vote together as a single voting group, except as to
certain amendments to the Restated Articles or in connection with mergers and
statutory share exchanges involving such amendments. Accordingly, if a
separate vote on a matter by the holders of either the Georgia-Pacific Group
Stock or the Timber Stock is not required under the Georgia Business Code or
by stock exchange rules, and if the Board does not require a separate vote,
either class of Common Stock that is entitled to more than the number of votes
required to approve such matter will be in a position to control the outcome
of such vote even if the matter involves a divergence or conflict of the
interests of the holders of the Georgia-Pacific Group Stock and the Timber
Stock. As a result, if the holders of Common Stock having a majority of the
voting power of all shares of Common Stock outstanding approved a merger or
statutory share exchange, the terms of which did not require separate class
voting under the Georgia Business Code or stock exchange rules, then the
merger or statutory share exchange could be consummated even if the holders of
a majority of either class of Common Stock (but less than a majority of all
the outstanding voting power) were to vote against the merger or statutory
share exchange. See "--Potential Conflicting Interests-- Allocation of
Proceeds of Mergers, Consolidations or Statutory Share Exchanges."
Conversely, if a separate vote on a matter by the holders of either Georgia-
Pacific Group Stock or the Timber Stock is required under the Georgia Business
Code, by stock exchange rules or by the Board, such holders of either Georgia-
Pacific Group Stock or Timber Stock could prevent approval of such matter,
even if the holders of a majority of the total number of votes cast or
entitled to be cast with respect to both the Georgia-Pacific Group Stock and
the Timber Stock voting together as a group were to vote in favor of it. See
"Proposal 1--The Letter Stock Proposal--Description of Georgia-Pacific Group
Stock and Timber Stock--Voting Rights" and "--Potential Conflicting
Interests--Allocation of Proceeds of Mergers, Consolidations or Statutory
Share Exchanges."
Each share of Georgia-Pacific Group Stock will have one vote. Each share of
Timber Stock will have a variable vote equal to the ratio of the time-weighted
average Market Value of one share of Timber Stock to the time-weighted average
Market Value of one share of Georgia-Pacific Group Stock, calculated over the
20-trading day period ending 10 trading days prior to the record date for each
respective meeting of shareholders. This formula is intended to equate the
proportionate voting rights of each class of Common Stock to their respective
Market Values at the time of any vote. It is expected that initially the
Georgia-Pacific Group Stock will have a substantial majority of the voting
power of the Company. The relative voting power per share of Georgia-Pacific
Group Stock and Timber Stock will fluctuate based on the respective Market
Values of the two classes of Common Stock. Market Value could be affected by
many factors, including the results of operations of the Company and each of
the Groups, trading volume, share issuances and repurchases and general
economic and market conditions. See "Proposal 1--The Letter Stock Proposal--
Description of Georgia-Pacific Group Stock and Timber Stock--Voting Rights."
Changes in the aggregate votes or relative voting power of Timber Stock or the
Georgia-Pacific Group Stock could result from the market's reaction to a
decision by the Company's management or Board that is perceived to affect
differently one class of Common Stock in comparison to the other or the
issuance or repurchase of shares of Common Stock of either class.
21
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FIDUCIARY DUTIES OF THE BOARD; NO DEFINITIVE PRECEDENT UNDER GEORGIA LAW
Under the Georgia Business Code, each member of the Board must discharge his
or her duties in a manner he or she believes in good faith to be in the best
interests of the corporation with the care an ordinarily prudent person in a
like position would exercise under similar circumstances. Although the Company
is not aware of any precedent concerning the manner in which principles of
Georgia law would be applied in the context of the capital structure
contemplated by the Letter Stock Proposal, Georgia courts generally apply the
statutory standard described above to determine if a board of directors has
satisfied its fiduciary duties. Courts interpreting Georgia law have held that
directors satisfy their fiduciary duties if they make a good faith business
determination in an informed and deliberate manner with a careful
consideration of the action to be taken. If the Board acts in accordance with
the standards described above with respect to any matter having a disparate
impact upon the holders of Georgia-Pacific Group Stock or the holders of
Timber Stock, it should have a defense to any challenge made by or on behalf
of either group of holders. Nevertheless, a Georgia court hearing a case
involving such a challenge may decide to apply principles of Georgia law other
than those discussed above, or, because such a case would be a case of first
impression, may fashion new principles of Georgia law to decide such a case.
There may arise circumstances involving a divergence or conflict of the
interests of the holders of Georgia-Pacific Group Stock and holders of Timber
Stock in which the Board is held to have properly discharged its duty to act
in accordance with its good faith business judgment of the best interests of
the Company but in which holders of Georgia-Pacific Group Stock or Timber
Stock consider themselves to be disadvantaged relative to the other class. In
such a case, such holders might not have any remedy under Georgia law with
respect to the circumstances giving rise to the divergence or conflict of
interests.
Directors of the Company will initially own an equal number of shares of
Georgia-Pacific Group Stock and Timber Stock as a result of the Distribution.
However, disproportionate ownership interests of members of the Board in
Georgia-Pacific Group Stock or Timber Stock or the respective market values of
the Georgia-Pacific Group Stock and the Timber Stock could create potential
conflicts of interest when directors are faced with decisions that could have
different implications for the different classes. See "--Potential Conflicting
Interests" and "Proposal 1--The Letter Stock Proposal--Certain Management and
Allocation Policies--Fiduciary and Management Responsibilities."
POTENTIAL CONFLICTING INTERESTS
The existence of separate classes of Common Stock could give rise to
occasions when the interests of the holders of Georgia-Pacific Group Stock or
Timber Stock diverge or conflict. Examples include determinations by the Board
to (i) pay or omit the payment of dividends on Georgia-Pacific Group Stock or
Timber Stock, (ii) allocate consideration to be received by holders of each of
the classes of Common Stock in connection with a merger, consolidation or
statutory share exchange involving the Company, (iii) convert one class of
Common Stock into shares of the other class of Common Stock, (iv) approve
certain dispositions of the assets of either Group, and (v) make decisions
governing timber supply and other operational and financial decisions with
respect to one Group that could be considered to be detrimental to the other
Group, each as further described below. When making decisions with regard to
matters that create potential diverging or conflicting interests, the Board
(or any committee of the Board to which the matter has been referred) will act
in accordance with its fiduciary duties, the terms of the Restated Articles,
and, to the extent applicable, the management and allocation policies
described in "Proposal 1--The Letter Stock Proposal--Certain Management and
Allocation Policies." See "--Fiduciary Duties of the Board; No Definitive
Precedent Under Georgia Law." Each of the foregoing potential conflicts of
interest is discussed below.
NO ASSURANCE OF PAYMENT OF DIVIDENDS. The Board has adopted a dividend
policy to pay an equal dividend on the Georgia-Pacific Group Stock and the
Timber Stock, which together will equal the dividend currently payable on the
Existing Common Stock. Determinations as to the future dividends on the
Georgia-Pacific Group Stock and the Timber Stock will be based primarily upon
the financial condition, results of operations and business requirements of
the relevant Group and the Company as a whole. Dividends on the Georgia-
Pacific Group Stock and Timber Stock will be payable out of the lesser of (i)
all assets of the Company
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legally available for the payment of dividends and (ii) the Available Dividend
Amount with respect to the relevant Group. Subject to such limitations, the
Board has the authority to declare and pay dividends on the Georgia-Pacific
Group Stock and the Timber Stock in any amount and could, in its sole
discretion, declare and pay dividends exclusively on the Georgia-Pacific Group
Stock, exclusively on the Timber Stock or on both, in equal or unequal
amounts, notwithstanding the amount of dividends previously declared on each
class, the respective voting or liquidation rights of each class or any other
factor. In addition, net losses of either Group, dividends and distributions
on either class of Common Stock or any Preferred Stock or Junior Preferred
Stock and any repurchases of Georgia-Pacific Group Stock, Timber Stock or
certain Preferred Stock or Junior Preferred Stock, will reduce the assets of
the Company legally available for future dividends on the Georgia-Pacific
Group Stock and the Timber Stock. See "Proposal 1--The Letter Stock Proposal--
Dividend Policy" and "--Description of Georgia-Pacific Group Stock and Timber
Stock--Dividends."
ALLOCATION OF PROCEEDS OF MERGERS, CONSOLIDATIONS OR STATUTORY SHARE
EXCHANGES. The Letter Stock Proposal does not contain any provisions governing
how consideration to be received by holders of Common Stock in connection with
a merger, consolidation or statutory share exchange involving the entire
Company is to be allocated among holders of each class of Common Stock. In any
such merger, consolidation or statutory share exchange, the percentage of the
consideration to be allocated to holders of each class of Common Stock will be
determined by the Board and may be materially more or less than that which
might have been allocated to such holders had the Board chosen a different
method of allocation. See "--Limited Separate Shareholder Rights; Effects on
Voting Power."
OPTIONAL CONVERSION OF CLASSES OF COMMON STOCK. The Board could, in its sole
discretion and without shareholder approval, determine to convert shares of
Georgia-Pacific Group Stock into shares of Timber Stock, or vice versa, at a
15% premium at any time, or at a 10% premium in connection with a Disposition
of all or substantially all of the properties or assets of the Group whose
stock is being converted. Any such determination could be made at a time when
either or both classes of Common Stock may be considered to be overvalued or
undervalued. Any conversion of one class of Common Stock at any premium would
dilute the interests in the Company of the holders of the other class of
Common Stock being issued in the conversion. In addition, any such conversion
of one class of Common Stock into the other class of Common Stock would
preclude holders of both classes of Common Stock from retaining their
investment in a security that is intended to reflect separately the
performance of the relevant Group. Holders of shares of the class of Common
Stock converted may receive a greater or lesser premium than any premium that
might be paid by a third-party buyer of all or substantially all of the assets
of the Group whose stock is converted. In determining whether to convert one
class of Common Stock into the other class of Common Stock, the Board will act
in accordance with its good faith business judgment that any such conversion
is in the best interests of the Company as a whole, but not necessarily in the
best interests of either Group individually. See "Proposal 1--The Letter Stock
Proposal--Description of Georgia-Pacific Group Stock and Timber Stock--
Conversion and Redemption" and "--Fiduciary Duties of the Board; No Definitive
Precedent Under Georgia Law."
DISPOSITIONS OF GROUP ASSETS. The Board could, in its sole discretion and
without shareholder approval, approve sales and other dispositions of any
amount of the properties and assets of either Group that represent less than
substantially all of the properties and assets of the Company because Georgia
law requires shareholder approval only for a sale or other disposition of all
or substantially all of the properties and assets of the entire Company. The
proceeds from any such disposition will be assets of the Group to which the
assets belong and will be used for its benefit. The Restated Articles contain
provisions that, in the event of a Disposition of all or substantially all of
the properties and assets of either Group, other than in a Related Business
Transaction, require the Company to (i) distribute to holders of the class of
Common Stock relating to the Group subject to such Disposition an amount in
cash and/or securities or other property equal to their proportionate interest
in the Fair Value of the Net Proceeds of such Disposition either by special
dividend or redemption of all or part of the shares of such class of Common
Stock or (ii) convert the outstanding shares of such Common Stock into a
number of shares of the class of Common Stock relating to the other Group
equal to 110% of the ratio, calculated over a period of time, of the average
Market Value of one share of Common Stock relating to the Group subject to
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such Disposition to the average Market Value of one share of Common Stock
relating to the other Group. See "Proposal 1--The Letter Stock Proposal--
Description of Georgia-Pacific Group Stock and Timber Stock-- Conversion and
Redemption." The terms of the Common Stock do not require the Board to select
the option that would result in the distribution with the highest value to the
holders of Common Stock relating to the Group subject to such Disposition or
with the smallest effect on Common Stock relating to the other Group. The
Board would select an option based upon its good faith business judgment that
such option is in the best interests of the Company. See "--Fiduciary Duties
of the Board; No Definitive Precedent under Georgia Law."
TIMBER SUPPLY ARRANGEMENTS; OTHER OPERATIONAL AND FINANCIAL DECISIONS. The
Timber Group and the Georgia-Pacific Group have negotiated an operating policy
governing future sales of timber and wood fiber by the Timber Group to the
Georgia-Pacific Group with an initial term of three years. Under this policy,
the Georgia-Pacific Group will be required to purchase in the years 1998-2000,
on a take-or-pay basis, 60% of the volume of timber and wood fiber harvested
annually from the Timber Group's Southern forests. In 1998, the Georgia-
Pacific Group has a right of first refusal to purchase up to 90% of the Timber
Group's total annual harvest from each forest (which amount must include the
60% take-or-pay amount described above). In 1999 and 2000, the volume subject
to this right of first refusal will decrease to 80%, and the Georgia-Pacific
Group must exercise its right not later than October 15th of the preceding
year. For 1998, the Georgia-Pacific Group has exercised its right of first
refusal and agreed to purchase % of the Timber Group's total annual harvest.
All quantities of timber and wood fiber committed under the take-or-pay
arrangement described above, and all quantities as to which the Georgia-
Pacific Group exercises its right of first refusal for a particular year, will
be sold at market prices determined quarterly. Such prices are intended to
approximate prices negotiated between unaffiliated third parties in the open
market and will be based upon (i) an average of the actual prices during the
immediately preceding quarter received by the Timber Group for sales made by
it to third parties, and prices paid by the Georgia-Pacific Group for
purchases made by it from third parties, in the same forest region of timber
and wood fiber of the same species, grade and size, and (ii) the benefit to
the Georgia-Pacific Group of having access to a committed quantity of high
quality timber and wood fiber in close proximity to its mills and plants.
All quantities of timber and wood fiber harvested each year by the Timber
Group and not committed to the Georgia-Pacific Group as described above may be
sold by the Timber Group to any purchaser, including the Georgia-Pacific
Group. In such case, the Georgia-Pacific Group may purchase such timber at
negotiated prices or at prices determined in competitive bidding. Sales to the
Georgia-Pacific Group and third parties will generally be made on a stumpage
basis, except that sales in the Western United States and of thinnings and
select harvests by the Timber Group may be made on a delivered basis.
This policy is intended to ensure that the Georgia-Pacific Group will be
able to purchase from the Timber Group specified amounts of timber and wood
fiber, while ensuring that the Timber Group, beginning in 1999, will be able
to sell up to 20% of its annual harvest in the open market. This policy will
remain in effect through 2000. If neither party gives written notice to the
other of its desire to renegotiate or terminate the policy by October 15,
1998, the policy will automatically be extended through 2001 and thereafter
will be extended for an additional year on each January 1 until any such
notice of renegotiation or termination is received. As a result, the policy in
effect has a two-year termination clause to allow both the Georgia-Pacific
Group and the Timber Group time to find other sellers and purchasers,
respectively, of timber and wood fiber.
While there can be no assurance that the terms of this policy, or any
changes in it which may be negotiated in the future, reflect those that would
be negotiated between unaffiliated third parties, the Company believes that
such agreements are not materially more or less favorable to the Timber Group
or to the Georgia-Pacific Group than either could obtain in negotiations with
unaffiliated third parties.
The Board will review other operational and financial matters affecting the
business of the Georgia-Pacific Group and the Timber Group, including capital
spending, the allocation of corporate opportunities, and the allocation of
corporate overhead, taxes, debt, interest and other matters. Any decision of
the Board with respect to these matters could favor one Group at the expense
of the other. All such decisions will be made by the Board
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in its good faith business judgment and in accordance with procedures and
policies adopted by the Board from time to time. For further discussion of
potential divergences or conflicts of interests, see "--Fiduciary Duties of
the Board; No Definitive Precedent Under Georgia Law," "--Allocation of
Financing Costs," and "Proposal 1--The Letter Stock Proposal--Certain
Management and Allocation Policies."
MANAGEMENT AND ALLOCATION POLICIES SUBJECT TO CHANGE
The Company's policies described herein with respect to timber sales,
dividends, the allocation of corporate overhead, taxes, debt, interest and
other matters may be modified or rescinded, or additional policies may be
adopted, in the sole discretion of the Board without approval of the
shareholders, although the Board has no present intention to do so. Any
determination of the Board to modify or rescind such policies, or to adopt
additional policies, including any such decision that could have different
effects upon holders of Georgia-Pacific Group Stock and holders of Timber
Stock or could result in a benefit or detriment to one class of shareholders
compared to the other class, would be made in accordance with the Board's good
faith business judgment of the best interests of the Company. See "--Potential
Conflicting Interests."
ALLOCATION OF FINANCING COSTS
At June 30, 1997, $1.0 billion of the Company's total debt as of such date
was allocated to the Timber Group for financial statement and accounting
purposes, and the $4.6 billion balance of the Company's total debt as of such
date was allocated to the Georgia-Pacific Group. The debt of each Group bears
interest at a rate equal to the weighted average interest rate of all of the
Company's debt calculated on a quarterly basis. Expenses related to the debt
are reflected in the weighted average interest rate. As a result, changes in
the amount of debt of the Company will affect such weighted average interest
and, therefore, will increase or decrease the interest expense charged to each
Group in respect of its debt. In addition, each Group will receive a "benefit"
or "detriment" to the extent such weighted average cost is lower or higher,
respectively, than the market rate for a hypothetical borrowing of debt by
such Group if such Group were a stand-alone corporation. See "--Certain
Management and Allocation Policies--Financing."
POTENTIAL EFFECTS OF POSSIBLE DISPOSITION OF ASSETS OF A GROUP
The Restated Articles provide that upon a Disposition of all or
substantially all of the properties and assets of either Group, the Company
will be required, subject to certain exceptions, to (i) pay a special dividend
on, or redeem some or all of, the outstanding shares of the class of Common
Stock relating to such Group with the Net Proceeds of such Disposition or (ii)
convert such Common Stock into shares of the class of Common Stock relating to
the other Group. If the Group subject to such Disposition were a separate,
independent company and its shares were acquired by another person, certain
costs of such Disposition, including corporate level taxes, might not be
payable in connection with such an acquisition. As a result, the consideration
that would be received by shareholders of such a separate independent company
in connection with such an acquisition might be greater than the Fair Value of
the Net Proceeds that would be received by holders of the class of Common
Stock relating to such Group if the assets of such Group were sold. In
addition, no assurance can be given that the Net Proceeds per share of the
class of Common Stock relating to such Group to be received in connection with
a Disposition of all of the assets of such Group will be equal to or more than
the market value per share of such Common Stock prior to or after announcement
of such Disposition. See "--No Assurances as to Market Price" and "Proposal
1--The Letter Stock Proposal--Description of Georgia-Pacific Group Stock and
Timber Stock--Conversion and Redemption--Mandatory Dividend on or Redemption
or Conversion of Common Stock."
EFFECTS ON POTENTIAL ACQUISITIONS OF A GROUP OR A CLASS OF COMMON STOCK
If the Georgia-Pacific Group and the Timber Group were organized as stand-
alone corporations, any person interested in acquiring either of such
corporations without negotiation with management could seek to acquire control
of the outstanding stock of such corporation by means of a tender offer or
proxy contest. Although adoption of the Letter Stock Proposal will create two
classes of Common Stock that are intended to reflect the
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separate performances of the Georgia-Pacific Group and the Timber Group, a
person interested in acquiring only one Group without negotiation with the
Company's management would still be required to seek control of the voting
power represented by all of the outstanding capital stock of the Company,
including the class of Common
Stock related to the other Group. A potential acquiror could acquire control
of the Company by acquiring shares of Common Stock having a majority of the
voting power of all shares of Common Stock outstanding. Such a majority could
be obtained by acquiring a sufficient number of shares of both classes of
Common Stock or, if one class of Common Stock has a majority of such voting
power, only shares of such class. It is expected that initially the Georgia-
Pacific Group Stock will have a substantial majority of the voting power of
the Company. Thus, initially, it might be possible for an acquiror to obtain
control of the Company by purchasing only shares of Georgia-Pacific Group
Stock. See "--Limited Separate Shareholder Rights; Effects on Voting Power"
and "Proposal 1--The Letter Stock Proposal--Description of Georgia-Pacific
Group Stock and Timber Stock--Voting Rights."
NO ASSURANCES AS TO MARKET PRICE
Because there has been no prior market for the Georgia-Pacific Group Stock
or the Timber Stock, there can be no assurance as to their market prices
following the implementation of the Letter Stock Proposal. Moreover, there can
be no assurance that the combined market values of a share of Georgia-Pacific
Group Stock and a share of Timber Stock after the Distribution will equal or
exceed the market value of a share of Existing Common Stock prior to the
Distribution. See "Proxy Statement Summary--Price Range of and Dividends on
Existing Common Stock."
The market prices of the Georgia-Pacific Group Stock and the Timber Stock
will be determined in the trading markets and could be influenced by many
factors, including the consolidated results of the Company, as well as the
respective performances of the Georgia-Pacific Group and the Timber Group,
investors' and analysts' expectations for the Company as a whole and for each
of the Georgia-Pacific Group and the Timber Group, trading volume, share
issuances and repurchases and general economic market conditions. There can be
no assurance that investors will assign values to the Georgia-Pacific Group
Stock and the Timber Stock based on the reported financial results and
prospects of the separate Groups or the dividend policies established by the
Board with respect to such Groups. Additionally, financial effects arising
from either Group that affect the Company's consolidated results of operations
or financial condition could, if significant, affect the results of operations
or financial condition of the other Group and the market price of the class of
Common Stock relating to such other Group. Finally, the results of operations
of the Georgia-Pacific Group and, to a lesser extent, the Timber Group, will
continue to be affected by cyclical supply and demand factors related to their
businesses. There can be no assurance that the cyclicality of their respective
businesses will not continue to be reflected in the market prices of the
Georgia-Pacific Group Stock and of the Timber Stock. See Annex III--
"Business--Cyclicality and Volatility of Earnings" and Annex IV--"Business--
Factors Affecting the Timber Group's Business."
In addition, the Company cannot predict the impact on their market prices of
certain terms of the Georgia-Pacific Group Stock or the Timber Stock,
including the respective redemption and conversion rights applicable upon the
disposition of substantially all the assets of either Group, the ability of
the Company to convert shares of one class of Common Stock into shares of the
other class of Common Stock, or the discretion of the Board to make various
determinations relating to the separate classes. There can also be no
assurance that the Timber Stock will be included in any stock market index in
which the Existing Common Stock is now included, or that the Georgia-Pacific
Group Stock will continue to be included in any such index. Not being included
in a particular index could adversely affect demand for the Timber Stock or
the Georgia-Pacific Group Stock and, consequently, the market price thereof.
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GENERAL
This Proxy Statement and the enclosed form of proxy are being furnished to
the shareholders of Georgia-Pacific in connection with the solicitation of
proxies by the Board for use at the Special Meeting to be held at 11:00 a.m.,
Eastern Standard Time, on , 1997. The Special Meeting will be held at
the , , New York, New York. This Proxy Statement is
first being mailed to shareholders on or about , 1997. At the
Special Meeting, holders of Existing Common Stock will consider and vote upon
approval of the Letter Stock Proposal and the other proposals set forth in the
Notice of Special Meeting of Shareholders.
Only holders of record of shares of the Existing Common Stock at the close
of business on , 1997 will be eligible to vote at the Special
Meeting. As of , 1997, the most recent practicable date prior to the
date of this Proxy Statement, the Company had issued and outstanding
shares of Existing Common Stock. The directors and executive officers of
Georgia-Pacific beneficially own less than one percent of the outstanding
shares of Existing Common Stock.
Each share of Existing Common Stock is entitled to one vote on each of the
five proposals. The approval of Proposals 1 and 5 will require the affirmative
vote of the holders of a majority of the shares of Existing Common Stock
entitled to be voted on the respective proposals. Proposals 2, 3 and 4 will be
approved if the number of shares of Existing Common Stock voted in favor of
the respective proposals exceeds the number of shares of Exisiting Common
Stock voted against the respective proposals. Abstentions will not be counted
as shares voted against Proposals 2, 3 and 4. Shareholders are not entitled to
dissenters' rights with regard to any of the proposals.
The presence of a majority of the shares of Existing Common Stock entitled
to vote at the Special Meeting will constitute a quorum. Whether held of
record or held beneficially in street name, shares will be counted for quorum
purposes if such shares are voted on at least one matter to be considered at
the Special Meeting. Shares represented by proxies which are marked "abstain"
will be counted as shares present for purposes of determining the presence of
a quorum. Abstentions also will be counted as shares entitled to vote with
respect to each proposal and therefore will have the effect of a vote against
Proposals 1 and 5 but will have no effect on the vote with respect to
Proposals 2, 3 and 4. Proxies relating to "street name" shares that are voted
by brokers on some but not all of the proposals will nevertheless be treated
as shares present for purposes of determining the presence of a quorum but
will not be treated as shares entitled to vote at the Special Meeting as to
the proposals as to which authority to vote is withheld by the broker ("broker
non-votes"). Consequently, such shares would have no effect on the outcome of
the vote with respect to any of the proposals.
Shares represented by properly executed proxies received in time for the
Special Meeting will be voted at the meeting in the manner specified by the
holders thereof. Except in the case of broker non-votes as described above,
proxies which are properly executed but which do not contain voting
instructions will be voted in favor of approval of each of the proposals. If
necessary (unless the shares represented by a proxy are voted against one or
more of the proposals), the persons named in the proxy also may vote in favor
of a proposal to adjourn the Special Meeting to a subsequent date or dates
without further notice in order to solicit and obtain sufficient votes to
approve the matters being considered at the Special Meeting.
The grant of a proxy on the enclosed 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 the Company a duly executed revocation of proxy bearing a later
date or by voting in person at the Special Meeting. Attendance at the Special
Meeting will not of itself constitute revocation of a proxy.
The Board has adopted a policy to ensure the confidentiality of the
individual votes of the Company's shareholders, with certain limited
exceptions. The policy provides that all shareholder proxies, ballots and
voting materials that identify the votes of specific shareholders will be kept
confidential and will not be disclosed to the Company, its affiliates,
directors, officers and employees or to any third parties except where (i)
disclosure is
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required by applicable law, (ii) a shareholder expressly requests disclosure
with respect to his or her vote, or (iii) the Company concludes in good faith
that a bona fide dispute exists as to the authenticity of one or more proxies,
ballots or votes, or as to the accuracy of any tabulation of such proxies,
ballots or votes. In addition, aggregate vote totals may be disclosed to the
Company from time to time and publicly announced at the meeting of
shareholders to which such vote totals relate. Proxy cards will be returned
to, and tabulated by, an independent third party. The Company is not required
to comply with this confidential voting policy in the event of a proxy contest
unless the other person soliciting proxies in the contest agrees to comply
with the policy. This confidential voting policy does not prohibit
shareholders from disclosing the nature of their votes to the Company or to
the Board if they wish to do so. The policy is intended to enhance shareholder
rights and to encourage free and voluntary communication between the Company
and its shareholders.
If Proposal 1 is not approved by the shareholders, Proposals 2, 3 and 4 will
not be implemented. Accordingly, a vote against Proposal 1 will have the
effect of a vote against Proposals 2, 3 and 4. If Proposal 1 is approved by
the shareholders, it will be implemented whether or not Proposals 2, 3, 4 or 5
are approved. If Proposal 5 is approved by the shareholders, it will be
implemented whether or not Proposals 1, 2, 3 or 4 are approved.
A PROXY CARD IS ENCLOSED FOR YOUR USE. PLEASE COMPLETE, SIGN, DATE AND RETURN
THE PROXY CARD IN THE ACCOMPANYING ENVELOPE, WHICH IS POSTAGE-PAID IF MAILED
IN THE UNITED STATES.
PROPOSAL 1--THE LETTER STOCK PROPOSAL
GENERAL
The holders of the Existing Common Stock are being asked to consider and
approve the Letter Stock Proposal which, if approved, will:
(i)amend the Articles to designate a new class of common stock as Timber
Stock, consisting of 250 million authorized shares, having the preferences,
limitations and relative rights described in Annex I;
(ii)amend the Articles to redesignate each authorized share of Existing
Common Stock as, and convert each such share into, one share of Georgia-
Pacific Group Stock having the preferences, limitations and relative rights
described in Annex I;
(iii)amend the Articles to increase the number of shares of Georgia-Pacific
Group Stock authorized for issuance from 150 million shares to 400 million
shares;
(iv)amend the Articles to delete or revise certain provisions that are
inconsistent with the Letter Stock Proposal; and
(v)authorize a share dividend of the Timber Stock to the holders of shares
of Georgia-Pacific Group Stock on the basis of one share of Timber Stock for
each outstanding share of Georgia-Pacific Group Stock on the Effective Date.
The ratio of one share of Timber Stock for each share of Existing Common
Stock was determined by the Board in consultation with Morgan Stanley & Co.
Incorporated ("Morgan Stanley"), the Company's financial
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advisor in connection with the Letter Stock Proposal, and is based upon the
desired initial trading range of the Timber Stock and the common shareholders'
equity value of the Company attributable to the Timber Group. This equity
value was established by taking into account, among other factors, the initial
level of the Company's debt and equity capitalization to be allocated to the
Timber Group, the Timber Group's recent historical financial performance
relative to its competitors that are publicly traded and the current state of
the markets for public offerings and other stock transactions. The
redesignation and conversion of the Existing Common Stock into Georgia-Pacific
Group Stock and the dividend of Timber Stock on the Georgia-Pacific Group
Stock are expected to be tax free to both the Company and its shareholders.
See "--Certain United States Federal Income Tax Considerations."
IF THE LETTER STOCK PROPOSAL IS NOT APPROVED BY THE SHAREHOLDERS, THE TIMBER
STOCK WILL NOT BE CREATED, THE EXISTING COMMON STOCK WILL NOT BE REDESIGNATED
AND CONVERTED INTO GEORGIA-PACIFIC GROUP STOCK, THE NUMBER OF AUTHORIZED
SHARES OF GEORGIA-PACIFIC GROUP STOCK WILL NOT BE INCREASED, AND NO
DISTRIBUTION OF TIMBER STOCK WILL BE MADE ON SHARES OF THE GEORGIA-PACIFIC
GROUP STOCK.
If the Letter Stock Proposal is approved by the shareholders at the Special
Meeting, the Company anticipates that the Restated Articles will be filed with
the Secretary of State of the State of Georgia and the Distribution will be
effective on the date of the Special Meeting or shortly thereafter, and that
certificates representing Timber Stock will be mailed promptly thereafter. On
the Effective Date, certificates formerly representing shares of Existing
Common Stock that are held by shareholders will be deemed to represent an
equal number of shares of Georgia-Pacific Group Stock. New certificates
representing shares of Georgia-Pacific Group Stock will be issued in
replacement of certificates formerly representing shares of Existing Common
Stock as such certificates are received and canceled by the transfer agent.
Shareholders should not mail in their Existing Certificates to either the
Company or its transfer agent in connection with the Letter Stock Proposal. At
any time prior to filing the Restated Articles with the Secretary of State of
the State of Georgia, including after adoption by the shareholders of the
Company, the Board may abandon the Letter Stock Proposal in whole, but not in
part, without further action by the shareholders.
BACKGROUND OF AND REASONS FOR THE LETTER STOCK PROPOSAL
The Letter Stock Proposal has been approved by the Board following its
review of various alternatives for enhancing the overall return to the holders
of Existing Common Stock, creating flexibility for the future growth of the
Company, and advancing the Company's financial and strategic objectives.
The Letter Stock Proposal is designed to separate the business and cash
flows of the Company's timberlands from the rest of the Company, to charge the
managers of each Group with the responsibility of maximizing the returns from
their businesses, and to allow each Group to either retain its earnings and
cash flow for reinvestment in the business or to return cash to its
shareholders. As more fully described under "--Certain Management and
Allocation Policies" below, the Company intends that the earnings and cash
flow of the Timber Group will be reinvested solely in that business or
returned to holders of Timber Stock, regardless of the cash needs of the
manufacturing businesses. Holders of Timber Stock are expected to benefit from
the relatively stable cash flows of that business and the expected real growth
in timber prices. Holders of Georgia-Pacific Group Stock are expected to
benefit from the operating leverage of a cyclical commodity business which has
reduced annual capital spending to $750 million a year and adopted a more
disciplined approach to investing capital.
Beginning in late 1994, the Board reviewed in detail the historical
financial performance of the Company and the forest products industry and
concluded that the Company, like most of its competitors, has been
characterized by highly volatile earnings and cash flows, and declining prices
for many of its products in real terms, primarily due to the highly fragmented
and capital intensive nature of the industry. Management believes that these
volatile earnings and cash flows are due to several factors, including changes
in demand for end products, overall levels of economic activity, currency
fluctuations and particularly capital spending patterns in
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<PAGE>
the industry. Historically, as product prices and cash flows have increased,
the Company and its competitors have tended to invest large amounts of capital
in building new manufacturing plants and in rebuilding existing facilities and
machinery. This new capacity tends to come on line at the same time,
generating extended periods of over-capacity and causing product prices to
fall sharply.
As a result, the industry has delivered poor shareholder returns as compared
to the overall market. Over the ten years ending December 31, 1996, the
average cumulative total shareholder returns for the pulp and paper and
building products industry were only approximately 60% of the level of such
returns for all companies comprising the Standard and Poor's 500 stock index.
Within the industry, the Company's total shareholder return was about average.
In contrast, the earnings and cash flows of timber businesses have tended to
be less volatile. Moreover, over the past ten years the prices of timber and
wood fiber have increased in real terms due to supply constraints and
stability of demand.
In addition to its review of overall shareholder returns, the Board
considered the Company's present organizational structure, in which the same
division is responsible for growing and harvesting timber and for assuring a
continuous supply of timber and other wood fiber to the Company's
manufacturing facilities. The Company has had in place for several years
policies intended to transfer timber and wood fiber from its timberlands to
its manufacturing operations at prices approximating current market values.
Notwithstanding these policies, the Board recognizes that there is an inherent
conflict between the Company's manufacturing and timber businesses due to the
current organizational structure of the Company. Thus, the Board concluded
that the Company's current organizational structure may not permit the Company
to realize the full potential of its timber assets that might be realized if
the functions of growing and purchasing timber were separated.
For these and other reasons, management engaged Morgan Stanley to review the
manufacturing and timber businesses, which have fundamentally different
financial characteristics, and Morgan Stanley discussed with the Company
alternatives to maximize shareholder returns from these businesses. Morgan
Stanley advised that the separation of the more stable and predictable
earnings of the Timber Group from those of the more cyclical Georgia-Pacific
Group, and the creation of two classes of common stock to track those
businesses, should result in the market separately evaluating the performances
of the Georgia-Pacific Group and the Timber Group based upon the multiples of
other companies engaged in those separate businesses.
At meetings held on February 4, May 6, July 29 and September 17, 1997, the
Board considered a variety of structural proposals to increase the overall
value of the Existing Common Stock to its shareholders. The Board and its
Finance Committee evaluated alternatives available to Georgia-Pacific in view
of its strategic objectives, capital requirements, past financial results and
other factors. They had extensive discussions with senior financial and legal
officers of the Company as well as representatives of Morgan Stanley. Among
the alternatives which the Finance Committee and the Board considered were (i)
the preservation of the Company's current equity and operating structure; (ii)
the separation of various of the Company's businesses (including its forest
resources business) through a distribution (for example, in a spin-off) of all
or a portion of those businesses to the Company's shareholders; (iii) the sale
of the Company's timber assets; and (iv) the creation of two classes of Common
Stock to reflect separately the results of the Company's timber and
manufacturing businesses.
The Board determined that a sale of the timber business would not be
feasible due to the significant acreage owned by the Company and the low tax
basis of the timber assets. The Board also determined that a spin-off of a
separate company owning the timberlands and other forestry assets of the
Company to shareholders could create significant tax, credit and control
issues. Given that preservation of the current equity and operating structure
would not allow proper valuation of the timber business, the Board concluded
that the Letter Stock Proposal is likely to create the most value for the
Company's shareholders.
The Board's adoption of the Letter Stock Proposal is part of its ongoing
effort to increase the value of shareholders' investment in the Company. In
1995 the Company adopted a financial measurement method known as Economic
Value Added ("EVA(R)"), which is designed to measure the operating returns on
its businesses,
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<PAGE>
after applying a capital charge equal to the Company's long-term cost of debt
and equity capital, against the estimated market value of each business.
Separating the timber business and the manufacturing business is a further
extension of EVA(R), because the Letter Stock Proposal will allow the equity
markets to separately value the operating results of each Group. In addition,
the policy governing sales of timber and wood fiber by the Timber Group to the
Georgia-Pacific Group should impose a greater market discipline on the
Georgia-Pacific Group with respect to its raw material costs because the
policy does not give the Georgia-Pacific Group access to all of the Timber
Group's annual harvest.
The Board identified the following as the advantages of the Letter Stock
Proposal:
. The creation of two classes of Common Stock intended to reflect
separately the performance of the Timber Group and the Georgia-Pacific
Group should increase shareholder value by more specifically tracking
the cash flows and investment results of each Group. Creating
investment vehicles that meet the requirements of distinct investor
groups--those looking for the yield, more stable earnings and future
growth of the Timber Group, and those looking for the more highly
leveraged potential of a cyclical business, in the case of the
Georgia-Pacific Group--will result in a more accurate valuation of the
earnings and cash flows of each Group.
. Timber Stock provides the Company with an additional equity security
that is expected to trade at a higher multiple than the Existing
Common Stock or the Georgia-Pacific Group Stock. In addition, because
of the improved overall equity valuation that should result from
implementation of the Letter Stock Proposal, the Company is expected
to reduce its overall cost of capital.
. The Letter Stock Proposal will retain for the Company the advantages
of doing business as a single company. Specifically, the Company will
retain ownership of its timber assets, which the Board considers to be
a significant long-term strategic benefit given the proximity of these
assets to the Company's manufacturing facilities and the Company's
overall position in the building products and paper manufacturing and
distribution businesses. Further, as part of one company, each Group
will be in a position to benefit from cost savings and synergies with
the other compared to the costs each Group would incur if it operated
separately. These include a lower overall borrowing cost as a result
of the credit rating of the combined Company and potential federal,
state and local tax benefits that may be greater for the combined
Company than for the two Groups operating separately.
. The financial and strategic flexibility, after the Distribution, for
the Georgia-Pacific Group and the Timber Group to raise capital and to
engage in mergers, acquisitions, divestitures, strategic investments,
capital restructurings, asset segmentations and other transactions
affecting either the Timber Group or the Georgia-Pacific Group as a
result of the availability of two different equity securities for
issuance.
. Creating two classes of Common Stock, each of which is designed to
reflect the operating results of a distinct business, increases the
Company's ability to focus the management of the respective Groups on
maximizing the returns from such businesses and provides the
opportunity to structure incentives for employees of each Group that
are tied directly to the share price performance of that Group.
. Implementation of the Letter Stock Proposal is not expected to be
taxable to the Company or its shareholders. See "--Certain United
States Federal Income Tax Considerations."
The Board also considered the following potential disadvantages of the
Letter Stock Proposal:
. The Letter Stock Proposal requires a complex capital structure that
may not be well-understood by investors and thus could inhibit the
efficient valuation of either or both classes of Common Stock.
. The potential diverging or conflicting interests of the two Groups and
the issues that could arise in resolving any conflicts. See "--Certain
Management and Allocation Policies" and "Risk Factors--Potential
Conflicting Interests."
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<PAGE>
. Investors in Timber Stock or Georgia-Pacific Group Stock will be
exposed to the risks of the Company's consolidated businesses and
liabilities because both Groups remain legally a part of the Company.
See "Risk Factors--Shareholders of One Company; Financial Effects on
One Group Could Affect the Other" and "--Certain Management and
Allocation Policies."
. The possible inability to use the pooling method of accounting in
connection with future acquisitions using Timber Stock, and the
possible inability or increased difficulty of receiving a ruling from
the Service in connection with a proposed acquisition to be effected
using either Timber Stock or Georgia-Pacific Group Stock.
The Board determined that on balance the potential advantages of the Letter
Stock Proposal outweigh the potential disadvantages and concluded that the
Letter Stock Proposal is in the best interests of the Company and its
shareholders.
VOTE REQUIRED
The Letter Stock Proposal requires the affirmative vote of the holders of a
majority of the outstanding shares of Existing Common Stock.
RECOMMENDATION OF THE BOARD
THE BOARD HAS CAREFULLY CONSIDERED THE LETTER STOCK PROPOSAL AND BELIEVES
THAT ITS APPROVAL BY THE SHAREHOLDERS IS IN THE BEST INTERESTS OF THE COMPANY
AND THE SHAREHOLDERS. ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS APPROVE THE LETTER STOCK PROPOSAL.
CERTAIN MANAGEMENT AND ALLOCATION POLICIES
Because the Georgia-Pacific Group and the Timber Group will each be a part
of a single company, the Board and management have carefully considered a
number of issues with respect to intracompany business transactions, the
financing of the Timber Group and the Georgia-Pacific Group, and the
allocation of debt, corporate overhead, interest, taxes and other charges
between the two Groups. The Board and management have established policies to
accomplish the fundamental objective of the Letter Stock Proposal, which is to
separate the business and operations of the Timber Group from those of the
Georgia-Pacific Group, to operate the Timber Group on a stand-alone basis, to
allocate costs and charges between the two Groups on an objective basis, and
to ensure that sales by the Timber Group to the Georgia-Pacific Group are made
on terms that are negotiated between the managers of the two independent
Groups so as to approximate the terms that could be obtained from unaffiliated
third parties.
TIMBER SUPPLY. The Timber Group has historically provided approximately 95%
of its annual harvest to the Georgia-Pacific Group for consumption in its
mills, either by direct sales or through sales to third parties that in turn
deliver other quantities of timber and wood fiber to mills of the Georgia-
Pacific Group on an exchange basis. While these exchanged quantities have
historically been accounted for as outside sales, they actually represent
indirect sales to the Georgia-Pacific Group. The balance of the Timber Group's
timber sales, averaging approximately 5% of its annual harvest, has been to
third parties, usually on a stumpage basis and consisting of species which
were not needed in the Georgia-Pacific Group's operations.
The Timber Group and the Georgia-Pacific Group have negotiated an operating
policy governing future sales of timber and wood fiber by the Timber Group to
the Georgia-Pacific Group with an initial term of three years. Under this
policy, the Georgia-Pacific Group will be required to purchase in the years
1998-2000, on a take-or-pay basis, 60% of the volume of timber and wood fiber
harvested annually from the Timber Group's Southern forests. In 1998, the
Georgia-Pacific Group has a right of first refusal to purchase up to 90% of
the Timber Group's total annual harvest from each forest (which amount must
include the 60% take-or-pay amount described above). In 1999 and 2000, the
volume subject to this right of first refusal will decrease to 80%, and
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<PAGE>
the Georgia-Pacific Group must exercise its right not later than October 15th
of the preceding year. For 1998, the Georgia-Pacific Group has exercised its
right of first refusal and agreed to purchase % of the Timber Group's total
annual harvest. All quantities of timber and wood fiber committed under the
take-or-pay arrangement described above, and all quantities as to which the
Georgia-Pacific Group exercises its right of first refusal for a particular
year, will be sold at market prices determined quarterly. Such prices are
intended to approximate prices negotiated between unaffiliated third parties
in the open market and will be based upon (i) an average of the actual prices
during the immediately preceding quarter received by the Timber Group for
sales made by it to third parties, and prices paid by the Georgia-Pacific
Group for purchases made by it from third parties, in the same forest region
of timber and wood fiber of the same species, grade and size, and (ii) the
benefit to the Georgia-Pacific Group of having access to a committed quantity
of high quality timber and wood fiber in close proximity to its mills and
plants.
All quantities of timber and wood fiber harvested each year by the Timber
Group and not committed to the Georgia-Pacific Group as described above may be
sold by the Timber Group to any purchaser, including the Georgia-Pacific
Group. In such case, the Georgia-Pacific Group may purchase such timber at
negotiated prices or at prices determined in competitive bidding. Sales to the
Georgia-Pacific Group and third parties will generally be made on a stumpage
basis, except that sales in the Western region and of thinnings and select
harvests by the Timber Group may be made on a delivered basis.
This policy is intended to ensure that the Georgia-Pacific Group will be
able to purchase from the Timber Group specified amounts of timber and wood
fiber, while ensuring that the Timber Group, beginning in 1999, will be able
to sell at least 20% of its annual harvest in the open market. This policy
will remain in effect through 2000. If neither party gives written notice to
the other of its desire to renegotiate or terminate the policy by October 15,
1998, the policy will automatically be extended through 2001 and thereafter
will be extended for an additional year on each January 1 until any such
notice of renegotiation or termination is received. As a result, the policy in
effect has a two-year termination clause to allow both the Georgia-Pacific
Group and the Timber Group time to find other sellers and purchasers,
respectively, of timber and wood fiber.
While there can be no assurance that the terms of this policy, or any
changes in it which may be negotiated in the future, reflect those that would
be negotiated between unaffiliated third parties, the Company believes that
such agreements are not materially more or less favorable to the Timber Group
or to the Georgia-Pacific Group than either could obtain in negotiations with
unaffiliated third parties.
RETURNS TO SHAREHOLDERS. The Board has adopted a policy that earnings and
cash flow generated from the businesses of the Georgia-Pacific Group or the
Timber Group will be used only for reinvestment in the business of the Group
generating such earnings and related cash flow, for repayment of its debt or
for payment of dividends on, or for the repurchase of shares of, Common Stock
related to that Group. Funds of one Group will not be loaned to or otherwise
invested in the business of the other Group.
Repurchases of shares of Georgia-Pacific Group Stock or Timber Stock may be
made in the open market or in private transactions so long as the Company's
debt is below $5.5 billion; in addition Georgia-Pacific Group debt must be
below $4.5 billion for repurchases of Georgia-Pacific Group Stock to be made,
and Timber Group debt must be below $1.0 billion for repurchases of Timber
Stock to be made. Depending on operating and financial considerations, debt
levels of the Company or either of the Groups may from time to time be above
or below these thresholds.
FINANCING. At June 30, 1997, $1 billion, of the Company's total debt as of
such date was allocated to the Timber Group for financial statement and
accounting purposes; the $4.6 billion balance of the Company's total debt as
of such date, was allocated to the Georgia-Pacific Group. The Company has not
allocated specific debt securities or instruments to either Group. The debt of
each Group bears interest at a rate equal to the weighted average interest
rate of all of the Company's debt calculated on a quarterly basis. Expenses
related to the debt are reflected in the weighted average interest rate. Each
Group's debt will increase or decrease by the amount of any net cash generated
by, or required to fund, the Group's operating activities, dividend payments,
share repurchases and other financing activities. Interest will be charged to
each Group based on the amount of such Group's debt. Changes in the cost of
the Company's debt will be reflected in adjustments in the weighted average
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<PAGE>
interest cost of such debt. Dividend costs in respect of Preferred Stock or
Junior Preferred Stock will be charged in a similar manner.
CAPITAL SPENDING. It is anticipated that the Timber Group will have annual
net cash flow sufficient to finance its normal annual capital spending program
which, as described more fully under Annex V--"Timber Group--Management's
Discussion and Analysis," is expected to approximate $40 million in 1998. The
Timber Group's net cash flow should also permit it to make additional capital
expenditures and selected acquisitions of timberlands and other assets. See
Annex V--"Timber Group--Business." It is also expected that the Georgia-
Pacific Group's annual net cash flow in most years will be sufficient to allow
it to maintain its current capital spending level of approximately $750
million per year. See Annex IV--"Georgia-Pacific Group--Business." Any
decision by the Board to fund capital expenditures or capital investments in
excess of the cash flows of the respective Groups would be made by the Board
in the exercise of its good faith business judgment based on all relevant
circumstances, including the financing and investing needs and objectives of
each Group, the availability and cost of alternative financing, the existence
of alternative investment opportunities for the Georgia-Pacific Group and the
Timber Group, and the Board's analysis of the desirability of making such
investment or acquisition.
FIDUCIARY AND MANAGEMENT RESPONSIBILITIES. Because the Georgia-Pacific Group
and the Timber Group will continue to be part of a single company, the Board
and management will have the same fiduciary duties to holders of the Georgia-
Pacific Group Stock and the Timber Stock that they currently have to the
holders of the Existing Common Stock. Under Georgia law, a director or a
member of management will be deemed to have satisfied his fiduciary duties to
the Company and its shareholders if he acts in a manner which he believes in
good faith to be in the best interests of the Company and with the care that
an ordinarily prudent person in a like position would exercise under similar
circumstances. The Board and the Chief Executive Officer, in establishing
policies with regard to intracompany matters such as the sale of timber and
wood fiber and allocations of assets, liabilities, debt, corporate overhead,
taxes, interest and other matters, will consider various factors and
information which could benefit or cause detriment to the shareholders of the
respective Groups and will make determinations in the best interests of the
Company.
Because the Letter Stock Proposal will result in no change in the corporate
structure of the Company, Alston D. Correll, the Company's Chairman of the
Board, President and Chief Executive Officer, will have the same duties and
responsibilities for the management of the Company's assets and businesses
which comprise the Georgia-Pacific Group and the Timber Group following the
Distribution as he did prior thereto. The Company's senior staff officers
named below will continue to be responsible for the same designated functions
in both the Georgia-Pacific Group and the Timber Group as they were prior to
the Distribution. The costs attributable to their functions will be allocated
as discussed below under "--Financial Statements; Allocation Matters--
Corporate Overhead."
<TABLE>
<CAPTION>
Officer Functional Responsibilities
- ------- ---------------------------
<S> <C>
John F. McGovern Investor Relations, Treasury, Accounting
Executive Vice President and and Auditing, International
Chief Financial Officer Development, Strategic Planning,
Information Resources,
Tax, Benefit Investments
James E. Bostic Government Affairs, Environmental
Senior Vice President and Corporate Communications
Gerard R. Brandt Human Resources
Senior Vice President
James F. Kelley Legal, Security, Purchasing
</TABLE>
Senior Vice President
and General Counsel
34
<PAGE>
Separate management teams for each of the Georgia-Pacific Group and the
Timber Group have been designated by the Chief Executive Officer and approved
by the Board to ensure that the efforts of each team of managers are focused
solely on the business and operations for which they have responsibility.
These officers are named in Annex IV--"Georgia-Pacific Group--Business" and
Annex V--"Timber Group--Business."
In furtherance of the objective that directors remain impartial
notwithstanding their equity ownership interests in the Georgia-Pacific Group
and the Timber Group, the Board has adopted a policy that its members should
continue to hold a substantially equal number of shares of each of Timber
Stock and Georgia-Pacific Group Stock. Because of the anticipated differences
in trading values between the two securities, the actual value of the shares
of Georgia-Pacific Group Stock and Timber Stock held by directors initially
will vary significantly. See "Risk Factors--Fiduciary Duties of the Board; No
Definitive Precedent Under Georgia Law."
BOARD REVIEW OF CORPORATE OPPORTUNITIES AND OTHER MATTERS. The Board will
also review any matter which involves the allocation of a corporate
opportunity of the Company to either the Georgia-Pacific Group or the Timber
Group. In accordance with Georgia law, the directors will make their
determination with regard to the allocation of any such opportunity in
accordance with their good faith business judgment of the best interests of
the Company. Among the factors that the Board may consider in making such
allocation is whether a particular corporate opportunity is principally
related to the business of the Georgia-Pacific Group or the Timber Group,
whether one Group, because of its managerial or operational expertise, would
be better positioned to undertake the corporate opportunity, existing
contractual agreements and restrictions, and other matters. The Board will
also review allocations between the Groups of significant tax benefits or
charges, the write-off of significant assets, the allocation of significant
liabilities, and any actions which would significantly affect the Groups'
access to the Company's credit.
The Board has adopted policies to review any proposal of the Georgia-Pacific
Group and the Timber Group to acquire, sell or exchange material assets or
businesses with a third party, any significant intracompany transaction
between the two Groups, the dividend policies applicable to the Georgia-
Pacific Group Stock and the Timber Stock, the business and operations of the
Georgia-Pacific Group and the Timber Group and their individual financial
condition and results of operations, and other significant matters. These
policies are in substance the same as those now followed by the Board with
respect to similar activities of the Company.
COMPETITION BETWEEN GROUPS. Neither the Georgia-Pacific Group nor the Timber
Group will compete in each other's principal businesses, except that from time
to time the Georgia-Pacific Group may sell in the open market excess timber or
wood fiber acquired from the Timber Group or from third parties but not needed
by nearby Georgia-Pacific Group facilities.
FINANCIAL STATEMENTS; ALLOCATION MATTERS. The Company will prepare financial
statements in accordance with generally accepted accounting principles,
consistently applied, for the Georgia-Pacific Group and the Timber Group, and
these financial statements, taken together, will comprise all of the accounts
included in the corresponding consolidated financial statements of the
Company. The financial statements of each of the Georgia-Pacific Group and the
Timber Group will reflect the financial condition, results of operations and
cash flows of the businesses included therein. The combined financial
statements of the Georgia-Pacific Group will also include any accounts or
assets of the Company not specifically allocated to the Timber Group.
Group financial statements will include allocated portions of the Company's
debt, interest, corporate overhead and taxes. Notwithstanding such
allocations, for the purpose of preparing each Group's financial statements,
holders of Georgia-Pacific Group Stock and Timber Stock will continue to be
subject to all of the risks associated with an investment in the Company and
all of its businesses, assets and liabilities. See Annex IV--"Georgia-Pacific
Group--Combined Financial Statements," Annex V--"Timber Group--Combined
Financial Statements" and "Risk Factors--Shareholders of One Company;
Financial Effects on One Group Could Affect the Other."
In addition to allocating debt and interest as described above under "--
Financing," the Board and management have adopted the following allocation
policies, each of which is reflected in the combined financial statements of
the respective Groups:
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<PAGE>
Corporate Overhead. A portion of the Company's shared general and
administrative expenses (such as executive management, human resources,
legal, accounting and auditing, tax, treasury, strategic planning,
information systems support, and environmental services) will be allocated
to the Georgia-Pacific Group and the Timber Group based upon use of such
services by such Group. Where determinations based on use alone are
impracticable, other methods and criteria will be used that management
believes are equitable and provide a reasonable estimate of the cost
attributable to the Timber Group.
Taxes. The federal income taxes of the Company and the subsidiaries which
own assets allocated between the Groups are determined on a consolidated
basis. Consolidated federal income tax provisions and related tax payments
or refunds will be allocated between the Groups based principally on the
taxable income and tax credits directly attributable to each Group. Such
allocations will reflect each Group's contribution (positive or negative)
to the Company's consolidated federal taxable income and the consolidated
federal tax liability and tax credit position. Tax benefits that cannot be
used by the Group generating those benefits but can be used on a
consolidated basis will be credited to the Group that generated such
benefits. Accordingly, the amount of taxes payable or refundable which will
be allocated to each Group may not necessarily be the same as that which
would have been payable or refundable had the Group filed a separate income
tax return.
Depending on the tax laws of the respective jurisdictions, state and local
income taxes are calculated on either a consolidated or combined basis or
on a separate corporation basis. State income tax provisions and related
tax payments or refunds determined on a consolidated or combined basis will
be allocated between the Groups based on their respective contributions to
such consolidated or combined state taxable incomes. State and local income
tax provisions and related tax payments which are determined on a separate
corporation basis will be allocated between the Groups in a manner designed
to reflect the respective contributions of the Groups to the corporation's
separate state or local taxable income.
----------------
Subject to the Board's fiduciary duties, any of the policies described above
may be modified or rescinded or new policies may be adopted by the Board in
its sole discretion, without approval of the shareholders, at any time. The
Board has no present plans to change any of such policies. Any decision of the
Board to modify or rescind such policies or to adopt additional policies could
have different effects upon the holders of Georgia-Pacific Group Stock and
Timber Stock could result in benefit or detriment to one class of such
shareholders compared to the other. However, the Board will make any such
decision in accordance with its good faith business judgment of the best
interests of the Company.
DIVIDEND POLICY
Georgia-Pacific currently pays a quarterly dividend of $.50 per share on the
Existing Common Stock, or a total of $2.00 per share per year. After
consideration of a number of factors relating to the Georgia-Pacific Group and
the Timber Group, including debt levels, projected revenues, net income and
cash flows, and other matters, the Board has adopted a dividend policy for
dividends declared after the Distribution, pursuant to which the Company will
initially pay a quarterly dividend of $.25 per share on the Georgia-Pacific
Group Stock and $.25 per share on the Timber Stock. Thus, the dividend rate
per share currently in effect for the Existing Common Stock will be halved,
but the initial aggregate quarterly dividend payable by Georgia-Pacific on all
classes of its outstanding Common Stock will remain the same. The Board
believes that this dividend policy is appropriate given its consideration of
the factors described under "--Background of and Reasons for the Letter Stock
Proposal." The Board does not believe that the Distribution will adversely
affect the Company's ability to pay cash dividends.
The Board does not currently intend to change the above-described dividend
policy but reserves the right to do so at any time, or from time to time,
based on its review of the financial performance of the respective Groups and
of the Company as a whole. Future dividends on the Georgia-Pacific Group Stock
and Timber Stock will be payable when, as and if declared by the Board out of
the lesser of (i) all funds of the Company legally available therefor and (ii)
the Available Dividend Amount with respect to the relevant Group. See "--
Description of Georgia-Pacific Group Stock and Timber Stock--Dividends."
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<PAGE>
INCREASE IN AUTHORIZED COMMON STOCK
The Articles currently authorize the issuance of 150 million shares of
Existing Common Stock. In connection with the Letter Stock Proposal, the
Articles will be amended to designate the Timber Stock and authorize 250
million shares of Timber Stock for issuance. The Articles also will be amended
to increase the authorized shares of Existing Common Stock to 400 million
shares and to redesignate and convert each authorized share of Existing Common
Stock into a share of Georgia-Pacific Group Stock. In the aggregate, the
number of shares of Common Stock authorized for issuance will increase from
150 million to 650 million.
The increase in authorized shares of Common Stock is necessary in order to
implement the various aspects of the Letter Stock Proposal. The authorization
of 250 million shares of Timber Stock will allow the Distribution. Further, as
described under "--Description of Georgia-Pacific Group Stock and Timber
Stock--Conversion and Redemption," the Board has the right to convert one
class of Common Stock into the other class at a 15% premium at any time, or at
a 10% premium in connection with a disposition of all or substantially all
properties and assets of the Group whose stock is being converted. The number
of shares issuable in a conversion will therefore vary based on the relative
market values of the two classes of Common Stock and the number of outstanding
shares of the class to be converted. The Board may also pay a share dividend
in one class of Common Stock on such class of Common Stock, or declare a stock
split. In the event the Board determines that such a conversion or a share
dividend or stock split is in the best interests of the Company, but at such
time sufficient authorized shares of Common Stock are not available, approval
of the Company's shareholders to a further amendment to the Restated Articles
would be required. The Board believes that an increase in the number of
authorized shares of Common Stock at this time is in the best interests of the
Company in order to have available the number of shares needed for a future
conversion, share dividend or stock split if such a transaction is determined
to be in the best interests of the Company.
Other than the distribution of the Timber Stock on the Effective Date as
described above and the issuance of shares of Common Stock pursuant to the
Company's employee benefit plans, the Company has no present understanding or
agreement with respect to the issuance for any purpose of any of the shares of
Georgia-Pacific Group Stock or Timber Stock that will be authorized for
issuance if the Letter Stock Proposal is approved by the shareholders.
Although the Board has no present intention of doing so, the additional shares
of Common Stock that would be authorized for issuance if the Letter Stock
Proposal is approved could be issued in one or more transactions (within
limitations imposed by applicable law) that would make a takeover of the
Company more difficult and, therefore, less likely, even though such a
takeover might be financially beneficial to the Company and its shareholders.
See "--Certain Anti-Takeover Provisions of Georgia Law and Georgia-Pacific's
Articles, Bylaws and Restated Rights Agreement." The Board and management of
the Company have no knowledge of any person or entity that intends to seek a
controlling interest in, or to make a takeover proposal with respect to, the
Company.
The authorized but unissued shares of Georgia-Pacific Group Stock and Timber
Stock will be available for issuance by the Company from time to time, as
determined by the Board. The approval of the shareholders of the Company will
not be solicited by the Company for the issuance from the authorized but
unissued shares of Georgia-Pacific Group Stock or Timber Stock unless such
approval is deemed advisable by the Board or required by applicable law,
regulation or stock exchange requirements. See "--Voting Rights."
STOCK EXCHANGE LISTINGS
Application will be made to the NYSE for the redesignation of the Existing
Common Stock as Georgia-Pacific Group Stock, which will continue to trade
under the symbol "GP," and the listing of the Timber Stock under the symbol
" ."
EXCHANGE PROCEDURES
Upon the implementation of the Letter Stock Proposal, the Existing Common
Stock share certificates (the "Existing Certificates") will be deemed to
represent shares of Georgia-Pacific Group Stock. As soon as
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practicable following the Effective Date, holders of Existing Common Stock of
record as of the Effective Time will be mailed certificates representing
shares of Timber Stock. Shareholders should not mail their Existing
Certificates to either the Company or its transfer agent in connection with
the Letter Stock Proposal. New certificates representing shares of Georgia-
Pacific Group Stock will be issued in replacement of Existing Certificates as
such certificates are received and cancelled by the transfer agent.
STOCK TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York ("First Chicago") is the transfer
agent and registrar for the Existing Common Stock. If the Letter Stock
Proposal is approved by the shareholders and implemented by the Board, First
Chicago will be selected as the transfer agent and registrar for the Georgia-
Pacific Group Stock and the Timber Stock.
FINANCIAL ADVISOR
Morgan Stanley is acting as financial adviser to the Company in connection
with the Letter Stock Proposal. The Company has agreed to pay Morgan Stanley a
fee for its services. The Company also has agreed to reimburse Morgan Stanley
for certain of its reasonable out-of-pocket expenses (including fees and
expenses of its legal counsel) and has agreed to indemnify Morgan Stanley
against certain liabilities, including liabilities under the Securities Act.
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DESCRIPTION OF GEORGIA-PACIFIC GROUP STOCK AND TIMBER STOCK
The following description is qualified in its entirety by reference to
Annex I to this Proxy Statement, which contains the full text of the Restated
Articles. As required by Georgia law, the Restated Articles contained in Annex
I identify all amendments to be made to the Articles in connection with the
proposals set forth in the Notice of Special Meeting of Shareholders and the
transactions contemplated hereby. See also Annex II to this Proxy Statement
for illustrations of certain provisions of the Letter Stock Proposal.
GENERAL. The Company's Articles currently provide that the maximum number of
shares of capital stock of the Company authorized to be outstanding at any one
time consists of three classes, one of 10 million shares of Preferred Stock,
without par value, one of 25 million shares of Junior Preferred Stock, without
par value, and one of 150 million shares of Existing Common Stock, $.80 par
value per share. As of September 16, 1997, 5 million shares of Junior
Preferred Stock were designated as Series A Junior Preferred Stock. As of
September 12, 1997, 91,522,062 shares of Existing Common Stock were issued and
outstanding and no shares of Preferred Stock or Junior Preferred Stock were
issued and outstanding.
If the Letter Stock Proposal is adopted by the shareholders and implemented
by the Board, the Articles will be amended (i) to designate a new class of
common stock--the Timber Stock, consisting of 250 million authorized shares,
(ii) to redesignate each authorized share of Existing Common Stock as, and
convert each such share into, one share of Georgia-Pacific Group Stock, (iii)
to increase the number of shares of Georgia-Pacific Group Stock authorized for
issuance from 150 million shares to 400 million shares and (iv) to delete or
amend certain provisions of the Articles which are inconsistent with the
Letter Stock Proposal as described below. Pursuant to the Letter Stock
Proposal, the Board will also declare a share dividend and distribute Timber
Stock to the shareholders on the basis of one share of Timber Stock for each
share of Georgia-Pacific Group Stock outstanding on the Effective Date.
In addition to the amendments to the Articles in connection with the Letter
Stock Proposal, following the adoption of the Letter Stock Proposal, the
Articles will be further amended by resolution of the Board (i) to reduce the
number of authorized shares of Series A Junior Preferred Stock to zero, (ii)
to designate 5 million shares of Junior Preferred Stock as "Series B Junior
Preferred Stock," without par value per share (the "Series B Junior Preferred
Stock") and (iii) to designate 5 million shares of Junior Preferred Stock as
"Series C Junior Preferred Stock," without par value per share (the "Series C
Junior Preferred Stock"). These amendments relating to the Junior Preferred
Stock will be necessary as a result of the Letter Stock Proposal and its
effect on the Rights Agreement. See "--Restated Rights Agreement."
VOTING RIGHTS. Currently, holders of Existing Common Stock have one vote per
share on all matters submitted to shareholders. In addition, holders of any
series of Preferred Stock or Junior Preferred Stock would have the right to
vote as a separate voting group under the Georgia Business Code and under the
Restated Articles in certain circumstances. The Restated Articles will provide
that the holders of all classes of Common Stock and any series of Preferred
Stock and Junior Preferred Stock outstanding at the time of such vote and
entitled to vote together with the holders of Common Stock will vote together
as a single voting group on all matters as to which common shareholders
generally are entitled to vote other than a matter with respect to which the
Common Stock or either class thereof or any series of Preferred Stock or
Junior Preferred Stock would be entitled to vote as a separate voting group.
On all matters as to which all classes of Common Stock will vote together as a
single voting group, (i) each outstanding share of Georgia-Pacific Group Stock
will have one vote, and (ii) each outstanding share of Timber Stock will have
a number of votes (including a fraction of one vote) equal to the quotient
(rounded to the nearest three decimal places) of (A) the sum of (1) four times
X over the five-Trading Day period ending on the 10th Trading Day prior to the
record date for determining the holders of Common Stock entitled to vote, (2)
three times X over the next preceding five-Trading Day period, (3) two times X
over the next preceding five-Trading Day period and (4) X over the next
preceding five-Trading Day period, divided by (B) the sum of (1) four times Y
over the five-Trading Day period ending on such 10th Trading Day, (2) three
times Y over the next preceding five-Trading Day period, (3) two times Y over
the next preceding five-Trading Day period and (4) Y over the next preceding
five-Trading Day period, where X is the average Market Value of a share of
Timber Stock and Y is the average Market Value of a share of Georgia-Pacific
Group Stock.
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If shares of only one class of Common Stock are outstanding, each share of
that class shall be entitled to one vote. If any class of Common Stock is
entitled to vote as a separate voting group with respect to any matter, each
share of that class shall, for purposes of such vote, be entitled to one vote
on such matter. It is expected that initially Georgia-Pacific Group Stock will
have a substantial majority of the voting power of the Company.
If the Letter Stock Proposal is approved by the shareholders and implemented
by the Board, the Company will set forth the number of outstanding shares of
Georgia-Pacific Group Stock and Timber Stock in its Annual and Quarterly
Reports filed pursuant to the Exchange Act, and will disclose in any proxy
statement for a shareholder meeting the number of outstanding shares and per
share voting rights of the Georgia-Pacific Group Stock and the Timber Stock.
The relative voting rights of the Georgia-Pacific Group Stock and the Timber
Stock could fluctuate as described above so that a holder's voting rights will
more closely reflect the Market Value of such holder's equity investment in
the Company. Fluctuations in the relative voting rights of the Georgia-Pacific
Group Stock and the Timber Stock could influence an investor interested in
acquiring and maintaining a fixed percentage of the voting power of the
Company to acquire such percentage of both classes of Common Stock, and would
limit the ability of investors in one class to acquire for the same
consideration relatively more or less votes per share than investors in the
other class.
Following implementation of the Letter Stock Proposal, under the Georgia
Business Code the holders of Georgia-Pacific Group Stock and Timber Stock will
vote together as a single voting group, except as to certain amendments to the
Restated Articles affecting, among other things, the designation, rights,
preferences or limitations of a class of Common Stock or in connection with
mergers and statutory share exchanges involving such amendments, in which case
a separate vote by the holders of the particular class affected would also be
required. Accordingly, if a separate vote on a matter by the holders of either
Georgia-Pacific Group Stock or Timber Stock is not required under the Georgia
Business Code or by stock exchange rules, and if the Board does not require a
separate vote, the class, if any that is entitled to more than the number of
votes required to approve such matter will be in a position to control the
outcome of such vote even if the matter involves a divergence or conflict of
the interests of the holders of the Georgia-Pacific Group Stock and the Timber
Stock. Conversely, if a separate vote of the holders of either Georgia-Pacific
Group Stock or Timber Stock is required, the holders of Georgia-Pacific Stock
or Timber Stock could prevent approval of such matter even if the holders of a
majority of the total number of votes entitled to be cast with respect to both
Georgia-Pacific Group Stock and Timber Stock voting as a group were to vote in
favor of it. Under the Georgia Business Code and the Articles, approval of
amendments to the Articles requires the approval of the holders of a majority
of the votes entitled to be cast on the matter by each voting group. Most
other matters (other than the election of directors who are elected by a
plurality of the votes cast) will be approved if the votes cast within the
group favoring the action exceed the votes cast opposing the action. The
Articles, however, require the affirmative vote of at least 75% of the voting
power of the outstanding capital stock of the Company entitled to vote
generally in the election of directors, voting as a single voting group, in
order to approve certain amendments to the Bylaws and the Articles. See "--
Certain Anti-Takeover Provisions of Georgia Law and Georgia-Pacific's
Articles, Bylaws and Restated Rights Agreement" and "Risk Factors--Limited
Separate Shareholder Voting Rights; Effects on Voting Power."
The Restated Articles will reserve to the Board the right to condition the
submission of a particular matter on receipt of a separate vote of the holders
of outstanding shares of Georgia-Pacific Group Stock or Timber Stock. The
Board has no present intention of imposing a separate vote requirement on any
matter to be voted on in the foreseeable future.
DIVIDENDS. Dividends or other distributions on the Georgia-Pacific Group
Stock and the Timber Stock will be subject to substantially the same
limitations as dividends or other distributions on the Existing Common Stock.
Under the Georgia Business Code, dividends or other distributions are limited
to legally available assets of the Company and subject to the prior payment of
dividends or other distributions on any outstanding shares of
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Preferred Stock and Junior Preferred Stock. Under the Georgia Business Code,
no dividends or other distributions may be made to shareholders if, after
giving effect to such dividends or other distributions, the Company would not
be able to pay its debts as they become due in the usual course of business or
the Company's total assets would be less than its total liabilities plus,
subject to certain exceptions, any amounts necessary to satisfy the
preferential rights upon dissolution of shareholders whose preferential rights
are superior to those of the shareholders receiving the dividend or other
distribution.
Dividends or other distributions on the Georgia-Pacific Group Stock and the
Timber Stock will be further limited by the Restated Articles to an amount not
in excess of the Georgia-Pacific Group Available Dividend Amount and the
Timber Group Available Dividend Amount, respectively.
The "Georgia-Pacific Group Available Dividend Amount" or the "Timber Group
Available Dividend Amount," on any date, means any amount in excess of the
minimum amount necessary for the Georgia-Pacific Group or the Timber Group,
respectively, to be able to pay its debts as they become due in the usual
course of business (such amount with respect to a Group, an "Available
Dividend Amount").
The Georgia Business Code limits the amount of dividends or other
distributions on capital stock to the legally available assets of the Company,
which are determined on the basis of the entire Company, and not just the
respective Groups. Consequently, the amount of legally available assets will
reflect the amount of any net losses of either Group, any dividends or other
distributions on Georgia-Pacific Group Stock or Timber Stock or any Preferred
Stock or Junior Preferred Stock and any repurchases of Georgia-Pacific Group
Stock or Timber Stock or certain Preferred Stock or Junior Preferred Stock.
Dividend or other distribution payments on the Georgia-Pacific Group Stock and
on the Timber Stock could be precluded because of the unavailability of
legally available assets under the Georgia Business Code, even though there
may exist an Available Dividend Amount with respect to the relevant Group.
There can be no assurance that an Available Dividend Amount will exist with
respect to either Group.
Subject to the prior payment of distributions on any outstanding shares of
Preferred Stock and Junior Preferred Stock and the foregoing limitations, the
Board will be able, in its sole discretion, to declare and pay dividends or
other distributions exclusively on the Georgia-Pacific Group Stock,
exclusively on the Timber Stock or on both, in equal or unequal amounts,
notwithstanding the amount of dividends or other distributions previously
declared on each class, the respective voting or liquidation rights of each
class or any other factor.
CONVERSION AND REDEMPTION. The Articles currently do not provide for either
mandatory or optional conversion or redemption of the Existing Common Stock.
The Letter Stock Proposal will permit the conversion and redemption of the
Georgia-Pacific Group Stock and the Timber Stock upon the terms described
below.
For information concerning the definitions of "Convertible Securities,"
"Fair Value," "Market Capitalization," "Market Value," "Market Value Ratio of
the Converted Stock to the Consideration Stock," "Publicly Traded" and
"Trading Days" as used below, see "Index of Defined Terms."
MANDATORY DIVIDEND ON OR REDEMPTION OR CONVERSION OF COMMON STOCK. Upon the
sale, transfer, assignment or other disposition (whether by merger,
consolidation, sale or contribution of assets or stock or otherwise), in one
transaction or a series of related transactions (a "Disposition"), by the
Company of all or substantially all of the properties and assets of either
Group to one or more persons or entities (other than (w) the Disposition by
the Company of all or substantially all of the Company's properties and assets
in one transaction or a series of related transactions in connection with the
liquidation, dissolution or termination of the Company and the distribution of
assets to shareholders, (x) on a pro rata basis to the holders of all
outstanding shares of the class of Common Stock relating to such Group, (y) to
any person or entity controlled by the Company (as determined by the Board) or
(z) in connection with a Related Business Transaction), the Company is
required, on or prior to the 85th Trading Day following the consummation of
such Disposition, to either:
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(1) provided that there are assets of the Company legally available
therefor:
(i) subject to the limitations described above in the second paragraph
under "--Dividends," declare and pay a dividend or other distribution in
cash and/or securities (other than Common Stock) or other property to the
holders of outstanding shares of the class of Common Stock relating to the
Group subject to such Disposition having a Fair Value as of the date of
such consummation equal in the aggregate to the Fair Value of the Net
Proceeds of such Disposition as of the date of such consummation; or
(ii) (A) if such Disposition involves all (not merely substantially all)
of the properties and assets of such Group, redeem all outstanding shares
of Common Stock relating to the Group subject to such Disposition in
exchange for cash and/or securities (other than Common Stock) or other
property having a Fair Value as of the date of such consummation in the
aggregate equal to the Fair Value of the Net Proceeds of such Disposition
as of the date of such consummation; or
(B) if such Disposition involves substantially all (but not all) of
the properties and assets of such Group, redeem such number of whole shares
of the class of Common Stock relating to the Group subject to such
Disposition (but in any event not more than the number of shares of such
class of Common Stock outstanding) as have in the aggregate an average
Market Value, during the 10-Trading Day period beginning on the 16th
Trading Day immediately succeeding such consummation closest to the Fair
Value of the Net Proceeds of such Disposition as of the date of such
consummation, in consideration for cash and/or securities (other than
Common Stock) or other property having a Fair Value in the aggregate equal
to such Fair Value of the Net Proceeds of such Disposition as of the date
of such consummation;
provided, however, that the Company may only redeem shares of a class of
Common Stock pursuant to this paragraph (ii) if the Fair Value of the Net
Proceeds to be paid in redemption of such class is less than or equal to the
Available Dividend Amount with respect to the Group subject to such
Disposition; or
(2) convert each outstanding share of the class of Common Stock relating to
the Group subject to such Disposition into a number of fully paid and
nonassessable shares of the class of Common Stock relating to the other Group
(or, if the Common Stock relating to the other Group is not Publicly Traded at
such time and shares of another class or series of common stock of the Company
(other than of the class of Common Stock relating to the Group subject to such
Disposition) are then Publicly Traded, of such other class or series of common
stock as has the largest Market Capitalization as of the close of business on
the Trading Day immediately preceding the date of the notice of such
conversion mailed to holders), equal to 110% of the ratio (rounded to the
nearest five decimal places) of the average Market Value of one share of the
class of Common Stock relating to the Group subject to such Disposition to the
average Market Value of one share of the class of Common Stock relating to the
other Group (or such other class or series of common stock, as the case may
be), during the 10-Trading Day period beginning on the 16th Trading Day
following such consummation.
For purposes of the foregoing, "substantially all of the properties and
assets" of either Group means a portion of such properties and assets (i) that
represents at least 80% of the then Fair Value of the properties and assets of
such Group or (ii) from which were derived at least 80% of the aggregate
revenues for the immediately preceding 12 fiscal quarterly periods derived
from the properties and assets of such Group.
The Board may, within one year after a dividend or other distribution or
redemption following a Disposition by a Group of its properties or assets,
convert each outstanding share of the class of Common Stock relating to the
Group subject to such Disposition into a number of fully paid and
nonassessable shares of the class of Common Stock relating to the other Group
(or, if the class of Common Stock relating to the other Group is not Publicly
Traded at such time and shares of any class or series of Common Stock of the
Company (other than of the class of Common Stock relating to the Group subject
to such Disposition) are then Publicly Traded, of such other class or series
of common stock as has the largest Market Capitalization as of the close of
business on the
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Trading Day immediately preceding the date of the notice of such conversion
mailed to holders) equal to 110% of the Market Value Ratio of the Converted
Stock to the Consideration Stock as of the fifth Trading Day prior to the date
of the notice of such conversion mailed to such holders.
Any such conversion would dilute the interest in the Company of holders of
the class of Common Stock relating to the Group not subject to the Disposition
and would preclude holders of both classes of Common Stock from retaining
their investment in a security reflecting separately the business of their
respective Group. In determining whether to effect any such conversion
following such a dividend or other distribution or partial redemption, the
Board, in its sole discretion and consistent with its fiduciary duties, in
addition to other matters, would likely consider whether the remaining
properties and assets of the Group subject to the Disposition continue to
constitute a viable business. Other considerations could include the number of
shares of Common Stock relating to such Group remaining issued and outstanding
and the per share market price of such Common Stock.
A "Related Business Transaction" means any Disposition of all or
substantially all of the properties and assets of either Group in a
transaction or series of related transactions that result in the Company
receiving in consideration of such properties and assets primarily equity
securities (including, without limitation, capital stock, debt securities
convertible into or exchangeable for equity securities or interests in a
general or limited partnership or limited liability company, without regard to
the voting power or other management or governance rights associated
therewith) of any entity which (i) acquires such properties or assets or
succeeds (by merger, formation of a joint venture or otherwise) to the
business conducted with such properties or assets or controls such acquiror or
successor and (ii) is primarily engaged or proposes to engage primarily in one
or more businesses similar or complementary to the businesses conducted by
such Group prior to such Disposition, as determined by the Board. The purpose
of the Related Business Transaction exception is to enable the Company
technically to "dispose" of properties or assets of a Group to other entities
engaged or proposing to engage in businesses similar or complementary to those
of the class of Common Stock of such Group without resulting in a dividend or
other distribution on, or a conversion or redemption of, the class of Common
Stock of such Group.
The "Net Proceeds" of a Disposition of any of the properties and assets of
either Group means, as of any date, an amount, if any, equal to what remains
of the gross proceeds of such Disposition after any payment of, or reasonable
provision is made as determined by the Board for, (a) any taxes payable by the
Company (or which would have been payable but for the use of tax benefits
attributable to the other Group) in respect of such Disposition or in respect
of any resulting dividend or other distribution or redemption, (b) any
transaction costs, including, without limitation, any legal, investment
banking and accounting fees and expenses and (c) any liabilities (contingent
or otherwise) of or attributed to such Group, including, without limitation,
any liabilities for deferred taxes or any indemnity or guarantee obligations
of the Company incurred in connection with the Disposition or otherwise and
any liabilities for future purchase price adjustments and any preferential
amounts plus any accumulated and unpaid dividend or other distributions in
respect of the Preferred Stock or Junior Preferred Stock allocated to such
Group.
The Company may elect to pay the dividend or other distribution or
redemption price referred to in clause (1)(i) or (1)(ii) of the sixth
preceding paragraph above either in the same form as the proceeds of the
Disposition were received or in any other combination of cash, securities
(other than Common Stock) or other property that the Board or, in the case of
equity securities or debt securities that have not been Publicly Traded for a
period of at least 15 months, an independent investment banking firm,
determines will have an aggregate Market Value of not less than the amount of
the Fair Value of the Net Proceeds.
For illustrations of the calculations related to the mandatory dividend or
other distribution on or redemption or conversion of Common Stock upon the
Disposition of all or substantially all of the properties and assets of the
Georgia-Pacific Group or the Timber Group and the possible subsequent
conversion of any remaining Common Stock, see Annex II--Illustrations of
Certain Provisions of the Restated Articles.
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CONVERSION OF COMMON STOCK AT OPTION OF THE COMPANY. The Board may at any
time convert each outstanding share of (i) Georgia-Pacific Group Stock into a
number of fully paid and nonassessable shares of Timber Stock or (ii) Timber
Stock into a number of fully paid and nonassessable shares of Georgia-Pacific
Group Stock (or, if Timber Stock or Georgia-Pacific Group Stock, as the case
may be, is not Publicly Traded at such time and shares of another class or
series of common stock of the Company (other than Timber Stock or Georgia-
Pacific Group Stock, respectively) are then Publicly Traded, of such other
class or series of common stock of the Company as has the largest Market
Capitalization as of the close of business on the Trading Day immediately
preceding the date of the notice of such conversion mailed to holders), equal
to 115% of the Market Value Ratio of the Converted Stock to the Consideration
Stock as of the fifth Trading Day prior to the date of the notice of such
conversion mailed to such holders.
The foregoing provisions allow the Company the flexibility to recapitalize
the Common Stock into one class of Common Stock that would, after such
recapitalization, represent an equity interest in all of the Company's
businesses. The optional conversion could be exercised at any time in the
future if the Board determines that, under the facts and circumstances then
existing, an equity structure consisting of separated classes of common stock
intended to reflect separately the performance of the Company's manufacturing
business and the timber business is no longer in the best interests of all of
the Company's shareholders. Such conversion may be exercised, however, at a
time that is disadvantageous to the holders of one or both of the classes of
Common Stock. See "Risk Factors--Fiduciary Duties of the Board; No Definitive
Precedent under Georgia Law" and "--Potential Conflicting Interests."
For an illustration of the calculation of the number of shares of one class
of Common Stock converted into shares of the other class of Common Stock at
the option of the Company, see Annex II--Illustrations of Certain Provisions
of the Restated Articles.
REDEMPTION IN EXCHANGE FOR STOCK OF SUBSIDIARY. At any time at which all of
the assets and liabilities of the Georgia-Pacific Group (and no other assets
or liabilities of the Company or any subsidiary thereof) are held directly or
indirectly by one or more wholly owned subsidiaries of the Company (the
"Georgia-Pacific Group Subsidiaries"), the Board may, provided that there are
assets of the Company legally available therefor, redeem all of the
outstanding shares of Georgia-Pacific Group Stock for all of the outstanding
shares of the common stock of the Georgia-Pacific Group Subsidiaries equal to
the number of shares of the Georgia-Pacific Group Subsidiaries to be
outstanding immediately following such redemption.
At any time at which all of the assets and liabilities of the Timber Group
(and no other assets or liabilities of the Company or any subsidiary thereof)
are held directly or indirectly by one or more wholly-owned subsidiaries of
the Company (the "Timber Group Subsidiaries"), the Board may, provided that
there are assets of the Company legally available therefor, redeem all of the
outstanding shares of Timber Stock for a number of shares of common stock of
the Timber Group Subsidiaries equal to the number of shares of the Timber
Group Subsidiaries to be outstanding immediately following such redemption.
GENERAL CONVERSION AND REDEMPTION PROVISIONS. Not later than the 10th
Trading Day following the consummation of a Disposition referred to above
under "--Mandatory Dividend on or Redemption or Conversion of Common Stock,"
the Company will announce publicly by press release (i) the Net Proceeds of
such Disposition, (ii) the number of shares outstanding of the class of Common
Stock relating to the Group subject to such Disposition and (iii) the number
of shares of such Common Stock into or for which Convertible Securities are
then convertible, exchangeable or exercisable and the conversion, exchange or
exercise price thereof. Not earlier than the 26th Trading Day and not later
than the 30th Trading Day following the consummation of such Disposition, the
Company will announce publicly by press release which of the actions specified
in clause (1)(i), (1)(ii)(A), (1)(ii)(B) or (2) of the first paragraph under
"--Mandatory Dividend on or Redemption or Conversion of Common Stock" it has
irrevocably determined to take.
If the Company determines to pay a dividend or other distribution as
described in clause (1)(i) of such paragraph, the Company is required, not
later than the 30th Trading Day following the consummation of such
Disposition, to cause to be given to each holder of shares of the class of
Common Stock relating to the Group
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subject to such Disposition and to each holder of Convertible Securities
convertible into or exchangeable or exercisable for shares of such Common
Stock (unless alternate provision for notice to the holders of such
Convertible Securities is made pursuant to the terms of such Convertible
Securities), a notice setting forth (i) the record date for determining
holders entitled to receive such dividend or other distribution, which shall
be not earlier than the 40th Trading Day and not later than the 50th Trading
Day following the consummation of such Disposition, (ii) the anticipated
payment date of such dividend or other distribution (which will not be more
than 85 Trading Days following the consummation of such Disposition), (iii)
the type of property to be paid as such dividend or other distribution in
respect of outstanding shares of such Common Stock, (iv) the Net Proceeds of
such Disposition, (v) the number of outstanding shares of such Common Stock
and the number of shares of such Common Stock into or for which outstanding
Convertible Securities are then convertible, exchangeable or exercisable and
the conversion, exchange or exercise price thereof and (vi) in the case of
notice to be given to holders of Convertible Securities, a statement to the
effect that a holder of such Convertible Securities will be entitled to
receive such dividend or other distribution only if such holder properly
converts, exchanges or exercises such Convertible Securities on or prior to
the record date referred to in clause (i) of this sentence. Such notice will
be sent by first-class mail, postage prepaid, to each such holder at such
holder's address as the same appears on the transfer books of the Company.
If the Company determines to undertake a redemption pursuant to clause
(1)(ii)(A) of the first paragraph under "--Mandatory Dividend on or Redemption
or Conversion of Common Stock," the Company is required, not earlier than the
35th Trading Day and not later than the 45th Trading Day prior to the
redemption date, to cause to be given to each holder of shares of the class of
Common Stock subject to the Disposition referred to in such paragraph, and to
each holder of Convertible Securities convertible into or exchangeable or
exercisable for shares of such Common Stock (unless alternate provision for
such notice to the holders of such Convertible Securities is made pursuant to
the terms of such Convertible Securities) a notice setting forth (i) a
statement that all shares of such Common Stock outstanding on the redemption
date will be redeemed, (ii) the redemption date (which will not be more than
85 Trading Days following the consummation of such Disposition), (iii) the
type of property in which the redemption price for the shares to be redeemed
is to be paid, (iv) the Net Proceeds of such Disposition, (v) the place or
places where certificates for shares of such Common Stock, properly endorsed
or assigned for transfer (unless the Company waives such requirement) are to
be surrendered for delivery of cash and/or securities or other property, (vi)
the number of outstanding shares of such Common Stock and the number of shares
of such class of Common Stock into or for which outstanding Convertible
Securities are then convertible, exchangeable or exercisable and the
conversion, exchange or exercise price thereof, (vii) in the case of notice to
be given to holders of Convertible Securities, a statement to the effect that
a holder of such Convertible Securities will be entitled to participate in
such redemption only if such holder properly converts, exchanges or exercises
such Convertible Securities on or prior to the redemption date referred to in
clause (ii) of this sentence and a statement as to what, if anything, such
holder will be entitled to receive pursuant to the terms of such Convertible
Securities or the Restated Articles as then amended if such holder thereafter
converts, exchanges or exercises such Convertible Securities and (viii) a
statement to the effect that, except as otherwise provided below, dividends or
other distributions on such shares of such Common Stock shall cease to be paid
as of such redemption date. Such notice will be sent by first-class mail,
postage prepaid to each such holder at such holder's address as the same
appears on the transfer books of the Company.
If the Company determines to undertake a redemption pursuant to clause
(1)(ii)(B) of the first paragraph under "--Mandatory Dividend on or Redemption
or Conversion of Common Stock," the Company is required, not later than the
30th Trading Day following consummation of the Disposition referred to in such
paragraph, to cause to be given to each holder of shares of the class of
Common Stock relating to the Group subject to such Disposition and to each
holder of Convertible Securities that are convertible into or exchangeable or
exercisable for shares of such Common Stock (unless alternate provision for
such notice to the holders of such Convertible Securities is made pursuant to
the terms of such Convertible Securities), a notice setting forth (i) a date,
not earlier than the 40th Trading Day and not later than the 50th Trading Day
following the consummation of such Disposition in respect of which such
redemption is to be made, on which shares of such class of Common Stock will
be selected for redemption, (ii) the anticipated redemption date which will
not be more than 85 Trading
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Days following the consummation of such Disposition, (iii) the type of
property in which the redemption price for the shares to be redeemed is to be
paid, (iv) the Net Proceeds of such Disposition, (v) the number of outstanding
shares of such Common Stock and the number of shares of such Common Stock into
or for which outstanding Convertible Securities are then convertible,
exchangeable or exercisable and the conversion, exchange or exercise price
thereof, (vi) in the case of notice to be given to holders of Convertible
Securities, a statement to the effect that a holder of such Convertible
Securities will be entitled to participate in such selection for redemption
only if such holder properly converts, exchanges or exercises such Convertible
Securities on or prior to the date referred to in clause (i) of this sentence
and a statement as to what, if anything, such holder will be entitled to
receive pursuant to the terms of such Convertible Securities or the Restated
Articles as then amended if such holder thereafter converts, exchanges or
exercises such Convertible Securities and (vii) a statement that the Company
will not be required to register a transfer of any shares of such class of
Common Stock for a period of 15 Trading Days next preceding the date referred
to in clause (i) of this sentence. Promptly, but not earlier than 40 Trading
Days nor more than 50 Trading Days following the consummation of such
Disposition, the Company is required to cause to be given to each holder of
shares of such Common Stock to be so redeemed a notice setting forth (1) the
number of shares of such Common Stock held by such holder to be redeemed, (2)
a statement that such shares of such Common Stock will be redeemed, (3) the
redemption date, (4) the kind and per share amount of cash and/or securities
or other property to be received by such holder with respect to each share of
such Common Stock to be redeemed, including details as to the calculation
thereof, (5) the place or places where certificates for shares of such Common
Stock, properly endorsed or assigned for transfer (unless the Company waives
such requirement) are to be surrendered for delivery of such cash and/or
securities or other property, (6) if applicable, a statement to the effect
that the shares being redeemed may no longer be transferred on the transfer
books of the Company after the redemption date and (7) a statement to the
effect that, except as otherwise provided below, dividends or other
distributions on such shares of such Common Stock will cease to be paid as of
such redemption date. Such notices will be sent by first-class mail, postage
prepaid to each such holder, at such holder's address as the same appears on
the transfer books of the Company.
If less than all of the outstanding shares of such Common Stock are to be
redeemed as described above under "--Mandatory Dividend on or Redemption or
Conversion of Common Stock," such shares will be redeemed by the Company pro
rata among the holders of outstanding shares of such Common Stock or by such
other method as may be determined by the Board to be equitable.
In the event of any conversion as described above under "--Conversion of
Common Stock at Option of the Company" or "--Mandatory Dividend on or
Redemption or Conversion of Common Stock," the Company will cause to be given,
not earlier than the 35th Trading Day and not later than the 45th Trading Day
prior to the Conversion Date, to each holder of shares of the class of Common
Stock to be so converted and to each holder of Convertible Securities that are
convertible into or exchangeable or exercisable for shares of such Common
Stock (unless alternate provision for such notice to the holders of such
Convertible Securities is made pursuant to the terms of such Convertible
Securities), a notice setting forth (i) a statement that all outstanding
shares of such Common Stock will be converted, (ii) the conversion date
(which, in the case of a conversion after a Disposition, will not be more than
85 Trading Days following the consummation of such Disposition), (iii) the per
share number of shares of Georgia-Pacific Group Stock or Timber Stock, as the
case may be, to be received with respect to each share of such Common Stock,
including details as to the calculation thereof, (iv) the place or places
where certificates for shares of such Common Stock, properly endorsed or
assigned for transfer (unless the Company waives such requirement) are to be
surrendered for delivery of certificates for shares of such Common Stock, (v)
the number of outstanding shares of such Common Stock and the number of shares
of such Common Stock into or for which outstanding Convertible Securities are
then convertible, exchangeable or exercisable and the conversion, exchange or
exercise price thereof, (vi) a statement to the effect that, except as
otherwise provided below, dividends or other distributions on such shares of
such Common Stock will cease to be paid as of such conversion date and (vii)
in the case of notice to be given to holders of Convertible Securities, a
statement to the effect that a holder of such Convertible Securities will be
entitled to receive shares of such Common Stock upon such conversion only if
such holder properly converts, exchanges or exercises such Convertible
Securities on or prior to the conversion date referred to in clause (ii) of
this sentence and a statement as to what, if anything, such holder will be
entitled to receive pursuant to the terms of such Convertible Securities
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or the Restated Articles as then amended if such holder thereafter converts,
exchanges or exercises such Convertible Securities. Such notice will be sent
by first-class mail, postage prepaid, to such holder at such holder's address
as the same appears on the transfer books of the Company.
If the Company determines to redeem shares of a class of Common Stock as
described above under "--Redemption in Exchange for Stock of Subsidiary," the
Company will cause to be given to each holder of shares of such Common Stock
and to each holder of Convertible Securities convertible into or exchangeable
or exercisable for shares of such Common Stock (unless alternate provision for
such notice to the holders of such Convertible Securities is made pursuant to
the terms of such Convertible Securities), a notice setting forth (i) a
statement that all shares of such Common Stock outstanding on the redemption
date will be redeemed in exchange for shares of common stock of the Georgia-
Pacific Group Subsidiaries or shares of common stock of the Timber Group
Subsidiaries, as the case may be, (ii) the redemption date, (iii) the place or
places where certificates for shares of such Common Stock properly endorsed or
assigned for transfer (unless the Company waives such requirement) are to be
surrendered for delivery of certificates for shares of common stock of the
Georgia-Pacific Group Subsidiaries or shares of common stock of the Timber
Group Subsidiaries, as the case may be, (iv) a statement to the effect that,
except as otherwise provided below, dividends or other distributions on such
shares of such Common Stock will cease to be paid as of such redemption date,
(v) the outstanding number of shares of such Common Stock and the number of
shares of such Common Stock into or for which outstanding Convertible
Securities are then convertible, exchangeable or exercisable and the
conversion, exchange or exercise price thereof and (vi) in the case of notice
to be given to holders of Convertible Securities, a statement to the effect
that a holder of such Convertible Securities will be entitled to receive
shares of common stock of the Georgia-Pacific Group Subsidiaries or shares of
common stock of the Timber Group Subsidiaries, as the case may be, only if
such holder properly converts, exchanges or exercises such Convertible
Securities on or prior to the date referred to in clause (ii) of this sentence
and a statement as to what, if anything, such holder will be entitled to
receive pursuant to the terms of such Convertible Securities or the Restated
Articles as then amended if such holder thereafter converts, exchanges or
exercises such Convertible Securities. Such notice will be sent by first-class
mail, postage prepaid, not less than 30 Trading Days nor more than 45 Trading
Days prior to the redemption date, to each such holder at such holder's
address as the same appears on the transfer books of the Company.
Neither the failure to mail any notice described above to any particular
holder of shares of any class of Common Stock or of any Convertible Securities
nor any defect therein will affect the sufficiency thereof with respect to any
other holder of outstanding shares of such Common Stock or of outstanding
Convertible Securities, or the validity of any such conversion or redemption.
The Company will not be required to issue or deliver fractional shares of
any class or series of capital stock or any fractional securities to any
holder of either class of Common Stock upon any conversion, redemption,
dividend or other distribution described above. If more than one share of
Common Stock is held at the same time by the same holder, the Company may
aggregate the number of shares of any class or series of capital stock that is
issuable or the amount of securities or property that is distributable to such
holder upon any such conversion, redemption, dividend or other distribution
(including any fractions of shares or securities). If the number of shares of
any class or series of capital stock or the amount of securities remaining to
be issued or distributed to any holder of such Common Stock is a fraction, the
Company will, if such fraction is not issued or distributed to such holder,
pay a cash adjustment in respect of such fraction in an amount equal to the
Fair Value of such fraction on the fifth Trading Day prior to the date such
payment is to be made (without interest).
No adjustments in respect of dividends or other distributions will be made
upon the conversion or redemption of any shares of Common Stock; provided,
however, that if such shares are converted or redeemed by the Company after
the record date for determining holders of such Common Stock entitled to any
dividend or other distribution thereon, such dividend or other distribution
will be payable to the holders of such shares at the close of business on such
record date notwithstanding such conversion or redemption, in each case
without interest.
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Before any holder of Common Stock will be entitled to receive certificates
representing shares of any capital stock, cash and/or other securities or
property to be distributed to such holder with respect to any conversion or
redemption of shares of such Common Stock, such holder is required to
surrender at such place as the Company specified certificates for shares of
such Common Stock, properly endorsed or assigned for transfer (unless the
Company waives such requirement). As soon as practicable after the Company's
receipt of certificates for such shares of such Common Stock, the Company will
deliver to the person for whose account such shares were so surrendered, or to
the nominee or nominees of such person, certificates representing the number
of whole shares of the kind of capital stock, cash and/or other securities or
property to which such person was entitled, together with any fractional
payment referred to above, in each case without interest. If less than all of
the shares of Common Stock represented by any one certificate are to be
redeemed, the Company will issue and deliver a new certificate for the shares
of such Common Stock not redeemed.
From and after any conversion or redemption of shares of either class of
Common Stock, all rights of a holder of shares of such Common Stock that were
converted or redeemed will cease, except for the right, upon surrender of the
certificates representing such shares of such Common Stock, to receive the
cash and/or the certificates representing shares of the kind and amount of
capital stock and/or other securities or property for which such shares were
converted or redeemed, together with any fractional payment or rights to
dividends or other distributions as provided above, in each case without
interest. No holder of a certificate that immediately prior to the conversion
or redemption of Common Stock represented shares of such Common Stock will be
entitled to receive any dividend or other distribution or interest payment
with respect to shares of any kind of capital stock into or in exchange for
which shares of such Common Stock were converted or redeemed until surrender
of such holder's certificate in exchange for a certificate or certificates
representing shares of such kind of capital stock. Upon such surrender, there
will be paid to the holder the amount of any dividends or other distributions
(without interest) which theretofore became payable with respect to a record
date occurring after the conversion or redemption, but which were not paid by
reason of the foregoing, with respect to the number of whole shares of the
kind of capital stock represented by the certificate or certificates issued
upon such surrender. From and after a conversion or redemption, the Company
will, however, be entitled to treat the certificates for such Common Stock
that have not yet been surrendered for conversion or redemption as evidencing
the ownership of the number of whole shares of the kind of capital stock for
which the shares of such Common Stock represented by such certificates shall
have been converted or redeemed, notwithstanding the failure to surrender such
certificates.
The Company will pay any and all documentary, stamp or similar issue or
transfer taxes that may be payable in respect of the issue or delivery of any
shares of capital stock and/or other securities on conversion or redemption of
shares of either class of Common Stock pursuant hereto. The Company will not,
however, be required to pay any tax that may be payable in respect of any
transfer involved in the issue or delivery of any shares of capital stock
and/or other securities in a name other than that in which the shares of such
Common Stock so converted or redeemed were registered, and no such issue or
delivery will be made unless and until the person requesting such issue has
paid to the Company the amount of any such tax, or has established to the
satisfaction of the Company that such tax had been paid.
LIQUIDATION. Currently, in the event of a liquidation, dissolution or
termination of the Company, after payment, or provision for payment, of the
debts and other liabilities of the Company and the payment of full
preferential amounts (including any accumulated and unpaid dividends or other
distributions) to which the holders of any Preferred Stock or Junior Preferred
Stock are entitled, holders of Existing Common Stock are entitled to share
ratably in the remaining net assets of the Company. Under the Letter Stock
Proposal, in the event of a liquidation, dissolution or termination of the
Company, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the Company and full
preferential amounts (including any accumulated and unpaid distributions) to
which holders of any series of Preferred Stock or Junior Preferred Stock are
entitled (regardless of the Group to which such shares of Preferred Stock or
Junior Preferred Stock were attributed), the holders of Georgia-Pacific Group
Stock and Timber Stock will be entitled to receive the net assets, if any, of
the Company remaining for distribution to holders of Common Stock on a per
share basis in proportion to a fixed number of units per share of each class
("Liquidation Units"). Each share of
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Georgia-Pacific Group Stock will have one Liquidation Unit and each share of
Timber Stock will have a number of Liquidation Units (including a fraction of
one unit) equal to the number of Liquidation Units determined by the ratio
expressed as a decimal fraction (rounded to the nearest three decimal places)
equal to the quotient of (A) the sum of (1) four times X over the five-Trading
Day period ending on the 40th Trading Day immediately succeeding the Effective
Date, (2) three times X over the next preceding five-Trading Day period, (3)
two times X over the next preceding five-Trading Day period and (4) X over the
next preceding five-Trading Day period, divided by (B) the sum of (1) four
times Y over the five-Trading Day period ending on such 40th Trading Day
immediately succeeding the Effective Date, (2) three times Y over the next
preceding five-Trading Day period, (3) two times Y over the next preceding
five-Trading Day period and (4) Y over the next preceding five-Trading Day
period, where X is the average Market Value of a share of Timber Stock and Y
is the average Market Value of a share of Georgia-Pacific Group Stock. After
the number of Liquidation Units to which each share of Timber Stock is
entitled has been calculated in accordance with this formula, such number will
not otherwise be changed without the approval of shareholders of each Group.
Thus, after the date of the calculation of the number of Liquidation Units to
which the Timber Stock is entitled the liquidation rights of the holders of
the respective classes of Common Stock may not bear any relationship to the
relative market values or the relative voting rights of the other class.
The Company considers that its complete liquidation is a remote
contingency, and its financial advisors believe that, in general, these
liquidation provisions are immaterial to trading in Georgia-Pacific Group
Stock and Timber Stock. No holders of Georgia-Pacific Group Stock will have
any special right to receive specific assets of to the Georgia-Pacific Group
and no holder of Timber Stock will have any special right to receive specific
assets of to the Timber Group in the case of a liquidation, dissolution or
termination of the Company.
If the Company subdivides (by stock split, reclassification or otherwise) or
combines (by reverse stock split or otherwise) the outstanding shares of any
class of Common Stock or declares a dividend or other distribution of shares
of any class of Common Stock to holders of such class of Common Stock, the
number of Liquidation Units of the class of Common Stock will be appropriately
adjusted as determined by the Board so as to avoid any dilution in aggregate
liquidation rights of any class of Common Stock.
Neither a merger nor share exchange of the Company into or with any other
corporation, nor a merger or share exchange of any other corporation into or
with the Company, nor any sale, lease, exchange or other disposition of all or
any part of the assets of the Company, will, alone, be deemed to be a
liquidation of the Company, or cause the dissolution of the Company, for
purposes of the liquidation provisions set forth above.
DETERMINATIONS BY THE BOARD. If the Letter Stock Proposal is approved by the
shareholders and implemented by the Board, any determinations made in good
faith by the Board under any provision described under "Description of
Georgia-Pacific Group Stock and Timber Stock," and any determinations with
respect to any Group or the rights of holders of shares of either class of
Common Stock, will be final and binding on all shareholders of the Company,
subject to the rights of shareholders under applicable Georgia law and under
the federal securities laws.
PREEMPTIVE RIGHTS. Neither the holders of the Georgia-Pacific Group Stock
nor the holders of the Timber Stock will have any preemptive rights or any
rights to convert their shares into any other securities of the Company.
RESTATED RIGHTS AGREEMENT
The Company has issued Junior Preferred Stock Purchase Rights (the "Original
Rights") to all holders of its Existing Common Stock pursuant to a Rights
Agreement dated as of July 31, 1989 between the Company and First Chicago
Trust Company of New York, as Rights Agent (the "Original Rights Agreement").
Each Original Right entitles the holder thereof to purchase shares of Series A
Junior Preferred Stock under conditions specified in the Original Rights
Agreement. If the Letter Stock Proposal is approved by the shareholders and
implemented by the Board, the Original Rights Agreement will be amended and
restated (the "Restated Rights Agreement")
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to, among other things, (i) reflect the new equity structure of the Company,
(ii) reset the prices at which rights issued pursuant thereto may be exercised
into units of Junior Preferred Stock, (iii) extend the expiration date of the
rights issued pursuant thereto from July 31, 1999 to December 31, 2007, (iv)
change the triggering percentage with respect to a tender or exchange offer
from 30% to 15%, and (v) replace the Board's ability to redeem the rights
issued pursuant thereto for $.01 per right with the ability to terminate the
rights.
If the Letter Stock Proposal is approved by the shareholders and implemented
by the Board, as of the Effective Date, the Board will by resolution amend the
Articles to (i) reduce the authorized number of shares of Series A Junior
Preferred Stock to zero, (ii) designate a new series of Junior Preferred Stock
as the Series B Junior Preferred Stock, (iii) designate another new series of
Junior Preferred Stock as the Series C Junior Preferred Stock, (iv)
redesignate each Original Right as a "Georgia-Pacific Group Right," which will
entitle the holders thereof to purchase shares of Series B Junior Preferred
Stock under the conditions specified in the Restated Rights Agreement, and (v)
issue one right with respect to each share of Timber Stock (a "Timber Right"),
which will entitle the holders thereof to purchase shares of Series C Junior
Preferred Stock under the conditions specified in the Restated Rights
Agreement. The Georgia-Pacific Group Rights and the Timber Rights are herein
collectively referred to as the "Rights."
The Restated Rights Agreement will provide that, prior to the earlier of (i)
the tenth day (the "Stock Acquisition Date") after a public announcement that
a person or group of affiliated or associated persons (other than the Company,
any subsidiary of the Company or any employee benefit plan of the Company or
such subsidiary) (an "Acquiring Person") has acquired, obtained the right to
acquire, or otherwise obtained beneficial ownership of 15% or more of the
total voting rights of the then outstanding shares of Common Stock or (ii) the
tenth business day following the commencement of a tender or exchange offer
that would result in such person or group beneficially owning 15% or more of
the total voting rights of the then outstanding shares of Common Stock (the
earlier of such dates being called the "Separation Date"), each Georgia-
Pacific Group Right and each Timber Right will be evidenced only by the
certificates representing shares of Georgia-Pacific Group Stock and Timber
Stock, respectively, then outstanding, and no separate Rights certificates
will be distributed. Therefore, until the Separation Date, the Georgia-Pacific
Group Rights will be transferred with and only with the Georgia-Pacific Group
Stock, and the Timber Rights will be transferred with and only with the Timber
Stock. For purposes of the Restated Rights Agreement, the total voting rights
of the Common Stock will be determined based upon the voting rights of holders
of outstanding shares of Timber Stock and Georgia-Pacific Group Stock in
effect at the time of any such determination. See "--Voting Rights." The
Original Rights Agreement provided that the triggering percentage with respect
to a tender or exchange offer would be 30% of the outstanding voting rights.
The Restated Rights Agreement would decrease this percentage from 30% to 15%
in order to make the triggering percentages for acquisitions of stock
generally and for tender or exchange offers the same.
Upon the close of business on the Separation Date, the Rights will separate
from the Common Stock and become exercisable as described below. The Rights
will expire on December 31, 2007 (the "Expiration Date"), unless earlier
extended or terminated by the Company as described below. The Original Rights
would have expired on July 31, 1999.
Following the Separation Date, registered holders of Rights will be entitled
to purchase from the Company (i) in the case of a Georgia-Pacific Group Right,
one one-hundredth (1/100th) of a share of Series B Junior Preferred Stock (a
"Series B Unit") at a purchase price of $350, subject to adjustment (the
"Series B Unit Purchase Price"), and (ii) in the case of a Timber Right, one
one-hundredth (1/100th) of a share of Series C Junior Preferred Stock (a
"Series C Unit") at a purchase price of $100, subject to adjustment (the
"Series C Unit Purchase Price"). An Original Right entitled the holder thereof
to purchase one one-hundredth (1/100th) of a share of Series A Junior
Preferred Stock at a purchase price of $175, under the conditions specified in
the Original Rights Agreement. In adopting the Restated Rights Agreement, the
Board determined that the purchase
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price related to an Original Right would not represent the long term value of
a share of Georgia-Pacific Group Stock and, consequently, set the Series B
Unit Purchase Price at $350.
In the event (i) any person or group becomes an Acquiring Person, (ii) an
Acquiring Person engages in one or more "self-dealing" transactions with the
Company as set forth in the Restated Rights Agreement, (iii) the Company is
the surviving or continuing corporation in a merger or other combination with
an Acquiring Person and all the Common Stock remains outstanding and is not
changed or exchanged or (iv) while there is an Acquiring Person, there shall
be any reclassification of securities, recapitalization of the Company or
other transaction or series of transactions that has the effect of increasing
by more than 1% the proportionate share of the outstanding shares of any class
or series of equity securities of the Company beneficially owned by the
Acquiring Person, then the Rights will "flip-in," and proper provision will be
made so that each holder of a Right, other than Rights which are, or under
certain circumstances specified in the Restated Rights Agreement were,
beneficially owned by any Acquiring Person (which will thereafter be void),
will thereafter (a) in the case of a Georgia-Pacific Group Right, entitle its
holder to purchase, at the Series B Unit Purchase Price, a number of Series B
Units with a market value equal to twice the Series B Unit Purchase Price and
(b) in the case of a Timber Right, entitle its holder to purchase, at the
Series C Unit Purchase Price, a number of Series C Units with a market value
equal to twice the Series C Unit Purchase Price.
Because of the nature of the dividend, liquidation and voting rights of each
series of Junior Preferred Stock related to the Rights, the economic value of
one Series B Unit and one Series C Unit should approximate the economic value
of one share of Georgia-Pacific Group Stock and one share of Timber Stock,
respectively.
In the event, following the Stock Acquisition Date (i) the Company is
acquired in a merger or other business combination transaction and the Company
is not the surviving corporation, (ii) any person consolidates or merges with
the Company and all or part of the Common Stock is converted or exchanged for
securities, cash or property of any other person or (iii) 50% or more of the
Company's assets or earning power is sold or transferred, the Rights will
"flip-over," and each Georgia-Pacific Group Right and each Timber Right will
entitle its holder to purchase, for the Series B Unit Purchase Price and
Series C Unit Purchase Price, respectively, a number of shares of common stock
of the surviving entity in any such merger, consolidation or other business
combination or the purchaser in any such sale or transfer with a market value
equal to twice the Series B Unit Purchase Price or Series C Unit Purchase
Price, respectively.
At any time until the earlier of (i) ten days following the Stock
Acquisition Date or (ii) the Expiration Date, a majority of the independent
directors of the Board may terminate the Rights without any payment to any
holder thereof. Immediately upon the action of the Board ordering the
termination of the Rights, the Rights will terminate and each Right will
thereafter be null and void. The Original Rights Agreement permitted a
majority of the independent directors of the Board to redeem the Original
Rights in whole, but not in part, at a price of $.01 per Original Right at any
time before the earlier of (i) ten days following the Stock Acquisition Date
or (ii) the Expiration Date. Allowing the Board to terminate the Rights
instead of redeeming the Rights is intended to avoid the time and expense of a
redemption in order to eliminate the effects of the Restated Rights Agreement.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a shareholder of the Company, including, without limitation, the right to
vote or to receive dividends.
At any time prior to the Separation Date, the Company may, without the
approval of any holders of Rights, supplement or amend any provision of the
Restated Rights Agreement, except that, without the approval of a majority of
the independent directors, no supplement or amendment may be made that changes
the Expiration Date, the Series B Purchase Price or Series C Purchase Price or
the number of Series B Units or Series C Units of a share of Junior Preferred
Stock for which a Right is exercisable (such provisions being referred to
herein collectively as the "Principal Economic Terms"). From and after the
Separation Date, the Company may, without the approval of any holders of
Rights, supplement or amend the Restated Rights Agreement (i) to cure any
ambiguity, (ii) to correct or supplement any provision that may be defective
or inconsistent, (iii) subject to
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certain limitations and, in certain circumstances, only with the concurrence
of a majority of the independent directors, to shorten or lengthen any time
period under the Restated Rights Agreement (other than a time period relating
to when the Rights may be terminated if at the time of such supplement or
amendment the Rights are not then terminable), or (iv) in any manner that the
Company may deem necessary or desirable and which does not adversely affect
the interests of the holders of Rights (other than an Acquiring Person) and
which does not change the Principal Economic Terms.
A copy of the form of the Restated Rights Agreement (which includes as
Exhibit B-1 thereto the Form of Rights Certificate for Georgia-Pacific Group
Rights and as Exhibit B-2 thereto the form of Rights Certificate for the
Timber Rights) will be filed with the Commission as an Exhibit to the
Registration Statement of which this Prospectus is a part. A copy of the
Original Rights Agreement previously has been filed with the Commission as an
exhibit to a Registration Statement on Form 8-A, and is incorporated herein by
reference. A copy of the form of the Restated Rights Agreement is available
free of charge from the Company. This summary description of the Georgia-
Pacific Group Rights and the Timber Rights does not purport to be complete and
is qualified in its entirety by reference to the form of the Restated Rights
Agreement.
CERTAIN ANTI-TAKEOVER PROVISIONS OF GEORGIA LAW AND GEORGIA-PACIFIC'S
ARTICLES, BYLAWS AND RESTATED RIGHTS AGREEMENT
The following information is provided with respect to certain matters that
could be viewed as having the effect of discouraging an attempt to obtain
control of the Company. The summary of certain provisions of Georgia-Pacific's
Articles, Bylaws and Restated Rights Agreement set forth below is subject to
and qualified in its entirety by reference to the Georgia-Pacific Articles,
Bylaws and form of Restated Rights Agreement, copies of which have been filed
as an exhibit to the Registration Statement of which this Prospectus is a
part.
GEORGIA LAW
General. Unless otherwise provided by a corporation's articles of
incorporation or bylaws or by resolution of its board (by conditioning its
submission of a proposed merger or share exchange), the Georgia Business Code
generally requires the affirmative vote of a majority of all votes entitled to
be cast, by all shares entitled to vote, voting as a single voting group, to
approve mergers and share exchanges. Shareholders of the corporation surviving
a merger need not approve a merger if: (i) the articles of incorporation of
the surviving corporation will not differ from its articles before the merger;
(ii) each share of stock of the surviving corporation outstanding immediately
before the effective date of the merger is to be an identical outstanding or
reacquired share immediately after the merger; and (iii) the number and kind
of shares outstanding immediately after the merger, plus the number and kind
of shares issuable as a result of the merger and by the conversion of
securities issued pursuant to the merger or the exercise of rights and
warrants issued pursuant to the merger, will not exceed the total number and
kind of shares of the surviving corporation authorized by its articles of
incorporation immediately before the merger. Neither Georgia-Pacific's
Articles nor its Bylaws contains a provision which alters the Georgia Business
Code's voting requirements with respect to mergers and share exchanges.
Georgia-Pacific has elected to be covered by two provisions of the Georgia
Business Code that restrict business combinations with interested
shareholders: the Business Combinations Provision (as defined herein) and the
Fair Price Provision (as defined herein). These provisions do not apply to a
Georgia corporation unless its bylaws specifically make the statute
applicable, and once adopted, in addition to any other vote required by the
corporation's articles of incorporation or bylaws to amend the bylaws, such a
bylaw may be repealed only by the affirmative vote of at least two-thirds of
the continuing directors and a majority of the votes entitled to be cast by
the voting shares of such corporation, other than shares beneficially owned by
an interested shareholder and, with the respect to the Fair Price Provision,
his, her or its associates and affiliates.
Interested Shareholder Transactions. The provisions of the Georgia Business
Code concerning "Business Combinations with Interested Stockholders" (the
"Business Combinations Provision") generally prohibits certain "resident
domestic Georgia corporations" from entering into certain business combination
transactions with any "interested shareholder" (generally defined as any
person other than the corporation or its subsidiaries
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beneficially owning at least 10% of the outstanding voting stock of the
corporation) for a period of five years from the date that person became an
interested shareholder, unless: (i) prior to becoming an interested
shareholder, the board of directors of the corporation approved either the
business combination or the transaction by which the shareholder became an
interested shareholder; (ii) in the transaction in which the shareholder
became an interested shareholder, the interested shareholder became the
beneficial owner of at least 90% of the voting stock outstanding (excluding,
for purposes of determining the number of shares outstanding, "Insider
Shares," as defined below) at the time the transaction commenced; or (iii)
subsequent to becoming an interested shareholder, such shareholder acquired
additional shares resulting in the interested shareholder being the beneficial
owner of at least 90% of the outstanding voting shares (excluding, for
purposes of determining the number of shares outstanding, Insider Shares) and
the transaction was approved at an annual or special meeting of shareholders
by the holders of a majority of the voting stock entitled to vote thereon
(excluding from such vote, Insider Shares and voting stock beneficially owned
by the interested shareholder). For purposes of the Business Combinations
Provision, "Insider Shares" refers generally to shares owned by: (a) persons
who are directors or officers of the corporation, their affiliates, or
associates; (b) subsidiaries of the corporation; and (c) any employee stock
plan under which participants do not have the right (as determined exclusively
by reference to the terms of such plan and any trust which is part of such
plan) to determine confidentially the extent to which shares held under such
plan will be tendered in a tender or exchange offer. A Georgia corporation's
bylaws must specify that all requirements of the Business Combinations
Provision apply to the corporation in order for the Business Combinations
Provision to apply. Georgia-Pacific's Bylaws contain a provision stating that
all requirements and provisions of the Business Combinations Provision (and
any successor provisions thereto) apply to any "business combinations"
involving Georgia-Pacific.
Fair Price Requirements. The Georgia Business Code also contains a provision
concerning "Fair Price Requirements" (the "Fair Price Provision") which
imposes certain requirements on "business combinations" of a Georgia
corporation with any person who is an "interested shareholder" of that
corporation. In addition to any vote otherwise required by law or the
corporation's articles of incorporation, under the Fair Price Provision,
business combinations with an interested shareholder must meet one of the
three following criteria designed to protect a corporation's minority
shareholders: (i) the transaction must be unanimously approved by the
"continuing directors" of the corporation (generally directors who served
prior to the time an interested shareholder acquired 10% ownership and who are
unaffiliated with such interested shareholder) provided that the continuing
directors constitute at least three members of the board of directors at the
time of such approval; (ii) the transaction must be recommended by at least
two-thirds of the continuing directors and approved by a majority of the votes
entitled to be cast by holders of voting shares, other than voting shares
beneficially owned by the interested shareholder who is, or whose affiliate
is, a party to the business combination; or (iii) the terms of the transaction
must meet specified fair pricing criteria and certain other tests. A Georgia
corporation's bylaws must specify that all requirements of the Fair Price
Provision apply to the corporation in order for the Fair Price Provision to
apply. Georgia-Pacific's Bylaws contain a provision stating that all
requirements and provisions of the Fair Price Provision (and any successor
provisions thereto) apply to any "business combinations" involving Georgia-
Pacific. The Fair Price Provision provides no protection for holders of other
classes of common stock that was purchased by an acquiror whose purchase(s)
triggered the Fair Price provision.
ARTICLES OF INCORPORATION AND BYLAWS
Staggered Board. The Board is divided into three classes of directors
serving staggered three-year terms, with each class consisting, as nearly as
possible, of one-third of the total number of directors. If the number of
directors is increased or decreased, such increase or decrease will be
apportioned among the classes so as to maintain, as nearly as possible, an
equal number of directors in each class. Any additional director elected to
fill a vacancy resulting from an increase in the size of the Board shall not
be classified until the next election of directors by shareholders. The
Georgia Business Code provides that a bylaw establishing staggered terms for
directors may only be adopted, amended or repealed by the shareholders.
Furthermore, the Articles provide that this Bylaw provision may only be
amended by the affirmative vote of at least 75% of the voting power of the
outstanding capital stock of the Company entitled to vote generally in the
election of directors, voting as a single voting group.
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The classification of directors has the effect of making it more difficult
for shareholders to change the composition of the Board. At least two annual
meetings of shareholders, instead of one, generally will be required to effect
a change in the majority of the Board. The classification provisions could
also have the effect of discouraging a third party from initiating a proxy
contest, making a tender offer or otherwise attempting to obtain control of
Georgia-Pacific, even though such an attempt might be beneficial to Georgia-
Pacific and its shareholders. See "Risk Factors--Effects on Potential
Acquisitions of a Group or a Class of Common Stock."
Increase in Number of Directors. The Bylaws provide that the number of
directors may be increased or decreased by the Board or by the affirmative
vote of at least 75% of voting power of the outstanding capital stock of the
Company entitled to vote generally in the election of directors, voting as a
single voting group.
Filling Vacancies. The Bylaws provide that any vacancy on the Board may be
filled by a majority of the remaining members of the Board, though less than a
quorum, by the sole remaining director or, if not so filled, by the holders of
the shares of stock who are entitled to vote for the director with respect to
which the vacancy is being filled, unless such vacancy occurs with respect to
a director elected by a particular class or series of shares voting as a class
or series. In the latter case, the vacancy may be filled by the remaining
director or directors elected by that class or series, or, if not so filled,
by the shareholders of that class or series. Any vacancy arising by reason of
an increase in the number of directors may only be filled by the Board. The
Articles provide that this provision of the Bylaws may only be amended by the
affirmative vote of at least 75% of the voting power of the outstanding
capital stock of the Company entitled to vote generally in the election of
directors, voting as a class. Accordingly, the Board could temporarily prevent
any shareholder from enlarging the Board and filling the new directorships
with such shareholder's own nominees.
Special Meetings of Shareholders. The Georgia Business Code provides that a
Georgia corporation shall hold a special meeting of shareholders: (i) on the
call of the corporation's board of directors or the person or persons
authorized by the corporation's articles of incorporation or bylaws; (ii) in
the case of a corporation having more than 100 shareholders of record, upon
the written demand of the holders of at least 25%, or such greater or lesser
percentage as may be provided in the corporation's articles of incorporation
or bylaws, of all the votes entitled to be cast on any issue proposed to be
considered at the proposed special meeting; or (iii) in the case of a
corporation having 100 or fewer shareholders of record, upon the written
demand of the holders of at least 25%, or such lesser percentage as may be
provided in the corporation's articles of incorporation or bylaws, of all the
votes entitled to be cast on any issue considered at the proposed special
meeting. The Bylaws provide that a special meeting of shareholders may be
called by: (i) the Chairman or Vice Chairman of the Board; (ii) the Chief
Executive Officer; (iii) the President; (iv) the Board; or (v) the holders of
at least 75% of the outstanding shares of the Company entitled to vote in an
election of directors.
Nomination of Directors. The Bylaws provide that nomination for the election
of directors may be made only by the Board or by a shareholder entitled to
vote in the election of directors who gives timely written notice to the
Secretary of the Company. Any such notice must be given not later than (i)
with respect to an election to be held at an annual meeting of shareholders,
not less than 60 nor more than 75 days in advance of such meeting or (ii) with
respect to a special meeting of shareholders for the election of directors,
the close of business on the seventh day following the date on which notice of
such meeting is first given to shareholders. The shareholder's notice must set
forth (a) the name and address of the shareholder who intends to make the
nomination; (b) a representation that the shareholder is a holder of record of
shares of the Company's capital stock entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the
person(s) specified in the notice; (c) the class and number of shares of
Common Stock held of record, owned beneficially and represented by proxy, by
the shareholder and each proposed nominee as of the date of the notice; (d)
the name, age, business and residence addresses and principal occupation or
employment of each proposed nominee; (e) a description of all arrangements or
understandings between the shareholder and each proposed nominee and any other
person(s) (naming such person(s)) pursuant to which the nomination(s) are to
be made by the shareholder; (f) such other information regarding each nominee
proposed by such shareholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Commission; and (g) the
written consent of
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each proposed nominee to serve as a director of the Company if so elected. The
Articles further provide that these procedures may only be amended pursuant to
the affirmative vote of at least 75% of the voting power of the outstanding
capital stock of the Company entitled to vote generally in the election of
directors.
Social Responsibility Provision. The Articles include a provision permitting
the Board to consider any pertinent factors, including general, social and
economic effects, in discharging their duties and in determining what is in
the best interests of the corporation. This provision clarifies the Board's
authority to consider factors other than the interests of the shareholders
themselves when considering an acquisition offer.
Issuance of Preferred Stock or Junior Preferred Stock. The Articles
currently provide for the issuance
of Preferred Stock and Junior Preferred Stock in series at the discretion of
the Board without further action by the Company's shareholders (except as may
be required by applicable law or the rules or regulations of any securities
exchange on which the Company's securities may then be listed). The Board may
designate any of such series of Preferred Stock or Junior Preferred Stock and
may establish the relative rights and preferences of each series; however, no
series of Preferred Stock or Junior Preferred Stock may entitle the holder
thereof to more than one vote per share. The Articles authorize 10 million
shares of Preferred Stock and 25 million shares of Junior Preferred Stock, of
which 5 million shares will be designated as Series B Junior Preferred Stock
and 5 million shares will be designated as Series C Junior Preferred Stock.
The shares of Series B Junior Preferred Stock and Series C Junior Preferred
Stock will be reserved for issuance in connection with the Restated Rights
Agreement. One of the effects of the existence of authorized, unissued and
unreserved Preferred Stock or Junior Preferred Stock could be to enable the
Board to issue shares to persons friendly to current management, which could
render more difficult or discourage an attempt to obtain control of the
Company by means of a merger, tender offer, proxy contest or otherwise, and
thereby protect the continuity of the Company's management. Such additional
shares also could be used to dilute the stock ownership of persons seeking to
obtain control of the Company.
Shareholder Proposals. The Bylaws set forth certain procedural requirements
governing the submission of shareholder proposals. Shareholder proposals that
are not made in accordance with such procedures may be disregarded at any
shareholders' meeting at which a vote on the proposal is sought. The existence
of these procedural requirements could have the effect of delaying or
preventing the submission of certain matters proposed by any shareholder to a
vote of the shareholders.
Restrictions on Amendment of Articles. Under the Georgia Business Code, in
general and except as otherwise provided by the Articles, amendments to the
Articles must be recommended to the shareholders by the Board and approved at
a properly called shareholder meeting by a majority of the votes entitled to
be cast on the amendment by each voting group entitled to vote on the
amendment.
The Articles require the affirmative vote of the holders of not less than
75% of the voting power of the outstanding capital stock of the Company
entitled to vote generally in the election of directors voting together as a
single class, to make, alter, amend, change, add to or repeal any provision of
the Articles or Bylaws, as applicable, where such creation, alteration,
amendment, change, addition or repeal would be inconsistent with the
provisions of the Articles or Bylaws, as applicable, relating to: (i) the
number of members of the Board; (ii) the classification of the Board; (iii)
the filling of vacancies on the Board; (iv) the Junior Preferred Stock;
(v) procedure for nomination of directors; (vi) removal of directors; (vii)
calling special meetings of shareholders; or (viii) amending the provisions
establishing the supermajority votes.
Restrictions on Amendment of Bylaws. Under the Georgia Business Code, in
general and subject to the requirements of the Business Combinations
Provision, the Fair Price Provision and the Articles, the Bylaws may be
altered, amended or repealed by the Board or by the affirmative vote of the
holders of a majority of the shares of Common Stock entitled to vote and
actually voted on such matter. Further, the Bylaws require the affirmative
vote of at least 75% of the voting power of the outstanding capital stock of
the Company entitled to vote generally in the election of directors voting
together as a single voting group to change the number of members of the Board
or to remove any directors.
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RESTATED RIGHTS AGREEMENT
The Restated Rights Agreement will permit disinterested shareholders to
acquire additional shares of the Company or of an acquiring company at a
substantial discount in the event of certain described changes in control. See
"--Restated Rights Agreement."
Certain provisions described above may have the effect of delaying
shareholder actions with respect to certain business combinations and the
election of new members of the Board. As such, the provisions could have the
effect of discouraging open market purchases of Common Stock because they may
be considered disadvantageous by a shareholder who desires to participate in a
business combination or elect a new director.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the principal United States federal
income tax consequences of the Letter Stock Proposal. The discussion is based
on the Internal Revenue Code of 1986, as amended to the date hereof (the
"Code"), Treasury Department regulations, published positions of the Service,
and court decisions now in effect, all of which are subject to change. In
particular, Congress could enact legislation affecting the treatment of stock
with characteristics similar to the Georgia-Pacific Group Stock and the Timber
Stock or the Treasury Department could promulgate regulations that change
current law, including regulations issued pursuant to its authority under
Section 337(d) of the Code. Any future legislation or regulations could be
enacted or promulgated so as to apply retroactively to the Georgia-Pacific
Group Stock and the Timber Stock.
This discussion addresses only those shareholders who hold their Existing
Common Stock as a capital asset within the meaning of Section 1221 of the
Code, and is included for general information only. It does not discuss all
aspects of United States federal income taxation that may be relevant to a
particular shareholder in light of such shareholder's personal tax
circumstances and does not apply to certain types of shareholders who may be
subject to special treatment under the federal income tax laws. SHAREHOLDERS
SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE
FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATION, AS WELL AS TO THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR FOREIGN TAX LAWS TO WHICH
THEY MAY BE SUBJECT.
In the opinion of Simpson Thacher & Bartlett, special tax counsel to the
Company, the Georgia-Pacific Group Stock and the Timber Stock will be treated
for federal income tax purposes as common stock of the Company. Assuming that
the Georgia-Pacific Group Stock and the Timber Stock are considered to be
common stock of the Company, (i) the shareholders will neither recognize
income, gain or loss on the redesignation of Existing Common Stock as Georgia-
Pacific Group Stock nor receive a taxable dividend upon the distribution of
the Timber Stock pursuant to the Letter Stock Proposal; (ii) the basis of the
Existing Common Stock held by a shareholder immediately before the
distribution of the Timber Stock will be allocated between the Georgia-Pacific
Group Stock and the Timber Stock received in proportion to the fair market
value of the Georgia-Pacific Group Stock and the Timber Stock on the date of
distribution; (iii) the holding period of the Georgia-Pacific Group Stock and
the Timber Stock will include the holding period of the Existing Common Stock,
assuming that the Existing Common Stock was a capital asset in the hands of
the shareholder; (iv) neither the Georgia-Pacific Group Stock nor the Timber
Stock will be "section 306 stock"; and (v) the amendment and restatement of
the Rights Agreement will not result in income, gain or loss to the
shareholders. In addition, any conversion of Georgia-Pacific Group Stock into
Timber Stock or of Timber Stock into Georgia-Pacific Group Stock upon the
Company's exercise of its right to do so would constitute a tax-free exchange
to a shareholder. Such shareholder's tax basis and holding period in the
converted stock would be carried over to the Common Stock received in such
tax-free exchange.
The Service has announced that it will not issue advance rulings on the
classification of an instrument that has certain voting and liquidation rights
in an issuing corporation but whose dividend rights are determined by
reference to the earnings of a segregated portion of the issuing corporation's
assets, including assets held by a subsidiary. In addition, there are no court
decisions or other authorities that bear directly on the effect of the
features of the Georgia-Pacific Group Stock and the Timber Stock. It is
possible, therefore, that the Service could
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assert that the Georgia-Pacific Group Stock or the Timber Stock represents
stock in a separate corporation rather than stock in the Company. If the
Georgia-Pacific Group Stock or the Timber Stock were treated as other than
stock of the Company, the redesignation of the Existing Common Stock or the
distribution of the Timber Stock, as well as a subsequent exchange of the
Georgia-Pacific Group Stock and Timber Stock upon the Company's exercise of a
right to do so, could be taxable to shareholders and the Company. As indicated
above, however, it is the opinion of counsel that the Service would not
prevail in any such assertion.
ELIMINATION OR REVISION OF CERTAIN PROVISIONS OF THE ARTICLES
The Letter Stock Proposal also includes certain other amendments to the
Articles. Article VI of the Articles provides that the "Board of Directors of
the Corporation shall have the power to distribute a portion of the assets of
the Corporation, in cash or in property, to holders of shares of the
Corporation out of the capital surplus of the Corporation." This provision is
based upon former provisions of the Georgia Business Code that made
distinctions between dividends (payable only from earned surplus or current
earnings, except in the case of wasting asset corporations), distributions in
partial liquidation (payable from capital surplus), and share repurchases
(payable from earned surplus and from capital surplus if permitted in the
articles or approved by the shareholders). The current Georgia Business Code
eliminates these distinctions in favor of a uniform test on all distributions
by a corporation, whether in the form of a dividend, repurchase or redemption
of shares or otherwise. A Georgia corporation may not make a distribution if,
after giving it effect, the corporation would not be able to pay its debts as
they become due in the usual course of business or the corporation's total
assets would be less than the sum of its total liabilities plus 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 designations of the Georgia-Pacific Group Stock and the
Timber Stock included in the Restated Articles incorporate the current
provisions of the Georgia Business Code with respect to distributions to
shareholders. Consequently, in order to avoid an inconsistency within the
Restated Articles, Article VI will be deleted in its entirety. As a result,
the Company's ability to make distributions with respect to shares of Common
Stock will be determined in accordance with Article V, Section A of the
Restated Articles.
The second paragraph of Article IV of the Articles provides that "[t]he
authorized but unissued shares of Preferred Stock, Junior Preferred Stock and
Common Stock shall be available for issue and sale at any time and from time
to time, either in whole or in part, and upon such terms and conditions and
for such consideration, not less than par value thereof, if any, as may be
provided by the Board of Directors of the Corporation." The current Georgia
Business Code only requires that the Board determine that the consideration
received for shares to be issued is adequate, in fulfillment of its general
fiduciary duties. Payment of par value is not required to make shares fully
paid and nonassessable; only payment of the agreed consideration. The
designation of the Georgia-Pacific Group Stock and the creation of the Timber
Stock included in the Restated Articles permit the Board to issue shares of
Georgia-Pacific Group Stock and Timber Stock within its discretion, subject to
its fiduciary duties. Consequently, in order to eliminate an inconsistency in
the Restated Articles, the provisions of the second paragraph of Article IV
will be revised to eliminate their application to future issuances of shares
of Common Stock but not to future issuances of shares of Preferred Stock or
Junior Preferred Stock.
NO DISSENTERS' RIGHTS
Under the Georgia Business Code, holders of Existing Common Stock do not
have dissenters' rights with regard to the Letter Stock Proposal or any of the
other proposals.
RECOMMENDATION OF THE BOARD
THE BOARD HAS CAREFULLY CONSIDERED THE LETTER STOCK PROPOSAL AND BELIEVES
THAT ITS APPROVAL BY THE SHAREHOLDERS IS IN THE BEST INTERESTS OF THE COMPANY
AND ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS APPROVE THE LETTER STOCK PROPOSAL .
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PROPOSAL 2--RESTATED 1995 SHAREHOLDER VALUE INCENTIVE PLAN
GENERAL
The Company currently grants options to officers and key employees under the
1995 Shareholder Value Incentive Plan (the "1995 SVIP"). The purpose of the
1995 SVIP is to provide officers and other key employees of the Company with
an opportunity to benefit along with all other shareholders in the
appreciation in the value of the Existing Common Stock through the grant of
options to purchase shares of Existing Common Stock ("SVIP Options"). The 1995
SVIP is designed to provide a strong incentive to participants to maximize
total shareholder returns by linking vesting of SVIP Options and the
possibility of enhanced awards of SVIP Options to achievement of levels of
overall returns to shareholders that exceed the weighted average of such
returns of the Company's peers. The 1995 SVIP provides that 8.1 million shares
of Existing Common Stock are reserved for the grant of SVIP Options. SVIP
Options to purchase 4,713,200 shares of Existing Common Stock granted between
1995 and 1997 remain outstanding. The Company has determined that consistent
with the goal of reflecting separately the performance of the Company's
manufacturing businesses and its timber business underlying the Letter Stock
Proposal, it is critical to provide equity-based incentives to the management
of the manufacturing businesses and the timber business that are more directly
related to their efforts and the results of their distinct operations than is
possible under the 1995 SVIP. Accordingly, on September 17, 1997, the Board of
Directors adopted an amendment and restatement of the 1995 SVIP (the "Restated
SVIP"), subject to the approval by the Company's shareholders of the Restated
SVIP and the Letter Stock Proposal. If approved by the shareholders, the
Restated SVIP will become effective on the Effective Date.
SUMMARY OF THE RESTATED SVIP
SHARES AVAILABLE. The Restated SVIP provides that 4,713,200 shares of
Georgia-Pacific Group Stock and an equal number of shares of Timber Stock will
be available in the event of exercise of Georgia-Pacific Group Stock Options,
as defined below, and Timber Stock Options, as defined below, converted from
previously granted SVIP Options. In the event of a stock dividend, stock
split, recapitalization, merger, consolidation or any other similar event
which affects Georgia-Pacific Group Stock or Timber Stock, the Compensation
Committee has the authority to make such adjustments in the aggregate number
of shares reserved for issuance, the number of shares covered by outstanding
Timber Stock Options or Georgia-Pacific Group Stock Options, limits on
individual grants, and the exercise prices for such options as may be
appropriate to reflect such event.
PARTICIPATION. The Restated SVIP provides that only holders of outstanding
SVIP Options will participate in the Restated SVIP.
RIGHT TO PURCHASE SHARES AND EXERCISE PRICE. Each SVIP Option previously
granted and unexercised will be converted from an option to purchase a
specified number of shares of Existing Common Stock at a specified price into
two separate options (each independently exercisable), one to purchase shares
of Georgia-Pacific Group Stock (a "Georgia-Pacific Group Stock Option") and
the other to purchase shares of Timber Stock (a "Timber Stock Option"), in
each case for a number of shares equal to the number of shares of Existing
Common Stock specified in such SVIP Option. The Georgia-Pacific Group Stock
Option and the Timber Stock Option may be collectively referred to as the
"Restated Options" or individually as a "Restated Option."
The 1995 SVIP provides that the exercise price to be paid by a participant
(such participant, an "Optionee") pursuant to an SVIP Option shall be the mean
of the high and low price for a share of Existing Common Stock as reported on
the NYSE Composite Tape on the date of grant. Accordingly, an exercise price
has been established for each outstanding SVIP Option. The exercise price for
each Georgia-Pacific Group Stock Option and each Timber Stock Option shall be
determined by using the average of the high and low price for Timber Stock
(the "Timber Stock Price") and Georgia-Pacific Group Stock (the "Georgia-
Pacific Group Stock Price") on the first date such stocks are traded, regular
way, on the NYSE. The exercise price of each Georgia-Pacific Group Stock
Option will be calculated by multiplying the exercise price of the SVIP Option
from which it was derived times a fraction the numerator of which is the
Georgia-Pacific Group Stock Price and the denominator of which is the sum of
the Georgia-Pacific Group Stock Price and the Timber Stock Price. The exercise
price of
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each Timber Stock Option will be calculated by multiplying the exercise price
of the SVIP Option from which it was derived times a fraction of the numerator
of which is the Timber Stock Price and denominator of which is the sum of the
Georgia-Pacific Group Stock Price and the Timber Stock Price.
The exercise price of a Georgia-Pacific Group Stock Option or Timber Stock
Option is payable (i) in cash or (ii) by surrender of mature shares of capital
stock of the same class of the Company owned by the participant, valued at the
mean of the high and low price for a share of such stock on the date of
surrender of such shares.
TERM AND EXERCISABILITY OF OPTIONS. The term of each Restated Option other
than Discretionary Grants (as defined below) will be ten years from the date
of grant of the SVIP Option from which it was converted. The term of a
Discretionary Grant is five and one-half years from such grant date. In both
cases, the term may be shortened under circumstances described below. A
"Discretionary Grant" is a Restated Option which, under the terms of the
Restated SVIP, is converted from a Special Discretionary Option Grant (as
defined in the original SVIP).
All Restated Options will become exercisable at the end of three, four or
five years from the date of grant of the SVIP Option from which it was
converted only if, at any such date, the Company's Total Shareholder Return
(as defined below) over the immediately preceding three, four or five full
fiscal years, as the case may be, exceeds the weighted average Total
Shareholder Return of the industry peer group for the same period. Returns of
the companies comprising the industry peer group are weighted on the basis of
beginning-of-year market capitalization. All Restated Options (other than
Discretionary Grants) which have not become exercisable on the basis described
above in this paragraph will become exercisable nine and one-half years after
the date of grant of the SVIP Option from which it was converted assuming the
Restated Option remains outstanding. Discretionary Grants will vest solely if
the above-described performance goals are met. A Restated Option which becomes
exercisable either because of the attainment of performance goals over the
three-, four- or five-year measurement periods described above or
automatically nine and one-half years after the date of grant of the SVIP
Option from which it was converted will be exercisable for the remainder of
the ten-year period beginning on the date of grant of the SVIP Option from
which it was converted, provided, however, that (i) if an Optionee's
employment with the Company and its subsidiaries terminates prior to the date
as of which the Optionee's Restated Options become exercisable or such
employment is terminated for cause (regardless of whether such options have
become exercisable, but subject to applicable law), the Optionee's Restated
Options shall terminate as of the date of such termination; (ii) except in the
case of terminations for cause, if an Optionee's employment with the Company
and its subsidiaries terminates on or after the date as of which the
Optionee's Restated Options become exercisable for reasons other than
retirement, death or disability, the Restated Options will remain exercisable
for ninety days following the date of such termination (or if shorter, the
period until the expiration of the term of the Restated Options); and (iii)
except in the case of terminations for cause and Discretionary Grants, if an
Optionee's employment with the Company and its subsidiaries terminates prior
to the date as of which the Optionee's Restated Options become exercisable
because of retirement, death or disability, such Restated Options may become
exercisable after the date of termination upon the attainment of stated
performance goals over the three-, four- or five-year measurement periods
described above.
The Restated SVIP provides that if an Optionee retires at age 55 or greater
with at least 10 years of service, or at age 65, or becomes disabled or dies,
and such employee's Restated Options (other than Discretionary Grants) do not,
either prior to or after such event, become exercisable based on the Company's
performance as described above, a specified portion of such Restated Options,
ranging from 50% to 100%, will become exercisable based on the number of years
elapsed in the ten-year term of such Restated Options at the time of such
event. The closer Restated Options are to expiration, the greater the
percentage of such Restated Options that will become exercisable. Restated
Options that become exercisable in this manner remain exercisable for six
months or until expiration of such ten-year term, whichever occurs first.
In addition, in the event of a change in control (as defined in the Restated
SVIP), outstanding Restated Options become exercisable if the Company's Total
Shareholder Return over the three, four or five years immediately preceding
the effective date of the change in control exceeded the weighted average
Total
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Shareholder Return of the industry peer group over the same period. Restated
Options that become exercisable in this manner remain exercisable for the
remaining term of such Restated Options.
"Total Shareholder Return" for a peer group company is (i) the sum of (A)
the aggregate value, based on the issuer's share price at the end of the
measurement period and assuming reinvestment of all dividends, of an
investment in such issuer's stock assumed to have been made at the beginning
of the measurement period at the then-current share price, less (B) the value
of such investment at the beginning of the measurement period, divided by (ii)
the value of the investment at the beginning of the measurement period. Total
Shareholder Return of the Company will be calculated using the combined total
shareholder returns of Georgia-Pacific Group Stock and Timber Stock for the
measurement period.
Restated Options are not transferable except by will, the laws of descent
and distribution or pursuant to a written beneficiary designation. All
Restated Options may be exercised during the holder's lifetime only by the
holder or his or her guardian or legal representative.
ADMINISTRATION. The Restated SVIP will be administered by the Compensation
Committee, which consists solely of two or more directors who are "non-
employee directors" as defined in Rule 16b-3 under the Exchange Act and
"outside directors" as defined in Section 162(m) of the Code. The Committee
will have the authority to administer the Restated SVIP, make all
determinations with respect to the construction and application of the
Restated SVIP and the Board resolutions adopting the Restated SVIP, adopt and
revise rules and regulations relating to the Restated SVIP and make other
determinations which it believes necessary or advisable for the administration
of the Restated SVIP. The Committee is authorized to appoint one or more
individuals or entities, who need not be members of the Committee, to act as
its agent in the administration of the Restated SVIP, and has appointed the
Chairman and Chief Executive Officer as such agent.
AMENDMENT AND TERMINATION. No further grants may be made under the Restated
SVIP. The Board may amend or terminate the Restated SVIP at any time. The
Board may not, however, modify the terms or conditions of any Restated Option
without the consent of the Optionee (other than permitted adjustments to
reflect recapitalizations and similar events, as described above). Without
shareholder approval, the Board may not (i) increase the maximum number of
shares of Common Stock which may be issued under the SVIP in the aggregate
(except for adjustments as discussed above), (ii) extend the term of the
Restated SVIP, (iii) amend the provisions of the Restated SVIP relating to
amendments or (iv) reprice Restated Options.
Information contained herein relating to the Restated SVIP is qualified in
its entirety by reference to such plan, which is attached to this Proxy
Statement as Annex VI.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF RESTATED OPTIONS
The following discussion generally summarizes the United States federal
income tax consequences to participants who hold Restated Options.
All SVIP Options and Restated Options are nonqualified stock options. For
federal income tax purposes, no income was recognized by a participant upon
the grant of an option under the 1995 SVIP. Upon the exercise of a Restated
Option, compensation taxable as ordinary income will be realized by the
participant in an amount equal to the excess of the fair market value of a
share of Georgia-Pacific Group Stock or Timber Stock, as the case may be, on
the date of such exercise over the exercise price. A subsequent sale or
exchange of such shares will result in gain or loss measured by the difference
between (i) the exercise price, increased by any compensation reported upon
the participant's exercise of the option, and (ii) the amount realized on such
sale or exchange. Such gain or loss will be capital in nature if the shares
were held as a capital asset and will be long-term if such shares were held
for the applicable long-term capital gain holding period.
The Company generally is entitled to a deduction (subject to the provisions
of Section 162(m) of the Code) for compensation paid to a participant at the
same time and in the same amount as the participant is considered to have
realized compensation by reason of the exercise of an option.
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<PAGE>
BENEFITS TO NAMED EXECUTIVE OFFICERS AND OTHERS
As of September 17, 1997, the persons and groups shown in the following
table held SVIP Options. Subject to approval of the Restated SVIP and the
Letter Stock Proposal by the shareholders, SVIP Options will be converted to
Restated Options under the Restated SVIP. Directors who are not employees are
not entitled to participate in the 1995 SVIP or the Restated SVIP. No future
awards will be made under the Restated SVIP.
<TABLE>
<CAPTION>
1995 SVIP
--------------------------------------------------
NAME AND POSITION DOLLAR VALUE NUMBER OF OPTIONS
- -------------------------------------------------------------------------------
<S> <C> <C>
Alston D. Correll
Chairman, Chief Executive Officer and
President (1) 331,100(2)
- -------------------------------------------------------------------------------
Davis K. Mortensen (3)
Executive Vice President--
Building Products (1) 113,000(2)
- -------------------------------------------------------------------------------
W. E. Babin (3)
Executive Vice President--
Pulp and Paper N/A N/A
- -------------------------------------------------------------------------------
John F. McGovern
Executive Vice President-- Finance and Chief
Financial Officer (1) 90,600(2)
- -------------------------------------------------------------------------------
Donald F. Glass
Executive Vice President--
Building Products
Manufacturing and Sales (1) 60,500(2)
- -------------------------------------------------------------------------------
All Executive Officers as a Group (including
the above) (1) 976,400(2)
- -------------------------------------------------------------------------------
All Non-Executive Employees as a Group (1) 3,736,800(2)
</TABLE>
- --------
(1) The dollar value of the above options is dependent on the difference
between the exercise price and the fair market value of the underlying
shares on the date of exercise.
(2) The exercise prices for such options range from $72.63 to $80.50 per
share.
(3) Messrs. Mortensen and Babin retired from the Corporation on March 1, 1997
and April 1, 1997, respectively.
VOTE REQUIRED
Proposal 2 will be approved if the number of shares of Existing Common Stock
voted in favor of the proposal exceeds the number of shares of Existing Common
Stock voted against the proposal.
RECOMMENDATION OF THE BOARD
THE BOARD HAS CAREFULLY CONSIDERED PROPOSAL 2 AND BELIEVES THAT ITS ADOPTION
IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS. ACCORDINGLY, THE
BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS APPROVE PROPOSAL 2.
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<PAGE>
PROPOSALS 3 AND 4--GEORGIA PACIFIC CORPORATION/GEORGIA-PACIFIC GROUP 1997
LONG-TERM INCENTIVE PLAN AND GEORGIA-PACIFIC CORPORATION/
TIMBER GROUP 1997 LONG-TERM INCENTIVE PLAN
GENERAL
Proposal 3 pertains to the Georgia-Pacific Corporation/Georgia-Pacific Group
1997 Long-Term Incentive Plan (the "Georgia-Pacific Group Plan") and Proposal
4 pertains to the Georgia-Pacific Corporation/Timber Group 1997 Long-Term
Incentive Plan (the "Timber Group Plan"), which plans are identical except as
otherwise noted. On September 17, 1997 the Board adopted the Georgia-Pacific
Group Plan and the Timber Group Plan (collectively, the "Incentive Plans" and
individually an "Incentive Plan"), subject to approval of the Incentive Plans
and the Letter Stock Proposal by the Company's shareholders. The Georgia-
Pacific Group Plan authorizes grants of awards with respect to Georgia-Pacific
Group Stock only, and the Timber Group Plan authorizes grants of awards with
respect to Timber Stock only. The Company does not currently intend to grant
awards under the Georgia-Pacific Group Plan to employees of the Timber Group
or to grant awards under the Timber Group Plan to employees of the Georgia-
Pacific Group. It is intended, however, that certain officers and key
employees of the Company who will continue to have responsibilities involving
both the Georgia-Pacific Group and the Timber Group may be granted incentive
awards under both of the Incentive Plans in a manner which reflects their
responsibilities. The Board believes that permitting incentive awards to be
made to participants with respect to the class of Common Stock which reflects
the performance of the business in which the participants work will better
serve the Company's interest.
If approved by the shareholders, the Incentive Plans will become effective
on the Effective Date. The Incentive Plans are intended to promote the
interests of the Company and its shareholders by attracting and retaining
exceptional executive personnel and other key employees, motivating such
employees by means of stock options, restricted shares and performance-related
incentives to achieve long-term performance goals, and enabling such employees
to participate in the long-term growth and financial success of the Company.
The Incentive Plans provide that all employees of the Company and its
subsidiaries are eligible to participate in both plans. As of September 15,
1997, there were approximately 47,000 employees of the Company. It is expected
that the Board will identify specific employees to receive options, restricted
stock or performance awards under either or both of the Incentive Plans.
Information contained herein relating to the Incentive Plans is qualified in
its entirety by reference to the Georgia-Pacific Group Plan and the Timber
Group Plan, which are attached to this Proxy Statement as Annexes VII and
VIII, respectively. Information regarding proposed amendments to the 1995 SVIP
is contained in Proposal 2 and information regarding adjustments to other
existing plans is contained in Annex IX to this Proxy Statement.
SUMMARY OF THE INCENTIVE PLANS
ADMINISTRATION. The Incentive Plans will be administered by a committee of
the Board consisting solely of two or more directors who are "non-employee
directors" as defined in Rule 16b-3 under the Exchange Act and "outside
directors" as defined in Section 162(m) of the Code (the "Committee").
TYPES OF AWARDS; LIMITS. The Incentive Plans provide for the granting of
four types of awards on a stand alone, combination, or tandem basis:
nonqualified stock options, incentive stock options, restricted shares and
performance awards. The Georgia-Pacific Group Plan provides for the granting
of up to a total of shares of Georgia-Pacific Group Stock, provided
that the total number of shares of restricted stock which may be granted under
this plan may not exceed shares, the total number of shares with
respect to which options are granted in any one year may not exceed
shares to any individual employee, the total number of shares with respect to
which performance awards may be granted in any one year may not exeed
shares to any individual employee, and the value of performance awards payable
in cash made in any year shall not exceed $ to any individual employee.
The Timber Group Plan provides for the granting of up to a total of
62
<PAGE>
shares of Timber Stock, provided that the total number of shares of
restricted stock which may be granted under this plan may not exceed
shares, the total number of shares with respect to which options are granted
in any one year may not exceed shares to any individual employee, the
total number of shares with respect to which performance awards may be granted
in any one year may not exceed shares to any individual employee, and the
value of performance awards payable in cash made in any year shall not exceed
$ to any individual employee. The above limits are subject, in each
case, to adjustment as provided in the Incentive Plans in the event of a stock
split, stock dividend, combination or exchange of shares, exchange for other
securities, reclassification, reorganization, redesignation, merger,
consolidation, recapitalization, or other such change. No payments or
contributions are required to be made by the employees who participate in the
Incentive Plans other than the payment of any purchase price upon the exercise
of a stock option.
STOCK OPTIONS. A stock option award grants the right to buy a specified
number of shares of Georgia-Pacific Group Stock or Timber Stock, as the case
may be, at a fixed exercise price during a specified time, and subject to such
other terms and conditions, as the Committee may determine; provided that the
exercise price of any incentive stock option shall not be less than 100% of
the fair market value of the underlying stock on the date of grant of the
award. An incentive stock option award granted pursuant to the Incentive Plans
is an award in the form of a stock option which complies with the requirements
of Section 422 of the Code or any successor Section as it may be amended from
time to time. All stock option awards granted under the Incentive Plans that
do not qualify as incentive stock options are nonqualified stock options. The
exercise price of all stock option awards under the Incentive Plans is
payable, at the Committee's discretion, in cash, in shares of already owned
stock of the same class of the Company, in any combination of cash and shares,
or any other method deemed appropriate by the Committee. Each option grant may
be exercised in whole, at any time, or in part, from time to time, after the
option becomes exercisable.
RESTRICTED SHARES. A grant of restricted shares under the Incentive Plans is
an award of shares of Georgia-Pacific Group Stock or Timber Stock, as the case
may be, subject to such restrictions on transfer, or other incidents of
ownership, for such periods of time as the Committee may determine. The
certificates representing the restricted shares shall be held by the Company
until the end of the applicable period of restriction, during which the shares
may not be sold, transferred, gifted, bequeathed, pledged, assigned, or
otherwise alienated or hypothecated, voluntarily or involuntarily, except as
otherwise provided in the applicable Incentive Plan or the award agreement.
However, during the period of restriction, the recipient of restricted shares
will be entitled to vote the restricted shares and to retain cash dividends
paid thereon.
PERFORMANCE AWARDS. A performance award is a right granted to an employee to
receive cash, options, restricted shares or unrestricted shares of Georgia-
Pacific Group Stock or Timber Stock, as the case may be, which compensation is
not issued to the employee until after the satisfaction of the performance
goals during a performance period. A performance award is earned by the
employee over a time period determined by the Committee on the basis of
performance goals established by the Committee before the time of grant (or
during such other time as may be permitted by Section 162(m) of the Code).
Performance goals established by the Committee may be based on one or more of
the following criteria: (i) increases in the market prices of the Georgia-
Pacific Group Stock or the Timber Stock, as the case may be, (ii) market
share, (iii) sales, (iv) return on equity, assets or capital, (v) economic
profit (EVA(R)), (vi) total shareholder return, (vii) costs, (viii) margins,
(ix) earnings or earnings per share, (x) cash flow, (xi) customer
satisfaction, (xii) operating profit, or (xiii) any combination of the
foregoing. Such performance goals may be particular to a participant or may be
based, in whole or part, on the performance of the division, department, line
of business, subsidiary or other business unit, whether or not legally
constituted, in which the participant works or on the performance of the
Company generally. If the performance goals set by the Committee are not met,
no compensation shall be issued pursuant to the performance award. Any payment
of an award granted with performance goals will be conditioned on the written
certification of the Committee in each case that the performance goals and any
other material conditions were satisfied. To be entitled to receive a
performance award, an employee must remain in the employment of the Company or
its subsidiaries through the end of the performance period, but the Committee
may provide for exceptions to this requirement as it deems equitable in its
sole discretion.
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<PAGE>
LIMITATIONS ON TRANSFER. No stock option or performance award will be
assignable or transferable except by will or by the laws of descent and
distribution; provided, however, that the Committee may (but need not) permit
other transfers where the Committee concludes that such transferability (i)
does not result in accelerated taxation, (ii) does not cause any stock option
intended to be an incentive stock option to fail to qualify as such, and (iii)
is otherwise appropriate and desirable, taking into account any state or
federal tax or securities laws applicable to transferable awards.
CHANGE OF CONTROL. In the event of a "change of control" of the Company (as
defined in the applicable Incentive Plan), the following will occur with
respect to awards outstanding under the Incentive Plans: (i) all restrictions
will lapse automatically, and all time periods relating to the exercise or
vesting of stock options and restricted shares will be accelerated, so that
awards will be immediately exercisable or vested; and performance goals will
be automatically deemed satisfied with respect to the number of shares or
options issuable or cash payable pursuant to a performance award so that such
award will be immediately vested, but such acceleration of awards will occur
only with the specific authorization of the Committee if, in the opinion of
the Company's accountants, such acceleration could preclude the use of
pooling-of-interest accounting treatment for a transaction that would
otherwise qualify for such accounting treatment and is contingent upon
qualifying for such accounting treatment; (ii) upon exercise of a stock option
during the 60-day period after the date of a change of control, the
participant exercising the stock option may, in lieu of the receipt of
Georgia-Pacific Group Stock or Timber Stock, as the case may be, elect by
written notice to the Company to receive a cash amount equal to the excess of
the aggregate value of the shares of stock covered by the stock option, over
the aggregate exercise price of the stock option; provided, however, that such
right to receive cash will apply only with the specific authorization of the
Committee if, in the opinion of the Company's accountants, such right could
preclude the use of pooling-of-interest accounting treatment for a transaction
that would otherwise qualify for such accounting treatment and is contingent
upon qualifying for such accounting treatment; (iii) if a participant's
employment terminates after the change in control for any reason other than
retirement or death, any stock options held by the participant may be
exercised until the earlier of 90 days after the termination of employment or
the expiration date of such stock option, but such provision will not shorten
the otherwise applicable exercise term of an option; and (iv) all awards
become non-cancelable.
TERMINATION AND AMENDMENT. Except as otherwise provided in the Incentive
Plans, the Board may at any time terminate, and, from time to time, amend or
modify the Incentive Plans, but no such amendment or modification shall,
without the approval of the Company's shareholders, increase any of the award
limitations set forth in the applicable Incentive Plan, extend the term of the
plan or effect any other change that requires the approval of the shareholders
under applicable law or regulation. Furthermore, no amendment, modification,
or termination of the Incentive Plans shall adversely affect any awards
already granted to a participant without his or her consent. No amendment or
modification of the Incentive Plans may change any performance goal, or
increase the benefits payable for the achievement of a performance goal, once
established for a performance award.
FEDERAL INCOME TAX CONSEQUENCES OF GRANTS UNDER THE INCENTIVE PLANS
The following discussion generally summarizes the United States federal
income tax consequences to participants who may receive grants of awards under
the Incentive Plans.
NONQUALIFIED STOCK OPTIONS. For federal income tax purposes, no income is
recognized by a participant upon the grant of a nonqualified stock option
under the Incentive Plans. Upon the exercise of a nonqualified stock option,
however, compensation taxable as ordinary income will be realized by the
participant in an amount equal to the excess of the fair market value of a
share of Georgia-Pacific Group Stock or Timber Stock, as the case may be, on
the date of such exercise over the exercise price. A subsequent sale or
exchange of such shares will result in gain or loss measured by the difference
between (i) the exercise price, increased by any compensation reported upon
the participant's exercise of the option, and (ii) the amount realized on such
sale or exchange. Such gain or loss will be capital in nature if the shares
were held as a capital asset and will be long-term if such shares were held
for the applicable long-term capital gain holding period.
64
<PAGE>
The Company generally is entitled to a deduction (subject to the provisions
of Section 162(m) of the Code) for compensation paid to a participant at the
same time and in the same amount as the participant is considered to have
realized compensation by reason of the exercise of an option.
INCENTIVE STOCK OPTIONS. Generally, for federal income tax purposes, no
income is recognized by the participant upon the grant or exercise of an
incentive stock option. If shares of Georgia-Pacific Group Stock or Timber
Stock, as the case may be, are issued to a participant pursuant to the
exercise of an incentive stock option granted under the Incentive Plans, and
if no disqualifying disposition of such shares is made by such participant
within two years after the date of grant of the option or within one year
after the transfer of such shares to the participant, then (a) upon sale of
such shares, any amount realized in excess of the option price will be taxed
to such participant as a capital gain and any loss sustained will be a capital
loss, and (b) no deduction will be allowed to the Company for federal income
tax purposes. Upon exercise of an incentive stock option, the participant may
be subject to alternative minimum tax on certain items of tax preference.
If shares of Georgia-Pacific Group Stock or Timber Stock, as the case may
be, acquired upon the exercise of an incentive stock option are disposed of
prior to the expiration of the two-years-from-grant/one-year-from-transfer
holding period, generally (a) the participant will realize ordinary income in
the year of disposition in the amount equal to the excess (if any) of the fair
market value of the shares at exercise (or, if less, the amount realized on
the disposition of the shares) over the option price thereof, and (b) the
Company will be entitled to deduct such amount (subject to the provisions of
Section 162(m) of the Code). Any further gain or loss realized will be taxed
as capital gain or loss, which will be taxed at rates which depend on how long
such shares were held, and will not result in any deduction by the Company. If
an incentive stock option is exercised at a time when it no longer qualifies
as an incentive stock option, the option is treated as a nonqualified stock
option.
RESTRICTED SHARES; PERFORMANCE AWARDS. Awards of restricted shares generally
will not result in taxable income to the employee for federal income tax
purposes at the time of the grant. A recipient of restricted shares generally
will receive compensation subject to tax at ordinary income rates on the fair
market value of the shares at the time the restricted shares are no longer
subject to forfeiture. However, a recipient who so elects under Section 83(b)
of the Code within 30 days of the date of the grant will have ordinary taxable
income on the date of the grant equal to the fair market value of the
restricted shares as if such shares were unrestricted and could be sold
immediately. If the restricted shares subject to such election are forfeited,
the recipient will not be entitled to any deduction, refund or loss for tax
purposes with respect to the forfeited shares. Upon sale of the restricted
shares after the forfeiture period has expired, the recipient's holding period
for purposes of calculating the tax on capital gains and losses begins when
the restriction period expires, and the tax basis will be equal to the fair
market value of the restricted shares on the date the restriction period
expires. However, if the recipient timely elects to be taxed as of the date of
the grant, the holding period commences on the date of the grant and the tax
basis will be equal to the fair market value of the restricted shares on the
date of the grant as if such shares were then unrestricted and could be sold
immediately.
The award of a performance award generally will not result in taxable income
to the employee for federal income tax purposes at the time of grant. A
recipient of a performance award generally will be subject to tax at the same
time and in the same manner as applicable to recipients of restricted shares
as described above.
The Company is generally entitled to a deduction (subject to the provisions
of Section 162(m) of the Code) for compensation paid to a participant in the
same amount as the participant is considered to have realized compensation
with respect to restricted shares or a performance award.
MAXIMUM CAPITAL GAINS RATES. Under recently enacted legislation, capital
gains recognized by recipients generally will be subject to a maximum federal
income tax rate of 20% if the shares sold or exchanged are held for more than
18 months, and to a maximum federal income tax rate of 28% if such shares are
held for more than one year but less than or equal to 18 months. However, if
the holding period of shares begins after December 31, 2000, and such shares
are held for more than 5 years, the maximum capital gains rate for federal
income tax purposes for recipients on the sale or exchange of such shares
generally will be 18%. If an option
65
<PAGE>
was held on or before December 31, 2000, then shares acquired pursuant to an
exercise of that option will not qualify for such 18% maximum rate, regardless
of when such shares are acquired.
LIMITS ON DEDUCTIONS
Under Section 162(m) of the Code, the amount of compensation paid to the
Chief Executive Officer and the four other most highly paid executive officers
of the Company in the year for which a deduction is claimed by the Company
(including its subsidiaries) is limited to $1 million per person, except that
compensation that is performance-based will be excluded for purposes of
calculating the amount of compensation subject to this $1 million limitation.
The ability of the Company to claim a deduction for compensation paid to any
other executive officer or employee of the Company (including its
subsidiaries) is not affected by this provision.
Except where the Committee deems it to be in the best interest of the
Company, the Committee will attempt to structure awards under the Incentive
Plans which will qualify as performance-based within the meaning of Section
162(m) of the Code. Such categorization depends upon the shareholders
approving the Incentive Plans and assumes that the provisions of the plans
relating to stock options and performance shares are complied with. With
respect to any awards under the Incentive Plans that are not performance-
based, any amounts for which the Company may claim a deduction will be subject
to the limitations on deductibility in Section 162(m) of the Code.
BENEFITS TO NAMED EXECUTIVE OFFICERS AND OTHERS
GEORGIA-PACIFIC GROUP PLAN. As of September 17, 1997, no awards had been
granted or approved for grant under the Georgia-Pacific Group Plan. Directors
who are not employees are not entitled to participate in the Georgia-Pacific
Group Plan. Any future awards will be made at the discretion of the Committee.
Therefore, it is not presently possible to determine with respect to (i) the
executive officers named in Annex IX--"Management Compensation and Adjustments
to Existing Compensation Plans--Summary Compensation Table," (ii) all current
executive officers as a group, or (iii) all employees, including all current
officers who are not executive officers, as a group, either the benefits or
amounts that will be received by such persons or groups pursuant to the
Georgia-Pacific Group Plan or the benefits or amounts that would have been
received by such persons or groups under the Georgia-Pacific Group Plan if it
had been in effect during the last fiscal year.
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<PAGE>
TIMBER GROUP PLAN. As of , 1997, subject to approval of the
Timber Group Plan by the shareholders, options had been approved for grant
under the Timber Group Plan to the persons and groups shown in the following
table. Directors who are not employees are not entitled to participate in the
Timber Group Plan. Any future awards under the Timber Group Plan will be made
at the discretion of the Committee. Therefore, it is not presently possible to
determine the number or terms of awards to be made under the Timber Group Plan
in the future to the persons and groups shown in the table below.
<TABLE>
<CAPTION>
TIMBER PLAN
--------------------------------------------------
NAME AND POSITION DOLLAR VALUE NUMBER OF OPTIONS
- -------------------------------------------------------------------------------
<S> <C> <C>
Alston D. Correll
Chairman, Chief Executive-- Officer and
President N/A N/A
- -------------------------------------------------------------------------------
Davis K. Mortensen (3)
Executive Vice President --
Building Products N/A N/A
- -------------------------------------------------------------------------------
W. E. Babin (3)
Executive Vice President --
Pulp and Paper N/A N/A
- -------------------------------------------------------------------------------
John F. McGovern
Executive Vice President-- Finance and Chief
Financial Officer N/A N/A
- -------------------------------------------------------------------------------
Donald F. Glass
Senior Vice President --
Building Products
Manufacturing and Sales (1) (2)
- -------------------------------------------------------------------------------
All Executive Officers as a Group (including
the above) (1) (2)
- -------------------------------------------------------------------------------
All Non-Executive Employees as a Group (1) (2)
</TABLE>
- --------
(1) The dollar value of the above options is dependent on the difference
between the exercise price and the fair market value of the underlying
shares on the date of exercise.
(2) [Describe features of options, including type (ISO or NQSO), number of
shares, exercise price, vesting schedule and term.]
(3) Messrs. Mortensen and Babin retired from the Company on March 1, 1997 and
April 1, 1997, respectively.
VOTE REQUIRED
Each of Proposals 3 and 4 will be approved if the number of shares of
Existing Common Stock voted in favor of the proposals exceeds the number of
shares of Existing Common Stock voted against the proposals.
RECOMMENDATION OF THE BOARD
THE BOARD HAS CAREFULLY CONSIDERED PROPOSALS 3 AND 4 AND BELIEVES THAT THEIR
APPROVAL IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS.
ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS APPROVE
PROPOSALS 3 AND 4.
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<PAGE>
PROPOSAL 5--AMENDMENTS TO ARTICLES OF INCORPORATION TO DELETE UNNECESSARY
PROVISIONS AND CONFORM TO CURRENT LAW
GENERAL
The following provisions of the current Articles are no longer required to
be included in the Restated Articles as a result of changes to the Georgia
Business Code. Consequently, the Restated Articles would eliminate the
following provisions:
(i) Article III: Article III of the Articles describes the corporate
purposes of the Company. As a result of the 1989 revisions to the
Georgia Business Code, a Georgia corporation automatically has the power
to engage in any lawful business under the Georgia Business Code, unless
the articles provide for a narrower purpose.
(ii) Article V: Article V of the Articles provides that the Company shall
have perpetual duration. As a result of the 1989 revisions to the
Georgia Business Code, a Georgia corporation automatically has a
perpetual duration, unless the articles provide for a shorter period.
In addition, Article VIII of the Articles does not conform to the current
Georgia Business Code. Article VIII currently provides for the exculpation of
directors from personal liability for monetary damages for breach of duty of
care or other duties, except for acts or omissions "not in good faith" or
"that involve intentional misconduct or knowing violation of law." To conform
to the current Georgia Business Code, the Articles would be amended to
eliminate the exception for acts or omissions "not in good faith." The
Articles also would be amended to confer upon the directors the benefit of any
elimination or limitation of director liability resulting from future
revisions to the Georgia Business Code. This amendment to the Articles would
not eliminate or adversely affect any right or protection of a director
existing prior to the amendment's adoption. Finally, to conform to revisions
to the Georgia Business Code which changed certain cross-references to other
provisions contained in the Georgia Business Code, Article VIII would be
amended to conform such a cross-reference to the current provisions of the
Georgia Business Corporation Code.
VOTE REQUIRED
Proposal 5 requires the affirmative vote of the holders of a majority of the
outstanding shares of Existing Common Stock.
RECOMMENDATION OF THE BOARD
THE BOARD HAS CAREFULLY CONSIDERED PROPOSAL 5 AND BELIEVES THAT ITS APPROVAL
BY THE SHAREHOLDERS IS IN THE BEST INTERESTS OF THE COMPANY AND ITS
SHAREHOLDERS. ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS APPROVE PROPOSAL 5.
SOLICITATION STATEMENT
The cost of this solicitation of proxies will be borne by the Company. In
addition to soliciting proxies by mail, directors, officers and employees of
the Company, without receiving additional compensation therefor, may solicit
proxies by telephone, telegram, in person or by other means. Arrangements also
will be made with brokerage firms and other custodians, nominees and
fiduciaries to forward proxy solicitation material to the beneficial owners of
Existing Common Stock held of record by such persons, and the Company will
reimburse such brokerage firms, custodians, nominees and fiduciaries for
reasonable out-of-pocket expenses incurred by them in connection therewith.
The Company has retained Georgeson & Company Inc. to provide solicitation
services and Morgan Stanley to perform various advisory services. The Company
has agreed to pay Georgeson & Company Inc. a fee of $ plus reimbursement
of out-of-pocket expenses. For information concerning compensation to be paid
to Morgan Stanley, see "Proposal 1--The Letter Stock Proposal--Financial
Advisor."
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SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Shareholder proposals for the Annual Meeting of Shareholders to be held on
May 5, 1998, will not be included in the Company's Proxy Statement for that
meeting unless received by the Company at its executive office in Atlanta,
Georgia, on or prior to November 26, 1997. Such proposals must also meet the
other requirements of the rules of the Commission relating to shareholder
proposals.
EXPERTS
The consolidated financial statements of Georgia-Pacific Corporation and
subsidiaries and the combined financial statements of the Georgia-Pacific
Group and the Timber Group as of December 31, 1996 and 1995 and for each of
the three years in the period ended December 31, 1996 included in this Proxy
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein upon the authority of said firm as experts in accounting and
auditing in giving said reports.
The Consolidated Financial Statements and Consolidated Financial Statement
Schedule included in Georgia-Pacific's Annual Report on Form 10-K for the year
ended December 31, 1996, as amended by Georgia-Pacific's Annual Report on Form
10-K/A filed on March 17, 1997 and its Annual Report on Form 10-K/A-1 filed on
March 25, 1997, incorporated by reference in this Proxy Statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their reports with respect thereto, and are incorporated herein by
reference in reliance upon the authority of said firm as experts in accounting
and auditing in giving said reports.
Representatives of Arthur Andersen LLP will attend the Special Meeting and
will have an opportunity to make a statement and to respond to appropriate
questions from shareholders.
LEGAL OPINIONS
Certain legal matters have been passed upon for the Company by Alston & Bird
LLP, Atlanta, Georgia and Simpson Thacher & Bartlett (a partnership which
includes professional corporations), New York, New York. Alston & Bird LLP has
rendered the opinion concerning due authorization and validity of the Common
Stock which is filed as an exhibit to this Registration Statement, and Simpson
Thacher & Bartlett has rendered an opinion on certain matters described under
"Certain United States Federal Income Tax Considerations."
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ANNEX I
RESTATED ARTICLES OF INCORPORATION
OF
GEORGIA-PACIFIC CORPORATION
PURSUANT TO SECTION 14-2-1007 OF THE
GEORGIA BUSINESS CORPORATION CODE
I.
The name of the Corporation is:
"GEORGIA-PACIFIC CORPORATION."
II.
These Restated Articles of Incorporation were approved by the Board of
Directors of the Corporation at a special meeting on , 1997. These
Restated Articles of Incorporation contain amendments requiring shareholder
approval, which amendments were duly approved at a special meeting of the
shareholders of the Corporation on , 1997 in accordance with the
provisions of Section 14-2-1003 of the Georgia Business Corporation Code.
These Restated Articles of Incorporation restate all the provisions of the
prior Restated Articles of Incorporation of the Corporation dated October 30,
1989 so that, as amended and restated, these Restated Articles of
Incorporation read as follows:
RESTATED ARTICLES OF INCORPORATION
OF
GEORGIA-PACIFIC CORPORATION
ARTICLE I.
The name of the Corporation is:
"GEORGIA-PACIFIC CORPORATION."
ARTICLE II.
The Corporation is organized pursuant to the provisions of the Georgia
Business Corporation Code.
ARTICLE III.
The aggregate number of shares of capital stock which the Corporation shall
have authority to issue is 685,000,000 shares of which 400,000,000 shares
shall be shares of a class of common stock designated as "Common Stock" having
a par value of $.80 per share (the "Existing Common Stock"), 250,000,000
shares shall be shares of a class of common stock designated as "Georgia-
Pacific Corporation--Timber Group Common Stock," having a par value of $.80
per share (the "Timber Stock"), 10,000,000 shares shall be shares of a class
of preferred stock, without par value per share (the "Preferred Stock"), and
25,000,000 shares shall be shares of a class of junior preferred stock,
without par value per share (the "Junior Preferred Stock"). As of the
effective date of the Articles, and without any further action on the part of
the Corporation or its shareholders,
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each share of the Existing Common Stock then authorized shall automatically be
redesignated and changed into one fully paid and nonassessable share of
"Georgia-Pacific Corporation--Georgia-Pacific Group Common Stock", having a
par value of $.80 per share (the "Georgia-Pacific Group Stock", and together
with the Timber Stock, the "Common Stock"). Reference to the Articles or these
Articles of Incorporation shall refer to these Restated Articles of
Incorporation as the same may be amended from time to time. Certain
capitalized terms used in Articles IV and V shall have the meanings set forth
in Section F. of Article V.
The authorized but unissued shares of Preferred Stock, Junior Preferred
Stock and Common Stock shall be available for issue and sale at any time and
from time to time, either in whole or in part, and upon such terms and
conditions and, in the case of the Preferred Stock and Junior Preferred Stock,
for such consideration, not less than the par value thereof, if any, as may be
provided by the Board of Directors of the Corporation.
ARTICLE IV.
The following is a description of the terms, provisions, preferences,
rights, voting powers, restrictions and qualifications of the Preferred Stock:
A. Dividends on the Preferred Stock shall be cumulative.
B. At any time after full cumulative dividends for all previous dividend
periods shall have been paid on the Preferred Stock and each other class of
stock (if any) ranking prior to or on a parity with the Preferred Stock as
to dividends, and after declaring and setting aside a sum sufficient for
the payment in full of the quarterly dividends on the Preferred Stock and
each such other class of stock for the then current dividend period, then,
but not prior thereto, out of any funds of the Corporation lawfully
available therefor, dividends may be declared on the class or classes of
stock junior to the Preferred Stock as to dividends, subject to the
respective terms and provisions (if any) applying thereto. If at any time
the Corporation shall fail to pay full cumulative dividends on any shares
of the Preferred Stock, thereafter until such dividends shall have been
paid or declared and set apart for payment, the Corporation shall not
purchase, redeem or otherwise acquire for consideration any shares of any
class of stock then outstanding and ranking on a parity with or junior to
the Preferred Stock.
C. In the event of any voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Corporation, after payment or provision
for payment of the debts, preferred stock senior to the Preferred Stock and
other liabilities of the Corporation and before any distribution to the
holders of the Common Stock, the Junior Preferred Stock or any other
subordinate preferred stock, the holders of each series of the Preferred
Stock shall be entitled to receive out of the net assets of the Corporation
an amount in cash for each share equal to the amount fixed and determined
by the Board of Directors in the resolution providing for the issuance of
the particular series of Preferred Stock, plus all dividends accumulated
and unpaid on each such share of Preferred Stock up to the date fixed for
distribution, and no more. If the above-stated amount payable in such event
to the holders of the Preferred Stock cannot be paid in full, the holders
of the shares of Preferred Stock shall share ratably in any distribution of
assets in proportion to the sums which would have been paid to them upon
such distribution if all sums payable were paid and discharged in full.
Neither the merger or consolidation of the Corporation, nor the sale, lease
or conveyance of all or a part of its assets, shall be deemed to be a
liquidation, dissolution or winding up of the affairs of the Corporation.
D. The Preferred Stock shall rank prior to the Common Stock and the
Junior Preferred Stock both as to dividends and assets, and any class or
classes of stock shall be deemed to rank (i) prior to the Preferred Stock
either as to dividends or assets if the holders of such class or classes
shall be entitled to the receipt of dividends or of amounts distributable
upon liquidation, dissolution or winding up, as the case may be, in
preference or priority to the holders of the Preferred Stock; (ii) on a
parity with the Preferred Stock either as to dividends or assets, whether
or not the dividend rates, dividend payment dates or redemption or
liquidation prices per share thereof be different from those of the
Preferred Stock, if the holders of such class or classes of stock shall be
entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion
to their respective dividend rates or
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liquidation prices, without preference or priority one over the other with
respect to the holders of the Preferred Stock; and (iii) junior to the
Preferred Stock either as to dividends or assets, if the rights of the
holders of such class or classes shall be subject or subordinate to the
rights of the holders of the Preferred Stock in respect of the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be.
E. All shares of Preferred Stock shall be identical except that the Board
of Directors of the Corporation is hereby expressly authorized and
empowered to divide the class of Preferred Stock into one or more series,
and, prior to the issuance of any of such shares in any particular series,
to fix and determine, in the manner provided by law, the number of shares
to constitute such series as well as the provisions of such series
described in clauses (a) through (h) below, and, after a series has been
established hereunder by the Board of Directors and unless otherwise
specifically provided in the original resolution establishing such series,
to increase or decrease at any time and from time to time, in the manner
provided by law, the number of shares included in such series (but not
below the number of shares thereof then issued) by subsequent resolutions
adopted by the Board of Directors (provided, however, that the Board of
Directors shall not be authorized to increase or decrease the number of
shares included in the Series A Adjustable Rate Convertible Preferred
Stock, in the Series B Adjustable Rate Convertible Preferred Stock or in
the Series B Adjustable Rate Convertible Preferred Stock (2nd Issue)):
(a) The distinctive designation of such series;
(b) The rate of dividends, the times of payment and date from which
the dividends shall be accumulated;
(c) Whether shares can be redeemed and, if so, the redemption price
and terms and conditions of redemption;
(d) The amount payable upon shares in the event of voluntary or
involuntary liquidation;
(e) Purchase, retirement or sinking fund provisions, if any, for the
redemption or purchase of shares;
(f) The terms and conditions, if any, on which shares may be
converted;
(g) Whether or not shares have voting rights, and the extent of any
such voting rights (including, without limitation, the right to elect
directors); and
(h) Any other preferences, rights, restrictions and qualifications of
shares of such class or series permitted by law and these Articles of
Incorporation.
F. Each share of Preferred Stock within an individual series shall be
identical in all respects with the other shares of such series, except for
such changes in dates from which dividends shall first accrue and other
details which because of the passage of time are required to be made in
order for the substantive rights of the holders of the shares of such
series to be identical.
The following is a description of the terms, provisions, preferences,
rights, voting powers, restrictions and qualifications of the Junior Preferred
Stock:
A. Dividends on the Junior Preferred Stock shall be cumulative.
B. At any time after full cumulative dividends for all previous dividend
periods shall have been paid on the Junior Preferred Stock and each other
class of stock ranking prior to or on a parity with the Junior Preferred
Stock as to dividends, and after declaring and setting aside a sum
sufficient for the payment in full of the quarterly dividends on the Junior
Preferred Stock and each such other class of stock for the then current
dividend period, then, but not prior thereto, out of any funds of the
Corporation lawfully available therefor, dividends may be declared on the
class or classes of stock junior to the Junior Preferred Stock as to
dividends, subject to the respective terms and provisions (if any) applying
thereto. If at any time the Corporation shall fail to pay full cumulative
dividends on any shares of the Junior Preferred Stock, thereafter until
such dividends shall have been paid or declared and set apart for payment,
the Corporation shall not
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purchase, redeem or otherwise acquire for consideration any shares of any
class of stock then outstanding and ranking on a parity with or junior to
the Junior Preferred Stock.
C. In the event of any voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Corporation, after payment or provision
for payment of the debts, the Preferred Stock, any other preferred stock
senior to the Junior Preferred Stock and other liabilities of the
Corporation and before any distribution to the holders of the Common Stock
or any subordinate preferred stock, the holders of each series of the
Junior Preferred Stock shall be entitled to receive out of the net assets
of the Corporation an amount in cash for each share equal to the amount
fixed and determined by the Board of Directors in the resolution providing
for the issuance of the particular series of Junior Preferred Stock, plus
all dividends accumulated and unpaid on each such share of Junior Preferred
Stock up to the date fixed for distribution, and no more. If the above-
stated amount payable in such event to the holders of the Junior Preferred
Stock cannot be paid in full, the holders of the shares of Junior Preferred
Stock shall share ratably in any distribution of assets in proportion to
the sums which would have been paid to them upon such distribution if all
sums payable were paid and discharged in full. Neither the merger or
consolidation of the Corporation, nor the sale, lease or conveyance of all
or a part of its assets, shall be deemed to be a liquidation, dissolution
or winding up of the affairs of the Corporation.
D. The Junior Preferred Stock shall rank prior to the Common Stock both
as to dividends and assets, and any class or classes of stock shall be
deemed to rank (i) prior to the Junior Preferred Stock either as to
dividends or assets if the holders of such class or classes shall be
entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference
or priority to the holders of the Junior Preferred Stock; (ii) on a parity
with the Junior Preferred Stock either as to dividends or assets, whether
or not the dividend rates, dividend payment dates or redemption or
liquidation prices per share thereof be different from those of the Junior
Preferred Stock, if the holders of such class or classes of stock shall be
entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion
to their respective dividend rates or liquidation prices, without
preference or priority one over the other with respect to the holders of
the Junior Preferred Stock; and (iii) junior to the Junior Preferred Stock
either as to dividends or assets, if the rights of the holders of such
class or classes shall be subject or subordinate to the rights of the
holders of the Junior Preferred Stock in respect of the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be.
E. All shares of Junior Preferred Stock shall be identical except that
the Board of Directors of the Corporation is hereby expressly authorized
and empowered to divide the class of Junior Preferred Stock into one or
more series, and, prior to the issuance of any of such shares in any
particular series, to fix and determine, in the manner provided by law, the
number of shares to constitute such series as well as the provisions of
such series described in clauses (a) through (h) below, and, after a series
has been established hereunder by the Board of Directors and unless
otherwise specifically provided in the original resolution establishing
such series, to increase or decrease at any time and from time to time, in
the manner provided by law, the number of shares included in such series
(but not below the number of shares thereof then issued) by subsequent
resolutions adopted by the Board of Directors:
(a) The distinctive designation of such series;
(b) The rate of dividends, the times of payment and the date from
which the dividends shall be accumulated;
(c) Whether shares can be redeemed and, if so, the redemption price
and terms and conditions of redemption;
(d) The amount payable upon shares in the event of voluntary or
involuntary liquidation;
(e) Purchase, retirement or sinking fund provisions, if any, for the
redemption or purchase of shares;
(f) The terms and conditions, if any, on which shares may be
converted;
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(g) Whether or not shares have voting rights, and the extent of any
such voting rights (including, without limitation, the right to elect
directors); and
(h) Any other preferences, rights, restrictions and qualifications of
shares of such class or series, permitted by law and these Articles of
Incorporation.
F. Each share of the Junior Preferred Stock within an individual series
shall be identical in all respects with the other shares of such series,
except for such changes in dates from which dividends shall first accrue
and other details which because of the passage of time are required to be
made in order for the substantive rights of the holders of the shares of
such series to be identical.
G. The Board of Directors of the Corporation is hereby expressly
authorized and empowered to declare and pay dividends, in the manner
provided by law, in shares of Junior Preferred Stock in respect to any
class of stock of the Corporation, without the consent of any of the
holders of Junior Preferred Stock then outstanding.
The Corporation shall have the full power to purchase and otherwise acquire
and dispose of its own shares and securities granted by the laws of the State
of Georgia and shall have the right to purchase its shares out of its
unreserved and unrestricted capital surplus available therefor, out of its
unreserved and unrestricted earned surplus available therefor, as well as out
of any other funds legally available therefor. Any Preferred Stock and Junior
Preferred Stock reacquired by the Corporation shall automatically be cancelled
upon such reacquisition but shall remain as authorized Preferred Stock and
Junior Preferred Stock hereunder.
No holder of any stock of any class of the Corporation shall, as such
holder, have any preemptive or preferential right of subscription for any
stock of any class of the Corporation or for any obligations convertible into
stock or for any right of subscription for, or any warrant or option for, the
purchase of any thereof, other than such (if any) as the Board of Directors of
the Corporation in its discretion may determine from time to time.
The following are the voting powers, designation, preferences and relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions, in addition to those previously set forth in
this Article IV, of "Series A Junior Preferred Stock":
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Preferred Stock" and the number of shares
constituting such series shall be zero.
Section 2. Dividends and Distributions. (A) Subject to the prior and
superior rights of the holders of any shares of any other series of Junior
Preferred Stock or any other shares of preferred stock of the Corporation
ranking prior and superior to the shares of Series A Junior Preferred Stock
with respect to dividends, each holder of one one-hundredth ( 1/100) of a
share (a "Unit") of Series A Junior Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds
legally available for that purpose, (i) quarterly dividends payable in cash
on the first day of January, April, July and October in each year (each
such date being a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of such Unit
of Series A Junior Preferred Stock, in an amount per Unit (rounded to the
nearest cent) equal to the greater of (a) $0.35 or (b) subject to the
provision for adjustment hereinafter set forth, the aggregate per share
amount of all cash dividends declared on shares of the Common Stock since
the immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance of a
Unit of Series A Junior Preferred Stock, and (ii) subject to the provision
for adjustment hereinafter set forth, quarterly distributions (payable in
kind) on each Quarterly Dividend Payment Date in an amount per Unit equal
to the aggregate per share amount of all non-cash dividends or other
distributions (other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock, by reclassification
or otherwise) declared on shares of Common Stock since the immediately
preceding Quarterly Dividend Payment Date, or with respect to the first
Quarterly Dividend Payment Date, since the first issuance of a Unit of
Series A Junior Preferred Stock. In the event that the Corporation shall at
any time after July 31, 1989 (the "Rights Declaration Date") (i) declare
any dividend on outstanding shares of Common Stock
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payable in shares of Common Stock, (ii) subdivide outstanding shares of
Common Stock or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, then in each such case the amount to which the
holder of a Unit of Series A Junior Preferred Stock was entitled
immediately prior to such event pursuant to the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which
shall be the number of shares of Common Stock that are outstanding
immediately after such event and the denominator of which shall be the
number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or distribution on Units of
Series A Junior Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the shares of
Common Stock (other than a dividend payable in shares of Common Stock);
provided, however, that, in the event no dividend or distribution shall
have been declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $0.35 per Unit on the Series A Junior Preferred
Stock shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
(C) Dividends shall begin to accrue and shall be cumulative on each
outstanding Unit of Series A Junior Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issuance of such Unit of
Series A Junior Preferred Stock, unless the date of issuance of such Unit
is prior to the record date for the first Quarterly Dividend Payment Date,
in which case, dividends on such Unit shall begin to accrue from the date
of issuance of such Unit, or unless the date of issuance is a Quarterly
Dividend Payment Date or is a date after the record date for the
determination of holders of Units of Series A Junior Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued
but unpaid dividends shall not bear interest. Dividends paid on Units of
Series A Junior Preferred Stock in an amount less than the aggregate amount
of all such dividends at the time accrued and payable on such Units shall
be allocated pro rata on a unit-by-unit basis among all Units of Series A
Junior Preferred Stock at the time outstanding. The Board of Directors may
fix a record date for the determination of holders of Units of Series A
Junior Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than 30
days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of Units of Series A Junior
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each Unit of Series A Junior Preferred Stock shall entitle the holder
thereof to one vote on all matters submitted to a vote of the
shareholders of the Corporation. In the event the Corporation shall at
any time after the Rights Declaration Date (i) declare any dividend on
outstanding shares of Common Stock payable in shares of Common Stock,
(ii) subdivide outstanding shares of Common Stock or (iii) combine the
outstanding shares of Common Stock into a smaller number of shares,
then in each such case the number of votes per Unit to which holders of
Units of Series A Junior Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction the numerator of which shall be the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which shall be the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
Units of Series A Junior Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted
to a vote of shareholders of the Corporation.
(C) (i) If at any time dividends on any Units of Series A Junior
Preferred Stock shall be in arrears in an amount equal to six quarterly
dividends thereon, then during the period (a "default period") from the
occurrence of such event until such time as all accrued and unpaid
dividends for all previous quarterly dividend periods and for the
current quarterly dividend period on all Units of Series A Junior
Preferred Stock then outstanding shall have been declared and paid or
set apart for payment, all holders
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of Units of Series A Junior Preferred Stock, voting separately as a
class, shall have the right to elect two Directors.
(ii) During any default period, such voting rights of the holders of
Units of Series A Junior Preferred Stock may be exercised initially at
a special meeting called pursuant to subparagraph (iii) of this Section
3(C) or at any annual meeting of shareholders, and thereafter at annual
meetings of shareholders, provided that neither such voting rights nor
any right of the holders of Units of Series A Junior Preferred Stock to
increase, in certain cases, the authorized number of Directors may be
exercised at any meeting unless one-third of the outstanding Units of
Series A Junior Preferred Stock shall be present at such meeting in
person or by proxy. The absence of a quorum of the holders of Common
Stock shall not affect the exercise by the holders of Units of Series A
Junior Preferred Stock of such rights. At any meeting at which the
holders of Units of Series A Junior Preferred Stock shall exercise such
voting right initially during an existing default period, they shall
have the right, voting separately as a class, to elect Directors to
fill up to two vacancies in the Board of Directors, if any such
vacancies may then exist, or, if such right is exercised at an annual
meeting, to elect two Directors. If the number which may be so elected
at any special meeting does not amount to the required number, the
holders of the Series A Junior Preferred Stock shall have the right to
make such increase in the number of Directors as shall be necessary to
permit the election by them of the required number. After the holders
of Units of Series A Junior Preferred Stock shall have exercised their
right to elect Directors during any default period, the number of
Directors shall not be increased or decreased except as approved by a
vote of the holders of Units of Series A Junior Preferred Stock as
herein provided or pursuant to the rights of any equity securities
ranking senior to the Series A Junior Preferred Stock.
(iii) Unless the holders of Series A Junior Preferred Stock shall,
during an existing default period, have previously exercised their
right to elect Directors, the Board of Directors may order, or any
shareholder or shareholders owning in the aggregate not less than 25%
of the total number of Units of Series A Junior Preferred Stock
outstanding may request in writing, the calling of a special meeting of
the holders of Units of Series A Junior Preferred Stock, which meeting
shall thereupon be called by the Secretary of the Corporation. Notice
of such meeting and of any annual meeting at which holders of Units of
Series A Junior Preferred Stock are entitled to vote pursuant to this
paragraph (C)(iii) shall be given to each holder of record of Units of
Series A Junior Preferred Stock by mailing a copy of such notice to him
at his last address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not earlier than
10 days and not later than 60 days after such order or request or in
default of the calling of such meeting within 60 days after such order
or request, such meeting may be called on similar notice by any
shareholder or shareholders owning in the aggregate not less than 25%
of the total number of outstanding Units of Series A Junior Preferred
Stock.
(iv) During any default period, the holders of shares of Common Stock
and Units of Series A Junior Preferred Stock, and other classes or
series of stock of the Corporation, if applicable, shall continue to be
entitled to elect all the Directors until the holders of Units of
Series A Junior Preferred Stock shall have exercised their right to
elect two Directors voting as a separate class, after the exercise of
which right (x) the Directors so elected by the holders of Units of
Series A Junior Preferred Stock shall continue in office until their
successors shall have been elected by such holders or until the
expiration of the default period, and (y) any vacancy in the Board of
Directors may (except as provided in paragraph (C)(ii) of this Section
3) be filled by a vote of a majority of the remaining Directors
theretofore elected by the holders of the class of capital stock which
elected the Director whose office shall have become vacant. References
in this paragraph (C) to Directors elected by the holders of a
particular class of capital stock shall include Directors elected by
such Directors to fill vacancies as provided in clause (y) of the
foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Units of Series A Junior Preferred Stock as a
separate class to elect Directors shall cease, (y) the term of any
Directors elected by the holders of Units of Series A Junior Preferred
Stock as a separate class shall
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terminate, and (z) the number of Directors shall be such number as may
be provided for in the Articles or by-laws irrespective of any increase
made pursuant to the provisions of paragraph (C)(ii) of this Section 3
(such number being subject, however, to change thereafter in any manner
provided by law or in the Articles or by-laws). Any vacancies in the
Board of Directors effected by the provisions of clauses (y) and (z) in
the preceding sentence may be filled by a majority of the remaining
Directors.
(vi) The provisions of this paragraph (C) shall govern the election
of Directors by holders of Units of Series A Junior Preferred Stock
during any default period notwithstanding any provisions of the
Articles to the contrary.
(D) Except as set forth herein, holders of Units of Series A Junior
Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote
with holders of Shares of Common Stock as set forth herein) for taking
any corporate action.
Section 4. Certain Restrictions. (A) Whenever quarterly dividends or
other dividends or distributions payable on Units of Series A Junior
Preferred Stock as provided in Section 2 are in arrears, thereafter and
until all accrued and unpaid dividends and distributions, whether or not
declared, on outstanding Units of Series A Junior Preferred Stock shall
have been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
junior stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of parity stock, except dividends paid ratably on Units of
Series A Junior Preferred Stock and shares of all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of such Units and all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any parity stock, provided, however, that the Corporation may
at any time redeem, purchase or otherwise acquire shares of any such
parity stock in exchange for shares of any junior stock; or
(iv) purchase or otherwise acquire for consideration any Units of
Series A Junior Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such Units.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any Units of Series A Junior Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled automatically upon the
acquisition thereof. All such Units shall, upon their cancellation, become
authorized but unissued Units of Junior Preferred Stock and may be reissued
as part of a new series of Junior Preferred Stock to be created by
resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation,
no distribution shall be made (i) to the holders of shares of junior stock
unless the holders of Units of Series A Junior Preferred Stock shall have
received, subject to adjustment as hereinafter provided in paragraph (B),
the greater of either (a) $.01 per Unit plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not earned or
declared, to the date of such payment, or (b) the amount per Unit equal to
the aggregate per share amount to be distributed to holders of shares of
Common Stock, or (ii) to the holders of shares of parity stock, unless
simultaneously therewith distributions are made ratably on Units of Series
A Junior Preferred Stock and all other shares of such parity stock in
proportion to the total amounts to which the holders of Units of Series A
Junior Preferred Stock are entitled under clause (i)(a) of this sentence
and to which the holders of shares of such parity stock are entitled, in
each case upon such liquidation, dissolution or winding up.
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(B) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on outstanding shares of Common
Stock payable in shares of Common Stock, (ii) subdivide outstanding shares
of Common Stock, or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, then in each such case the aggregate amount to
which holders of Units of Series A Junior Preferred Stock were entitled
immediately prior to such event pursuant to clause (i)(b) of paragraph (A)
of this Section 6 shall be adjusted by multiplying such amount by a
fraction the numerator of which shall be the number of shares of Common
Stock that are outstanding immediately after such event and the denominator
of which shall be the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or converted into other
stock or securities, cash and/or any other property, then in any such case
Units of Series A Junior Preferred Stock shall at the same time be
similarly exchanged for or converted into an amount per Unit (subject to
the provision for adjustment hereinafter set forth) equal to the aggregate
amount of stock, securities, cash and/or any other property (payable in
kind), as the case may be, into which or for which each share of Common
Stock is converted or exchanged. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on
outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock, or (iii) combine outstanding
Common Stock into a smaller number of shares, then in each such case the
amount set forth in the immediately preceding sentence with respect to the
exchange or conversion of Units of Series A Junior Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which
shall be the number of shares of Common Stock that are outstanding
immediately after such event and the denominator of which shall be the
number of shares of Common Stock that were outstanding immediately prior to
such event.
Section 8. Redemption. The Units of Series A Junior Preferred Stock shall
not be redeemable.
Section 9. Ranking. The Units of Series A Junior Preferred Stock shall
rank junior to all other series of the Junior Preferred Stock and to any
other class of preferred stock that hereafter may be issued by the
Corporation as to the payment of dividends and the distribution of assets,
unless the terms of any such series or class shall provide otherwise.
Section 10. Amendment. The Articles, including, without limitation, this
resolution, shall not hereafter be amended, either directly or indirectly,
or through merger or consolidation with another corporation, in any manner
that would alter or change the powers, preferences or special rights of the
Series A Junior Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding
Units of Series A Junior Preferred Stock, voting separately as a class.
Section 11. Fractional Shares. The Series A Junior Preferred Stock may be
issued in Units or other fractions of a share, which Units or fractions
shall entitle the holder, in proportion to such holder's fractional shares,
to exercise voting rights, receive dividends, participate in distributions
and to have the benefit of all other rights of holders of Series A Junior
Preferred Stock.
Section 12. Certain Definitions. As used herein with respect to the
Series A Junior Preferred Stock, the following terms shall have the
following meanings:
(A) The term "Common Stock" shall mean the class of stock designated
as the common stock, par value $.80 per share, of the Corporation at
the date hereof or any other class of stock resulting from successive
changes or reclassification of the common stock.
(B) The term "junior stock" (i) as used in Section 4, shall mean the
Common Stock and any other class or series of capital stock of the
Corporation hereafter authorized or issued over which the Series A
Junior Preferred Stock has preference or priority as to the payment of
dividends and (ii) as used in Section 6, shall mean the Common Stock
and any other class or series of capital stock of the Corporation over
which the Series A Junior Preferred Stock has preference or priority in
the distribution of assets on any liquidation, dissolution or winding
up of the Corporation.
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(C) The term "parity stock" (i) as used in Section 4, shall mean any
class or series of stock of the Corporation hereafter authorized or
issued ranking pari passu with the Series A Junior Preferred Stock as
to dividends and (ii) as used in Section 6, shall mean any class or
series of capital stock ranking pari passu with the Series A Junior
Preferred Stock in the distribution of assets on any liquidation,
dissolution or winding up.
The following are the voting powers, designation, preferences and relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions, in addition to those previously set forth in
this Article IV, of "Series B Junior Preferred Stock":
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series B Junior Preferred Stock" and the number of shares
constituting such series shall be 5,000,000.
Section 2. Dividends and Distributions. (A) Subject to the prior and
superior rights of the holders of any shares of any other series of
Preferred Stock or Junior Preferred Stock or any other shares of capital
stock of the Corporation ranking prior and superior to the shares of Series
B Junior Preferred Stock with respect to dividends, each holder of one one-
hundredth ( 1/100) of a share (a "Unit") of Series B Junior Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for that purpose, (i) quarterly
dividends payable in cash on the first day of January, April, July and
October in each year (each such date being a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the
first issuance of such Unit of Series B Junior Preferred Stock, in an
amount per Unit (rounded to the nearest cent) equal to the greater of (a)
$0.35 or (b) subject to the provision for adjustment hereinafter set forth,
the aggregate per share amount of all cash dividends declared on shares of
the Georgia-Pacific Group Stock since the immediately preceding Quarterly
Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of a Unit of Series B Junior
Preferred Stock, and (ii) subject to the provision for adjustment
hereinafter set forth, quarterly distributions (payable in kind) on each
Quarterly Dividend Payment Date in an amount per Unit equal to the
aggregate per share amount of all non-cash dividends or other distributions
(other than a dividend payable in shares of Georgia-Pacific Group Stock or
a subdivision of the outstanding shares of Georgia-Pacific Group Stock, by
reclassification or otherwise) declared on shares of Georgia-Pacific Group
Stock since the immediately preceding Quarterly Dividend Payment Date, or
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of a Unit of Series B Junior Preferred Stock. In the event that
the Corporation shall at any time after the initial issuance of Georgia-
Pacific Group Stock and Timber Stock (i) declare any dividend on
outstanding shares of Georgia-Pacific Group Stock payable in shares of
Georgia-Pacific Group Stock, (ii) subdivide outstanding shares of Georgia-
Pacific Group Stock into a greater number of shares or (iii) combine
outstanding shares of Georgia-Pacific Group Stock into a smaller number of
shares, then in each such case the amount to which the holder of a Unit of
Series B Junior Preferred Stock was entitled immediately prior to such
event pursuant to the preceding sentence shall be adjusted by multiplying
such amount by a fraction the numerator of which shall be the number of
shares of Georgia-Pacific Group Stock that are outstanding immediately
after such event and the denominator of which shall be the number of shares
of Georgia-Pacific Group Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or distribution on Units of
Series B Junior Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the shares of
Georgia-Pacific Group Stock (other than a dividend payable in shares of
Georgia-Pacific Group Stock); provided, however, that, in the event no
dividend or distribution shall have been declared on the Georgia-Pacific
Group Stock during the period between any Quarterly Dividend Payment Date
and the next subsequent Quarterly Dividend Payment Date, a dividend of
$0.35 per Unit on the Series B Junior Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and shall be cumulative on each
outstanding Unit of Series B Junior Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issuance of such Unit of
Series B Junior Preferred Stock, unless the date of issuance of such Unit
is prior to the record
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date for the first Quarterly Dividend Payment Date, in which case,
dividends on such Unit shall begin to accrue from the date of issuance of
such Unit, or unless the date of issuance is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of holders of
Units of Series B Junior Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from
such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on Units of Series B Junior Preferred
Stock in an amount less than the aggregate amount of all such dividends at
the time accrued and payable on such Units shall be allocated pro rata on a
unit-by-unit basis among all Units of Series B Junior Preferred Stock at
the time outstanding. The Board of Directors may fix a record date for the
determination of holders of Units of Series B Junior Preferred Stock
entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be no more than 30 days prior to the date fixed for
the payment thereof.
Section 3. Voting Rights. The holders of Units of Series B Junior
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each Unit of Series B Junior Preferred Stock shall entitle the holder
thereof to one vote on all matters submitted to a vote of the
shareholders of the Corporation. In the event the Corporation shall at
any time after the initial issuance of Georgia-Pacific Group Stock and
Timber Stock (i) declare any dividend on outstanding shares of Georgia-
Pacific Group Stock payable in shares of Georgia-Pacific Group Stock,
(ii) subdivide outstanding shares of Georgia-Pacific Group Stock into a
greater number of shares or (iii) combine the outstanding shares of
Georgia-Pacific Group Stock into a smaller number of shares, then in
each such case the number of votes per Unit to which holders of Units
of Series B Junior Preferred Stock were entitled immediately prior to
such event shall be adjusted by multiplying such number by a fraction
the numerator of which shall be the number of shares of Georgia-Pacific
Group Stock outstanding immediately after such event and the
denominator of which shall be the number of shares of Georgia-Pacific
Group Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
Units of Series A Junior Preferred Stock, Series B Junior Preferred
Stock and Series C Junior Preferred Stock and the holders of shares of
Georgia-Pacific Group Stock and Timber Stock shall vote together as one
voting group on all matters submitted to a vote of shareholders of the
Corporation.
(C)(i) If at any time dividends on any Units of Series B Junior
Preferred Stock shall be in arrears in an amount equal to six quarterly
dividends thereon, then during the period (a "default period") from the
occurrence of such event until such time as all accrued and unpaid
dividends for all previous quarterly dividend periods and for the
current quarterly dividend period on all Units of Series B Junior
Preferred Stock then outstanding shall have been declared and paid or
set apart for payment, all holders of Units of Series B Junior
Preferred Stock, voting separately as a voting group, shall have the
right to elect two Directors.
(ii) During any default period, such voting rights of the holders of
Units of Series B Junior Preferred Stock may be exercised initially at
a special meeting called pursuant to subparagraph (iii) of this Section
3(C) or at any annual meeting of shareholders, and thereafter at annual
meetings of shareholders, provided that neither such voting rights nor
any right of the holders of Units of Series B Junior Preferred Stock to
increase, in certain cases, the authorized number of Directors may be
exercised at any meeting unless one-third of the outstanding Units of
Series B Junior Preferred Stock shall be present at such meeting in
person or by proxy. The absence of a quorum of the holders of Common
Stock shall not affect the exercise by the holders of Units of Series B
Junior Preferred Stock of such rights. At any meeting at which the
holders of Units of Series B Junior Preferred Stock shall exercise such
voting rights initially during an existing default period, they shall
have the right, voting separately as a voting group, to elect Directors
to fill up to two vacancies in the Board of Directors, if any such
vacancies may then exist, or, if such right is exercised at an annual
meeting, to elect two
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Directors. If the number which may be so elected at any special meeting
does not amount to the required number, the holders of the Series B
Junior Preferred Stock shall have the right to make such increase in
the number of Directors as shall be necessary to permit the election by
them of the required number. After the holders of Units of Series B
Junior Preferred Stock shall have exercised their right to elect
Directors during any default period, the number of Directors shall not
be increased or decreased except as approved by a vote of the holders
of Units of Series B Junior Preferred Stock as herein provided or
pursuant to the rights of the Series A Junior Preferred Stock or Series
C Junior Preferred Stock or pursuant to the rights of any equity
securities ranking senior to the Series B Junior Preferred Stock.
(iii) Unless the holders of Series B Junior Preferred Stock shall,
during an existing default period, have previously exercised their
right to elect Directors, the Board of Directors may order, or any
shareholder or shareholders owning in the aggregate not less than 25%
of the total number of Units of Series B Junior Preferred Stock
outstanding may request in writing, the calling of a special meeting of
the holders of Units of Series B Junior Preferred Stock, which meeting
shall thereupon be called by the Secretary of the Corporation. Notice
of such meeting and of any annual meeting at which holders of Units of
Series B Junior Preferred Stock are entitled to vote pursuant to this
paragraph (C)(iii) shall be given to each holder of record of Units of
Series B Junior Preferred Stock by mailing a copy of such notice to him
at his last address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not earlier than
10 days and not later than 60 days after such order or request or in
default of the calling of such meeting within 60 days after such order
or request, such meeting may be called on similar notice by any
shareholder or shareholders owning in the aggregate not less than 25%
of the total number of outstanding Units of Series B Junior Preferred
Stock.
(iv) During any default period, the holders of shares of Georgia-
Pacific Group Stock, Timber Stock and Units of Series B Junior
Preferred Stock, and other classes or series of stock of the
Corporation, if applicable, shall continue to be entitled to elect all
the Directors until the holders of Units of Series B Junior Preferred
Stock shall have exercised their right to elect two Directors voting as
a separate voting group, after the exercise of which right (x) the
Directors so elected by the holders of Units of Series B Junior
Preferred Stock shall continue in office until their successors shall
have been elected by such holders or until the expiration of the
default period, and (y) any vacancy in the Board of Directors may
(except as provided in paragraph (C)(ii) of this Section 3) be filled
by a vote of a majority of the remaining Directors theretofore elected
by the holders of the class or series of capital stock which elected
the Director whose office shall have become vacant. References in this
paragraph (C) to Directors elected by the holders of a particular class
or series of capital stock shall include Directors elected by such
Directors to fill vacancies as provided in clause (y) of the foregoing
sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Units of Series B Junior Preferred Stock as a
separate voting group to elect Directors shall cease, (y) the term of
any Directors elected by the holders of Units of Series B Junior
Preferred Stock as a separate voting group shall terminate, and (z) the
number of Directors shall be such number as may be provided for in the
Articles or By-laws irrespective of any increase made pursuant to the
provisions of paragraph (C)(ii) of this Section 3 (such number being
subject, however, to change thereafter in any manner provided by law or
in the Articles or By-laws). Any vacancies in the Board of Directors
effected by the provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining Directors.
(vi) The provisions of this paragraph (C) shall govern the election
of Directors by holders of Units of Series B Junior Preferred Stock
during any default period notwithstanding any provisions of the
Articles to the contrary.
(D) Except as set forth herein, holders of Units of Series B Junior
Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to
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vote with holders of shares of Georgia-Pacific Group Stock or Timber
Stock or any other class or series of capital stock of the Corporation,
as applicable) for taking any corporate action.
Section 4. Certain Restrictions. (A) Whenever quarterly dividends or
other dividends or distributions payable on Units of Series B Junior
Preferred Stock as provided in Section 2 are in arrears, thereafter and
until all accrued and unpaid dividends and distributions, whether or not
declared, on outstanding Units of Series B Junior Preferred Stock shall
have been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
junior stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of parity stock, except dividends paid ratably on Units of
Series B Junior Preferred Stock and shares of all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of such Units and all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any parity stock, provided, however, that the Corporation may
at any time redeem, purchase or otherwise acquire shares of any such
parity stock in exchange for shares of any junior stock; or
(iv) purchase or otherwise acquire for consideration any Units of
Series B Junior Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such Units.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any Units of Series B Junior Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled automatically upon the
acquisition thereof. All such Units shall, upon their cancellation, become
authorized but unissued Units of Junior Preferred Stock and may be reissued
as part of a new series of Junior Preferred Stock to be created by
resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation,
no distribution shall be made (i) to the holders of shares of junior stock
unless the holders of Units of Series B Junior Preferred Stock shall have
received, subject to adjustment as hereinafter provided in paragraph (B),
the greater of either (a) $.01 per Unit plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not earned or
declared, to the date of such payment, or (b) the amount per Unit equal to
the aggregate per share amount to be distributed to holders of shares of
Georgia-Pacific Group Stock, or (ii) to the holders of shares of parity
stock, unless simultaneously therewith distributions are made ratably on
Units of Series B Junior Preferred Stock and all other shares of such
parity stock in proportion to the total amounts to which the holders of
Units of Series B Junior Preferred Stock are entitled under clause (i)(a)
of this sentence and to which the holders of shares of such parity stock
are entitled, in each case upon such liquidation, dissolution or winding
up.
(B) In the event the Corporation shall at any time after the initial
issuance of Georgia-Pacific Group Stock and Timber Stock (i) declare any
dividend on outstanding shares of Georgia-Pacific Group Stock payable in
shares of Georgia-Pacific Group Stock, (ii) subdivide outstanding shares of
Georgia-Pacific Group Stock into a greater number of shares, or (iii)
combine outstanding shares of Georgia-Pacific Group Stock into a smaller
number of shares, then in each such case the aggregate amount to which
holders of Units of Series B Junior Preferred Stock were entitled
immediately prior to such event pursuant to clause (i)(b) of paragraph (A)
of this Section 6 shall be adjusted by multiplying such amount by a
fraction the numerator of which shall be the number of shares of Georgia-
Pacific Group Stock that are outstanding immediately after such event and
the denominator of which shall be the number of shares of Georgia-Pacific
Group Stock that were outstanding immediately prior to such event.
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Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in
which the shares of Georgia-Pacific Group Stock are exchanged for or
converted into other stock or securities, cash and/or any other property,
then in any such case Units of Series B Junior Preferred Stock shall at the
same time be similarly exchanged for or converted into an amount per Unit
(subject to the provision for adjustment hereinafter set forth) equal to
the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share
of Georgia-Pacific Group Stock is converted or exchanged. In the event the
Corporation shall at any time after the initial issuance of Georgia-Pacific
Group Stock and Timber Stock (i) declare any dividend on outstanding shares
of Georgia-Pacific Group Stock payable in shares of Georgia-Pacific Group
Stock, (ii) subdivide outstanding shares of Georgia-Pacific Group Stock
into a greater number of shares, or (iii) combine outstanding Georgia-
Pacific Group Stock into a smaller number of shares, then in each such case
the amount set forth in the immediately preceding sentence with respect to
the exchange or conversion of Units of Series B Junior Preferred Stock
shall be adjusted by multiplying such amount by a fraction the numerator of
which shall be the number of shares of Georgia-Pacific Group Stock that are
outstanding immediately after such event and the denominator of which shall
be the number of shares of Georgia-Pacific Group Stock that were
outstanding immediately prior to such event.
Section 8. Redemption. The Units of Series B Junior Preferred Stock shall
not be redeemable. Notwithstanding the foregoing, the Corporation may
acquire shares of Series B Junior Preferred Stock in any other manner
permitted by applicable law or these Articles.
Section 9. Ranking. The Units of Series B Junior Preferred Stock shall
rank senior to the Georgia-Pacific Group Stock and the Timber Stock, on a
parity with the Series A Junior Preferred Stock and Series C Junior
Preferred Stock and junior to all other series of the Junior Preferred
Stock and to any other series or class of Preferred Stock that hereafter
may be issued by the Corporation as to the payment of distributions and
dividends and the distribution of assets upon liquidation, unless the terms
of any such series or class shall provide otherwise.
Section 10. Amendment. The Articles shall not hereafter be amended,
either directly or indirectly, or through merger or consolidation with
another corporation, in any manner that would alter or change the powers,
preferences or special rights of the Series B Junior Preferred Stock so as
to affect them adversely without the affirmative vote of the holders of a
majority or more of the outstanding Units of Series B Junior Preferred
Stock, voting separately as a voting group.
Section 11. Fractional Shares. The Series B Junior Preferred Stock may be
issued in Units or other fractions of a share, which Units or fractions
shall entitle the holder, in proportion to such holder's fractional shares,
to exercise voting rights, receive dividends, participate in distributions
and to have the benefit of all other rights of holders of Series B Junior
Preferred Stock.
Section 12. Certain Definitions. As used herein with respect to the
Series B Junior Preferred Stock, the following terms shall have the
following meanings:
(A) The term "junior stock" (i) as used in Section 4, shall mean the
Georgia-Pacific Group Stock and the Timber Stock and any other class or
series of capital stock of the Corporation hereafter authorized or
issued over which the Series B Junior Preferred Stock has preference or
priority as to the payment of dividends and (ii) as used in Section 6,
shall mean the Georgia-Pacific Group Stock and the Timber Stock and any
other class or series of capital stock of the Corporation over which
the Series B Junior Preferred Stock has preference or priority in the
distribution of assets on any liquidation, dissolution or winding up of
the Corporation.
(B) The term "parity stock" (i) as used in Section 4, shall mean any
class or series of stock of the Corporation hereafter authorized or
issued ranking pari passu with the Series B Junior Preferred Stock as
to dividends and (ii) as used in Section 6, shall mean any class or
series of capital stock ranking pari passu with the Series B Junior
Preferred Stock in the distribution of assets on any liquidation,
dissolution or winding up.
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The following are the voting powers, designation, preferences and relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions, in addition to those previously set forth in
this Article IV, of "Series C Junior Preferred Stock":
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series C Junior Preferred Stock" and the number of shares
constituting such series shall be 5,000,000.
Section 2. Dividends and Distributions. (A) Subject to the prior and
superior rights of the holders of any shares of any other series of
Preferred Stock or Junior Preferred Stock or any other shares of capital
stock of the Corporation ranking prior and superior to the shares of Series
C Junior Preferred Stock with respect to dividends, each holder of one one-
hundredth ( 1/100th) of a share (a "Unit") of Series C Junior Preferred
Stock shall be entitled to receive, when, as and if declared by the Board
of Directors out of funds legally available for that purpose, (i) quarterly
dividends payable in cash on the first day of January, April, July and
October in each year (each such date being a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the
first issuance of such Unit of Series C Junior Preferred Stock, in an
amount per Unit (rounded to the nearest cent) equal to the greater of (a)
$0.35 or (b) subject to the provision for adjustment hereinafter set forth,
the aggregate per share amount of all cash dividends declared on shares of
the Timber Stock since the immediately preceding Quarterly Dividend Payment
Date or, with respect to the first Quarterly Dividend Payment Date, since
the first issuance of a Unit of Series C Junior Preferred Stock, and (ii)
subject to the provision for adjustment hereinafter set forth, quarterly
distributions (payable in kind) on each Quarterly Distribution Payment Date
in an amount per Unit equal to the aggregate per share amount of all non-
cash dividends or other distributions (other than a dividend payable in
shares of Timber Stock or a subdivision of the outstanding shares of Timber
Stock, by reclassification or otherwise) declared on shares of Timber Stock
since the immediately preceding Quarterly Dividend Payment Date, or with
respect to the first Quarterly Dividend Payment Date, since the first
issuance of a Unit of Series C Junior Preferred Stock. In the event that
the Corporation shall at any time after the initial issuance of Georgia-
Pacific Group Stock and Timber Stock (i) declare any dividend on
outstanding shares of Timber Stock payable in shares of Timber Stock, (ii)
subdivide outstanding shares of Timber Stock into a greater number of
shares or (iii) combine outstanding shares of Timber Stock into a smaller
number of shares, then in each such case the amount to which the holder of
a Unit of Series C Junior Preferred Stock was entitled immediately prior to
such event pursuant to the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which shall be the
number of shares of Timber Stock that are outstanding immediately after
such event and the denominator of which shall be the number of shares of
Timber Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on Units of
Series C Junior Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the shares of
Timber Stock (other than a dividend payable in shares of Timber Stock);
provided, however, that, in the event no dividend or distribution shall
have been declared on the Timber Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $0.35 per Unit on the Series C Junior Preferred
Stock shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
(C) Dividends shall begin to accrue and shall be cumulative on each
outstanding Unit of Series C Junior Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issuance of such Unit of
Series C Junior Preferred Stock, unless the date of issuance of such Unit
is prior to the record date for the first Quarterly Dividend Payment Date,
in which case, dividends on such Unit shall begin to accrue from the date
of issuance of such Unit, or unless the date of issuance is a Quarterly
Dividend Payment Date or is a date after the record date for the
determination of holders of Units of Series C Junior Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued
but unpaid dividends shall not bear interest. Dividends paid on Units of
Series C Junior Preferred Stock in an amount less than the aggregate amount
of all such dividends at the time accrued and payable on such Units shall
be allocated pro rata on a unit-by-unit basis among all Units
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of Series C Junior Preferred Stock at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of Units
of Series C Junior Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no
more than 30 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of Units of Series C Junior
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each Unit of Series C Junior Preferred Stock shall entitle the holder
thereof to the number of votes per share which the holders of Timber
Stock then have with respect to matters submitted to a vote of the
shareholders of the Corporation. In the event the Corporation shall at
any time after the initial issuance of Georgia-Pacific Group Stock and
Timber Stock (i) declare any dividend on outstanding shares of Timber
Stock payable in shares of Timber Stock, (ii) subdivide outstanding
shares of Timber Stock into a greater number of shares or (iii) combine
the outstanding shares of Timber Stock into a smaller number of shares,
then in each such case the number of votes per Unit to which holders of
Units of Series C Junior Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction the numerator of which shall be the number of shares of Timber
Stock outstanding immediately after such event and the denominator of
which shall be the number of shares of Timber Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by applicable law, the
holders of Units of Series A Junior Preferred Stock, Series B Junior
Preferred Stock and Series C Junior Preferred Stock and the holders of
shares of Timber Stock and Georgia-Pacific Group Stock shall vote
together as one voting group on all matters submitted to a vote of
shareholders of the Corporation.
(C)(i) If at any time dividends on any Units of Series C Junior
Preferred Stock shall be in arrears in an amount equal to six quarterly
dividends thereon, then during the period (a "default period") from the
occurrence of such event until such time as all accrued and unpaid
dividends for all previous quarterly dividend periods and for the
current quarterly dividend period on all Units of Series C Junior
Preferred Stock then outstanding shall have been declared and paid or
set apart for payment, all holders of Units of Series C Junior
Preferred Stock, voting separately as a class, shall have the right to
elect two Directors.
(ii) During any default period, such voting rights of the holders of
Units of Series C Junior Preferred Stock may be exercised initially at
a special meeting called pursuant to subparagraph (iii) of this Section
3(C) or at any annual meeting of shareholders, and thereafter at annual
meetings of shareholders, provided that neither such voting rights nor
any right of the holders of Units of Series C Junior Preferred Stock to
increase, in certain cases, the authorized number of Directors may be
exercised at any meeting unless one-third of the outstanding Units of
Series C Junior Preferred Stock shall be present at such meeting in
person or by proxy. The absence of a quorum of the holders of Common
Stock shall not affect the exercise by the holders of Units of Series C
Junior Preferred Stock of such rights. At any meeting at which the
holders of Units of Series C Junior Preferred Stock shall exercise such
voting rights initially during an existing default period, they shall
have the right, voting separately as a voting group, to elect Directors
to fill up to two vacancies in the Board of Directors, if any such
vacancies may then exist, or, if such right is exercised at an annual
meeting, to elect two Directors. If the number which may be so elected
at any special meeting does not amount to the required number, the
holders of the Series C Junior Preferred Stock shall have the right to
make such increase in the number of Directors as shall be necessary to
permit the election by them of the required number. After the holders
of Units of Series C Junior Preferred Stock shall have exercised their
right to elect Directors during any default period, the number of
Directors shall not be increased or decreased except as approved by a
vote of the holders of Units of Series C Junior Preferred Stock as
herein provided or pursuant to the rights of the Series A Junior
Preferred Stock or Series B Junior Preferred Stock or pursuant to the
rights of any equity securities ranking senior to the Series C Junior
Preferred Stock.
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(iii) Unless the holders of Series C Junior Preferred Stock shall,
during an existing default period, have previously exercised their
right to elect Directors, the Board of Directors may order, or any
shareholder or shareholders owning in the aggregate not less than 25%
of the total number of Units of Series C Junior Preferred Stock
outstanding may request in writing, the calling of a special meeting of
the holders of Units of Series C Junior Preferred Stock, which meeting
shall thereupon be called by the Secretary of the Corporation. Notice
of such meeting and of any annual meeting at which holders of Units of
Series C Junior Preferred Stock are entitled to vote pursuant to this
paragraph (C)(iii) shall be given to each holder of record of Units of
Series C Junior Preferred Stock by mailing a copy of such notice to him
at his last address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not earlier than
10 days and not later than 60 days after such order or request or in
default of the calling of such meeting within 60 days after such order
or request, such meeting may be called on similar notice by any
shareholder or shareholders owning in the aggregate not less than 25%
of the total number of outstanding Units of Series C Junior Preferred
Stock.
(iv) During any default period, the holders of shares of Georgia-
Pacific Group Stock, Timber Stock and Units of Series C Junior
Preferred Stock, and other classes or series of stock of the
Corporation, if applicable, shall continue to be entitled to elect all
the Directors until the holders of Units of Series C Junior Preferred
Stock shall have exercised their right to elect two Directors voting as
a separate voting group, after the exercise of which right (x) the
Directors so elected by the holders of Units of Series C Junior
Preferred Stock shall continue in office until their successors shall
have been elected by such holders or until the expiration of the
default period, and (y) any vacancy in the Board of Directors may
(except as provided in paragraph (C)(ii) of this Section 3) be filled
by a vote of a majority of the remaining Directors theretofore elected
by the holders of the class or series of capital stock which elected
the Director whose office shall have become vacant. References in this
paragraph (C) to Directors elected by the holders of a particular class
or series of capital stock shall include Directors elected by such
Directors to fill vacancies as provided in clause (y) of the foregoing
sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Units of Series C Junior Preferred Stock as a
separate voting group to elect Directors shall cease, (y) the term of
any Directors elected by the holders of Units of Series C Junior
Preferred Stock as a separate voting group shall terminate, and (z) the
number of Directors shall be such number as may be provided for in the
Articles or By-laws irrespective of any increase made pursuant to the
provisions of paragraph (C)(ii) of this Section 3 (such number being
subject, however, to change thereafter in any manner provided by law or
in the Articles or By-laws). Any vacancies in the Board of Directors
effected by the provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining Directors.
(vi) The provisions of this paragraph (C) shall govern the election
of Directors by holders of Units of Series C Junior Preferred Stock
during any default period notwithstanding any provisions of the
Articles to the contrary.
(D) Except as set forth herein, holders of Units of Series C Junior
Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote
with holders of shares of Georgia-Pacific Group Stock or Timber Stock
or any other class or series of capital stock of the Corporation, as
applicable) for taking any corporate action.
Section 4. Certain Restrictions. (A) Whenever quarterly dividends or
other dividends or distributions payable on Units of Series C Junior
Preferred Stock as provided in Section 2 are in arrears, thereafter and
until all accrued and unpaid dividends and distributions, whether or not
declared, on outstanding Units of Series C Junior Preferred Stock shall
have been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
junior stock;
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(ii) declare or pay dividends on or make any other distributions on
any shares of parity stock, except dividends paid ratably on Units of
Series C Junior Preferred Stock and shares of all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of such Units and all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any parity stock, provided, however, that the Corporation may
at any time redeem, purchase or otherwise acquire shares of any such
parity stock in exchange for shares of any junior stock; or
(iv) purchase or otherwise acquire for consideration any Units of
Series C Junior Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such Units.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any Units of Series C Junior Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled automatically upon the
acquisition thereof. All such Units shall, upon their cancellation, become
authorized but unissued Units of Junior Preferred Stock and may be reissued
as part of a new series of Junior Preferred Stock to be created by
resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation,
no distribution shall be made (i) to the holders of shares of junior stock
unless the holders of Units of Series C Junior Preferred Stock shall have
received, subject to adjustment as hereinafter provided in paragraph (B),
the greater of (a) $.01 per Unit plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not earned or declared, to
the date of such payment, or (b) the amount per Unit equal to the aggregate
per share amount to be distributed to holders of shares of Timber Stock, or
(ii) to the holders of shares of parity stock, unless simultaneously
therewith distributions are made ratably on Units of Series C Junior
Preferred Stock and all other shares of such parity stock in proportion to
the total amounts to which the holders of Units of Series C Junior
Preferred Stock are entitled under clause (i)(a) of this sentence and to
which the holders of shares of such parity stock are entitled, in each case
upon such liquidation, dissolution or winding up.
(B) In the event the Corporation shall at any time after the initial
issuance of Georgia-Pacific Group Stock and Timber Stock (i) declare any
dividend on outstanding shares of Timber Stock payable in shares of Timber
Stock, (ii) subdivide outstanding shares of Timber Stock into a greater
number of shares, or (iii) combine outstanding shares of Timber Stock into
a smaller number of shares, then in each such case the aggregate amount to
which holders of Units of Series C Junior Preferred Stock were entitled
immediately prior to such event pursuant to clause (i)(b) of paragraph (A)
of this Section 6 shall be adjusted by multiplying such amount by a
fraction the numerator of which shall be the number of shares of Timber
Stock that are outstanding immediately after such event and the denominator
of which shall be the number of shares of Timber Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in
which the shares of Timber Stock are exchanged for or converted into other
stock or securities, cash and/or any other property, then in any such case
Units of Series C Junior Preferred Stock shall at the same time be
similarly exchanged for or converted into an amount per Unit (subject to
the provision for adjustment hereinafter set forth) equal to the aggregate
amount of stock, securities, cash and/or any other property (payable in
kind), as the case may be, into which or for which each share of Timber
Stock is converted or exchanged. In the event the Corporation shall at any
time after the initial issuance of Georgia-Pacific Group Stock and Timber
Stock (i) declare any dividend on outstanding shares of Timber Stock
payable in shares of Timber Stock, (ii) subdivide outstanding shares of
Timber Stock into a greater number of shares, or (iii) combine outstanding
Timber Stock into a smaller
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number of shares, then in each such case the amount set forth in the
immediately preceding sentence with respect to the exchange or conversion
of Units of Series C Junior Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which shall be the
number of shares of Timber Stock that are outstanding immediately after
such event and the denominator of which shall be the number of shares of
Timber Stock that were outstanding immediately prior to such event.
Section 8. Redemption. The Units of Series C Junior Preferred Stock shall
not be redeemable. Notwithstanding the foregoing, the Corporation may
acquire shares of Series C Junior Preferred Stock in any other manner
permitted by applicable law or the Articles.
Section 9. Ranking. The Units of Series C Junior Preferred Stock shall
rank senior to the Timber Stock and the Georgia-Pacific Group Stock, on a
parity with the Series A Junior Preferred Stock and Series B Junior
Preferred Stock and junior to all other series of the Junior Preferred
Stock and to any other series or class of Preferred Stock that hereafter
may be issued by the Corporation as to the payment of dividends and the
distribution of assets, unless the terms of any such series or class shall
provide otherwise.
Section 10. Amendment. The Articles shall not hereafter be amended,
either directly or indirectly, or through merger or consolidation with
another corporation, in any manner that would alter or change the powers,
preferences or special rights of the Series C Junior Preferred Stock so as
to affect them adversely without the affirmative vote of the holders of a
majority or more of the outstanding Units of Series C Junior Preferred
Stock, voting separately as a voting group.
Section 11. Fractional Shares. The Series C Junior Preferred Stock may be
issued in Units or other fractions of a share, which Units or fractions
shall entitle the holder, in proportion to such holder's fractional shares,
to exercise voting rights, receive dividends, participate in distributions
and to have the benefit of all other rights of holders of Series C Junior
Preferred Stock.
Section 12. Certain Definitions. As used herein with respect to the
Series C Junior Preferred Stock, the following terms shall have the
following meanings:
(A) The term "junior stock" (i) as used in Section 4, shall mean the
Georgia-Pacific Group Stock and the Timber Stock and any other class or
series of capital stock of the Corporation hereafter authorized or
issued over which the Series C Junior Preferred Stock has preference or
priority as to the payment of dividends and (ii) as used in Section 6,
shall mean the Georgia-Pacific Group Stock and the Timber Stock and any
other class or series of capital stock of the Corporation over which
the Series C Junior Preferred Stock has preference or priority in the
distribution of assets on any liquidation, dissolution or winding up of
the Corporation.
(B) The term "parity stock" (i) as used in Section 4, shall mean any
class or series of stock of the Corporation hereafter authorized or
issued ranking pari passu with the Series C Junior Preferred Stock as
to dividends and (ii) as used in Section 6, shall mean any class or
series of capital stock ranking pari passu with the Series C Junior
Preferred Stock in the distribution of assets on any liquidation,
dissolution or winding up.
ARTICLE V.
The following is a description of the terms, provisions, preferences,
rights, voting powers, restrictions and qualifications of the Common Stock.
A. Distributions. Subject to any preferences, limitations and relative
rights of any outstanding series of the Preferred Stock or the Junior
Preferred Stock and any qualifications or restrictions on the Common Stock
created thereby, distributions may be authorized and made upon the Georgia-
Pacific Group Stock and the Timber Stock, upon the terms with respect to each
such class, and subject to the limitations provided for below in this Section
A., as the Board of Directors may determine.
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(a) Distributions on Georgia-Pacific Group Stock. Distributions on
Georgia-Pacific Group Stock may be authorized and made only out of the
lesser of (i) the assets of the Corporation legally available therefor and
(ii) the Georgia-Pacific Group Available Distribution Amount.
(b) Distributions on Timber Stock. Distributions on Timber Stock may be
authorized and made only out of the lesser of (i) the assets of the
Corporation legally available therefor and (ii) the Timber Group Available
Distribution Amount.
(c) Discrimination in Distributions Between Classes of Common Stock. The
Board of Directors, subject to the provisions of paragraphs A.(a) and
A.(b), may at any time authorize and make distributions exclusively on
Georgia-Pacific Group Stock, exclusively on Timber Stock or on both such
classes, in equal or unequal amounts, notwithstanding the amount of
distributions previously authorized on each class, the respective voting or
liquidation rights of each class or any other factor.
(d) Share Dividends. Except as permitted by paragraph D.(a), the Board of
Directors may declare and pay dividends of shares of the Common Stock (or
Convertible Securities convertible into or exchangeable or exercisable for
shares of the Common Stock) on shares of the Common Stock or shares of the
Preferred Stock or the Junior Preferred Stock only as follows:
(i) dividends of shares of Georgia-Pacific Group Stock (or
Convertible Securities convertible into or exchangeable or exercisable
for shares of Georgia-Pacific Group Stock) on shares of Georgia-Pacific
Group Stock or shares of the Preferred Stock or the Junior Preferred
Stock attributed to the Georgia-Pacific Group; and
(ii) dividends of shares of Timber Stock (or Convertible Securities
convertible into or exchangeable or exercisable for shares of Timber
Stock) on shares of Timber Stock or shares of the Preferred Stock or
the Junior Preferred Stock attributed to the Timber Group.
For purposes of this paragraph A.(d), any outstanding Convertible Securities
that are convertible into or exchangeable or exercisable for any other
Convertible Securities which are themselves convertible into or exchangeable
or exercisable for Georgia-Pacific Group Stock or Timber Stock (or other
Convertible Securities that are so convertible, exchangeable or exercisable)
shall be deemed to have been converted, exchanged or exercised in full for
such Convertible Securities.
B. Voting Rights.
(a) General. Except as otherwise provided by law, by the terms of any
outstanding series of Preferred Stock or Junior Preferred Stock or any
provision of the Articles restricting the power to vote on a specified
matter to other shareholders, the entire voting power of the shareholders
of the Corporation shall be vested in the holders of the Common Stock, who
shall be entitled to vote on any matter on which the holders of stock of
the Corporation shall, by law or by the provisions of the Articles or the
Bylaws of the Corporation, be entitled to vote, and both classes of Common
Stock shall vote thereon together as a single voting group.
(b) Number of Votes for Each Class of Common Stock. On each matter to be
voted on by the holders of both classes of the Common Stock voting together
as a single voting group, the number of votes per share of each class shall
be as follows:
(i) each outstanding share of Georgia-Pacific Group Stock shall have
one vote; and
(ii) each outstanding share of Timber Stock shall have a number of
votes (including a fraction of one vote) equal to the number of votes
determined by the ratio of the weighted average during the 20 Trading
Days ending on the tenth Trading Day prior to the record date for
determining the shareholders entitled to vote of the Market Value of a
share of the Timber Stock to the weighted average over the same 20
Trading Days of the Market Value of the Georgia-Pacific Group Stock,
expressed as a decimal fraction rounded to the nearest three decimal
places, determined as follows: (A) the numerator of such fraction shall
be the sum of (1) four times the average Market Value of one share of
Timber Stock over the period of five Trading Days ending on such tenth
Trading Day prior to such record date,
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(2) three times the average Market Value of one share of Timber Stock
over the period of five Trading Days ending on the 15th Trading Day
prior to such record date, (3) two times the average Market Value of
one share of Timber Stock over the period of five Trading Days ending
on the 20th Trading Day prior to such record date and (4) the average
Market Value of one share of Timber Stock over the period of five
Trading Days ending on the 25th Trading Day prior to such record date
and (B) the denominator of such fraction shall be the sum of (1) four
times the average Market Value of one share of Georgia-Pacific Group
Stock over the period of five Trading Days ending on such tenth Trading
Day prior to such record date, (2) three times the average Market Value
of one share of Georgia-Pacific Group Stock over the period of five
Trading Days ending on the 15th Trading Day prior to such record date,
(3) two times the average Market Value of one share of Georgia-Pacific
Group Stock over the period of five Trading Days ending on the 20th
Trading Day prior to such record date and (4) the average Market Value
of one share of Georgia-Pacific Group Stock over the period of five
Trading Days ending on the 25th Trading Day prior to such record date.
Notwithstanding the foregoing provisions of this paragraph B., if shares of
only one class of the Common Stock are outstanding on the record date for
determining the common shareholders entitled to vote on any matter, then each
share of that class shall be entitled to one vote and, if either class of the
Common Stock is entitled to vote as a separate voting group with respect to
any matter, each share of that class shall, for purpose of such vote, be
entitled to one vote on such matter.
In addition to any provision of law or any provision of the Articles
entitling the holders of outstanding shares of Georgia-Pacific Group Stock or
Timber Stock to vote as a separate voting group, the Board of Directors may
condition the approval of any matter submitted to shareholders on receipt of a
separate vote of the holders of outstanding shares of Georgia-Pacific Group
Stock or Timber Stock.
C. Liquidation Rights. In the event of any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, after payment or
provision for payment of the debts and other liabilities of the Corporation
and the full preferential amounts (including any accumulated and unpaid
dividends) to which the holders of any outstanding shares of the Preferred
Stock or the Junior Preferred Stock are entitled (regardless of the Group to
which such shares of the Preferred Stock or the Junior Preferred Stock were
attributed), the holders of the Georgia-Pacific Group Stock and Timber Stock
shall be entitled to receive the assets, if any, of the Corporation remaining
for distribution to holders of the Common Stock on a per share basis in
proportion to the respective liquidation units per share of such class. Each
share of Georgia-Pacific Group Stock shall have one liquidation unit and each
share of Timber Stock shall have a number of liquidation units (including a
fraction of one liquidation unit) equal to the number of liquidation units
determined by the ratio of the weighted average during the 20 Trading Days
ending on the 40th Trading Day immediately succeeding the date of the
effectiveness of these Articles of Incorporation of the Market Value of a
share of the Timber Stock to the weighted average over the same 20 Trading
Days of the Market Value of the Georgia-Pacific Group Stock, expressed as a
decimal fraction rounded to the nearest three decimal places, determined as
follows: (A) the numerator of such fraction shall be the sum of (1) four times
the average Market Value of one share of Timber Stock over the period of five
Trading Days ending on such date, (2) three times the average Market Value of
one share of Timber Stock over the period of five Trading Days ending on the
5th Trading Day prior to such date, (3) two times the average Market Value of
one share of Timber Stock over the period of five Trading Days ending on the
10th Trading Day prior to such date and (4) the average Market Value of one
share of Timber Stock over the period of five Trading Days ending on the 15th
Trading Day prior to such date and (B) the denominator of such fraction shall
be the sum of (1) four times the average Market Value of one share of Georgia-
Pacific Group Stock over the period of five Trading Days ending on such date,
(2) three times the average Market Value of one share of Georgia-Pacific Group
Stock over the period of five Trading Days ending on the 5th Trading Day prior
to such date, (3) two times the average Market Value of one share of Georgia-
Pacific Group Stock over the period of five Trading Days ending on the 10th
Trading Day prior to such date and (4) the average Market Value of one share
of Georgia-Pacific Group Stock over the period of five Trading Days ending on
the 15th Trading Day prior to such date. Neither a merger nor share exchange
of the Corporation into or with any other company, nor a
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merger or share exchange of any other company into or with the Corporation,
nor a sale, lease, exchange or other disposition of all or any part of the
assets of the Corporation, shall, alone, be deemed a liquidation of the
Corporation, or cause the dissolution of the Corporation, for purposes of this
Section C.
If the Corporation shall in any manner subdivide (by stock split,
reclassification or otherwise) or combine (by reverse stock split,
reclassification or otherwise) the outstanding shares of Georgia-Pacific Group
Stock or Timber Stock, or declare a dividend in shares of either class to
holders of such class, the per share liquidation units of either class of the
Common Stock specified in the preceding paragraph of this paragraph C., as
adjusted from time to time, shall be appropriately adjusted, as determined by
the Board of Directors, so as to avoid dilution in the aggregate, relative
liquidation rights of the shares of any class of the Common Stock.
D. Conversion or Redemption of the Common Stock. The Georgia-Pacific Group
Stock is subject to conversion or redemption and the Timber Stock is subject
to conversion or redemption upon the terms provided below in this Section D.;
provided, however, that neither class of the Common Stock may be converted or
redeemed if the other class of Common Stock has been converted or redeemed in
its entirety or notice thereof shall have been given as required by this
Section D.
(a) Mandatory and Optional Conversion and Redemption of Common Stock
Other than for Subsidiary Stock.
(i) In the event of the Disposition, in one transaction or a series
of related transactions, by the Corporation and/or its subsidiaries of
all or substantially all of the properties and assets attributed to
either Group to one or more persons or entities (other than (w) the
Disposition by the Corporation of all or substantially all its
properties and assets in one transaction or a series of related
transactions in connection with the dissolution, liquidation or winding
up of the Corporation and the distribution of assets to shareholders as
referred to in Section C., (x) the Disposition of the properties and
assets attributed to either Group as contemplated by paragraph D.(b) or
otherwise to all holders of shares of such Group divided among such
holders on a pro rata basis in accordance with the number of shares of
stock issued in respect of such Group outstanding, (y) to any person or
entity controlled (as determined by the Board of Directors) by the
Corporation or (z) in connection with a Related Business Transaction),
the Corporation shall, on or prior to the 85th Trading Day after the
date of consummation of such Disposition (the "Disposition Date"), make
a distribution on the class of the Common Stock relating to the Group
subject to such Disposition or redeem some or all of such Common Stock
or convert such Common Stock into Common Stock relating to the other
Group (or another class or series of common stock of the Corporation),
all as provided by the following paragraphs D.(a)(i)(1) and D.(a)(i)(2)
and, to the extent applicable, by paragraph D.(c), as the Board of
Directors shall have selected among such alternatives:
(1) provided that there are assets of the Corporation legally
available therefor:
(A) make or pay to the holders of the shares of the class of
the Common Stock relating to the Group subject to such
disposition a distribution or dividend, as the Board of
Directors shall have authorized and declared subject to
compliance with Section A., in cash and/or in securities (other
than a dividend of the Common Stock) or other property having a
Fair Value as of the Disposition Date equal to the Fair Value as
of the Disposition Date of the Net Proceeds of such Disposition;
or
(B)(I) subject to the last sentence of this paragraph
D.(a)(i), if such Disposition involves all (not merely
substantially all) of the properties and assets attributed to
such Group, redeem as of the Redemption Date determined as
provided by paragraph D.(d)(iii), all outstanding shares of the
Common Stock relating to the Group subject to such Disposition
in exchange for cash and/or securities (other than the Common
Stock) or other property having a Fair Value as of the
Disposition Date equal to the Fair Value as of the Disposition
Date of the Net Proceeds of such Disposition; or
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(II) subject to the last sentence of this paragraph D.(a)(i),
if such Disposition involves substantially all (but not all) of
the properties and assets attributed to such Group, redeem as of
the Redemption Date determined as provided by paragraph
D.(d)(iv) such number of whole shares of the class of the Common
Stock relating to the Group subject to such Disposition (which
may be all, but not more than all, of such shares outstanding)
as have in the aggregate an average Market Value during the
period of ten consecutive Trading Days beginning on the 16th
Trading Day immediately succeeding the Disposition Date closest
to the Fair Value as of the Disposition Date of the Net Proceeds
of such Disposition in exchange for cash and/or securities
(other than the Common Stock) or other property having a Fair
Value as of the Disposition Date in the aggregate equal to such
Fair Value of the Net Proceeds; or
(2) declare that each outstanding share of the class of the Common
Stock relating to the Group subject to such Disposition shall be
converted as of the Conversion Date determined as provided by
paragraph D.(d)(v) into a number of fully paid and nonassessable
shares of the class of the Common Stock relating to the other Group
(or, if the class of the Common Stock relating to the other Group is
not Publicly Traded at such time and shares of another class or
series of the Common Stock of the Corporation (other than the class
of the Common Stock relating to the Group subject to such
Disposition) are then Publicly Traded, of such other class or series
of the common stock as has the largest Market Capitalization as of
the close of business on the Trading Day immediately preceding the
date of the notice of such conversion required by paragraph
D.(d)(v)) equal to 110% of the ratio, expressed as a decimal
fraction rounded to the nearest five decimal places, of the average
Market Value of one share of the Common Stock relating to the Group
subject to such Disposition over the period of 10 consecutive
Trading Days beginning on the 16th Trading Day immediately
succeeding the Disposition Date to the average Market Value of one
share of the Common Stock relating to the other Group (or such other
class or series of common stock) over the same 10 Trading Day
period.
Notwithstanding the foregoing provisions of this paragraph
D.(a)(i), the Corporation shall redeem shares of a class of the
Common Stock as provided by paragraphs D.(a)(i)(1)(B)(I) or (II)
only if the amount to be paid in redemption of such stock is less
than or equal to the Available Distribution Amount with respect to
the Group subject to such Disposition as of the Redemption Date.
(ii) For purposes of this paragraph D.(a):
(1) as of any date, "substantially all of the properties and
assets" attributed to either Group shall mean a portion of such
properties and assets (x) that represents at least 80% of the Fair
Value of the properties and assets attributed to such Group as of
such date or (y) from which were derived at least 80% of the
aggregate revenues for the immediately preceding twelve fiscal
quarterly periods of the Corporation (calculated on a pro forma
basis to include revenues derived from any of such properties and
assets acquired during such period) derived from the properties and
assets of such Group as of such date;
(2) in the case of a Disposition of the properties and assets
attributed to either Group in a series of related transactions, such
Disposition shall not be deemed to have been consummated until the
consummation of the last of such transactions; and
(3) the Board of Directors may make or pay any distribution or
dividend or redemption price referred to in paragraph D.(a)(i) in
cash, securities (other than the Common Stock) or other property,
regardless of the form or nature of the proceeds of the Disposition.
(iii) After the payment of the distribution or the redemption price
with respect to the class of the Common Stock relating to the Group
subject to a Disposition as provided for by paragraph D.(a)(i)(1), the
Board of Directors may declare that each share of such class of the
Common Stock remaining outstanding shall be converted, but only as of a
Conversion Date (determined as provided by
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<PAGE>
paragraph D.(d)(v)) prior to the first anniversary of the payment of
such distribution or redemption price, into a number of fully paid and
nonassessable shares of the class of the Common Stock relating to the
other Group (or, if the class of the Common Stock relating to the other
Group is not Publicly Traded at such time and shares of any other class
or series of common stock of the Corporation (other than the class of
the Common Stock relating to the Group subject to such Disposition) are
then Publicly Traded, of such other class or series of common stock of
the Corporation as has the largest Market Capitalization as of the
close of business on the Trading Day immediately preceding the date of
the notice of such conversion required by paragraph D.(d)(v)) equal to
110% of the Market Value Ratio of the Converted Stock to the
Consideration Stock as of the fifth Trading Day prior to the date of
the notice of such conversion required by paragraph D.(d)(v).
(iv) The Board of Directors may at any time declare that each
outstanding share of either Georgia-Pacific Group Stock or Timber Stock
shall be converted, as of a Conversion Date determined as provided by
paragraph D.(d)(v), into the number of fully paid and nonassessable
shares of Timber Stock or Georgia-Pacific Group Stock, respectively
(or, if such latter class of Common Stock of the Corporation is not
Publicly Traded at such time and shares of any other class or series of
common stock of the Corporation (other than the class of the Common
Stock subject to such conversion) are then Publicly Traded, of such
other class or series of common stock of the Corporation as has the
largest Market Capitalization as of the close of business on the
Trading Day immediately preceding the date of the notice of conversion
required by paragraph D.(d)(v)) equal to 115% of the Market Value Ratio
of the Converted Stock to the Consideration Stock as of the fifth
Trading Day prior to the date of the notice of such conversion required
by paragraph D.(d)(v).
(b) Redemption of Common Stock for Subsidiary Stock.
(i) At any time at which all of the assets and liabilities attributed
to the Timber Group (and no other assets or liabilities of the
Corporation or any subsidiary thereof) are held directly or indirectly
by one or more wholly-owned subsidiaries of the Corporation (each, a
"Timber Group Subsidiary"), the Board of Directors may, provided that
there are assets of the Corporation legally available therefor, redeem
all of the outstanding shares of Timber Stock, on a Redemption Date of
which notice is delivered in accordance with paragraph D.(d)(vi), in
exchange for all of the shares of common stock of each Timber Group
Subsidiary as will be outstanding immediately following such exchange
of shares, such Timber Group Subsidiary shares to be delivered to the
holders of shares of Timber Stock on the Redemption Date either
directly or indirectly through another Timber Group Subsidiary (as a
wholly-owned subsidiary thereof) and to be divided among the holders of
Timber Stock pro rata in accordance with the number of shares of Timber
Stock held by each on such Redemption Date, each of which shares of
common stock of such Timber Group Subsidiary shall be, upon such
delivery, fully paid and nonassessable.
(ii) At any time at which all of the assets and liabilities
attributed to the Georgia-Pacific Group (and no other assets or
liabilities of the Corporation or any subsidiary thereof) are held
directly or indirectly by one or more wholly-owned subsidiaries of the
Corporation (each, a "Georgia-Pacific Group Subsidiary"), the Board of
Directors may, provided that there are assets of the Corporation
legally available therefor, redeem all of the outstanding shares of
Georgia-Pacific Group Stock, on a Redemption Date of which notice is
delivered in accordance with paragraph D.(d)(vi) of this Article, in
exchange for all of the shares of common stock of each Georgia-Pacific
Group Subsidiary as will be outstanding immediately following such
exchange of shares, such shares of common stock of each Georgia-Pacific
Group Subsidiary to be delivered to the holders of shares of Georgia-
Pacific Group Stock on the Redemption Date either directly or
indirectly through another Georgia-Pacific Group Subsidiary (as a
wholly-owned subsidiary thereof) and to be divided among the holders of
Georgia-Pacific Group Stock pro rata in accordance with the number of
shares of Georgia-Pacific Group Stock held by each on such Redemption
Date, each of which shares of common stock of such Georgia-Pacific
Group Subsidiary shall be, upon such delivery, fully paid and
nonassessable.
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<PAGE>
(c) Treatment of Convertible Securities. After any Conversion Date or
Redemption Date on which all outstanding shares of either class of the
Common Stock are converted or redeemed, any share of such class of the
Common Stock that is to be issued on conversion, exchange or exercise of
any Convertible Securities shall, immediately upon such conversion,
exchange or exercise and without any notice from or to, or any other action
on the part of, the Corporation or its Board of Directors or the holder of
such Convertible Security:
(i) in the event the shares of such class of the Common Stock
outstanding on such Conversion Date were converted into shares of the
other class of the Common Stock (or another class or series of common
stock of the Corporation) pursuant to paragraph D.(a)(i)(2) or
paragraph D.(a)(iii), be converted into the amount of cash and/or the
number of shares of the kind of capital stock and/or other securities
or property of the Corporation that the number of shares of such class
of the Common Stock that were to be issued upon such conversion,
exchange or exercise would have received had such shares been
outstanding on such Conversion Date; or
(ii) in the event the shares of such class of the Common Stock
outstanding on such Redemption Date were redeemed pursuant to paragraph
D.(a)(i)(1)(B) or paragraph D.(b), be redeemed, to the extent of funds
of the Corporation legally available therefor, for $.01 per share in
cash for each share of such class of the Common Stock that otherwise
would be issued upon such conversion, exchange or exercise.
The provisions of the immediately preceding sentence shall not apply
to the extent that other adjustments in respect of such conversion,
exchange or redemption of a class of the Common Stock are otherwise
made pursuant to the provisions of such Convertible Securities.
(d) Notice and Other Provisions.
(i) Not later than the tenth Trading Day following the consummation
of a Disposition referred to in paragraph D.(a)(i), the Corporation
shall announce publicly by press release (1) the Net Proceeds of such
Disposition, (2) the number of shares outstanding of the class of the
Common Stock relating to the Group subject to such Disposition and (3)
the number of shares of such class of Common Stock into or for which
Convertible Securities are then convertible, exchangeable or
exercisable and the conversion, exchange or exercise price thereof. Not
earlier than the 26th Trading Day and not later than the 30th Trading
Day following the consummation of such Disposition, the Corporation
shall announce publicly by press release which of the actions specified
in paragraph D.(a)(i), it has irrevocably determined to take in respect
of such Disposition.
(ii) If the Corporation determines to make or pay a distribution or
dividend pursuant to paragraph D.(a)(i)(1)(A), the Corporation shall,
not later than the 30th Trading Day following the consummation of the
Disposition referred to in such paragraph, cause notice to be given to
each holder of shares of the class of the Common Stock relating to the
Group subject to such Disposition and to each holder of Convertible
Securities that are convertible into or exchangeable or exercisable for
shares of such class of Common Stock (unless alternate provision for
such notice to the holders of such Convertible Securities is made
pursuant to the terms of such Convertible Securities), setting forth
(1) the record date for determining holders entitled to receive such
distribution or dividend, which shall be not earlier than the 40th
Trading Day and not later than the 50th Trading Day following the
consummation of such Disposition, (2) the anticipated payment date of
such distribution or dividend (which shall not be more than 85 Trading
Days following the consummation of such Disposition), (3) the type of
property to be paid as such distribution or dividend in respect of the
outstanding shares of such class of Common Stock, (4) the Net Proceeds
of such Disposition, (5) the number of outstanding shares of such class
of Common Stock and the number of shares of such class of Common Stock
into or for which outstanding Convertible Securities are then
convertible, exchangeable or exercisable and the conversion, exchange
or exercise price thereof and (6) in the case of notice to be given to
holders of Convertible Securities, a statement to the effect that a
holder of such Convertible Securities shall be entitled to receive such
distribution or dividend only if such holder properly converts,
exchanges or exercises such Convertible
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<PAGE>
Securities on or prior to the record date referred to in clause (1) of
this sentence. Such notice shall be sent by first-class mail, postage
prepaid, to each such holder at such holder's address as the same
appears on the transfer books of the Corporation.
(iii) If the Corporation determines to undertake a redemption
pursuant to paragraph D.(a)(i)(1)(B)(I), the Corporation shall, not
less than 35 Trading Days and not more than 45 Trading Days prior to
the Redemption Date, cause notice to be given to each holder of shares
of the class of the Common Stock relating to the Group subject to the
Disposition referred to in such paragraph and to each holder of
Convertible Securities convertible into or exchangeable or exercisable
for shares of such class of Common Stock (unless alternate provision
for such notice to the holders of such Convertible Securities is made
pursuant to the terms of such Convertible Securities), setting forth
(1) a statement that all shares of such class of Common Stock
outstanding on the Redemption Date shall be redeemed, (2) the
Redemption Date (which shall not be more than 85 Trading Days following
the consummation of such Disposition), (3) the type of property in
which the redemption price for the shares of such class of Common Stock
to be redeemed is to be paid, (4) the Net Proceeds of such Disposition,
(5) the place or places where certificates for shares of such class of
Common Stock, properly endorsed or assigned for transfer (unless the
Corporation waives such requirement), are to be surrendered for
delivery of cash and/or securities or other property, (6) the number of
outstanding shares of such class of Common Stock and the number of
shares of such class of the Common Stock into or for which such
outstanding Convertible Securities are then convertible, exchangeable
or exercisable and the conversion, exchange or exercise price thereof,
(7) in the case of notice to be given to holders of Convertible
Securities, a statement to the effect that a holder of such Convertible
Securities shall be entitled to participate in such redemption only if
such holder properly converts, exchanges or exercises such Convertible
Securities on or prior to the Redemption Date referred to in clause (2)
of this sentence and a statement as to what, if anything, such holder
will be entitled to receive pursuant to the terms of such Convertible
Securities or, if applicable, this Section D. if such holder thereafter
converts, exchanges or exercises such Convertible Securities and (8) a
statement to the effect that, except as otherwise provided by paragraph
D.(d)(ix), distributions and dividends on such shares of the Common
Stock shall cease to be paid as of such Redemption Date. Such notice
shall be sent by first-class mail, postage prepaid, to each such holder
at such holder's address as the same appears on the transfer books of
the Corporation.
(iv) If the Corporation determines to undertake a redemption pursuant
to paragraph D.(a)(i)(1)(B)(II), the Corporation shall, not later than
the 30th Trading Day following the consummation of the Disposition
referred to in such paragraph, cause notice to be given to each holder
of shares of the class of the Common Stock relating to the Group
subject to such Disposition and to each holder of Convertible
Securities that are convertible into or exchangeable or exercisable for
shares of such class of Common Stock (unless alternate provision for
such notice to the holders of such Convertible Securities is made
pursuant to the terms of such Convertible Securities) setting forth (1)
a date not earlier than the 40th Trading Day and not later than the
50th Trading Day following the consummation of the Disposition in
respect of which such redemption is to be made on which shares of such
class of the Common Stock shall be selected for redemption, (2) the
anticipated Redemption Date (which shall not be more than 85 Trading
Days following the consummation of such Disposition), (3) the type of
property in which the redemption price for the shares to be redeemed is
to be paid, (4) the Net Proceeds of such Disposition, (5) the number of
shares of such class of Common Stock outstanding and the number of
shares of such class of Common Stock into or for which outstanding
Convertible Securities are then convertible, exchangeable or
exercisable and the conversion, exchange or exercise price thereof, (6)
in the case of notice to be given to holders of Convertible Securities,
a statement to the effect that a holder of such Convertible Securities
shall be eligible to participate in such selection for redemption only
if such holder properly converts, exchanges or exercises such
Convertible Securities on or prior to the record date referred to in
clause (1) of this sentence, and a statement as to what, if anything,
such holder will be entitled to receive pursuant to the terms of such
Convertible Securities or, if applicable, this Section D. if such
holder thereafter converts, exchanges or
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<PAGE>
exercises such Convertible Securities and (7) a statement that the
Corporation will not be required to register a transfer of any shares
of such class of the Common Stock for a period of 15 Trading Days next
preceding the date referred to in clause (1) of this sentence. Promptly
following the date referred to in clause (1) of the preceding sentence,
but not earlier than 40 Trading Days nor later than 50 Trading Days
following the consummation of such Disposition, the Corporation shall
cause a notice to be given to each holder of record of shares of such
class of Common Stock to be redeemed setting forth (1) the number of
shares of such class of Common Stock held by such holder to be
redeemed, (2) a statement that such shares of such class of Common
Stock shall be redeemed, (3) the Redemption Date, (4) the kind and per
share amount of cash and/or securities or other property to be received
by such holder with respect to each share of such class of Common Stock
to be redeemed, including details as to the calculation thereof, (5)
the place or places where certificates for shares of such class of
Common Stock, properly endorsed or assigned for transfer (unless the
Corporation shall waive such requirement), are to be surrendered for
delivery of such cash and/or securities or other property, (6) if
applicable, a statement to the effect that the shares being redeemed
may no longer be transferred on the transfer books of the Corporation
after the Redemption Date and (7) a statement to the effect that,
subject to paragraph D.(d)(ix), distributions and dividends on such
shares of such class of Common Stock shall cease to be paid as of the
Redemption Date. Such notices shall be sent by first-class mail,
postage prepaid, to each such holder at such holder's address as the
same appears on the transfer books of the Corporation.
(v) If the Corporation determines to convert either class of the
Common Stock into the other class (or another class or series of common
stock of the Corporation) pursuant to paragraph D.(a)(i)(2), D.(a)(iii)
or D.(a)(iv), the Corporation shall, not less than 35 Trading Days and
not more than 45 Trading Days prior to the Conversion Date, cause
notice to be given to each holder of shares of the class of the Common
Stock to be so converted and to each holder of Convertible Securities
that are convertible into or exchangeable or exercisable for shares of
such class of Common Stock (unless alternate provision for such notice
to the holders of such Convertible Securities is made pursuant to the
terms of such Convertible Securities) setting forth (1) a statement
that all outstanding shares of such class of Common Stock shall be
converted, (2) the Conversion Date (which, in the case of a conversion
after a Disposition, shall not be more than 85 Trading Days following
the consummation of such Disposition), (3) the per share number of
shares of Common Stock (or another class or series of common stock of
the Corporation), as the case may be, to be received with respect to
each share of such class of Common Stock, including details as to the
calculation thereof, (4) the place or places where certificates for
shares of such class of Common Stock, properly endorsed or assigned for
transfer (unless the Corporation shall waive such requirement), are to
be surrendered for delivery of certificates for shares of such class of
Common Stock, (5) the number of outstanding shares of such class of
Common Stock and the number of shares of such class of Common Stock
into or for which outstanding Convertible Securities are then
convertible, exchangeable or exercisable and the conversion, exchange
or exercise price thereof, (6) a statement to the effect that, subject
to paragraph D.(d)(ix), distributions and dividends on such shares of
Common Stock shall cease to be made as of such Conversion Date and (7)
in the case of notice to holders of such Convertible Securities, a
statement to the effect that a holder of such Convertible Securities
shall be entitled to receive shares of such class of Common Stock upon
such conversion only if such holder properly converts, exchanges or
exercises such Convertible Securities on or prior to such Conversion
Date and a statement as to what, if anything, such holder will be
entitled to receive pursuant to the terms of such Convertible
Securities or, if applicable, this Section D. if such holder thereafter
converts, exchanges or exercises such Convertible Securities. Such
notice shall be sent by first-class mail, postage prepaid, to each such
holder at such holder's address as the same appears on the transfer
books of the Corporation.
(vi) If the Corporation determines to redeem shares of either class
of the Common Stock pursuant to paragraph D.(b), the Corporation shall
cause notice to be given to each holder of shares of such class of the
Common Stock to be redeemed and to each holder of Convertible
Securities that are convertible into or exchangeable or exercisable for
shares of such class of the Common Stock (unless
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<PAGE>
alternate provision for such notice to the holders of such Convertible
Securities is made pursuant to the terms of such Convertible
Securities), setting forth (1) a statement that all shares of such
class of the Common Stock outstanding on the Redemption Date shall be
redeemed in exchange for shares of common stock of each Timber Group
Subsidiary (if such redemption is pursuant to paragraph D.(b)(i)) or
shares of common stock of each Georgia-Pacific Group Subsidiary (if
such redemption is pursuant to paragraph D.(b)(ii)), (2) the Redemption
Date, (3) the place or places where certificates for shares of the
class of the Common Stock to be redeemed, properly endorsed or assigned
for transfer (unless the Corporation shall waive such requirement), are
to be surrendered for delivery of certificates for shares of the common
stock of each Timber Group Subsidiary or Georgia-Pacific Group
Subsidiary, as applicable, (4) a statement to the effect that, subject
to paragraph D.(d)(ix), distributions and dividends on such shares of
the Common Stock shall cease to be paid as of such Redemption Date, (5)
the number of shares of such class of the Common Stock outstanding and
the number of shares of such class of Common Stock into or for which
outstanding Convertible Securities are then convertible, exchangeable
or exercisable and the conversion, exchange or exercise price thereof
and (6) in the case of notice to holders of Convertible Securities, a
statement to the effect that a holder of Convertible Securities shall
be entitled to receive shares of common stock of each Timber Group
Subsidiary or Georgia-Pacific Group Subsidiary, as applicable, upon
redemption only if such holder properly converts, exchanges or
exercises such Convertible Securities on or prior to the Redemption
Date and a statement as to what, if anything, such holder will be
entitled to receive pursuant to the terms of such Convertible
Securities or, if applicable, this Section D., if such holder
thereafter converts, exchanges or exercises such Convertible
Securities. Such notice shall be sent by first-class mail, postage
prepaid, not less than 30 Trading Days nor more than 45 Trading Days
prior to the Redemption Date to each such holder at such holder's
address as the same appears on the transfer books of the Corporation.
(vii) If less than all of the outstanding shares of the Common Stock
of a class are to be redeemed pursuant to paragraph D.(a)(i)(1)(B)(II),
the shares to be redeemed by the Corporation shall be selected from
among the holders of shares of such class of the Common Stock
outstanding at the close of business on the record date for such
redemption on a pro rata basis among all such holders or by lot or by
such other method as may be determined by the Board of Directors of the
Corporation to be equitable.
(viii) The Corporation shall not be required to issue or deliver
fractional shares of any capital stock or of any other securities to
any holder of either class of the Common Stock upon any conversion,
redemption, dividend or other distribution pursuant to this Section D.
If more than one share of either class of the Common Stock shall be
held at the same time by the same holder, the Corporation may aggregate
the number of shares of any capital stock that shall be issuable or any
other securities or property that shall be distributable to such holder
upon any conversion, redemption, dividend or other distribution
(including any fractional shares). If there are fractional shares of
any capital stock or of any other securities remaining to be issued or
distributed to the holders of either class of the Common Stock, the
Corporation shall, if such fractional shares are not issued or
distributed to the holder, pay cash in respect of such fractional
shares in an amount equal to the Fair Value thereof on the fifth
Trading Day prior to the date such payment is to be made (without
interest).
(ix) No adjustments in respect of distributions or dividends shall be
made upon the conversion or redemption of any shares of either class of
the Common Stock; provided, however, that if the Conversion Date or
Redemption Date, as the case may be, with respect to any shares of
either class of the Common Stock shall be subsequent to the record date
for the payment of a distribution or dividend thereon or with respect
thereto, the holders of such class of the Common Stock at the close of
business on such record date shall be entitled to receive the
distribution or dividend payable on or with respect to such shares on
the date set for payment of such distribution or dividend, in each case
without interest, notwithstanding the subsequent conversion or
redemption of such shares.
(x) Before any holder of shares of either class of the Common Stock
shall be entitled to receive any cash payment and/or certificates or
instruments representing shares of any capital stock and/or
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<PAGE>
other securities or property to be distributed to such holder with
respect to such class of the Common Stock pursuant to this Section D.,
such holder shall surrender at such place as the Corporation shall
specify certificates for such shares of the Common Stock, properly
endorsed or assigned for transfer (unless the Corporation shall waive
such requirement). The Corporation shall as soon as practicable after
receipt of certificates representing such shares of the Common Stock
deliver to the person for whose account such shares of the Common Stock
were so surrendered, or to such person's nominee or nominees, the cash
and/or the certificates or instruments representing the number of whole
shares of the kind of capital stock and/or other securities or property
to which such person shall be entitled as aforesaid, together with any
payment in respect of fractional shares contemplated by paragraph
D.(d)(viii), in each case without interest. If less than all of the
shares of either class of the Common Stock represented by any one
certificate are to be redeemed, the Corporation shall issue and deliver
a new certificate for the shares of such class of Common Stock not
redeemed.
(xi) From and after any applicable Conversion Date or Redemption
Date, as the case may be, all rights of a holder of shares of either
class of the Common Stock that were converted or redeemed shall cease
except for the right, upon surrender of the certificates representing
such shares of the Common Stock as required by paragraph D.(d)(x), to
receive the cash and/or the certificates or instruments representing
shares of the kind and amount of capital stock and/or other securities
or property for which such shares were converted or redeemed, together
with any payment in respect of fractional shares contemplated by
paragraph D.(d)(viii) (which shall be held by the Corporation for the
holder of shares of the Common Stock that were redeemed until the
receipt of certificates representing such shares of the Common Stock as
provided in paragraph D.(d)(x))and rights to distributions or dividends
as provided in paragraph D.(d)(ix), in each case without interest. No
holder of a certificate that immediately prior to the applicable
Conversion Date or Redemption Date represented shares of a class of the
Common Stock shall be entitled to receive any distribution or dividend
or interest payment with respect to shares of any kind of capital stock
or other security or instrument for which such class of the Common
Stock was converted or redeemed until the surrender as required by this
Section D. of such certificate in exchange for a certificate or
certificates or instrument or instruments representing such capital
stock or other security. Subject to applicable escheat and similar
laws, upon such surrender, there shall be paid to the holder the amount
of any distributions or dividends (without interest) which theretofore
became payable on any class or series of capital stock of the
Corporation as of a record date after the Conversion Date or Redemption
Date, but that were not paid by reason of the foregoing, with respect
to the number of whole shares of the kind of capital stock represented
by the certificate or certificates issued upon such surrender. From and
after a Conversion Date or Redemption Date, the Corporation shall,
however, be entitled to treat the certificates for a class of the
Common Stock that have not yet been surrendered for conversion or
redemption as evidencing the ownership of the number of whole shares of
the kind or kinds of capital stock of the Corporation for which the
shares of such class of the Common Stock represented by such
certificates shall have been converted or redeemed, notwithstanding the
failure to surrender such certificates.
(xii) The Corporation shall pay any and all documentary, stamp or
similar issue or transfer taxes that may be payable in respect of the
issuance or delivery of any shares of capital stock and/or other
securities upon conversion or redemption of shares of either class of
the Common Stock pursuant to this Section D. The Corporation shall not,
however, be required to pay any tax that may be payable in respect of
any transfer involved in the issuance or delivery of any shares of
capital stock and/or other securities in a name other than that in
which the shares of such class of the Common Stock so converted or
redeemed were registered, and no such issuance or delivery shall be
made unless and until the person requesting such issuance or delivery
has paid to the Corporation the amount of any such tax or has
established to the satisfaction of the Corporation that such tax has
been paid.
(xiii) Neither the failure to mail any notice required by this
paragraph D.(d) to any particular holder of the Common Stock or of
Convertible Securities nor any defect therein shall affect the
sufficiency thereof with respect to any other holder of outstanding
shares of the Common Stock or of Convertible Securities or the validity
of any such conversion or redemption.
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<PAGE>
(xiv) The Board of Directors may establish such rules and
requirements to facilitate the effectuation of the transactions
contemplated by this Section D. as the Board of Directors shall
determine to be appropriate.
E. Application of the Provisions of this Certificate of Designations.
(a) Certain Determinations by the Board of Directors. The Board of
Directors shall make such determinations with respect to the assets and
liabilities to be attributed to the Groups, the application of the
provisions of this Article VII to transactions to be engaged in by the
Corporation and the preferences, limitations and relative rights of the
holders of either class of the Common Stock, and the qualifications and
restrictions thereon, provided by the Articles as may be or become
necessary or appropriate to the exercise of such preferences, limitations
and relative rights, including, without limiting the foregoing, the
determinations referred to in the following paragraphs E.(a)(i), (ii) and
(iii). A record of any such determination shall be filed with the records
of the actions of the Board of Directors.
(i) Upon any acquisition by the Corporation or its subsidiaries of
any assets or business, or any assumption of liabilities, outside of
the ordinary course of business of the Georgia-Pacific Group or the
Timber Group, as the case may be, the Board of Directors shall
determine whether such assets, business and liabilities (or an interest
therein) shall be for the benefit of the Georgia-Pacific Group or the
Timber Group or that an interest therein shall be partly for the
benefit of the Georgia-Pacific Group and partly for the benefit of the
Timber Group and, accordingly, shall be attributed to the Georgia-
Pacific Group or the Timber Group, or partly to each, in accordance
with paragraph F.(g) or (q), as the case may be.
(ii) Upon any issuance of any shares of the Preferred Stock or the
Junior Preferred Stock of any series, the Board of Directors shall
attribute, based on the use of proceeds of such issuance of shares of
the Preferred Stock or the Junior Preferred Stock in the business of
the Georgia-Pacific Group or the Timber Group and any other relevant
factors, the shares so issued entirely to the Georgia-Pacific Group or
entirely to the Timber Group or partly to the Georgia-Pacific Group and
partly to the Timber Group in such proportion as the Board of Directors
shall determine.
(iii) Upon any redemption or repurchase by the Corporation or any
subsidiary thereof of shares of the Preferred Stock or the Junior
Preferred Stock of any class or series or of other securities or debt
obligations of the Corporation, the Board of Directors shall determine,
based on the property used to redeem or purchase such shares, other
securities or debt obligations, which, if any, of such shares, other
securities or debt obligations redeemed or repurchased shall be
attributed to the Georgia-Pacific Group and which, if any, of such
shares, other securities or debt obligations shall be attributed to the
Timber Group and, accordingly, how many of the shares of such series of
the Preferred Stock or the Junior Preferred Stock or of such other
securities, or how much of such debt obligations, that remain
outstanding, if any, are thereafter attributed to the Georgia-Pacific
Group or to the Timber Group.
(b) Certain Determinations Not Required. Notwithstanding the foregoing
provisions of this Section E., the provisions of paragraphs F.(g) or (q) or
any other provision, at any time when there are not outstanding both (i)
one or more shares of Georgia-Pacific Group Stock or Convertible Securities
convertible into or exchangeable or exercisable for Georgia-Pacific Group
Stock and (ii) one or more shares of Timber Stock or Convertible Securities
convertible into or exchangeable or exercisable for Timber Stock, the
Corporation need not (A) attribute any of the assets or liabilities of the
Corporation or any of its subsidiaries to the Georgia-Pacific Group or the
Timber Group or (B) make any determination required in connection
therewith, nor shall the Board of Directors be required to make any of the
determinations otherwise required by this Article, and in such
circumstances the holders of the shares of Georgia-Pacific Group Stock or
Timber Stock outstanding, as the case may be, shall (unless otherwise
specifically provided by the Articles) be entitled to all the preferences
or other relative rights of both classes of the Common Stock without
differentiation between the Georgia-Pacific Group Stock and the Timber
Stock.
(c) Board Determinations Binding. Subject to applicable law, any
determinations made in good faith by the Board of Directors of the
Corporation under any provision of this Section E. or otherwise in
furtherance of the application of this Article shall be final and binding
on all shareholders.
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F. Certain Definitions. As used in this Article, the following terms shall
have the following meanings (with terms defined in the singular having
comparable meaning when used in the plural and vice versa), unless the context
otherwise requires. As used in this Section F., a "contribution" or "transfer"
of assets or properties from one Group to another shall refer to the
reattribution of such assets or properties from the contributing or
transferring Group to the other Group and correlative phrases shall have
correlative meanings.
(a) "Available Distribution Amount" shall mean, as the context requires,
a reference to the Georgia-Pacific Group Available Distribution Amount or
the Timber Group Available Distribution Amount.
(b) "Common Stock" shall mean the collective reference to the Georgia-
Pacific Group Stock and the Timber Stock, and either may sometimes be
called a class of Common Stock.
(c) "Conversion Date" shall mean the date fixed by the Board of Directors
as the effective date for the conversion of shares of Georgia-Pacific Group
Stock or Timber Stock, as the case may be, into shares of Timber Stock or
Georgia-Pacific Group Stock, respectively (or another class or series of
common stock of the Corporation, as the case may be) as shall be set forth
in the notice to holders of shares of the class of Common Stock subject to
such conversion and to holders of any Convertible Securities that are
convertible into or exchangeable or exercisable for shares of the class of
Common Stock subject to such conversion required pursuant to paragraph
D.(d)(v).
(d) "Convertible Securities" shall mean at any time any securities of the
Corporation or of any subsidiary thereof (other than shares of the Common
Stock), including warrants and options, outstanding at such time that by
their terms are convertible into or exchangeable or exercisable for or
evidence the right to acquire any shares of either class of the Common
Stock, whether convertible, exchangeable or exercisable at such time or a
later time or only upon the occurrence of certain events, but in respect of
antidilution provisions of such securities only upon the effectiveness
thereof.
(e) "Disposition" shall mean a sale, transfer, assignment or other
disposition (whether by merger, consolidation, sale or contribution of
assets or stock or otherwise) of properties or assets (including stock,
other securities and goodwill).
(f) "Fair Value" shall mean, (i) in the case of equity securities or debt
securities of a class or series that has previously been Publicly Traded
for a period of at least 15 months, the Market Value thereof (if such
Market Value, as so defined, can be determined); (ii) in the case of an
equity security or debt security that has not been Publicly Traded for at
least 15 months or the Market Value of which cannot be determined, the fair
value per share of stock or per other unit of such security, on a fully
distributed basis, as determined by an independent investment banking firm
experienced in the valuation of securities selected in good faith by the
Board of Directors, or, if no such investment banking firm is, as
determined in the good faith judgment of the Board of Directors, available
to make such determination, in good faith by the Board of Directors; (iii)
in the case of cash denominated in U.S. dollars, the face amount thereof
and in the case of cash denominated in other than U.S. dollars, the face
amount thereof converted into U.S. dollars at the rate published in The
Wall Street Journal on the date for the determination of Fair Value or, if
not so published, at such rate as shall be determined in good faith by the
Board of Directors based upon such information as the Board of Directors
shall in good faith determine to be appropriate in accordance with good
business practice; and (iv) in the case of property other than securities
or cash, the "Fair Value" thereof shall be determined in good faith by the
Board of Directors based upon such appraisals or valuation reports of such
independent experts as the Board of Directors shall in good faith determine
to be appropriate in accordance with good business practice. Any such
determination of Fair Value shall be described in a statement filed with
the records of the actions of the Board of Directors.
(g) "Georgia-Pacific Group" shall mean, as of any date:
(i) the interest of the Corporation or any of its subsidiaries on
such date in all of the assets, liabilities and businesses of the
Corporation or any of its subsidiaries (and any successor companies),
other than any assets, liabilities and businesses attributed in
accordance with this Article to the Timber Group;
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(ii) all properties and assets transferred to the Georgia-Pacific
Group from the Timber Group pursuant to transactions in the ordinary
course of business of both the Georgia-Pacific Group and the Timber
Group or otherwise as the Board of Directors may have directed as
permitted by this Article; and
(iii) the interest of the Corporation or any of its subsidiaries in
any business or asset acquired and any liabilities assumed by the
Corporation or any of its subsidiaries outside the ordinary course of
business and attributed to the Georgia-Pacific Group, as determined by
the Board of Directors as contemplated by paragraph E.(a)(i);
provided that from and after any transfer of any assets or properties from
the Georgia-Pacific Group to the Timber Group, the Georgia-Pacific Group
shall no longer include such assets or properties so contributed or
transferred.
(h) "Georgia-Pacific Group Available Distribution Amount," on any date,
shall mean any amount in excess of the minimum amount necessary for the
Georgia-Pacific Group to be able to pay its debts as they become due in the
usual course of business.
(i) "Group" shall mean, as of any date, the Georgia-Pacific Group or the
Timber Group, as the case may be.
(j) "Market Capitalization" of any class or series of common stock on any
date shall mean the product of (i) the Market Value of one share of such
class or series of capital stock on such date and (ii) the number of shares
of such class or series of capital stock outstanding on such date.
(k) "Market Value" of a share of any class or series of capital stock of
the Corporation on any day shall mean the average of the high and low
reported sales prices regular way of a share of such class or series on
such Trading Day or, in case no such reported sale takes place on such
Trading Day, the average of the reported closing bid and asked prices
regular way of a share of such class or series on such Trading Day, in
either case as reported on the New York Stock Exchange Composite Tape or,
if the shares of such class or series are not listed or admitted to trading
on such Exchange on such Trading Day, on the principal national securities
exchange in the United States on which the shares of such class or series
are listed or admitted to trading or, if not listed or admitted to trading
on any national securities exchange on such Trading Day, on The Nasdaq
National Market or, if the shares of such class or series are not listed or
admitted to trading on any national securities exchange or quoted on The
Nasdaq National Market on such Trading Day, the average of the closing bid
and ask prices of a share of such class or series in the over-the-counter
market on such Trading Day as furnished by any New York Stock Exchange
member firm selected from time to time by the Corporation or, if such
closing bid and asked prices are not made available by any such New York
Stock Exchange member firm on such Trading Day, the Fair Value of a share
of such class or series as set forth in clause (ii) of the definition of
Fair Value; provided that, for purposes of determining the Market Value of
a share of any class or series of capital stock for any period, (i) the
"Market Value" of a share of capital stock on any day prior to any "ex-
dividend" date or any similar date occurring during such period for any
dividend or distribution (other than any dividend or distribution
contemplated by clause (ii)(B) of this sentence) paid or to be paid with
respect to such capital stock shall be reduced by the Fair Value of the per
share amount of such dividend or distribution and (ii) the "Market Value"
of any share of capital stock on any day prior to (A) the effective date of
any subdivision (by stock split or otherwise) or combination (by reverse
stock split or otherwise) of outstanding shares of such class or series of
capital stock occurring during such period or (B) any "ex-dividend" date or
any similar date occurring during such period for any dividend or
distribution with respect to such capital stock to be made in shares of
such class or series of capital stock or Convertible Securities that are
convertible, exchangeable or exercisable for such class or series of
capital stock shall be appropriately adjusted, as determined by the Board
of Directors, to reflect such subdivision, combination, dividend or
distribution.
(l) "Market Value Ratio of the Converted Stock to the Consideration
Stock" as of any date shall mean the fraction (which may be greater or less
than 1/1), expressed as a decimal (rounded to the nearest five decimal
places), of a share of a class of Common Stock (or another class or series
of common stock of the
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Corporation, if so provided by paragraph D.(a) because such class of Common
Stock is not then Publicly Traded) to be received by holders of shares of
another class of Common Stock upon the conversion of all or a portion of
such class of shares into such other class or series of shares (such class
of Common Stock or another class or series of common stock to be received,
the "Consideration Stock" and such class of Common Stock to be converted,
the "Converted Stock") in accordance with paragraph D.(a), based on the
ratio of the Market Value of a share of Converted Stock to the Market Value
of a share of Consideration Stock as of such date, determined by the
fraction the numerator of which shall be the sum of (A) four times the
average Market Value of one share of Converted Stock over the period of
five consecutive Trading Days ending on such date, (B) three times the
average Market Value of one share of Converted Stock over the period of
five consecutive Trading Days ending on the fifth Trading Day prior to such
date, (C) two times the average Market Value of one share of Converted
Stock over the period of five consecutive Trading Days ending on the 10th
Trading Day prior to such date and (D) the average Market Value of one
share of Converted Stock over the period of five consecutive Trading Days
ending on the 15th Trading Day prior to such date, and the denominator of
which shall be the sum of (A) four times the average Market Value of one
share of Consideration Stock (or such other common stock) over the period
of five consecutive Trading Days ending on such date, (B) three times the
average Market Value of one share of Consideration Stock (or such other
common stock) over the period of five consecutive Trading Days ending on
the fifth Trading Day prior to such date, (C) two times the average Market
Value of one share of Consideration Stock (or such other common stock) over
the period of five consecutive Trading Days ending on the 10th Trading Day
prior to such date and (D) the average Market Value of one share of
Consideration Stock (or such other common stock) over the period of five
consecutive Trading Days ending on the 15th Trading Day prior to such date.
(m) "Net Proceeds" shall mean, as of any date with respect to any
Disposition of any of the properties and assets attributed to the Georgia-
Pacific Group or the Timber Group, as the case may be, an amount, if any,
equal to what remains of the gross proceeds of such Disposition after
payment of, or reasonable provision is made as determined by the Board of
Directors for, (A) any taxes payable by the Corporation (or which would
have been payable but for the utilization of tax benefits attributable to
the other Group) in respect of such Disposition or in respect of any
resulting dividend or redemption pursuant to paragraphs D.(a)(i)(1)(A) or
(B), (B) any transaction costs, including, without limitation, any legal,
investment banking and accounting fees and expenses and (C) any liabilities
(contingent or otherwise) of or attributed to such Group, including,
without limitation, any liabilities for deferred taxes or any indemnity or
guarantee obligations of the Corporation incurred in connection with the
Disposition or otherwise, and any liabilities for future purchase price
adjustments and any preferential amounts plus any accumulated and unpaid
distributions in respect of the Preferred Stock or the Junior Preferred
Stock attributed to such Group. For purposes of this definition, any
properties and assets attributed to the Group, the properties and assets of
which are subject to such Disposition, remaining after such Disposition
shall constitute "reasonable provision" for such amount of taxes, costs and
liabilities (contingent or otherwise) as the Board of Directors determines
can be expected to be supported by such properties and assets.
(n) "Publicly Traded" with respect to any security shall mean that such
security is (i) registered under Section 12 of the Securities Exchange Act
of 1934, as amended (or any successor provision of law), and (ii) listed
for trading on the New York Stock Exchange or the American Stock Exchange
(or any national securities exchange registered under Section 7 of the
Securities Exchange Act of 1934, as amended (or any successor provision of
law), that is the successor to either such exchange) or listed on The
Nasdaq Stock Market (or any successor market system).
(o) "Redemption Date" shall mean the date fixed by the Board of Directors
as the effective date for a redemption of shares of either class of the
Common Stock, as set forth in a notice to holders thereof required pursuant
to paragraphs D.(d)(iii), (iv) or (vi).
(p) "Related Business Transaction" means any Disposition of all or
substantially all the properties and assets attributed to the Georgia-
Pacific Group or the Timber Group, as the case may be, in a transaction or
series of related transactions that result in the Corporation receiving in
consideration of such properties and assets primarily equity securities
(including, without limitation, capital stock, debt securities convertible
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<PAGE>
into or exchangeable for equity securities or interests in a general or
limited partnership or limited liability company, without regard to the
voting power or other management or governance rights associated therewith)
of any entity which (i) acquires such properties or assets or succeeds (by
merger, formation of a joint venture or otherwise) to the business
conducted with such properties or assets or controls such acquiror or
successor and (ii) is primarily engaged or proposes to engage primarily in
one or more businesses similar or complementary to the businesses conducted
by such Group prior to such Disposition, as determined by the Board of
Directors.
(q) "Timber Group" shall mean, as of any date:
(i) all assets and liabilities of the Corporation and its
subsidiaries attributed by the Board of Directors to the Timber Group,
whether or not such assets or liabilities are or were also assets and
liabilities of any of the Timber Group Companies;
(ii) all properties and assets transferred to the Timber Group from
the Georgia-Pacific Group pursuant to transactions in the ordinary
course of business of the Georgia-Pacific Group and the Timber Group or
otherwise as the Board of Directors may have directed as permitted by
this Article; and
(iii) the interest of the Corporation or any of its subsidiaries in
any business or asset acquired and any liabilities assumed by the
Corporation or any of its subsidiaries outside of the ordinary course
of business and attributed to the Timber Group, as determined by the
Board of Directors as contemplated by paragraph E.(a)(i);
provided that from and after any transfer of any assets or properties from
the Timber Group to the Georgia-Pacific Group, the Timber Group shall no
longer include such assets or properties so contributed or transferred.
(r) "Timber Group Available Distribution Amount," on any date, shall mean
any amount in excess of the minimum amount necessary for the Timber Group
to be able to pay its debts as they become due in the usual course of
business.
(s) "Trading Day" shall mean each weekday other than any day on which the
relevant class of common stock of the Corporation is not traded on any
national securities exchange or quoted on The Nasdaq National Market or in
the over-the-counter market.
G. Inconsistencies. In the event of an inconsistency between the provisions
of this Article V and the provisions of Article IV relating to the Junior
Preferred Stock, the provisions of Article IV shall control.
ARTICLE VI.
A. Notwithstanding any provision of the Bylaws of the Corporation (and
notwithstanding that some lesser percentage may be permissible in law), the
following provisions of the Bylaws of the Corporation, as in effect on March
3, 1984, shall not be amended, modified or repealed by the shareholders of the
Corporation, nor shall any provision of the Bylaws of the Corporation
inconsistent with such provisions be adopted by the shareholders of the
Corporation, except pursuant to the affirmative vote of at least seventy-five
percent (75%) of the voting power of the outstanding capital stock of the
Corporation entitled to vote generally in the election of directors, voting as
a class: Article I, Section 2; Article II, Section 1(A); Article II, Section
1(D); Article II, Section 8; and Article II, Section 9.
B. Notwithstanding that some lesser percentage may be permissible in law, no
provision of Article IV of these Articles of Incorporation regarding Junior
Preferred Stock of the Corporation and no provision of this Article VI shall
be amended, modified or repealed by the shareholders of the Corporation, nor
shall any provision of these Articles of Incorporation inconsistent with any
such provision be adopted by the shareholders of the Corporation, except
pursuant to the affirmative vote of at least seventy-five percent (75%) of the
voting power of the outstanding capital stock of the Corporation entitled to
vote generally in the election of directors, voting as a class.
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ARTICLE VII.
A. A director of the Corporation shall not be liable to the Corporation or
its shareholders for monetary damages for any action taken, or any failure to
take any action, as a director, except for liability (i) for any
appropriation, in violation of his or her duties, of any business opportunity
of the Corporation, (ii) for acts or omissions that involve intentional
misconduct or a knowing violation of law, (iii) of the types set forth in
Section 14-2-832 of the Georgia Business Corporation Code, or (iv) for any
transaction from which the director received an improper personal benefit.
B. Any repeal or modification of the provisions of this Article VII by the
shareholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the liability of a director of the
Corporation with respect to any act or omission occurring prior to the
effective date of such repeal or modification.
C. If the Georgia Business Corporation Code is hereafter amended to
authorize the further elimination or limitation of the liability of directors,
then the liability of a director of the Corporation, in addition to the
limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by the amended Georgia Business Corporation Code.
D. In the event that any of the provisions of this Article VII (including
any provision within a single sentence) is held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, the remaining
provisions are severable and shall remain enforceable to the fullest extent
permitted by law.
ARTICLE VIII.
In discharging the duties of their respective positions and in determining
what is believed to be in the best interests of the Corporation, the Board of
Directors, committees of the Board of Directors and individual directors, in
addition to considering the effects of any action on the Corporation and its
shareholders, may consider the interests of the employees, customers,
suppliers and creditors of the Corporation and its subsidiaries, the
communities in which offices or other establishments of the Corporation and
its subsidiaries are located, and all other factors such directors consider
pertinent; provided, however that no constituency shall be deemed to have been
given any right to consideration hereby.
IN WITNESS WHEREOF, GEORGIA-PACIFIC CORPORATION has caused these Restated
Articles of Incorporation to be executed and its corporate seal to be affixed
and has caused its seal and the execution hereof to be attested, all by its
duly authorized officers, this [ ] day of [ ], 1997.
GEORGIA-PACIFIC CORPORATION
By: _________________________________
James F. Kelley
Senior Vice President-Law and
General Counsel
[CORPORATE SEAL]
Attest:
_____________________________________
Kenneth F. Khoury
Vice President and Secretary
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ANNEX II
ILLUSTRATIONS OF
CERTAIN PROVISIONS OF
THE RESTATED ARTICLES
PER SHARE VOTING RIGHTS OF TIMBER STOCK
The following illustration demonstrates the calculation of the number of
votes to which each outstanding share of Timber Stock would be entitled on all
matters as to which holders of Georgia-Pacific Group Stock and Timber Stock
(and any Preferred Stock or Junior Preferred Stock outstanding and entitled to
vote together with holders of Common Stock) vote. At all times the Georgia-
Pacific Group Stock would be entitled to one vote per share. Capitalized terms
not defined herein have the meaning set forth in the Restated Articles set
forth in Annex I.
Each outstanding share of Timber Stock will have a number of votes
(including a fraction of one vote) equal to the quotient (rounded to the
nearest three decimal places) of:
(i) the sum of (A) four times the average Market Value of the Timber Stock
over the five-Trading Day period ending on the 10th Trading Day prior to
the record date for determining the holders of Common Stock entitled to
vote, (B) three times the average Market Value of the Timber Stock over
the next preceding five-Trading Day period, (C) two times the average
Market Value of the Timber Stock over the next preceding five-Trading
Day period and (D) the average Market Value of the Timber Stock over the
next preceding five-Trading Day period, divided by
(ii) the sum of (A) four times the average Market Value of the Georgia-
Pacific Group Stock over the five-Trading Day period ending on such
10th Trading Day, (B) three times the average Market Value of the
Georgia-Pacific Group Stock over the next preceding five-Trading Day
period, (C) two times the average Market Value of the Georgia-Pacific
Group Stock over the next preceding five-Trading Day period and (D) the
average Market Value of the Georgia-Pacific Group Stock over the next
preceding five-Trading Day period.
To illustrate the foregoing, if the average Market Value of the Timber Stock
for the periods specified in clause (i) above were $40, $42, $41 and $38,
respectively, and the average Market Value of the Georgia-Pacific Group Stock
for the periods specified in clause (ii) above were $60, $61, $60 and $59,
respectively, each share of Georgia-Pacific Group Stock would have one vote
and each share of Timber Stock would have 0.674 votes based on the following
calculation:
(4X$40)+(3X$42)+(2X$41)+(1X$38)
-------------------------------
(4X$60)+(3X$61)+(2X$60)+(1X$59)
Based on such number of votes, on any proposal where holders of Georgia-
Pacific Group Stock and Timber Stock vote together as a single voting group
(with no holders of classes of Preferred Stock or Junior Preferred Stock, if
any, entitled to vote together with the holders of Common Stock) and assuming
100 million shares each of Georgia-Pacific Group Stock and of Timber Stock
were outstanding, the shares of Georgia-Pacific Group Stock and Timber Stock
would represent approximately 59.7% and 40.3%, respectively, of the total
voting power.
CONVERSION OF COMMON STOCK AT THE OPTION OF THE COMPANY
The following illustration demonstrates the calculation of the number of
shares issuable upon conversion of one class of Common Stock into shares of
the other class of Common Stock at the option of the Company.
At any time, the Board may convert each outstanding share of the Common
Stock relating to one Group into a number of shares of the Common Stock
relating to the other Group equal to 115% of the Market Value
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Ratio of the class of Common Stock to be converted to the Market Value Ratio
of the other class of Common Stock, calculated as of the fifth Trading Day
prior to the date notice of such conversion is mailed. The Market Value Ratio
of the Timber Stock to the Georgia-Pacific Group Stock, as of any date, would
be equal to the quotient (rounded to the nearest five decimal places) of
(i) the sum of (A) four times the average Market Value of one share of
Timber Stock over the period of five consecutive Trading Days ending on
such date, (B) three times the average Market Value of one share of
Timber Stock over the period of five consecutive Trading Days ending on
the fifth Trading Day prior to such date, (C) two times the average
Market Value of one share of Timber Stock over the period of five
consecutive Trading Days ending on the tenth Trading Day prior to such
date and (D) the average Market Value of one share of Timber Stock over
the period of five consecutive Trading Days ending on the fifteenth
Trading Day prior to such date, divided by
(ii) the sum of (A) four times the average Market Value of one share of
Georgia-Pacific Group Stock over the period of five consecutive Trading
Days ending on the fifth Trading Day prior to such date, (B) three
times the average Market Value of one share of Georgia-Pacific Group
Stock over the period of five consecutive Trading Days ending on the
fifth Trading Day prior to such date, (C) two times the average Market
Value of one share of Georgia-Pacific Group Stock over the period of
five consecutive Trading Days ending on the tenth Trading Day prior to
such date and (D) the average Market Value of one share of Georgia-
Pacific Group Stock over the period of five consecutive Trading Days
ending on the fifteenth Trading Day prior to such date.
To illustrate the foregoing, if (x) 100 million shares each of Timber Stock
and Georgia-Pacific Group Stock were outstanding immediately prior to a
conversion at the option of the Company, (y) the average Market Value of one
share of the Timber Stock for the periods specified in clause (i) above were
$40, $42, $41 and $38, respectively and (z) the average Market Value of one
share of Georgia-Pacific Group Stock for the periods specified in clause (ii)
above were $60, $61, $60 and $59, respectively, then each share of Timber
Stock could be converted into 0.77557 shares of Georgia-Pacific Group Stock
based on the following calculations:
1.15x (4X$40)+(3X$42)+(2X$41)+(1X$38) = .77557 shares
-------------------------------
(4X$60)+(3X$61)+(2X$60)+(1X$59)
Immediately following any such conversion, the total number of shares of
Georgia-Pacific Group Stock issued and outstanding would be 177,557,000
shares.
MANDATORY DIVIDEND, REDEMPTION OR CONVERSION UPON A DISPOSITION; OPTIONAL
CONVERSION OF COMMON STOCK WITHIN ONE YEAR FOLLOWING A DISPOSITION
The following illustrations demonstrate the operation of the provisions
requiring a mandatory dividend, redemption or conversion upon a Disposition of
all or substantially all of the properties and assets of the Georgia-Pacific
Group or the Timber Group and the possible conversion thereafter of Common
Stock.
MANDATORY DIVIDEND, REDEMPTION OR CONVERSION UPON DISPOSITION. Upon a
Disposition of all or substantially all of the property and assets of the
Georgia-Pacific Group or the Timber Group (excluding certain specified
transactions), the Company must consummate one of the following three
transactions on or prior to the 85th Trading Day following the consummation of
such Disposition:
(i) pay a dividend to the holders of outstanding shares of the class of
Common Stock relating to the Group subject to such Disposition having a
Fair Value as of the date of such Disposition equal in the aggregate to
the Fair Value of the Net Proceeds of such Disposition as of such date;
or
(ii) (A) if such Disposition involves all (not merely substantially all) of
the properties and assets of such Group, redeem all outstanding shares
of such class of Common Stock for consideration having a Fair Value as
of the date of such Disposition in the aggregate equal to the Fair
Value of the Net Proceeds of such Disposition as of such date; or
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(B) if such Disposition involves substantially all (but not all) of the
properties and assets of such Group, redeem such number of whole shares
of such class of Common Stock as have in the aggregate an average Market
Value, during the 10-Trading Day period beginning on the 16th Trading
Day immediately following the date of such consummation (the "Valuation
Period") closest to the Fair Value of the Net Proceeds of such
Disposition as of such date for consideration in the aggregate equal to
such Fair Value of such Net Proceeds as of such date; or
(iii) convert each outstanding share of the class of Common Stock relating
to such Group into a number of shares of the Common Stock relating to
the other Group equal to 110% of the ratio (rounded to the nearest
five decimal places) of the average Market Value of one share of
Common Stock relating to such Group to the average Market Value of one
share of Common Stock relating to the other Group during the Valuation
Period.
To illustrate the foregoing, if (i) 100 million shares each of Georgia-
Pacific Group Stock and Timber Stock were outstanding, (ii) the Net Proceeds
of the Disposition of substantially all of the assets of the Timber Group have
a Fair Value as of the date of consummation of such Disposition equal to $2
billion, (iii) the average Market Value of the Timber Stock during the
Valuation Period is $30 per share, and (iv) the average Market Value of the
Georgia-Pacific Group Stock during the Valuation Period is $60 per share, then
the Company could:
(A) pay a dividend to the holders of shares of Timber Stock equal to:
Fair Value of Net Proceeds = $2 billion = $20 per share; or
---------------------------- ------------------
Number of Outstanding Shares 100 million shares
of Timber Stock
(B) redeem for $30 per share a number of shares of Timber Stock equal to:
Fair Value of Net Proceeds = $2 billion = 66,666,666 shares; or
--------------------------------- -------------
Average Per Share Market Value of $30 per share
Timber Stock During Valuation
Period
(C) convert each outstanding share of Timber Stock into a number of shares
of Georgia-Pacific Group Stock equal to:
<TABLE>
<C> <S> <C> <C> <C>
Average Market Value of Timber
1.10 X Stock During Valuation Period = 1.10 X $30 per share = 0.55 shares
------------------------------------- -------------
Average Market Value of Manufacturing $60 per share
Stock During Valuation Period
</TABLE>
As a result of the conversion, the 100 million shares of Timber Stock would be
converted into 55 million shares of Georgia-Pacific Group Stock and 155
million shares of Georgia-Pacific Group Stock would be outstanding.
CONVERSION WITHIN ONE YEAR FOLLOWING A DISPOSITION. The Board may, within
one year after a dividend or redemption described above following a
Disposition, convert each outstanding share of the Common Stock relating to
the Group subject to such Disposition into a number of shares of the class of
Common Stock relating to the other Group equal to 110% of the Market Value
Ratio of the class of Common Stock to be converted to the Market Value Ratio
of the other class of Common Stock relating to the other Group, as of the
fifth Trading Day prior to the date notice of such conversion is mailed.
Assume that the Company elected to pay the dividend on Timber Stock
illustrated in (A) above and elects to convert the shares of Timber Stock
outstanding after such dividend within the one-year required period. To
illustrate such conversion, if (x) 100 million shares each of Georgia-Pacific
Group Stock and Timber Stock were outstanding, (y) the average Market Value of
the Timber Stock for the periods specified in clause (i) above were
II-3
<PAGE>
$10, $10, $10 and $10, respectively and (z) the average Market Value of the
Georgia-Pacific Group Stock for the periods specified in clause (ii) above
were $60, $61, $60 and $59, then each share of Timber Stock could be converted
into 0.18272 shares of Georgia-Pacific Group Stock based on the following
calculation:
1.10 X (4X$10)+(3X$10)+(2X$10)+(1X$10) = 0.18272 shares
-------------------------------
(4X$60)+(3X$61)+(2X$60)+(1X$59)
Immediately following any such conversion, the total number of shares of
Georgia-Pacific Group Stock outstanding would be 118,272,000 shares.
LIQUIDATION RIGHTS OF TIMBER STOCK
The following illustration demonstrates the calculation of the number of
liquidation units to which each outstanding share of Timber Stock would be
entitled upon the liquidation, dissolution or winding up of the Company. At
all times the Georgia-Pacific Group Stock would be entitled to one Liquidation
Unit per share, subject to certain adjustments.
Each outstanding share of Timber Stock will have a number of Liquidation
Units (including a fraction of one Liquidation Unit) equal to the quotient
(rounded to the nearest three decimal places) of:
(i) the sum of (A) four times the average Market Value of the Timber Stock
over the five-Trading Day period ending on the 40th Trading Day
immediately succeeding the Effective Date, (B) three times the average
Market Value of the Timber Stock over the next preceding five-Trading
Day period, (C) two times the average Market Value of the Timber Stock
over the next preceding five-Trading Day period and (D) the average
Market Value of the Timber Stock over the next preceding five-Trading
Day period, divided by
(ii) the sum of (A) four times the average Market Value of the Georgia-
Pacific Group Stock over the five-Trading Day period ending on such
40th Trading Day, (B) three times the average Market Value of the
Georgia-Pacific Group Stock over the next preceding five-Trading Day
period, (C) two times the average Market Value of the Georgia-Pacific
Group Stock over the next preceding five-Trading Day period and (D) the
average Market Value of the Georgia-Pacific Group Stock over the next
preceding five-Trading Day period.
To illustrate the foregoing, if the average Market Value of the Timber Stock
for the periods specified in clause (i) above were $40, $42, $41 and $38,
respectively, and the average Market Value of the Georgia-Pacific Group Stock
for the periods specified in clause (ii) above were $60, $61, $60 and $59,
respectively, then each share of Georgia-Pacific Group Stock would have one
Liquidation Unit and each share of Timber Stock would have 0.674 of a
Liquidation Unit, subject to certain adjustments, based on the following
calculation:
(4X$40)+(3X$42)+(2X$41)+(1X$38)
-------------------------------
(4X$60)+(3X$61)+(2X$60)+(1X$59)
After the number of Liquidation Units to which each share of Timber Stock is
entitled has been calculated in accordance with this formula, such number will
not otherwise be changed without the approval of the shareholders of each
Group.
II-4
<PAGE>
ANNEX III
GEORGIA-PACIFIC CORPORATION
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Management's Discussion and Analysis..................................... III-2
Consolidated Financial Statements........................................ III-10
</TABLE>
III-1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
SELECTED INDUSTRY SEGMENT DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------- -------------------------
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET SALES
Building products................ $ 3,724 $ 3,467 $ 7,365 $ 7,301 $ 7,561
Pulp and paper................... 2,722 2,887 5,609 6,962 5,138
Other............................ 25 23 50 50 39
------- ------- ------- ------- -------
Total net sales.................. $ 6,471 $ 6,377 $13,024 $14,313 $12,738
======= ======= ======= ======= =======
OPERATING PROFITS
Building products................ $ 492 $ 208 $ 516 $ 669 $ 1,013
Pulp and paper................... 32 207 390 1,611 204
Other............................ 7 5 8 10 10
------- ------- ------- ------- -------
Total Operating Profits.......... 531 420 914 2,290 1,227
General corporate................ (85) (79) (159) (161) (169)
Interest expense................. (241) (226) (459) (432) (486)
Provision for income taxes....... (88) (55) (135) (679) (246)
------- ------- ------- ------- -------
Income before extraordinary
item............................ 117 60 161 1,018 326
Extraordinary item............... -- (5) (5) -- (11)
Accounting change................ -- -- -- -- (5)
------- ------- ------- ------- -------
Net income....................... $ 117 $ 55 $ 156 $ 1,018 $ 310
======= ======= ======= ======= =======
PER SHARE:
Income before extraordinary item
and accounting change........... $ 1.28 $ 0.66 $ 1.78 $ 11.29 $ 3.66
Extraordinary item, net of tax-
es.............................. -- (0.05) (0.06) -- (0.12)
Cumulative effect of accounting
change, net of taxes............ -- -- -- -- (0.06)
------- ------- ------- ------- -------
Net income....................... $ 1.28 $ 0.61 $ 1.72 $ 11.29 $ 3.48
======= ======= ======= ======= =======
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
The Company reported consolidated net sales of $6.5 billion and net income
of $117 million ($1.28 per share) for the six months ended June 30, 1997,
compared with net sales of $6.4 billion and net income of $55 million (61
cents per share) for the six months ended June 30, 1996. The 1997 results
include a first quarter pretax gain of $128 million (88 cents per share after
tax) from the sale of the Company's Martell, California assets. The 1996
results include a pretax charge of $74 million (50 cents per share after tax)
related to a voluntary early retirement program discussed below. An
extraordinary, after-tax loss of $5 million (5 cents per share) was recorded
in the 1996 second quarter for the early retirement of debt.
In 1996, the Company set a goal of improving its annual pretax earnings by
approximately $400 million through a three-year effort to reduce overhead
costs and improve efficiencies throughout the Company. The Company expects to
achieve about half of this cost reduction by eliminating work and the related
salaried positions. As part of this effort, the Company implemented a
voluntary early retirement program in 1996. The Company also expects to
realize significant efficiencies and cost savings from cost reduction efforts
at its manufacturing facilities and substantial investments it is making to
restructure its building products distribution division and install new
information systems.
III-2
<PAGE>
Selling, general and administrative expense ("SG&A") was $574 million for
the six months ended June 30, 1997, compared with $704 million for the same
period in 1996. The cost reduction is largely a result of the voluntary early
retirement program initiated in 1996 and overhead reduction plans implemented
in 1997. The Company expects full-year 1997 SG&A to be approximately $200
million lower than in 1996.
The Company reported income before income taxes of $205 million and an
income tax provision of $88 million for the six months ended June 30, 1997,
compared with pretax income of $115 million and an income tax provision of $55
million for the first six months of 1996. The effective tax rate used to
calculate the provision for income taxes for both years was higher than the
statutory rates used to calculate federal and state income taxes primarily
because of nondeductible goodwill amortization expense associated with past
business acquisitions.
The remaining discussion refers to the "Selected Industry Segment Data"
table above.
BUILDING PRODUCTS
The Company's building products segment reported net sales of $3.7 billion
and operating profits of $492 million for the six months ended June 30, 1997,
compared with net sales of $3.5 billion and operating profits of $208 million
for the same period in 1996. The 1996 six months' results included a $34
million expense for the voluntary early retirement program referred to above.
Return on sales increased to 13.2% in the first half of 1997 from 6.0% in the
first half of 1996. A 19% increase in lumber prices, combined with increased
gypsum prices and shipment volumes, more than offset approximately 35% lower
prices for oriented strand board and an 8% increase in log costs.
Operating losses for the Company's building products distribution division
were $42 million for the first half of 1997, compared with losses of $21
million for the same period in 1996 before restructuring charges of $52
million. Operating losses were worse for the first six months of 1997 compared
to the first six months of 1996 primarily as a result of an approximate $17
million deterioration in margins. Sales volume deteriorated in the second
quarter of 1997 compared to the second quarter of 1996, and was flat for the
first six months of 1997 compared to the same period in 1996. The Company is
currently projecting an operating loss for this division in the second half of
1997, as this business continues to experience problems stemming from a
restructuring of administrative and logistical processes that is impeding its
ability to return to profitability. Management is aggressively addressing
these problems, but cannot predict when the division will return to
profitability.
Capital expenditures for the acquisition and construction of new facilities
are expected to total approximately $400 million, excluding proceeds from
asset sales. Approximately $375 million of that amount had been invested as of
June 30, 1997.
Selected financial and operating data for the building products distribution
business are shown in the table below.
SELECTED DISTRIBUTION DIVISION DATA
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER
ENDED JUNE 30, 31,
---------------- ----------------------
1997 1996 1996 1995 1994
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Sales................................. $ 2,091 $ 2,062 $4,407 $4,673 $4,909
Operating (loss) profit............... (42) (73) (207) (60) 91
Capital expenditures.................. 24 154 224 132 35
Depreciation.......................... 23 22 45 23 18
</TABLE>
III-3
<PAGE>
PULP AND PAPER
The Company's pulp and paper segment reported net sales of $2.7 billion and
operating profits of $32 million for the six-month period ended June 30, 1997,
compared with net sales of $2.9 billion and operating profits of $207 million
for the six-month period ended June 30, 1996. The 1996 six months' results
included a $40 million expense for the voluntary early retirement program
referred to above. Return on sales decreased to 1.2% for the first six months
of 1997 compared with 7.2% for the same period in 1996, primarily as a result
of substantially lower prices for most of the Company's pulp and paper
products. Compared with the 1996 first half, prices were 30% lower for
containerboard, 6% lower for market pulp, and 12% lower for communication
papers. Tissue prices were slightly lower than a year ago, although shipment
volumes increased 13%.
1996 COMPARED WITH 1995
The Company reported consolidated net sales of $13 billion and net income of
$156 million ($1.72 per share) in 1996, compared with net sales of $14.3
billion and net income of $1,018 million ($11.29 per share) in 1995. The 1996
results include net unusual pretax expenses of $117 million (79 cents per
share after tax). The unusual items include charges of $39 million primarily
related to the voluntary early retirement program referred to above, a pretax
gain of $39 million from the sale of two gypsum wallboard facilities and $117
million of expenses resulting from a project to change and improve certain
processes in the Company's building products distribution division. Net income
in 1996 also includes an extraordinary, after-tax loss of $5 million (6 cents
per share) for the early retirement of debt.
Costs associated with the three-year program to reduce overhead costs and
improve efficiencies throughout the Company (discussed under "Six Months Ended
June 30, 1997 Compared With Six Months Ended June 30, 1996," above) were $39
million in 1996. This amount includes the cost of the voluntary early
retirement program and severance expenses from the elimination of certain
salaried positions. This net $39 million expense included expenses of $74
million in the first six months of 1996 primarily related to the accrual of
additional retirement benefits, less income of $35 million in the second half
of 1996 primarily resulting from a gain recognized upon the settlement of
pension obligations to early retirees.
The Company reported income before income taxes of $296 million and a tax
provision of $135 million for the year ended December 31, 1996, compared with
pretax income of $1,697 million and an income tax provision of $679 million
for the year ended December 31, 1995. The effective tax rate used to calculate
the provision for income taxes for both years was higher than the statutory
rates used to calculate federal and state income taxes primarily because of
nondeductible goodwill amortization expense associated with past business
acquisitions.
The remaining discussion refers to the "Selected Industry Segment Data"
table above.
BUILDING PRODUCTS
The Company's building products segment reported net sales of $7.4 billion
and operating profits of $516 million for 1996, compared with net sales of
$7.3 billion and operating profits of $669 million in 1995. The 1996 results
include net unusual expenses of $97 million. The unusual items include charges
of $19 million primarily related to the above-mentioned voluntary early
retirement program, an unusual gain of $39 million from the sale of two gypsum
wallboard facilities and $117 million of expenses in the building products
distribution division, discussed below. Return on sales decreased to 7.0% in
1996 from 9.2% in 1995. Excluding unusual items, return on sales decreased to
8.3% in 1996 from 10.1% in 1995. A 9% increase in lumber prices combined with
a 4% decrease in log costs, and increased gypsum volumes, were more than
offset by approximately 16% lower prices for structural panels.
Operating losses for the Company's building products distribution division
increased by $147 million from 1995. Lower operating margins accounted for
most of the decline, while costs associated with the restructuring of the
division (discussed above) increased to $117 million in 1996 compared with $70
million in 1995.
III-4
<PAGE>
Selected financial and operating data are shown in the "Selected
Distribution Division Data" table above.
PULP AND PAPER
The Company's pulp and paper segment reported net sales of $5.6 billion and
operating profits of $390 million for 1996, compared with net sales of $7.0
billion and operating profits of $1,611 million in 1995. The 1996 results
include unusual expenses of $20 million primarily related to the voluntary
early retirement program. Return on sales decreased to 7.0% in 1996 (7.3%
excluding unusual expenses) compared with 23.1% a year ago, primarily as a
result of substantially lower prices for most of the Company's pulp and paper
products. Compared with 1995, prices were 45% lower for market pulp, 33% lower
for containerboard and 24% lower for communication papers. Tissue prices
improved approximately 6%.
1995 COMPARED WITH 1994
The Company reported consolidated net sales of $14.3 billion in 1995
compared with $12.7 billion in 1994. Net income in 1995 was $1,018 million, a
significant increase from $310 million in 1994 which included a $33 million
(37 cents per share) net after-tax gain primarily from asset sales, an $11
million (12 cents per share) after-tax extraordinary loss from the early
retirement of debt and a $5 million (6 cents per share) one-time after-tax
charge for an accounting change.
The Company's interest expense was $432 million in 1995 compared with $486
million in 1994. The 11.1% decrease in expense was primarily attributable to
an increase in capitalized interest in 1995 compared with 1994. In addition,
debt levels were lower in 1995 compared with 1994 and $450 million in interest
rate exchange agreements, which had effectively fixed the rates on a portion
of the Company's variable rate debt at levels above current interest rates,
expired in 1995.
The Company reported income before income taxes of $1,697 million and a tax
provision of $679 million for the year ended December 31, 1995 compared with
pretax income before extraordinary item and accounting change of $572 million
and an income tax provision of $246 million for the year ended December 31,
1994. The effective tax rate used to calculate the provision for income taxes
for both years was higher than the statutory rates used to calculate federal
and state income taxes primarily because of nondeductible goodwill
amortization expense associated with past business acquisitions.
The remaining discussion refers to the "Selected Industry Segment Data"
table above.
BUILDING PRODUCTS
The Company's building products segment reported net sales of $7.3 billion
and operating profits of $669 million in 1995. Net sales and operating profits
in 1994 were $7.6 billion and $1,013 million, respectively. Return on sales
decreased to 9.2% in 1995 from 13.4% in 1994. Average lumber prices in 1995
were approximately 13% below 1994 averages that, combined with higher wood
costs, resulted in a significant decline in profit margins for this business.
Although average structural panels prices were slightly higher than 1994
average prices, margins for this business were also lower as a result of
higher wood costs.
Several factors impacted the building products business, including an
overall slowdown in the economy, a decline in housing starts and an increase
in the availability of lower-priced Canadian lumber. In addition, demand for
building products was weaker in 1995 as evidenced by a decline in shipments
for the Company's structural panels and lumber businesses, both during the
second half of 1995 and for fiscal year 1995 compared with 1994.
Finally, profits for the Company's distribution business were lower than
1994, primarily because of costs associated with initiatives to change and
improve certain administrative and logistical processes in this business. The
Company incurred expenses of approximately $70 million for these improvements
during 1995. These expenses accounted for much of the increase in selling,
general and administrative expenses in 1995 compared with 1994.
III-5
<PAGE>
In 1994, the Company recognized a net pretax gain of approximately $57
million (37 cents per share after taxes) primarily from the sale of five
roofing plants and its envelope manufacturing business.
PULP AND PAPER
The Company's pulp and paper segment reported an increase in net sales to $7
billion in 1995 from $5.1 billion in 1994. Operating profits also increased to
$1.6 billion in 1995 compared with $204 million in 1994. Return on sales in
1995 was 23.1%, up significantly from 4.0% in 1994, primarily as a result of
much higher prices for most of the Company's pulp and paper products. Average
pulp prices in 1995 were approximately 70% higher than 1994 averages; average
containerboard prices were approximately 45% higher than 1994 levels; and
average communication papers prices were approximately 50% higher than 1994
averages.
The Company experienced a significant decline towards the end of 1995 in
both demand and prices for many of its pulp and paper products. Although year-
to-year comparisons showed higher average prices in 1995, prices for
containerboard finished 1995 at their lowest level for the year. In addition,
prices for market pulp and communication papers began to fall during the 1995
fourth quarter. Shipment volume also declined for these products during the
second half of 1995.
Inventory volume grew in 1995 by approximately 65%, primarily in the areas
of market pulp, containerboard and communication papers. The Company reduced
production by 200,000 tons by taking downtime at its mills in the fourth
quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
The Company generated cash from operations of $1,213 million during 1996.
The Company's cash provided by operations in 1995 was $1,474 million, after
using $350 million to reduce the accounts receivable sale program. The Company
repurchased the receivables to reduce the cost of the program, which was
higher than the cost of financing from alternative sources. Cash provided by
operations was $395 million in the first six months of 1997, compared with
$572 million in the first six months of 1996. Operating cash flow for both the
six months ended June 30, 1997, and the full year ended 1996 were
significantly lower than the comparable periods, primarily as a result of
lower prices for the Company's pulp and paper products.
INVESTING ACTIVITIES
Property, plant, and equipment investments during 1996 were $1.1 billion,
which included $452 million in the pulp and paper segment, $492 million in the
building products segment and $115 million of general corporate investments
(primarily information systems). Investments in 1995 totaled $1.3 billion.
Property, plant, and equipment investments for the six months ended June 30,
1997, were $270 million compared with $652 million in the first half of 1996.
Expenditures in 1997 included $158 million in the pulp and paper segment, $82
million in the building products segment, and $30 million of other and general
corporate. During the second half of the year, the Company expects to invest
approximately $500 million, for a total capital investment of approximately
$800 million in 1997.
During the first six months of 1997, the Company received $331 million of
proceeds from asset sales. This amount included $308 million of proceeds from
the sale of the Company's sale of its Martell, California assets on March 31.
The Martell assets included 127,000 acres of timberlands, a sawmill, and a
particleboard plant.
The Company purchased the United States and Canadian gypsum operations of
Domtar Inc. for $363 million in the second quarter of 1996. The Company
completed the sale of its gypsum wallboard production facilities at Buchanan,
New York, and Wilmington, Delaware, 1996 third quarter. The sale of these
facilities generated pretax cash proceeds of approximately $60 million. The
Company had agreed with the United States Department of Justice to sell these
plants in order to complete the Domtar acquisition.
III-6
<PAGE>
During 1996, the Company invested $130 million for pollution control and
abatement. The Company's 1997 capital expenditure budget currently includes
approximately $80 million for environmental-related projects. Certain other
capital projects that are being undertaken for the primary reasons of
improving financial returns or safety will also include expenditures for
pollution control.
By the end of 1997, the United States Environmental Protection Agency
("EPA") is expected to promulgate a set of technical provisions known as the
Cluster Rule that will establish new requirements for air emissions and
wastewater discharges from pulp and paper mills. The Company estimates that
capital expenditures of approximately $550 million will be made over the next
eight years in order to comply with the Cluster Rule's requirements. Of that
total, about $300 million will be needed within three years of the Cluster
Rule's effective date, which is expected to be in the fourth quarter of 1997.
One of the main components of the Cluster Rule is that pulp and paper mills
use only elemental chlorine free ("ECF") technology, which will require the
complete substitution of chlorine dioxide for elemental chlorine in the pulp
bleaching process. Approximately $165 million of the amounts required to be
spent in the next three years will go toward ECF conversion at mills located
in Ashdown, Arkansas; Crossett, Arkansas; Bellingham, Washington; Palatka,
Florida; and Woodland, Maine. The bulk of the remaining $135 million to be
spent within the next three years is for additional air emissions controls at
the Company's pulp and paper facilities.
FINANCING ACTIVITIES
The Company's total debt was $5.6 billion at June 30, 1997, including bank
overdrafts, commercial paper and other short-term notes, the current portion
of long-term debt and long-term total debt. Total debt at December 31, 1996,
was $5.9 billion, which also included $350 million under the accounts
receivable sale program. The Company adopted SFAS 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" in the first quarter. As a result, the Company's accounts
receivable sale program is accounted for as a secured borrowing effective
January 1, 1997. At June 30, 1997, $280 million of receivables outstanding
under the program and the corresponding debt are included as current
receivables and short-term debt, respectively, on the Company's balance sheet.
The fees associated with the program are included in interest expense for all
periods for which statements of income are presented.
In conjunction with the sale of the Company's Martell, California
operations, the Company received notes receivable from the purchaser in the
amount of $270 million. These notes are included in "Other assets" on the
Company's balance sheet. In April 1997, the Company monetized these notes
receivable through the issuance of notes payable in a private placement.
Proceeds from the notes receivable will be used to fund payments required for
the notes payable. The notes payable are classified as "Other long-term
liabilities" on the Company's balance sheet. Proceeds from the issuance of the
notes payable and cash from operations were used to reduce debt in the 1997
second quarter, including $300 million of 9.85% notes that were due on June 1,
1997.
At June 30, 1997, the Company had outstanding borrowings of $646 million
under certain Industrial Revenue Bonds. Approximately $15 million from the
issuance of these bonds is being held by trustees and is restricted for the
construction of certain capital projects. Amounts held by trustees are
classified as noncurrent assets in the accompanying balance sheet.
The Company has a $1.5 billion unsecured revolving credit facility that is
used for direct borrowings and as support for commercial paper and other
short-term borrowings. As of June 30, 1997, $728 million of committed credit
was available in excess of all short-term borrowings outstanding under or
supported by the facility.
At June 30, 1997, the Company's weighted average interest rate on its total
debt was 7.7% including outstanding interest rate exchange agreements. At June
30, 1997, these interest rate exchange agreements effectively converted $496
million of floating rate obligations with a weighted average interest rate of
5.6% to fixed rate obligations with an average effective interest rate of
9.0%. These agreements have a weighted average maturity of approximately 1.6
years. As of June 30, 1997, the Company's total floating rate debt exceeded
related interest rate exchange agreements by $1.4 billion.
III-7
<PAGE>
As of June 30, 1997, the Company had registered for sale up to $500 million
of debt securities under a shelf registration statement filed with the
Securities and Exchange Commission.
In August 1995, the Board authorized management to make purchases of the
Company's common stock on the open market or in private transactions so long
as the Company's debt, including the accounts receivable sale program,
remained below $5.5 billion. During the year ended December 31, 1995, the
Company purchased and retired 618,000 shares of its common stock at an
aggregate price of $47 million on the open market. No share repurchases were
made in 1996 or the first six months of 1997, because the Company's debt
remained above the $5.5 billion target level.
In September 1997, the Company's Board authorized management to make
purchases of Georgia-Pacific Group stock on the open market or in private
transactions so long as Georgia-Pacific Group's total debt remains below $4.5
billion and the Company's total debt remains below $5.5 billion. At the same
time, the Company's Board also authorized management to make purchases of
Timber Stock on the open market or in private transactions so long as the
Timber Group's total debt remains below $1 billion and the Company's total
debt remains below $5.5 billion. Depending on operating and financial
considerations, debt levels of the Company, the Georgia-Pacific Group and the
Timber Group may from time to time be above or below these thresholds.
In 1997, the Company expects its cash flow from operations, together with
proceeds from any asset sales and available financing sources, to be
sufficient to fund planned capital investments, pay dividends and make
scheduled debt repayments.
OTHER
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard Number 128 (SFAS 128), "Earnings Per Share,"
that specifies the computation, presentation, and disclosure requirements for
earnings per share. The Company will be required to adopt the new Standard in
the 1997 fourth quarter. All prior period earnings per share data will be
restated to conform with the provisions of SFAS 128. Based on a preliminary
evaluation of this Standard's requirements, the Company does not expect the
per share amounts reported under SFAS 128 to be materially different from
those calculated and presented under APB Opinion 15.
In June 1997, the FASB issued Financial Accounting Standard Number 130 (SFAS
130) "Reporting Comprehensive Income," that establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The Company will be required to adopt
the new Standard in 1998.
Also in June 1997, the FASB issued Financial Accounting Standard Number 131
(SFAS 131) "Disclosure about Segments of an Enterprise and Related
Information." This statement requires companies to determine segments based on
how management makes decisions about allocating resources to segments and
measuring their performance. Disclosures for each segment are similar to those
required under current standards, with the addition of certain quarterly
disclosure requirements. SFAS 131 also requires entity-wide disclosure about
the products and services an entity provides, the countries in which it holds
material assets and reports material revenues, and its significant customers.
The Company will be required to adopt the new standard in 1998; prior period
information will be restated. Management is evaluating the effect of this
statement on reported segment information.
The Company expects to incur significant costs during the next two to three
years to address the impact of the so-called Year 2000 problem on its
information systems. The Year 2000 problem, which is common to most
III-8
<PAGE>
businesses, concerns the inability of information systems, primarily computer
software programs, to properly recognize and process date-sensitive
information as the year 2000 approaches. The Company currently believes it
will be able to modify or replace its affected systems in time to minimize any
detrimental effects on operations. While it is not possible at present to give
an accurate estimate of the cost of this work, the Company expects that such
costs may be material to the Company's results of operations in one or more
fiscal quarters or years, but will not have a material adverse impact on the
long-term results of operations, liquidity or consolidated financial position
of the Company.
For a discussion of commitments and contingencies refer to Note 10 and Note
13 of the notes to the Company's financial statements.
SEE "CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995" ON PAGE 20 OF THIS PROXY
STATEMENT.
III-9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the
Board of Directors of
Georgia-Pacific Corporation:
We have audited the accompanying balance sheets of Georgia-Pacific
Corporation (a Georgia Company) and subsidiaries as of December 31, 1996 and
1995 and the related statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Georgia-Pacific
Corporation and subsidiaries as of December 31, 1996 and 1995 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
February 7, 1997
III-10
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31
-------------- ------------------------
1997 1996 1996 1995 1994
------ ------ ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES........................... $6,471 $6,377 $13,024 $14,313 $12,738
------ ------ ------- ------- -------
COSTS AND EXPENSES
Cost of sales, excluding
depreciation and cost of timber
harvested shown below.............. 5,112 4,798 9,933 9,885 9,620
Selling, general, and administra-
tive............................... 574 704 1,399 1,373 1,204
Depreciation and cost of timber har-
vested............................. 467 460 937 926 913
Interest............................ 241 226 459 432 486
Other (income) expense.............. (128) 74 -- -- (57)
------ ------ ------- ------- -------
TOTAL COSTS AND EXPENSES.......... 6,266 6,262 12,728 12,616 12,166
------ ------ ------- ------- -------
INCOME BEFORE INCOME TAXES,
EXTRAORDINARY ITEM, AND ACCOUNTING
CHANGE............................. 205 115 296 1,697 572
Provision for income taxes.......... 88 55 135 679 246
------ ------ ------- ------- -------
INCOME BEFORE EXTRAORDINARY ITEM AND
ACCOUNTING CHANGE.................. 117 60 161 1,018 326
Extraordinary item--loss from early
retirement of debt, net of taxes .. -- (5) (5) -- (11)
Cumulative effect of accounting
change, net of taxes............... -- -- -- -- (5)
------ ------ ------- ------- -------
NET INCOME.......................... $ 117 $ 55 $ 156 $ 1,018 $ 310
====== ====== ======= ======= =======
PRO FORMA PER SHARE DATA:
Income before extraordinary item and
accounting change.................. $ 1.28 $ 0.66 $ 1.78 $ 11.29 $ 3.66
Extraordinary item--loss from early
retirement of debt, net of taxes .. -- (0.05) (0.06) -- (0.12)
Cumulative effect of accounting
change, net of taxes............... -- -- -- -- (0.06)
------ ------ ------- ------- -------
Net income.......................... $ 1.28 $ 0.61 $ 1.72 $ 11.29 $ 3.48
====== ====== ======= ======= =======
Average number of shares
outstanding........................ 91.1 90.5 90.6 90.2 89.1
====== ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
III-11
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31
-------------- ---------------------------
1997 1996 1996 1995 1994
------ ------ -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH PROVIDED BY OPERATIONS
Net income......................... $ 117 $ 55 $ 156 $ 1,018 $ 310
Adjustments to reconcile net income
to cash provided by operations:
Depreciation..................... 392 376 766 707 695
Cost of timber harvested......... 75 84 171 219 218
Deferred income taxes............ 40 13 5 (33) (33)
Amortization of goodwill......... 30 29 59 59 59
Stock compensation programs...... (15) 13 20 20 (4)
Other income..................... (128) -- (39) -- (57)
Gain on sales of assets.......... (18) (15) (17) (18) (14)
Amortization of debt issue costs,
discounts, and premiums......... 2 3 6 4 10
Cumulative effect of accounting
change, net of taxes............ -- -- -- -- 5
(Decrease) in accounts receivable
sale program.................... -- -- -- (350) --
(Increase) decrease in
receivables..................... (79) (14) 35 (47) (203)
(Increase) decrease in
inventories..................... 108 48 (3) (237) (44)
Change in other working capital.. (124) 57 52 32 40
Increase (decrease) in taxes
payable......................... 19 (87) (10) 26 (12)
Change in other assets and other
long-term liabilities........... (24) 10 12 74 39
------ ------ -------- -------- ------
CASH PROVIDED BY OPERATIONS........ 395 572 1,213 1,474 1,009
------ ------ -------- -------- ------
CASH USED FOR INVESTING ACTIVITIES
Property, plant, and equipment
investments..................... (270) (652) (1,059) (1,259) (850)
Timber and timberlands
purchases....................... (71) (40) (142) (244) (211)
Acquisition...................... -- (350) (363) -- --
Decrease (increase) in cash
restricted for capital
expenditures.................... 11 62 84 (90) (13)
Proceeds from sales of assets.... 331 35 132 59 249
Other............................ (2) (5) (11) 1 (4)
------ ------ -------- -------- ------
CASH USED FOR INVESTING
ACTIVITIES........................ (1) (950) (1,359) (1,533) (829)
------ ------ -------- -------- ------
CASH (USED FOR) PROVIDED BY
FINANCING ACTIVITIES
Repayments of long-term debt..... (304) (159) (165) (228) (333)
Additions to long-term debt...... -- 2 125 1,004 53
Fees paid to issue debt.......... -- (1) (4) (8) --
(Decrease) increase in bank
overdrafts...................... (75) 1 44 (11) 39
Increase (decrease) in commercial
paper and other short- term
notes........................... 57 625 324 (547) 218
Common stock repurchased......... -- -- -- (47) --
Proceeds from option plan
exercises....................... 15 1 4 27 --
Cash dividends paid.............. (91) (91) (183) (173) (145)
------ ------ -------- -------- ------
CASH (USED FOR) PROVIDED BY
FINANCING ACTIVITIES.............. (398) 378 145 17 (168)
------ ------ -------- -------- ------
(DECREASE) INCREASE IN CASH........ (4) -- (1) (42) 12
Balance at beginning of year....... 10 11 11 53 41
------ ------ -------- -------- ------
Balance at end of year............. $ 6 $ 11 $ 10 $ 11 $ 53
====== ====== ======== ======== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
III-12
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30, ----------------
1997 1996 1995
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash............................................ $ 6 $ 10 $ 11
------- ------- -------
Receivables, less allowances of $12 , $10, and
$25, respectively.............................. 1,386 959 949
------- ------- -------
Inventories
Raw materials................................... 325 415 526
Finished goods.................................. 944 979 896
Supplies........................................ 294 295 283
LIFO reserve.................................... (213) (222) (259)
------- ------- -------
TOTAL INVENTORIES.............................. 1,350 1,467 1,446
------- ------- -------
Deferred income tax assets...................... 129 129 123
------- ------- -------
Other current assets............................ 50 50 66
------- ------- -------
TOTAL CURRENT ASSETS........................... 2,921 2,615 2,595
------- ------- -------
Timber and timberlands........................... 1,177 1,337 1,374
------- ------- -------
Property, plant, and equipment
Land and improvements........................... 413 408 305
Buildings....................................... 1,314 1,352 1,122
Machinery and equipment......................... 11,808 11,671 10,551
Construction in progress........................ 381 302 598
------- ------- -------
TOTAL PROPERTY, PLANT, AND EQUIPMENT, AT COST.. 13,916 13,733 12,576
Accumulated depreciation......................... (7,499) (7,173) (6,563)
------- ------- -------
Property, plant, and equipment, net.............. 6,417 6,560 6,013
------- ------- -------
Goodwill......................................... 1,628 1,658 1,714
------- ------- -------
Other assets..................................... 928 648 639
------- ------- -------
TOTAL ASSETS................................... $13,071 $12,818 $12,335
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank overdrafts, net............................ 176 251 201
Commercial paper and other short-term notes..... 1,052 645 321
Current portion of long-term debt............... 125 311 15
Accounts payable................................ 553 662 644
Accrued compensation............................ 182 196 218
Accrued interest................................ 74 85 87
Other current liabilities....................... 349 340 278
------- ------- -------
TOTAL CURRENT LIABILITIES...................... 2,511 2,490 1,764
------- ------- -------
Long-term debt, excluding current portion........ 4,254 4,371 4,704
------- ------- -------
Other long-term liabilities...................... 1,541 1,275 1,201
------- ------- -------
Deferred income tax liabilities.................. 1,201 1,161 1,147
------- ------- -------
Commitments and contingencies
Shareholders' equity
Common stock, par value $.80; 150,000,000 shares
authorized; 91,516,000, 91,396,000, and
91,308,000 shares issued....................... 73 73 73
Additional paid-in capital...................... 1,294 1,277 1,267
Retained earnings............................... 2,226 2,200 2,227
Long-term incentive plan deferred compensation.. (9) (11) (24)
Other........................................... (20) (18) (24)
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY..................... 3,564 3,521 3,519
------- ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..... $13,071 $12,818 $12,335
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
III-13
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN MILLIONS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 YEAR ENDED DECEMBER 31
---------------------- ----------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
COMMON STOCK
Beginning balance....... $ 73 $ 73 $ 73 $ 72 $ 71
Common stock issued:
Stock option plans.... -- -- -- -- --
Employee stock
purchase plan........ -- -- -- 1 --
Long-term incentive
plan................. -- -- -- -- 1
---------- ---------- ---------- ---------- ----------
Ending balance...... 73 73 73 73 72
---------- ---------- ---------- ---------- ----------
ADDITIONAL PAID-IN
CAPITAL
Beginning balance....... 1,277 1,267 1,267 1,220 1,202
Common stock issued:
Stock option plans
and directors
plan............... 10 2 6 41 7
Employee stock
purchase plan...... 3 -- 1 56 3
Long-term incentive
plan............... 4 2 2 (3) 6
Common stock
repurchased............ -- -- -- (47) --
Other................... -- -- 1 -- 2
---------- ---------- ---------- ---------- ----------
Ending balance...... 1,294 1,271 1,277 1,267 1,220
---------- ---------- ---------- ---------- ----------
RETAINED EARNINGS
Beginning balance....... 2,200 2,227 2,227 1,382 1,217
Net income............ 117 55 156 1,018 310
Cash dividends
declared ($1.00,
$1.00, $2.00, $1.90,
$1.60 per common
share,
respectively)........ (91) (91) (183) (173) (145)
---------- ---------- ---------- ---------- ----------
Ending balance...... 2,226 2,191 2,200 2,227 1,382
---------- ---------- ---------- ---------- ----------
LONG-TERM INCENTIVE PLAN
DEFERRED COMPENSATION
Beginning balance....... (11) (24) (24) (39) (56)
Common stock issued
under long-term
incentive plan......... 2 6 13 15 17
---------- ---------- ---------- ---------- ----------
Ending balance...... (9) (18) (11) (24) (39)
---------- ---------- ---------- ---------- ----------
OTHER
Beginning balance....... (18) (24) (24) (15) (32)
Activity................ (2) (5) 6 (9) 17
---------- ---------- ---------- ---------- ----------
Ending balance...... (20) (29) (18) (24) (15)
---------- ---------- ---------- ---------- ----------
TOTAL SHAREHOLDERS'
EQUITY............. $3,564 $3,488 $3,521 $3,519 $2,620
========== ========== ========== ========== ==========
COMMON STOCK SHARES
ISSUED:
Beginning balance....... 91,396,000 91,308,000 91,308,000 90,466,000 90,269,000
Common stock issued:
Stock option plans and
directors plan......... 99,000 34,000 84,000 485,000 97,000
Employee stock purchase
plan................... 42,000 2,000 19,000 991,000 49,000
Long-term incentive
plan................... (21,000) (3,000) (10,000) (16,000) 51,000
Common stock
repurchased............ -- -- -- (618,000) --
Other................... -- (5,000) (5,000) -- --
---------- ---------- ---------- ---------- ----------
Ending balance.......... 91,516,000 91,336,000 91,396,000 91,308,000 90,466,000
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
III-14
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Georgia-
Pacific Corporation and subsidiaries (the "Company"). All significant
intercompany balances and transactions are eliminated in consolidation.
REVENUE RECOGNITION
The Company recognizes revenue when title to the goods sold passes to the
buyer, which is generally at the time of shipment.
INCOME PER SHARE
Income per share is computed based on net income and the weighted average
number of common shares outstanding (net of restricted stock). The effects of
assuming issuance of common shares under long-term incentive, stock option,
and stock purchase plans were either insignificant or antidilutive. The number
of shares used in the income per share computations were 90,554,000 in 1996,
90,214,000 in 1995, and 89,069,000 in 1994.
INVENTORY VALUATION
Inventories are valued at the lower of average cost or market and include
the costs of materials, labor, and manufacturing overhead. The last-in, first-
out ("LIFO") dollar value pool method was used to determine the cost of
approximately 58% and 62% of inventories at December 31, 1996 and 1995,
respectively. The cost for the remaining portion of the inventories was
determined using the year-to-date average actual cost.
TIMBER AND TIMBERLANDS
The Company capitalizes timber and timberland purchases and reforestation
costs. The cost of timber harvested is based on the volume of timber
harvested, the capitalized cost, and the total timber volume estimated to be
available over the growth cycle. Timber carrying costs are expensed as
incurred.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Lease obligations for
which the Company assumes or retains substantially all the property rights and
risks of ownership are capitalized. Replacements of major units of property
are capitalized, and the replaced properties are retired. Replacements of
minor components of property and repair and maintenance costs are charged to
expense as incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Useful lives are 25 years for land
improvements, 20 to 45 years for buildings and 3 to 20 years for machinery and
equipment. Upon retirement or disposition of assets, cost and accumulated
depreciation are removed from the related accounts and any gain or loss is
included in income.
The Company capitalizes incremental costs that are directly associated with
the development of software for internal use and implementation of the related
systems. Amounts are amortized over five years beginning when the assets are
placed in service. Capitalized costs were $121 million at December 31, 1996
and $65 million at December 31, 1995. Amounts are included as property, plant,
and equipment in the Company's balance sheets.
III-15
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company capitalizes interest on projects when construction takes
considerable time and entails major expenditures. Such interest is charged to
the property, plant, and equipment accounts and amortized over the approximate
lives of the related assets. Interest capitalized, expensed, and paid was as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
----------------
1996 1995 1994
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Total interest costs..................................... $490 $471 $493
Interest capitalized..................................... (31) (39) (7)
---- ---- ----
Interest expense......................................... $459 $432 $486
==== ==== ====
Interest paid............................................ $488 $470 $514
==== ==== ====
</TABLE>
LANDFILLS AND LAGOONS
The Company accrues for landfill closure costs over the periods that benefit
from the use of the landfill and accrues for lagoon clean-out costs over the
useful period between clean-outs.
GOODWILL
The Company amortizes costs in excess of fair value of net assets of
businesses acquired using the straight-line method over a period not to exceed
40 years. Recoverability is reviewed annually or sooner if events or changes
in circumstances indicate that the carrying amount may exceed fair value.
Recoverability is then determined by comparing the undiscounted net cash flows
of the assets to which the goodwill applies to the net book value including
goodwill of those assets.
Amortization expense was $59 million in 1996, 1995, and 1994. Accumulated
amortization at December 31, 1996 and 1995 was $425 million and $366 million,
respectively.
ENVIRONMENTAL MATTERS
The Company recognizes a liability for environmental remediation costs when
it believes it is probable a liability has been incurred and the amount can be
reasonably estimated. The liabilities are developed based on currently
available information and reflect the participation of other potentially
responsible parties depending on the parties' financial condition and probable
contribution. The accruals are recorded at undiscounted amounts and are
reflected as other liabilities in the accompanying balance sheets.
Environmental costs are generally capitalized when the costs improve the
condition of the property or the costs prevent or mitigate future
contamination. All other costs are expensed.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements as well as reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
these estimates.
RECLASSIFICATIONS
Certain 1995 and 1994 amounts have been reclassified to conform with the
1996 presentation.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated interim financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and in accordance
III-16
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
with the Securities and Exchange Commission's rules and regulations for
interim reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, the
unaudited consolidated interim financial statements include all adjustments,
consisting of only normal recurring adjustments, necessary to present fairly
such interim financial information.
2. INDUSTRY SEGMENT INFORMATION
The Company is a building products and pulp and paper company. Manufactured
products in the building products segment consist primarily of wood panels
(plywood, oriented strand board, hardboard, and particleboard), lumber, gypsum
products, and chemicals. The distribution division of this segment sells a
wide range of building products manufactured by the Company or purchased from
others. This segment of the business is primarily affected by the level of
housing starts; the level of repairs, remodeling, and additions; industrial
markets; commercial building activity; the availability and cost of financing;
and changes in industry capacity.
The Company's pulp and paper segment produces containerboard and packaging
(linerboard, medium, bleached board, kraft paper, and corrugated packaging),
communication papers, market pulp, and tissue. Markets for this segment are
affected primarily by changes in industry capacity, the level of economic
growth in the United States and export markets, and fluctuations in currency
exchange rates.
The Company has a large and diverse customer base, which includes some
customers located in foreign countries. Sales to foreign markets in 1996,
1995, and 1994 were 8%, 10%, and 8%, respectively. These sales were primarily
to customers in Asia, Europe, and Latin America. No single unaffiliated
customer accounted for more than 10% of total sales in any year during that
period.
The Company employs approximately 47,500 people at more than 400 facilities
primarily located throughout the United States and Canada. The Company also
owns or controls more than 6 million acres of timber and timberlands in the
United States and Canada.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1996 1995 1994
------------ ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
NET SALES
Building products................... $ 7,365 57% $ 7,301 51% $ 7,561 60%
Pulp and paper...................... 5,609 43 6,962 49 5,138 40
Other operations.................... 50 -- 50 -- 39 --
------- --- ------- --- ------- ---
Total net sales................... $13,024 100% $14,313 100% $12,738 100%
======= === ======= === ======= ===
OPERATING PROFITS*
Building products................... $ 516 56% $ 669 29% $ 1,013 83%
Pulp and paper...................... 390 43 1,611 71 204 17
Other operations.................... 8 1 10 -- 10 --
------- --- ------- --- ------- ---
Total operating profits........... $ 914 100% $ 2,290 100% $ 1,227 100%
======= === ======= === ======= ===
General corporate expense........... $ (159) $ (161) $ (169)
Interest expense.................... (459) (432) (486)
Provision for income taxes.......... (135) (679) (246)
------- ------- -------
Income before extraordinary item and
accounting change.................. 161 1,018 326
Extraordinary item--loss from early
retirement of debt, net of taxes... (5) -- (11)
Cumulative effect of accounting
change, net of taxes............... -- -- (5)
------- ------- -------
Net income.......................... $ 156 $ 1,018 $ 310
======= ======= =======
</TABLE>
III-17
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1996 1995 1994
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
DEPRECIATION, COST OF TIMBER HARVESTED,
AND GOODWILL AMORTIZATION
Building products....................... $ 404 41% $ 384 39% $ 368 38%
Pulp and paper.......................... 568 57 576 59 586 60
Other and general corporate............. 24 2 25 2 18 2
------- --- ------- --- ------- ---
Total depreciation, cost of timber
harvested, and goodwill
amortization......................... $ 996 100% $ 985 100% $ 972 100%
======= === ======= === ======= ===
CAPITAL EXPENDITURES**
Building products....................... $ 840 54% $ 582 39% $ 401 38%
Pulp and paper.......................... 452 29 599 40 410 39
Timber and timberlands.................. 142 9 244 16 211 20
Other and general corporate............. 115 8 78 5 39 3
------- --- ------- --- ------- ---
Total capital expenditures............ $ 1,549 100% $ 1,503 100% $ 1,061 100%
======= === ======= === ======= ===
ASSETS
Building products....................... $ 3,403 27% $ 2,686 22% $ 2,061 19%
Pulp and paper.......................... 7,185 56 7,342 60 6,917 64
Timber and timberlands.................. 1,337 10 1,374 11 1,363 13
Other and general corporate............. 893 7 933 7 523 4
------- --- ------- --- ------- ---
Total assets.......................... $12,818 100% $12,335 100% $10,864 100%
======= === ======= === ======= ===
</TABLE>
- --------
* Segment operating profits include expenses of $117 million in 1996 and $70
million in 1995 for the restructuring of the Company's building products
distribution business, gains on major asset sales of $39 million in 1996
and $57 million in 1994, and $39 million net expenses in 1996 primarily
related to an early retirement program. With the exception of distribution
business restructuring charges, these items are included in other (income)
expense on the accompanying statements of income. If these amounts had been
excluded from segment operating profits, building products operating
profits would have been $613 million in 1996, $739 million in 1995, and
$989 million in 1994. Pulp and paper operating profits would have been $410
million in 1996 and $171 million in 1994.
** Capital expenditures represent additions (at cost) to property, plant, and
equipment and timber and timberlands.
3. ACQUISITIONS AND DIVESTITURES
The following acquisition and divestitures were completed during the years
1996 and 1994.
. In April 1996, the Company completed the purchase of Domtar Inc.'s
gypsum wallboard business for $363 million in cash. Domtar's gypsum
business included nine United States wallboard manufacturing plants,
four Canadian wallboard plants, three joint compound plants, an
industrial plaster plant, and a gypsum paperboard plant.
. In September 1996, the Company completed the sale of two gypsum
wallboard facilities in Buchanan, New York and Wilmington, Delaware. The
sale resulted in after-tax cash proceeds of approximately $39 million.
The Company had agreed with the United States Department of Justice to
sell these plants
III-18
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
in order to complete the Domtar acquisition. The Company recognized a
pretax gain of $39 million ($24 million after taxes).
. In February 1994, the Company completed the sale of five roofing plants
located in Oklahoma, Texas, Ohio, Georgia, and Pennsylvania. The sale
resulted in after-tax cash proceeds of approximately $39 million. The
Company recognized a pretax gain of $24 million ($15 million after
taxes).
. In February 1994, the Company completed the sale of its envelope
manufacturing business, which included 15 envelope manufacturing plants
and certain assets of another plant. The sale resulted in after-tax cash
proceeds of approximately $117 million. The Company recognized a pretax
gain of $39 million ($24 million after taxes).
Except for the gains on divestitures discussed above, acquisitions and
divestitures did not have a material effect on the sales or net income of the
Company.
In December 1996, the Company signed a definitive agreement to sell assets
including timberlands, a sawmill, and a particleboard plant located in
Martell, California, for approximately $320 million. The Company expects the
sale to result in an after-tax gain of approximately $80 million.
4. RECEIVABLES
The Company has a large, diversified customer base, which includes some
customers who are located in foreign countries. The Company closely monitors
extensions of credit and has not experienced significant losses related to its
receivables. In addition, a portion of the receivables from foreign sales is
covered by confirmed letters of credit to help ensure collectibility.
Supplemental information on the accounts receivable balances at December 31,
1996 and 1995 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
Receivables:
Trade...................................................... $ 885 $ 890
Other...................................................... 84 84
------ ------
969 974
Less allowances.............................................. 10 25
------ ------
Receivables, net............................................. $ 959 $ 949
====== ======
</TABLE>
The Company had sold fractional ownership interests in a defined pool of
trade accounts receivable for $350 million as of December 31, 1996 and 1995.
The sold accounts receivable are excluded from receivables in the accompanying
balance sheets. The full amount of the allowance for doubtful accounts has
been retained because the Company has retained substantially the same risk of
credit loss as if the receivables had not been sold. A portion of the cost of
the accounts receivable sale program is based on the purchasers' level of
investment and borrowing costs. The Company pays fees based on its senior debt
ratings. The total cost of the program, which was $20 million in 1996, $37
million in 1995, and $33 million in 1994, is included in interest expense in
the accompanying statements of income.
Under the accounts receivable sale agreement, the maximum amount of the
purchasers' investment is subject to change based on the level of eligible
receivables and restrictions on concentrations of receivables. During 1995,
the Company repurchased $350 million of receivables in order to reduce the
cost of the program, which was higher than the cost of financing from
alternative sources. The program has been extended to May 17, 1997.
III-19
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In June 1996, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," which established
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities. The Company will adopt the new
standard in the 1997 first quarter. As a result, the Company's accounts
receivable program will be accounted for as a secured borrowing and the
receivables and the corresponding debt will be included as an asset and
liability, respectively, on the balance sheet.
5. INDEBTEDNESS
The Company's indebtedness included the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
Debentures, 9% average rate, payable through 2025............ $3,200 $3,350
Notes, 7.8% average rate, payable through 2006............... 817 717
Commercial paper and other short-term notes, 5.7% average
rate........................................................ 645 321
Revenue bonds, 4.9% average rate, payable through 2026....... 646 628
Other loans, 8.1% average rate, payable through 2012......... 45 53
------ ------
5,353 5,069
Less:
Commercial paper and other short-term notes................ 645 321
Current portion of long-term debt.......................... 311 15
Unamortized discount....................................... 26 29
------ ------
Long-term debt, excluding current portion.................... $4,371 $4,704
====== ======
</TABLE>
For additional information regarding financial instruments, see Note 6.
The scheduled maturities of long-term debt for the next five years are as
follows: $311 million in 1997, $439 million in 1998, $21 million in 1999, $40
million in 2000, and $12 million in 2001.
NOTES AND DEBENTURES
During 1996, the Company issued $100 million of 7.2% notes due December 15,
2006.
In 1996, the Company redeemed $150 million of its 9.25% Debentures due March
15, 2016. The Company recorded an after-tax extraordinary loss of
approximately $5 million ($.06 per share) related to this redemption.
During 1995, the Company issued $250 million of 8 5/8% Debentures due April
30, 2025, $250 million of 7.70% Debentures due June 15, 2015, and $250 million
of 7 3/8% Debentures due December 1, 2025.
In 1995, the Company redeemed approximately $203 million of its outstanding
debt. The after-tax loss on this redemption was less than $1 million.
III-20
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
REVOLVING CREDIT FACILITY
In 1996, the Company entered into an agreement with Bank of America National
Trust and Savings Association and 19 other domestic and international banks
which provides an unsecured revolving credit facility of $1.5 billion. The
revolving credit facility is being used for direct borrowings and as support
for commercial paper and other short-term borrowings. The agreement will
terminate in 2001. As of December 31, 1996, $856 million of committed credit
was available in excess of all short-term borrowings outstanding under or
supported by the facility.
Borrowings under the agreement bear interest, at the election of the
Company, at either (A) the higher of the Federal Funds Rate plus 1/2% or the
stipulated bank lending rate or (B) LIBOR plus .2625% or (C) fixed or floating
rates set by competitive bids. Fees associated with this revolving credit
facility include a commitment fee of .0625% per annum on the unused portion of
the commitments and a facility fee of .0625% per annum on the aggregate
commitments of the lenders. Fees and margins may be adjusted upward or
downward according to a pricing grid based on the Company's long-term debt
ratings. At December 31, 1996, $465 million was borrowed under the credit
agreement at a weighted average interest rate of 5.7%.
The revolving credit agreement contains certain restrictive covenants. The
covenants include a maximum leverage ratio (funded indebtedness to operating
cash flow) of 4.5 to 1.0 which is to be maintained throughout the term of the
credit agreement. As of December 31, 1996, the leverage ratio was 3.3 to 1.0.
COMMERCIAL PAPER AND OTHER SHORT-TERM NOTES
These borrowings are classified as current liabilities, although all or a
portion of them might be refinanced on a long-term basis in 1997.
REVENUE BONDS
At December 31, 1996, the Company had outstanding borrowings of
approximately $646 million under certain industrial revenue bonds,
approximately $22 million of which were entered into during 1996 at variable
interest rates. Approximately $26 million from the issuance of these bonds is
being held by trustees and is restricted for the construction of certain
capital projects. Amounts held by trustees are classified as noncurrent assets
in the accompanying balance sheet.
OTHER
At December 31, 1996, the amount of long-term debt secured by property,
plant, and equipment and timber and timberlands was not material.
In September 1995, the Company sold certain of its assets for $354 million
and has agreed to lease the assets back from the purchaser over a period of 30
years. Under the agreement with the purchaser, the Company will maintain a
deposit (initially in the amount of $322 million), which together with
interest earned is expected to be sufficient to fund the Company's lease
obligation, including the repurchase of assets at the end of the term. This
transaction is being accounted for as a financing arrangement. At December 31,
1995, the Company recorded on its balance sheet an asset for the deposit from
the sale of $305 million and a liability for the lease obligation of $346
million, of which approximately $16 million was recorded as a current asset
and a current liability.
At December 31, 1996, the deposit and lease obligation balances were $339
million and $340 million, respectively. Of these amounts, approximately $14
million was recorded as a current asset and $18 million was recorded as a
current liability.
III-21
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1996 1995
--------------- ---------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Commercial paper and other short-term
notes (Note 5)........................... $ 645 $ 645 $ 321 $ 321
Notes and debentures (Note 5)............. 4,017 4,215 4,067 4,470
Revenue bonds (Note 5).................... 646 637 628 628
Other loans (Note 5)...................... 45 45 53 53
Interest rate exchange agreements......... * 12 * 21
Accounts receivable sale program (Note
4)....................................... 350 350 350 350
</TABLE>
--------
* The Company's balance sheet at December 31, 1996 and 1995 included
accrued interest of $6 million and $5 million, respectively, related to
these agreements.
COMMERCIAL PAPER AND OTHER SHORT-TERM NOTES
The carrying amounts approximate fair value because of the short maturity of
these instruments.
NOTES AND DEBENTURES
The fair value of notes and debentures was estimated primarily by obtaining
quotes from brokers for these and similar issues. For notes and debentures for
which there are no quoted market prices, the fair value was estimated by
calculating the present value of anticipated cash flows. The discount rate
used was an estimated borrowing rate for similar debt instruments with like
maturities.
REVENUE BONDS AND OTHER LOANS
The fair value of revenue bonds and other loans was estimated by calculating
the present value of anticipated cash flows. The discount rate used was an
estimated borrowing rate for similar debt instruments with like maturities.
INTEREST RATE AND FOREIGN CURRENCY EXCHANGE AGREEMENTS
The Company has used interest rate and foreign currency exchange agreements
in the normal course of business to manage and reduce the risk inherent in
interest rate and foreign currency fluctuations.
Under the interest rate exchange agreements, the Company makes payments to
counterparties at fixed interest rates and in turn receives payments at
variable rates. The Company entered into interest rate exchange agreements in
prior years to protect against the increased cost associated with a rise in
interest rates. At December 31, 1996, the Company had outstanding interest
rate exchange agreements which effectively converted $496 million of floating
rate obligations with a weighted average interest rate of 5.7% to fixed rate
obligations with an average effective interest rate of approximately 9%. These
agreements have a weighted average maturity of approximately 2.1 years. As of
December 31, 1996, the Company's total floating rate debt, including the
accounts receivable sale program, exceeded related interest rate exchange
agreements by $1,363 million.
The estimated fair value of the Company's liability under interest rate
exchange agreements at December 31, 1996 and 1995 was $12 million and $21
million, respectively, and represents the estimated amount
III-22
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
the Company could have paid to terminate the agreements. The fair value at
December 31, 1996 and 1995 was estimated by calculating the present value of
anticipated cash flows. The discount rate used was an estimated borrowing rate
for similar debt instruments with like maturities.
The Company enters into foreign currency exchange agreements, the amounts of
which were not material to the consolidated financial position of the Company
at December 31, 1996 and 1995.
The Company may be exposed to losses in the event of nonperformance of
counterparties but does not anticipate such nonperformance.
OTHER
Due to the short-term nature of current assets and current liabilities,
their carrying amounts approximate fair value.
7. INCOME TAXES
The provision for income taxes includes income taxes currently payable and
those deferred because of temporary differences between the financial
statement and tax bases of assets and liabilities. The provision for income
taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
---------------
1996 1995 1994
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Federal income taxes:
Current................................................... $111 $600 $229
Deferred.................................................. 6 (26) (19)
State income taxes:
Current................................................... 17 112 50
Deferred.................................................. 1 (7) (14)
---- ---- ----
Provision for income taxes.................................. $135 $679 $246
==== ==== ====
Income taxes paid, net of refunds........................... $135 $686 $251
==== ==== ====
</TABLE>
Income taxes paid during 1996 are net of refunds of approximately $73
million, primarily related to a 1995 federal overpayment and 1991 and 1992
federal audits.
Income taxes paid during 1995 and 1994 included tax and interest payments of
$12 million and $84 million, respectively, to the Internal Revenue Service to
settle substantially all pending income tax issues for years prior to 1991.
III-23
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The federal statutory income tax rate was 35%. The provision for income taxes
is reconciled to the federal statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
----------------
1996 1995 1994
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Provision for income taxes computed at the federal stat-
utory tax rate......................................... $104 $594 $200
State income taxes, net of federal benefit.............. 12 68 23
Goodwill amortization................................... 23 23 23
Foreign sales corporation............................... (7) (9) (5)
Meals and entertainment disallowance.................... 4 3 3
Other................................................... (1) -- 2
---- ---- ----
Provision for income taxes.............................. $135 $679 $246
==== ==== ====
</TABLE>
The components of the net deferred income tax liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1996 1995
------- -------
(IN MILLIONS)
<S> <C> <C>
Deferred income tax assets:
Compensation-related accruals........................... $ 333 $ 315
Other accruals and reserves............................. 76 68
Other................................................... (14) 14
------- -------
395 397
------- -------
Valuation allowance................................... -- --
------- -------
395 397
------- -------
Deferred income tax liabilities:
Property, plant, and equipment.......................... (1,215) (1,196)
Timber and timberlands.................................. (174) (179)
Other................................................... (38) (46)
------- -------
(1,427) (1,421)
------- -------
Deferred income tax liabilities, net...................... $(1,032) $(1,024)
======= =======
Included in the balance sheets:
Deferred income tax assets*............................. $ 129 $ 123
Deferred income tax liabilities**....................... (1,161) (1,147)
------- -------
Deferred income tax liabilities, net...................... $(1,032) $(1,024)
======= =======
</TABLE>
- --------
* Net of current liabilities of $4 million at December 31, 1996 and 1995.
** Net of long-term assets of $262 million and $270 million at December 31,
1996 and 1995, respectively.
III-24
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. RETIREMENT PLANS
DEFINED BENEFIT PENSION PLANS
Most of the Company's employees participate in noncontributory defined
benefit pension plans. These include plans which are administered solely by
the Company and union-administered multiemployer plans. The Company's funding
policy for solely administered plans is based on actuarial calculations and
the applicable requirements of federal law. Contributions to multiemployer
plans are generally based on negotiated labor contracts.
Benefits under the majority of the plans for hourly employees (including
multiemployer plans) are primarily related to years of service. The Company
has separate plans for salaried employees and officers under which benefits
are primarily related to compensation and years of service. The officers' plan
is not funded and is nonqualified for federal income tax purposes.
Plan assets consist principally of common stocks, bonds, mortgage
securities, interests in limited partnerships, cash equivalents, and real
estate. At December 31, 1996 and 1995, $64 million and $26 million,
respectively, of noncurrent prepaid pension cost was included in other assets.
Accrued pension cost of $66 million and $73 million at December 31, 1996 and
1995, respectively, was included in other long-term liabilities.
Pursuant to the provisions of SFAS No. 87, "Employers' Accounting for
Pensions," intangible assets of $3 million and $56 million were recorded as of
December 31, 1996 and 1995, respectively, in order to recognize the required
minimum liability.
The following table sets forth the funded status of the solely administered
plans and the amounts recognized in the accompanying balance sheets:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------
PLANS HAVING PLANS HAVING
ASSETS IN EXCESS ACCUMULATED
OF ACCUMULATED BENEFITS IN
BENEFITS EXCESS OF ASSETS
---------------- ----------------
(IN MILLIONS)
<S> <C> <C>
Accumulated benefit obligation at
November 30, 1996
Vested portion......................... $1,392 $ 92
Nonvested portion...................... 33 3
------ -----
1,425 95
Effect of projected future compensation
levels.................................. 12 13
------ -----
Projected benefit obligation at November
30, 1996................................ 1,437 108
Plan assets at fair value at November 30,
1996.................................... 1,711 29
------ -----
Plan assets in excess of (less than)
projected benefit obligation............ 274 (79)
Unrecognized net (gain) loss............. (243) 20
Unrecognized prior service cost.......... 42 3
Unrecognized net asset from initial
application of SFAS No. 87.............. (9) --
Adjustment required to recognize minimum
liability............................... -- (10)
------ -----
Prepaid (accrued) pension cost at
December 31, 1996....................... $ 64 $ (66)
====== =====
</TABLE>
III-25
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------
PLANS HAVING PLANS HAVING
ASSETS IN EXCESS ACCUMULATED
OF ACCUMULATED BENEFITS IN
BENEFITS EXCESS OF ASSETS
---------------- ----------------
(IN MILLIONS)
<S> <C> <C> <C>
Accumulated benefit obligation at
November 30, 1995
Vested portion..................... $ 917 $ 520
Nonvested portion.................. 20 14
------ -----
937 534
Effect of projected future
compensation levels................. 9 13
------ -----
Projected benefit obligation at
November 30, 1995................... 946 547
Plan assets at fair value at November
30, 1995............................ 1,163 461
------ -----
Plan assets in excess of (less than)
projected benefit obligation........ 217 (86)
Unrecognized net (gain) loss......... (169) 47
Unrecognized prior service cost...... (15) 56
Unrecognized net asset from initial
application of SFAS No. 87.......... (7) (11)
Adjustment required to recognize
minimum liability................... -- (79)
------ -----
Prepaid (accrued) pension cost at
December 31, 1995................... $ 26 $ (73)
====== =====
</TABLE>
Net periodic pension cost for solely administered and union-administered
pension plans included the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-------------------
1996 1995 1994
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost of benefits earned......................... $ 83 $ 75 $ 81
Interest cost on projected benefit obligation........... 106 107 93
Actual return on plan assets............................ (299) (311) (21)
Net amortization and deferral........................... 127 168 (126)
Contributions to multiemployer pension plans............ 4 4 4
----- ----- -----
Net periodic pension cost............................... $ 21 $ 43 $ 31
===== ===== =====
</TABLE>
The following assumptions were used:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate used to determine the projected benefit
obligation.............................................. 7.0% 7.0% 8.5%
Rate of increase in future compensation levels used to
determine the projected benefit obligation.............. 5.5 5.5 6.0
Expected long-term rate of return on plan assets used to
determine net periodic pension cost..................... 10.0 10.0 10.0
</TABLE>
DEFINED CONTRIBUTION PLANS
The Company sponsors several defined contribution plans to provide eligible
employees with additional income upon retirement. The Company's contributions
to the plans are based on employee contributions and
III-26
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
compensation. The Company's contributions totaled $50 million in 1996, $46
million in 1995, and $43 million in 1994.
HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company provides certain health care and life insurance benefits to
eligible retired employees. Salaried participants generally become eligible
for retiree health care benefits after reaching age 55 with ten years of
service or after reaching age 65. Benefits, eligibility, and cost-sharing
provisions for hourly employees vary by location and/or bargaining unit.
Generally, the medical plans pay a stated percentage of most medical expenses,
reduced for any deductible and payments made by government programs and other
group coverage. Effective December 1995, the plans were funded through a trust
established for the payment of future active and retiree benefits. The trust
was funded with an initial contribution of $31 million, which was previously
recorded as a current liability on the Company's balance sheet. The Company
will continue to contribute to the trust in the amounts necessary to fund
current obligations of the plans.
In 1991, the Company began transferring its share of the cost of post-age 65
health care benefits to future salaried retirees. It is currently anticipated
that the Company will continue to reduce the percentage of the cost of post-
age 65 benefits that it will pay on behalf of salaried employees who retire in
each of the years 1995 through 1999 and that the Company will continue to
share the pre-age 65 cost with future salaried retirees but will no longer pay
any of the post-age 65 cost for salaried employees who retire after 1999.
The following table sets forth the status of the plans, reconciled to the
accrued postretirement benefit cost recognized in the Company's balance sheets
at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31
--------------
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................... $ 341 $ 289
Fully eligible active plan participants.................... 26 32
Other active participants.................................. 164 143
------ ------
531 464
Unrecognized net gain (loss)................................. (45) (47)
Unrecognized prior service cost.............................. (13) 5
------ ------
Accrued postretirement benefit cost.......................... $ 473 $ 422
====== ======
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
---------------
1996 1995 1994
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost of benefits earned............................ $10 $ 6 $ 9
Interest cost on accumulated postretirement benefit obliga-
tion...................................................... 29 27 28
Amortization of (gain) loss................................ -- (1) 1
--- --- ---
Net periodic postretirement benefit cost................... $39 $32 $38
=== === ===
</TABLE>
For measuring the expected postretirement benefit obligation, a 10%, 11%,
and 12% annual rate of increase in the per capita claims cost was assumed for
1996, 1995, and 1994, respectively. The rate was assumed to
III-27
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
decrease 1% per year to 7% in 1999 and remain at that level thereafter. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 6.5% at December 31, 1996 and
December 31, 1995 and 8% at December 31, 1994.
If the annual health care cost trend rate were increased by 1%, the
accumulated postretirement benefit obligation would have increased by 14% as
of December 31, 1996 and December 31, 1995 and 13% as of December 31, 1994.
The effect of this change on the aggregate of service and interest costs would
be an increase of 11% for 1996, 15% for 1995, and 17% for 1994.
OTHER
Effective January 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." SFAS No. 112 requires accrual-basis
recognition of benefits provided by an employer to former or inactive
employees after employment but before retirement. The adoption of SFAS No. 112
resulted in a one-time, after-tax charge of $5 million ($.06 per share) in the
1994 first quarter.
9. COMMON AND PREFERRED STOCK
The Company's authorized capital stock consists of 10 million shares of
preferred stock and 25 million shares of junior preferred stock, of which no
shares were issued at December 31, 1996, and 150 million shares of common
stock.
At December 31, 1996, the following authorized shares of the Company's
common stock were reserved for issue:
<TABLE>
<S> <C>
1995 Employee Stock Purchase Plan................................ 952,000
1995 Outside Directors Stock Plan................................ 25,000
1995 Shareholder Value Incentive Plan............................ 8,100,000
1994 Employee Stock Option Plan.................................. 630,000
1993 Employee Stock Option Plan.................................. 140,000
1984 Employee Stock Option Plan.................................. 99,000
---------
Common stock reserved............................................ 9,946,000
=========
</TABLE>
EMPLOYEE STOCK PURCHASE PLANS
At December 31, 1996, the Company had 952,000 shares of common stock
reserved for issuance under the 1995 Employee Stock Purchase Plan ("Purchase
Plan") at a subscription price of $73.84 per share. The subscription period
for the Purchase Plan expired on September 15, 1995. Subscribers must purchase
and pay for shares subscribed not later than September 30, 1997 but prior to
that time may obtain a refund of their payments plus interest at a rate of 6%
per annum in lieu of stock. Approximately 7,300 subscribers remained in the
Purchase Plan at December 31, 1996.
Under the 1995 Purchase Plan, the Company issued 19,000 shares of common
stock in 1996.
Under the 1993 Employee Stock Purchase Plan (which expired on July 31,
1995), the Company issued 991,000 and 49,000 shares of common stock in 1995
and 1994, respectively, at a subscription price of $57.06 per share.
III-28
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
OUTSIDE DIRECTORS STOCK PLAN
The Outside Directors Stock Plan ("Directors Plan") provides for the
issuance of shares of common stock to nonemployee directors on a restricted
basis. Each nonemployee director was issued 200 restricted shares of common
stock in 1995 and 193 shares in 1996. Subject to shareholder approval, each
year beginning in 1997, each outside director will be issued a number of
shares equal to $40,000 divided by the mean between the high and low sales
price for the Company's common stock price on the date of issuance. The
restrictions on the shares lapse at the time of death, retirement from the
board, or disability.
LONG-TERM INCENTIVE PLANS
The Company initially reserved 4,000,000 shares for issuance under the 1990
Long-Term Incentive Plan ("Incentive Plan"), which expired March 9, 1995.
Restricted stock was awarded to employees at no cost, based on increases in
average market value of the Company's common stock. At the time restricted
shares were awarded, the market value of the stock was added to common stock
and additional paid-in capital and was deducted from shareholders' equity
(long-term incentive plan deferred compensation). Long-term incentive plan
deferred compensation is amortized over the vesting (restriction) period,
generally five years, with adjustments made quarterly for market price
fluctuations. At the time awarded shares become vested, the Company will pay
on behalf of each participant a cash bonus in the amount of the estimated
income tax liability to be incurred by the participant as a result of the
award and cash bonus. Shares totaling 1,155,000 were awarded under the
Incentive Plan, of which 676,000 restricted shares remained outstanding as of
December 31, 1996.
The Company recognized compensation expense of $29 million in 1996, $22
million in 1995, and $37 million in 1994 related to these incentive plans.
EMPLOYEE STOCK OPTION PLANS
The 1995 Shareholder Value Incentive Plan ("SVIP") provides for the granting
of stock options having a term of either 5 1/2 or 10 years to officers and key
employees. At December 31, 1996, the Company had 8,100,000 shares of common
stock reserved for issue under the SVIP. Options having a term of 10 years
become exercisable in 9 1/2 years unless certain performance targets tied to
the Company's common stock performance are met which would enable the holder
to exercise such options after 3, 4, or 5 years from the grant date. Options
having a term of 5 1/2 years may be exercised only if such performance targets
are met in the third, fourth, or fifth year after such grant date. At the time
options are exercised, the exercise price is payable in cash or by surrender
of shares of common stock already owned by the optionee.
The 1994 Employee Stock Option Plan ("1994 Option Plan") provided for the
granting of stock options to certain nonofficer key employees. There are also
options outstanding under both the 1993 Employee Stock Option Plan ("1993
Option Plan") and the 1984 Employee Stock Option Plan ("1984 Option Plan").
Except with respect to the SVIP and the 1994 Option Plan, holders of stock
options are paid cash bonuses, payable upon exercise of an option, of an
amount not to exceed the amount by which the market value of the common stock,
as defined, exceeds the option price. In addition, holders of options granted
under plans other than the SVIP and the 1994 Option Plan may surrender all or
part of the related stock option in exchange for common stock with a fair
market value equal to the amount by which the market value of the shares
covered by the option exceeds the aggregate option exercise price.
Except for the SVIP and the 1994 Option Plan (which are noncompensatory for
financial reporting purposes), compensation resulting from stock options and
cash bonuses was initially measured at the grant date based on the market
value of the common stock and adjustments are made quarterly for market price
fluctuations.
III-29
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company recognized 1993 Option Plan and 1984 Option Plan compensation
expense of $2 million in 1996 and $6 million in 1995 and 1994.
Additional information relating to the Company's employee stock option plans
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Options outstanding at January 1.......... 2,217,000 1,646,000 1,055,000
Options granted........................... 2,150,500 1,223,200 937,000
Options exercised/surrendered............. (117,400) (619,000) (291,000)
Options cancelled......................... (91,600) (33,200) (55,000)
--------- --------- ---------
Options outstanding at December 31........ 4,158,500 2,217,000 1,646,000
Options available for grant at December
31....................................... 4,811,000 6,895,000 111,000
--------- --------- ---------
Total reserved shares................. 8,969,500 9,112,000 1,757,000
========= ========= =========
Options exercisable at December 31........ 869,000 1,012,000 757,000
========= ========= =========
Option prices per share:
Granted................................. $73-$77 $ 81 $64-$75
Exercised/surrendered................... $39-$75 $39-$75 $39-$66
Cancelled............................... $39-$81 $39-$81 $39-$75
========= ========= =========
</TABLE>
SHAREHOLDER RIGHTS PLAN
The Company has a shareholder rights plan pursuant to which preferred stock
purchase rights are issued at the rate of one right for each share of common
stock. The rights expire on July 31, 1999, unless redeemed earlier. The rights
are exercisable only if a person or group acquires 15% or more of the
Company's common stock or announces a tender offer for 30% or more of the
common stock. In such event, each right entitles the holder to buy, at an
exercise price of $175, one one-hundredth of a newly issued share of Series A
Junior Preferred Stock, of which 5 million shares were reserved at December
31, 1996. Due to the nature of its dividend, liquidation, and voting rights,
the economic value of one one-hundredth of a share of junior preferred stock
should approximate the economic value of one share of common stock. In
addition, if one of several specified events (generally involving self-dealing
transactions by an acquirer of the Company's common stock or a business
combination involving the Company) occurs, each right generally entitles the
holder to buy, at an exercise price of $175 (subject to adjustments), shares
of either the Company's Series A Junior Preferred Stock or the acquirer's
common stock, in either case having a market value of twice the exercise
price.
CAPITAL STOCK
During the year ended December 31, 1995, the Company purchased 618,000
shares of its common stock at an aggregate purchase price of $47 million on
the open market. The resolution of the board of directors authorizing such
repurchases provides that none will be made as long as the total debt of the
Company exceeds $5.5 billion.
OTHER
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
in 1996. The Company has elected to continue to account for its stock-based
compensation plans under APB Opinion No. 25 and disclose pro forma effects of
the plans on net income and earnings per share as provided by SFAS No. 123.
Accordingly, no compensation cost has been recognized for the SVIP plan or the
Employee Stock Purchase Plan. Had compensation cost for these plans been
determined based on the fair value at the grant dates for 1995 and 1996 awards
under the plan consistent with the method of SFAS No. 123, the Company's pro
forma net income
III-30
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
would have been $144 million and $1,014 million for 1996 and 1995,
respectively. Pro forma earnings per share would have been $1.59 and $11.24
for 1996 and 1995, respectively. The pro forma amounts were calculated with
the fair value of each option grant estimated on the date of grant using the
Black-Scholes option-pricing model. For the SVIP plan, the following weighted
average assumptions were used for grants in 1996 and 1995, respectively:
dividend yield of 2% and 1.6%; option forfeiture rate of 3% and 3%; stock
volatility factor of .3 and .3; risk-free interest rate of 5.7% and 7.4%; and
an expected life of ten years and ten years. The total value of SVIP options
granted during 1996 and 1995 was computed as $40.9 million and $32 million,
respectively. For the Employee Stock Purchase Plan, the following weighted
average assumptions were used for grants in 1995: dividend yield of 2%; option
forfeiture rate of 28%; stock volatility factor of .23; risk-free interest
rate of 5.7%; and an expected life of two years. The total value of Employee
Stock Purchase Plan options granted during 1995 was computed as $26.4 million.
No Employee Stock Purchase Plan grants were made in 1996.
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal proceedings incidental to its
business and is subject to a variety of environmental and pollution control
laws and regulations in all jurisdictions in which it operates. As is the case
with other companies in similar industries, the Company faces exposure from
actual or potential claims and legal proceedings involving environmental
matters. Liability insurance in effect during the last several years provides
only very limited coverage for environmental matters.
The Company is involved in environmental remediation activities at
approximately 200 sites, both owned by the Company and owned by others, where
it has been notified that it is or may be a potentially responsible party
under the Comprehensive Environmental Response, Compensation and Liability Act
or similar state "superfund" laws. Of the known sites in which it is involved,
the Company estimates that approximately 31% are being investigated,
approximately 43% are being remediated, and approximately 26% are being
monitored (an activity which occurs after either site investigation or
remediation, has been completed). The ultimate costs to the Company for the
investigation, remediation and monitoring of many of these sites cannot be
predicted with certainty, due to the often unknown magnitude of the pollution
or the necessary cleanup, the varying costs of alternative cleanup methods,
the amount of time necessary to accomplish such cleanups, the evolving nature
of cleanup technologies and government regulations, and the inability to
determine the Company's share of multiparty cleanups or the extent to which
contribution will be available from other parties. The Company has established
reserves for environmental remediation costs for these sites in amounts which
it believes are probable and reasonably estimable. Based on analysis of
currently available information and previous experience with respect to the
cleanup of hazardous substances, the Company believes that it is reasonably
possible that costs associated with these sites may exceed current reserves by
amounts that may prove insignificant or that could range, in the aggregate, up
to approximately $63 million. This estimate of the range of reasonably
possible additional costs is less certain than the estimates upon which
reserves are based, and in order to establish the upper limit of such range,
assumptions least favorable to the Company among the range of reasonably
possible outcomes were used. In estimating both its current reserve for
environmental remediation and the possible range of additional costs, the
Company has not assumed it will bear the entire cost of remediation of every
site to the exclusion of other known potentially responsible parties who may
be jointly and severally liable. The ability of other potentially responsible
parties to participate has been taken into account, based generally on the
parties' financial condition and probable contribution on a per site basis.
In July 1996, the Company executed an agreement with the United States
Department of Justice and the Environmental Protection Agency ("EPA"), which
was subsequently approved by the Federal District Court in Atlanta, to settle
numerous allegations made by the EPA involving potential claims under the
Clean Air Act at 41 of the Company's building product manufacturing plants.
Pursuant to this settlement, the Company has begun
III-31
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
to install emissions control equipment at ten of its plywood plants and at one
oriented strand board manufacturing plant at a cost currently estimated at $30
million. The Company has also paid a civil penalty of $6 million and is
funding various environmental improvement projects having a cost of $4.25
million.
Since 1989, the Company has been involved in litigation in state courts in
Mississippi in which numerous plaintiffs claimed personal injury and property
damage as a result of the alleged discharge of dioxin into the Leaf River from
a pulp mill owned by a subsidiary of the Company. In 1995 and 1996, the
Mississippi Supreme Court reversed two lower court judgments which had imposed
compensatory and punitive damages on the Company. The court ruled that the
plaintiffs had failed to prove that the defendants had caused any personal
injury or property damage or that the defendants' conduct was intentional,
willful, wanton, or grossly negligent. Nearly all of the dioxin cases pending
in the Mississippi state courts were dismissed in 1996, although appeals from
some of these dismissals and one jury verdict in favor of the Company have
been filed. The Company intends to file summary judgment motions in the
remaining cases. In light of the opinions of the Mississippi Supreme Court and
the dismissal of nearly all of the pending cases, the Company believes this
litigation no longer represents a material contingency.
On April 8, 1996, the United States District Court for the Northern District
of Mississippi granted a declaratory judgment to several subsidiaries of the
Company against certain of its insurance carriers holding that these insurers
are obligated to reimburse such subsidiaries for costs incurred to defend
against litigation involving the alleged discharge of dioxin from the Leaf
River mill and to indemnify such subsidiaries in the event they are found
liable for damages as a result of such alleged discharges. In December 1996,
the primary insurer agreed to pay a substantial portion of such defense costs.
The Company and many other companies are defendants in suits brought in
various courts around the nation by plaintiffs who allege that they have
suffered personal injury as a result of exposure to asbestos-containing
products. These suits allege a variety of lung and other diseases based on
alleged exposure to products previously manufactured by the Company. In many
cases, the plaintiffs are unable to demonstrate that they have suffered any
compensable loss as a result of such exposure.
The Company generally resolves asbestos cases by voluntary dismissal or
settlement for amounts it considers reasonable given the facts and
circumstances of each case. The amounts it has paid to defend and settle these
cases to date have been substantially covered by product liability insurance.
The Company is currently defending claims of approximately 55,000 such
plaintiffs and anticipates that additional suits will be filed against it over
the next several years. The Company has insurance available in amounts which
it believes are adequate to cover substantially all of the reasonably
foreseeable damages and settlement amounts arising out of claims and suits
currently pending. The Company has further insurance coverage available for
the disposition of suits that may be filed against it in the future, but there
can be no assurance that the amounts of such insurance will be adequate to
cover all future claims. The Company has established reserves for liabilities
and legal defense costs it believes are probable and reasonably estimable with
respect to pending suits and claims and a receivable for expected insurance
recoveries.
The Company is defending an action in Alabama state court that seeks to
recover damages on behalf of a class of all persons currently owning
structures in the United States on which hardboard siding manufactured by the
Company after January 1, 1980 has been installed. The plaintiffs allege that
this hardboard siding was inadequately designed and manufactured and, as a
consequence, prematurely discolors and deteriorates. They also dispute the
validity and availability of the warranty issued with the product. The
plaintiffs seek unspecified compensatory and punitive damages, declaratory
relief regarding the availability of warranties, restitution, and injunctive
relief. A similar case has been filed against the Company and another
defendant in state court in
III-32
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Georgia seeking to certify a class of individuals whose mobile homes contain
the Company's hardboard siding. The plaintiffs seek damages in excess of
$10,000 for each purported class member.
Although the ultimate outcome of these environmental matters and legal
proceedings cannot be determined with certainty, based on presently available
information, management believes that adequate reserves have been established
for probable losses with respect thereto. Management further believes that the
ultimate outcome of such environmental matters and legal proceedings could be
material to operating results in any given quarter or year but will not have a
material adverse effect on the long-term results of operations, liquidity, or
consolidated financial position of the Company.
11. RELATED-PARTY TRANSACTIONS
The Company is a 50% partner in a joint venture ("GA-MET") with Metropolitan
Life Insurance Company ("Metropolitan"). GA-MET owns and operates the
Company's main office building in Atlanta, Georgia. The Company accounts for
its investment in GA-MET under the equity method.
At December 31, 1996, GA-MET had an outstanding mortgage loan payable to
Metropolitan in the amount of $153 million. The note bears interest at 9 1/2%,
requires monthly payments of principal and interest through 2011, and is
secured by the land and building owned by the joint venture. In the event of
foreclosure, each partner has severally guaranteed payment of one-half of any
shortfall of collateral value to the outstanding secured indebtedness. Based
on the present market conditions and building occupancy, the likelihood of any
obligation to the Company with respect to this guarantee is considered remote.
12. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER
------------------- ----------------------
1996 1995 1996 1995
--------- --------- ----------------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales........................ $ 3,053 $ 3,481 $ 3,324 $ 3,705
Gross profit (net sales minus
cost of sales).................. 769 1,084 810 1,123
Income before extraordinary
item............................ 50 232 10 265
Net income....................... 50 232 5 265
Income per share before
extraordinary item.............. 0.55 2.59 0.11 2.95
Net income per share............. 0.55 2.59 0.06 2.95
Dividends declared per common
share........................... 0.50 0.40 0.50 0.50
Price range of common stock:
High........................... 75.25 81.75 78.50 86.75
Low............................ 63.00 71.13 67.63 75.88
<CAPTION>
THIRD QUARTER FOURTH QUARTER
------------------- ----------------------
1996 1995 1996 1995
--------- --------- ----------------------
(In Millions, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Net sales........................ $ 3,451 $ 3,712 $ 3,196 $ 3,415
Gross profit (net sales minus
cost of sales).................. 810 1,233 702 988
Income before extraordinary
item............................ 99 324 2 197
Net income....................... 99 324 2 197
Income per share before
extraordinary item.............. 1.09 3.57 0.02 2.17
Net income per share............. 1.09 3.57 0.02 2.17
Dividends declared per common
share........................... 0.50 0.50 0.50 0.50
Price range of common stock:
High........................... 79.75 95.75 81.00 87.88
Low............................ 69.75 84.25 69.25 65.75
</TABLE>
III-33
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
13. SUBSEQUENT EVENTS (UNAUDITED)
On March 31, 1997, the Company completed the sale of its Martell, California
operations for $308 million. Assets included in this transaction were 127,000
acres of timberlands, a sawmill, and a particleboard plant. The Company
recognized a pretax gain of $128 million ($80 million after taxes), which is
included in other (income) expense in the accompanying financial statements.
In conjunction with the sale of the Martell operations the Company received
notes receivable from the purchaser in the amount of $270 million. The Company
monetized these notes receivable through the issuance of notes payable in a
private placement. The notes receivable are included in other assets and the
notes payable are classified as other long-term liabilities in the Company's
consolidated balance sheet.
The Company reached an agreement in August 1997 with the New York Department
of Environmental Conservation concerning alleged disposal of PCB-contaminated
wastes from the Company's Plattsburgh, New York facility into Cumberland Bay
of Lake Champlain. The Company has agreed to pay $9 million to the State of
New York in full settlement of its remediation obligations with respect to
this site.
The Company and many other companies are defendants in suits brought in
various courts around the nation by plaintiffs who allege that they have
suffered personal injury as a result of exposure to asbestos-containing
products. These suits allege a variety of lung and other diseases based on
alleged exposure to products previously manufactured by the Company. The total
number of claims has decreased by approximately 5,000 since December 31, 1996.
The Company has insurance available in amounts which it believes are adequate
to cover substantially all of the reasonably foreseeable damages and
settlement amounts arising out of claims and suits currently pending. The
Company has further insurance coverage available for the disposition of suits
that may be filed against it in the future, but there can be no assurance that
the amounts of such insurance will be adequate to cover all future claims. The
Company has established reserves for liabilities and legal defense costs it
believes are probable and reasonably estimable with respect to pending suits
and claims and a receivable for expected insurance recoveries.
The Company is defending an action in Alabama state court that seeks to
recover damages on behalf of a class of all persons currently owning
structures in the United States on which hardboard siding manufactured by the
Company after January 1, 1980, has been installed. The plaintiffs allege that
this hardboard siding was inadequately designed and manufactured and as a
consequence prematurely discolors and deteriorates. They also dispute the
validity and availability of the warranty issued with the product. On July 24,
1997, the court preliminarily approved a proposed settlement of this case,
authorized a program to provide notice to class members and set a date in
January 1998 for a hearing on the fairness of the settlement. Accordingly, the
settlement remains subject to final court approval. The settlement provides a
procedure for resolving product warranty claims on certain of the Company's
hardboard siding products and for payment of $3 million in legal fees to
plaintiffs' counsel, plus expenses not to exceed $200,000. In addition,
plaintiffs' counsel will be entitled to additional fees based upon a
percentage of claims paid by the Company. The Company has previously
established financial reserves it believes to be adequate to pay eligible
claims and legal fees. However, the volume and timing of actual claims, or the
number of potential claimants who choose not to participate in the settlement,
could cause settlement costs to exceed established reserves. A similar case
has been filed against the Company and another defendant in state court in
Georgia seeking to certify a class of individuals whose mobile homes contain
the Company's hardboard siding. On July 8, 1997, a purported nationwide class
action was filed against the Company in state court in Georgia making claims
substantially similar to those alleged in the Alabama class action. The
Company believes the claims of the members of these purported class actions
are encompassed within the settlement of the Alabama case and it will seek to
have these cases dismissed.
In May of 1997, the Company and nine other companies were named as
defendants in a class action suit alleging that they engaged in a conspiracy
to fix the prices of sanitary commercial paper products, such as towels
III-34
<PAGE>
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
and napkins, in violation of federal and state laws. At present, approximately
35 similar suits are pending in Federal courts in California, Florida, Georgia
and Wisconsin, and in the state courts of California and Tennessee. The
Company and the other defendants have removed the California actions to
federal court. However, plaintiffs have filed actions seeking to have these
cases remanded to state court. On September 4, 1997, one of these California
actions was remanded back to state court.
In addition, the Company and the other defendants have filed a petition with
the Federal Judicial Panel on Multi-District Litigation asking the Panel to
consolidate all of the federal court cases in Milwaukee. A hearing has been
set on this petition for September 19, 1997. The Company has denied that it
has engaged in any of the illegal conduct alleged in these cases and intends
to defend itself vigorously.
Although the ultimate outcome of these environmental matters and legal
proceedings cannot be determined with certainty, based on presently available
information management believes that adequate reserves have been established
for probable losses with respect thereto. Management further believes that the
ultimate outcome of such environmental matters and legal proceedings could be
material to operating results in any given quarter or year, but will not have
a material adverse effect on the long-term results of operations, liquidity or
consolidated financial position of the Company.
III-35
<PAGE>
ANNEX IV
GEORGIA-PACIFIC GROUP
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Business.................................................................. IV-2
Management's Discussion and Analysis...................................... IV-11
Combined Financial Statements............................................. IV-19
</TABLE>
IV-1
<PAGE>
BUSINESS
GENERAL
The Company, founded in 1927 as a wholesaler of hardwood lumber in Augusta,
Georgia, has grown through expansion and acquisitions to become one of the
world's leading manufacturers and distributors of building products and one of
the world's leading producers of pulp and paper. The Georgia-Pacific Group is
one of the nation's largest producers of structural and other wood panels,
lumber, communication papers, containerboard and market pulp. It also is the
second largest gypsum wallboard producer in North America and operates the
world's largest building products distribution system. In addition, it
operates a rapidly growing tissue products business. To operate facilities in
more than 300 locations, the Georgia-Pacific Group employs approximately
47,000 people.
CYCLICALITY AND VOLATILITY OF EARNINGS
The pulp and paper industry and, to a lesser extent, the building products
industry, are subject to highly cyclical earnings patterns which in recent
years have become more volatile. This cyclicality is attributed in large
measure to capital spending patterns in these industries. Historically, the
Company and its competitors have tended to invest large amounts of capital in
building new manufacturing plants and in maintaining and rebuilding existing
manufacturing facilities. These capital investments typically have been made
at or shortly after earnings peaks. Given the long periods of time required to
build new facilities and install new manufacturing equipment (generally 18-36
months), new manufacturing capacity in both the pulp and paper and the
building products industries has frequently come on line at or near the same
time, thus exacerbating supply and demand imbalances and causing the prices of
many of the Company's products to fall sharply. Furthermore, the Georgia-
Pacific Group's position as one of the leading worldwide manufacturers of
several key products that are essentially commodities has further exacerbated
the volatility of the Company's earnings. This increased volatility results
from the fact that relatively minor movements in the price of finished
products cause major fluctuations in the Georgia-Pacific Group's operating
income due to the significant percentage of worldwide volume produced by it.
There can be no assurance that the cyclicality that has characterized the pulp
and paper and the building products industries in the past will not continue
or increase in future years.
PRODUCTS
BUILDING PRODUCTS
GENERAL. The Georgia-Pacific Group, the largest manufacturer and distributor
of building products in the United States, produces wood panels, including
plywood, oriented strand board ("OSB") and industrial panels, lumber, gypsum
products, chemicals and other products at 153 facilities in the United States
and seven in Canada. Exports for the building products segment were $155
million in 1996 and $84 million for the six-month period ended June 30, 1997,
compared with $68 million for the same six-month period in 1996. Its largest
export markets are in the Caribbean and Europe.
NET SALES AND OPERATING PROFITS DATA FOR THE BUILDING PRODUCTS SEGMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31
------------- -----------------------
1997 1996 1996 1995 1994
------ ------ ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES
Wood panels............................. $1,252 $1,320 $ 2,666 $ 2,962 $ 3,159
Lumber.................................. 1,282 1,095 2,398 2,251 2,556
Gypsum products......................... 361 245 613 349 320
Chemicals............................... 192 173 356 372 334
Other................................... 591 585 1,227 1,262 1,086
------ ------ ------- ------- -------
TOTAL NET SALES........................... $3,678 $3,418 $ 7,260 $ 7,196 $ 7,455
====== ====== ======= ======= =======
TOTAL OPERATING PROFITS................... $ 217 $ 78 $ 201 $ 395 $ 791
</TABLE>
IV-2
<PAGE>
WOOD PANELS. The Georgia-Pacific Group, the largest producer of structural
wood panels in the United States, accounts for about 20% of total United
States capacity. Its 16 softwood plywood plants and six OSB plants can produce
7 billion square feet of panels annually. Most of these plants are located in
the Southeast in order to benefit from timber supply, weather conditions,
population and economic growth and other factors. The Georgia-Pacific Group
devotes more than 50% of its plywood production to specialty applications such
as decorative siding, sanded plywood and concrete forms. OSB, a non-veneered
structural panel made from strands of wood arranged in layers and bonded with
resin, serves many of the same uses as unsanded plywood, including roof
decking, sidewall sheathing and floor underlayment.
The Georgia-Pacific Group is also a major producer of manufactured board
products for many industrial and construction applications. Twenty-two mills
manufacture hardboard, particleboard, panelboard, softboard and medium-density
fiberboard from logs, sawdust, shavings and chips. Applications include
furniture, cabinets, housing, fixtures and other industrial products.
During 1996, the Georgia-Pacific Group completed construction of an OSB
plant in Virginia and a medium density fiberboard plant in Canada. Combined
capital investment for these projects totaled $175 million.
LUMBER. The Georgia-Pacific Group, the second-largest lumber producer in the
United States, manufactures about 2.7 billion board feet annually, or
approximately 5% of total United States lumber production. Most of the
Georgia-Pacific Group's 40 lumber mills are located in the South. Products
include Southern pine, a variety of Appalachian and Southern hardwoods,
cypress, redwood, cedar, spruce, Hemlock and Douglas fir.
Demand for the Georgia-Pacific Group's engineered lumber products has
increased rapidly in recent years, primarily as a result of the reduced
availability and higher prices of conventional wide-dimension lumber.
Laminated veneer lumber and wood I-joists, made from veneer, OSB and sawn
lumber, can be designed to meet the precise performance requirements of
roofing and flooring systems.
During 1996, the Georgia-Pacific Group completed construction of a softwood
sawmill in Oklahoma and a modernization project at a softwood sawmill in
Arkansas. Combined capital investment for these projects totaled $55 million.
GYPSUM PRODUCTS. The Georgia-Pacific Group's 21 gypsum board plants have an
annual capacity of 6.4 billion square feet. The Georgia-Pacific Group is the
third-largest producer of gypsum products in North America. Gypsum products
include wallboard, specialty panels, fiberglass mat faced gypsum panel known
as the "Dens" product line, fire-door cores, industrial plaster and joint
compound. In addition, the Georgia-Pacific Group also operates four 100%
recycled gypsum paperboard mills with a capacity of 282,000 tons per year. The
Georgia-Pacific Group owns gypsum reserves of approximately 164 million
recoverable tons, an estimated 35-year supply at current production rates.
In the second quarter of 1996, the Georgia-Pacific Group purchased for $363
million the United States and Canadian gypsum operations of Domtar, Inc.,
consisting of 14 plants. As a part of its agreement with the United States
Department of Justice permitting the Domtar acquisition, during the third
quarter of 1996 the Georgia-Pacific Group sold its gypsum wallboard plants at
Buchanan, New York and Wilmington, Delaware for approximately $60 million.
CHEMICALS. The Georgia-Pacific Group is the forest products industry's
leading supplier of wood resins, adhesives and specialty chemicals. It ships
more than 3.5 billion pounds of thermosetting resins and pulp and paper
chemicals annually from its 33 plants to the Georgia-Pacific Group's mills and
outside customers. The Georgia-Pacific Group also produces chemicals for use
in a variety of specialty applications in other industries.
DISTRIBUTION. The distribution division of the Georgia-Pacific Group is the
leading wholesaler of building products in the United States. It sells
building products to independent dealers, industrial customers and the
IV-3
<PAGE>
largest home improvement centers in the United States. The distribution
business provides a nationwide outlet not only for a significant portion of
the Georgia-Pacific Group's building products, but also for products that the
distribution division purchases from third parties. In 1996, third-party
purchases totaled $2.6 billion and accounted for approximately 60% of sales
for the distribution division.
In 1995, the distribution division undertook a reengineering of its
organizational, logistical and information systems to improve customer
service, grow its business and reduce costs. The implementation of these
initiatives involves the integration of systems and logistics networks,
consolidating 137 distribution centers formerly operated as independent
businesses to create two national sales centers, 11 large regional
distribution centers known as triads, 31 bulk distribution centers, 24 full
mix distribution centers and four stand-alone millwork service centers. While
the implementation of these initiatives is largely complete, the distribution
division's margins have deteriorated, its costs have increased, and it has
operated at a loss since 1995. The distribution division experienced operating
losses of $90 million before restructuring charges of $117 million in 1996 and
$42 million for the first half of 1997, compared with losses of $21 million
before restructuring charges of $52 million for the first half of 1996, and it
is currently projecting an operating loss for the second half of 1997. While
management is aggressively addressing the problems associated with the
distribution division's operations, it cannot predict when the division will
return to profitability.
PULP AND PAPER
GENERAL. The Georgia-Pacific Group produces containerboard and packaging,
communication papers, market pulp, tissue and other products at 81 facilities
in the United States and one in Canada. Markets for its pulp and paper
products are affected primarily by changes in industry capacity and the level
of economic growth in the United States and export markets. Its combined
production capacity for pulp, paper and paperboard is approximately 9.3
million tons annually. Exports for the pulp and paper segment, consisting
primarily of market pulp and containerboard, were $870 million in 1996 and
$416 million for the six-month period ended June 30, 1997, compared with $452
million for the same six-month period in 1996. The largest export markets for
the pulp and paper segment are Asia, Europe and Latin America.
NET SALES AND OPERATING PROFITS DATA FOR THE PULP AND PAPER SEGMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31
------------- -----------------------
1997 1996 1996 1995 1994
------ ------ ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES
Containerboard and packaging.......... $1,027 $1,212 $ 2,293 $ 2,797 $ 2,185
Communication papers.................. 728 785 1,521 1,961 1,310
Tissue................................ 488 464 934 871 740
Market pulp........................... 408 365 738 1,220 772
Other................................. 71 61 123 113 131
------ ------ ------- ------- -------
TOTAL NET SALES PULP AND PAPER SEGMENT.. $2,722 $2,887 $ 5,609 $ 6,962 $ 5,138
====== ====== ======= ======= =======
TOTAL OPERATING PROFITS PULP AND PAPER
SEGMENT................................ $ 32 $ 207 $ 390 $ 1,611 $ 204
</TABLE>
CONTAINERBOARD AND PACKAGING. The Georgia-Pacific Group is the second-
largest producer of containerboard and the largest supplier of containerboard
to independent converters in the United States. In addition to containerboard,
it produces corrugated containers and packaging, bleached paperboard and kraft
paper. Annual capacity at the Georgia-Pacific Group's four containerboard
mills totals 3.5 million tons, representing approximately 10% of total United
States capacity. Approximately 65% of its containerboard production is used by
the Georgia-Pacific Group's corrugated packaging plants. The Georgia-Pacific
Group sells the bulk of the remainder to independent converters in the United
States, Latin America and Asia. Its exports totaled approximately 487,000 tons
of containerboard during 1996 and approximately 246,000 tons during the six-
month period ended June 30, 1997.
IV-4
<PAGE>
In addition to standard corrugated containers, the Georgia-Pacific Group's
packaging plants manufacture many specialty packaging products. These include
double- and triple-wall boxes, bulk bins, water-resistant packaging and high-
finish and preprinted packaging for point-of-sale displays. It also produces
and sells to independent converters over 250,000 tons annually of kraft paper,
primarily for specialty kraft and multiwall bags. The Georgia-Pacific Group's
Technology and Development Center in Norcross, Georgia, uses state-of-the-art
technology to design and test packaging for its customers.
The Georgia-Pacific Group also has the capacity to produce 400,000 tons of
bleached paper board each year for use in frozen food containers, food service
items and other products. In May 1997, it announced the formation of a joint
venture with privately-held Gulf States Paper Corporation to sell bleached
paperboard produced by both entities under Gulf States' established
CartonMate(R) paperboard trademark. Of the Georgia-Pacific Group's 400,000
tons of bleached paperboard capacity, 195,000 tons will be sold by Gulf
States, and the remaining capacity is expected to be converted gradually into
fluff pulp production.
During 1996, the Georgia-Pacific Group completed construction of a 900-ton-
per-day recycling facility and a 600-ton-per-day recycled linerboard machine
at its Big Island, Virginia containerboard mill, as well as a modernization
project and a 300-ton-per-day expansion at its Toledo, Oregon, containerboard
mill. Combined capital investment for these projects totaled $240 million.
COMMUNICATION PAPERS. The Georgia-Pacific Group is the second-largest
producer of communication papers in the United States. Communication papers
are used in office reprographics, commercial printing, business forms,
stationery, tablets, books, envelopes and checks. The Georgia-Pacific Group's
seven communication papers mills have a combined annual capacity of 2.2
million tons, equal to approximately 16% of total United States capacity.
In response to worldwide production overcapacity in the commodity
communication papers market, the communication papers division adopted a
strategy to develop brand names for certain of its products and to focus its
marketing efforts on these branded products. Pursuant to this strategy, in the
first half of 1997 the Georgia-Pacific Group introduced a brand-name line of
premium paper called "Microprint" which has been designed to function in most
modern office machines and is being marketed and sold to large retail office
equipment companies.
In July 1997, the communication papers division adopted a systems
integration initiative, pursuant to which significant capital expenditures
will be made to integrate certain business processes of the communication
papers division with common computer software. Management believes that this
initiative will enable the Georgia-Pacific Group to optimize machine function,
decrease order fulfillment time and reduce transportation and inventory costs
to support the growth of value-added products and of certain strategic
customers.
MARKET PULP. The Georgia-Pacific Group is the world's second-largest market
pulp producer. It owns six mills with a combined annual capacity of 2.1
million tons, approximately 18% of total United States capacity. These mills
produce Southern softwood, Southern hardwood and Northern hardwood pulps for
use in the manufacture of many paper grades. The Georgia-Pacific Group also is
a major supplier of fluff pulp and other specialty pulps. Fluff pulp is used
primarily in the manufacture of disposable diapers and other sanitary items.
Demand continues to grow for disposable diapers and sanitary items,
particularly in developing countries. The Georgia-Pacific Group exports
approximately 65% of its market pulp, primarily to Asia, Europe and Latin
America.
TISSUE. The Georgia-Pacific Group is one of the leading United States
producers of tissue products, including bath tissue, paper towels, paper
napkins and diaper carrier. The Georgia-Pacific Group manufactures these
products at five primary mills and two secondary converting plants. Its
capacity totals approximately 595,000 tons annually which represents about 9%
of total United States capacity. Approximately 80% of this production is sold
to consumers through grocery, drug and mass merchandise retailers. Consumer
brand names include Angel Soft(R), Sparkle(R), Coronet(R), MD(R) and
Delta (R). The remaining production is sold primarily into commercial and
industrial markets through independent distributors and directly to national
fast food accounts.
IV-5
<PAGE>
In recent years, demand for Georgia-Pacific Group's tissue products has
exceeded its primary, or "parent roll," production capacity. Consequently, the
Georgia-Pacific Group has purchased parent rolls from other manufacturers and
subsequently has converted those parent rolls to satisfy that demand.
To increase production capacity and reduce reliance on purchased parent
rolls, the Georgia-Pacific Group has commenced two major expansion projects.
The first project includes the construction of a new tissue machine and
associated converting equipment at its Crossett, Arkansas facility. The new
machine, which is designed to produce about 60,000 tons per year of bath
tissue, is estimated to cost approximately $150 million and is scheduled for
completion by late 1998. The second major expansion project is the rebuild of
a tissue machine located at its Plattsburgh, New York facility and upgrades of
tissue converting equipment at that location. The Plattsburgh project, which
is expected to increase primary production capacity by about 30,000 tons per
year, is expected to cost approximately $70 million and is scheduled for
completion by late 1998.
While competition in the tissue business is intense, prices for tissue
products have tended to be more stable through economic cycles than those for
the Georgia-Pacific Group's other paper products.
RAW MATERIALS
The Georgia-Pacific Group relies on supplies of timber and wood fiber to
manufacture its wood products and pulp, the latter of which it processes
further in the production of a variety of paper products and tissue.
Historically, the Georgia-Pacific Group has purchased approximately 25% of its
timber and wood fiber needs from its own timberlands, and the remainder from a
large number of other suppliers. Under the operating policy governing future
sales of timber and wood fiber by the Timber Group to the Georgia-Pacific
Group, the Timber Group will continue to supply a portion of the Georgia-
Pacific Group's needs for these raw materials. For a discussion of the
operating policy governing future sales of timber and wood fiber by the Timber
Group to the Georgia-Pacific Group, see Note 12 to the Georgia-Pacific Group's
financial statements.
Because the Georgia-Pacific Group is highly dependent on supplies of timber
and wood fiber, risk factors associated with suppliers' operations and the
forest industry in general, including harvesting limitations, competition and
environmental regulation, could affect the Georgia-Pacific Group's results of
operations.
CUSTOMERS
The Georgia-Pacific Group has a large and diverse domestic and foreign
customer base, no single one of which accounted for more than 10% of total
sales in any of the past three fiscal years.
COMPETITION
The Georgia-Pacific Group experiences competition in virtually all of its
product lines from both large and small producers. Because most of its
products are essentially commodities, it competes principally on the basis of
price. Competition is intense, particularly in periods of excess supply.
Increased competitive pressures could have a material adverse effect on the
net sales, operating income and cash flows of the Georgia-Pacific Group.
REGULATION AND LITIGATION
ENVIRONMENTAL REGULATION GENERALLY
The Georgia-Pacific Group's operations are subject to federal, state and
local environmental laws and regulations, including laws relating to water,
air, solid waste and hazardous substances. Although it believes that it is in
material compliance with these requirements, there can be no assurance that
significant costs, civil and criminal penalties, and liabilities will not be
incurred, including those relating to claims for damages to property or
natural resources resulting from its operations. The Georgia-Pacific Group
maintains environmental compliance programs and periodically conducts internal
and independent third-party regulatory audits of its facilities to monitor
compliance with such laws and regulations. Several of its facilities have been
or currently
IV-6
<PAGE>
are the subject of compliance or enforcement proceedings under environmental
laws and regulations, and those same or other facilities may be the subject of
compliance or enforcement proceedings under environmental laws and regulations
in the future.
Environmental laws and regulations have changed substantially and rapidly
over the last 20 years, and the Georgia-Pacific Group anticipates there will
be continuing changes in the future. The trend in environmental regulation is
to place more restrictions and limitations on activities that may affect the
environment, such as emissions of pollutants and the generation and disposal
of wastes. Increasingly strict environmental restrictions and limitations have
resulted in increased operating costs for the Georgia-Pacific Group and it is
likely that the costs of compliance with environmental laws and regulations
will continue to increase. For the three years from 1994 through 1996, the
Georgia-Pacific Group expended $120 million, $125 million and $130 million,
respectively, to ensure compliance with environmental regulations or as a
result of environmental proceedings.
There can be no assurance that existing or future environmental laws and
regulations, administrative proceedings or judicial actions will not adversely
affect the Georgia-Pacific Group or its ability to continue its activities and
operations as currently conducted or to conduct similar activities and
operations in the future.
For a discussion of the environmental proceedings involving the Georgia-
Pacific Group and related matters, see "Management's Discussion and Analysis"
and Notes 1 and 11 to the Georgia-Pacific Group's financial statements.
AIR QUALITY AND WATER QUALITY. Certain of the Georgia-Pacific Group's
facilities emit regulated substances that are subject to the requirements of
the federal Clean Air Act, as amended, and comparable state statutes. Most of
these facilities are required to obtain federal operating permits under Title
V of the 1990 Clean Air Act Amendments. Title V requires that major industrial
sources of air pollution obtain federally enforceable permits which contain
all of the applicable air quality restrictions for the facility.
The federal Clean Water Act and comparable state statutes regulate
discharges of process wastewater, and require National Pollutant Discharge
Elimination System permits for discharges of industrial wastewater and
stormwater into regulated public waters. Many of the Georgia-Pacific Group's
facilities operate under such permits, particularly, its large pulp, paper and
containerboard mills.
It is expected that, by the end of 1997, the United States Environmental
Protection Agency will implement a set of technical provisions known as the
"Cluster Rule" that will establish new requirements for air emissions and
wastewater discharges from pulp and paper mills. If the Cluster Rule is
enacted as currently proposed, the Georgia-Pacific Group estimates that
capital expenditures of approximately $550 million will be made over the next
eight years in order to comply with the Cluster Rule's requirements. Of the
total, about $300 million will be needed within three years of the Cluster
Rule's effective date, which is expected to be in the fourth quarter of 1997.
One of the main components of the Cluster Rule is the requirement that pulp
and paper mills use only elemental chlorine free ("ECF") technology, which
will require the complete substitution of chlorine dioxide for elemental
chlorine in the pulp bleaching process. Approximately $165 million of the
amounts required to be spent in the next three years will go toward ECF
conversion at mills located in Ashdown, Arkansas; Crossett, Arkansas;
Bellingham, Washington; Palatka, Florida; and Woodland, Maine. The bulk of the
remaining $135 million to be spent within the next three years is for
additional air emissions controls at various Georgia-Pacific Group's pulp and
paper facilities.
Compliance with air emissions and water discharge regulations has resulted
in investment of material amounts of capital in the past, and with the trend,
as discussed above, toward more stringent regulation, additional material
amounts of capital will be required to maintain such compliance.
IV-7
<PAGE>
HAZARDOUS MATERIALS. Certain of the Georgia-Pacific Group's facilities use
and generate both hazardous and nonhazardous substances, including wood waste
and boiler ash, the handling and disposal of which is subject to federal and
state laws, including the Resource Conservation and Recovery Act ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA," also known as "Superfund") and comparable state laws. CERCLA
imposes liability, without regard to fault or the legality of the original
act, on certain classes of persons (potentially responsible parties, or
"PRPs") that contribute to a release or threatened release of a hazardous
substance into the environment. PRPs include all owners or operators of a site
at which such a release or threatened release occurs, as well as any person
who disposed of, or arranged for disposal of, hazardous substances at such a
site.
In the ordinary course of their operations, several of the Georgia-Pacific
Group's facilities have in the past used, and are expected to continue to use,
on-site and off-site facilities for the disposal of hazardous and nonhazardous
wastes. In addition, certain site activities, including those of former
operators of the Georgia-Pacific Group's properties, may have resulted in
conditions that may require remediation under environmental laws. The Georgia-
Pacific Group believes that it will not incur responsibility for any cleanup
costs under Superfund with respect to past activities affecting these
facilities that would be likely to have a material adverse effect on the
Georgia-Pacific Group's financial position, results of operations or
liquidity. It has conducted, and in the future may conduct, limited
environmental assessments of these facilities. Although there can be no
assurances that any future assessments will not reveal additional
environmental issues, the Georgia-Pacific Group believes that, based
principally on the types of environmental matters identified to date, any
future matters would not be likely to have a material adverse effect on the
Georgia-Pacific Group's business, financial position or results of operations.
SAFETY AND HEALTH
The operations of all of the Georgia-Pacific Group's facilities are subject
to the requirements of the federal Occupational Safety and Health Act ("OSHA")
and comparable state statutes relating to the health and safety of employees.
The Georgia-Pacific Group believes that it is in substantial compliance with
OSHA regulations, including general industry standards, permissible exposure
levels for toxic chemicals (including wood dust and formaldehyde) and record-
keeping requirements. The Georgia-Pacific Group conducts internal safety
audits to identify potential violations of law or unsafe conditions and, in
the future, expects to conduct similar internal safety audits of operations
affecting its facilities. Based on the latest OSHA figures and published
industry statistics, management of the Georgia-Pacific Group believes that its
operations are the safest in the industry.
LITIGATION
The Georgia-Pacific Group is a party to various legal proceedings incidental
to its business. As is the case with other companies in similar industries, it
faces exposure from actual or potential claims and legal proceedings involving
a variety of matters, including environmental claims. Liability insurance in
effect during the last several years provides very limited coverage for
environmental matters. Although the ultimate outcome of the pending
environmental matters and legal proceedings cannot be determined with
certainty, based on presently available information management of the Georgia-
Pacific Group believes that adequate reserves have been established for
probable losses with respect thereto. Management of the Georgia-Pacific Group
further believes that the ultimate outcome of such environmental matters and
legal proceedings could be material to operating results in any given quarter
or year, but will not have a material adverse effect on the long-term results
of its operations, liquidity or consolidated financial position. See Note 11
to the Georgia-Pacific Group's financial statements.
IV-8
<PAGE>
MANAGEMENT AND EMPLOYEES
MANAGEMENT. The executive officers of the Georgia-Pacific Group are as
follows:
<TABLE>
<CAPTION>
Date first
elected as
Name Age an officer Position or office
---- --- ---------- -------------------------------
<S> <C> <C> <C>
A. D. Correll.................... 55 1988 Chairman, Chief Executive
Officer and President
Clint M. Kennedy................. 47 1988 Executive Vice President--
Pulp and Paperboard
Ronald L. Paul................... 54 1995 Executive Vice President--
Wood Products
John F. Rasor.................... 53 1983 Executive Vice President--
Wood Procurement, Gypsum and
Industrial Wood Products
Lee M. Thomas.................... 52 1993 Executive Vice President--Paper
and Chemicals
George A. MacConnell............. 49 1983 Senior Vice President--
Distribution and Millwork
</TABLE>
Alston D. Correll has been Chief Executive Officer of the Company since May
1993, Chairman since December 1993 and President since May 1996. He served as
Chief Operating Officer of the Company from August 1991 until May 1993 and
President and Chief Executive Officer from May 1993 until December 1993. Mr.
Correll was elected as a Director of the Company on May 5, 1992. Mr. Correll
served as Executive Vice President--Pulp and Paper from April 1989 through
July 1991.
Clint M. Kennedy has been Executive Vice President--Pulp and Paperboard of
the Company since January 1, 1997. Prior to that time, he served as Senior
Vice President--Pulp, Bleached Board and Logistics from February 1995 until
December 1996, Group Vice President--Pulp and Bleached Board from July 1992
through January 1995 and Vice President--Sales and Marketing, Pulp and
Bleached Board from May 1990 to July 1992.
Ronald L. Paul, upon approval of the Letter Stock Proposal by the
shareholders of the Company, will be named Executive Vice President--Wood
Products. He has been the Vice President--Structural Panels and Building
Products Engineering of the Company since May 1996. He served as Vice
President--Engineering and Technology--Building Products from May 1995 to May
1996. Prior to that time, he served as Vice President--Corporate Operations,
General Manager--Southern Division, Louisiana-Pacific Corporation from 1994
through 1995 and President of Kirby Forest Industries, Inc. from 1987 through
1994.
John F. Rasor, upon approval of the Letter Stock Proposal by the
shareholders of the Company, will be named Executive Vice President--Wood
Procurement, Gypsum and Industrial Wood Products. He has been Executive Vice
President--Forest Resources of the Company since January 1, 1997. Prior to
that time, he served as Senior Vice President--Forest Resources from February
1995 until December 1996, Group Vice President--Forest Resources from May 1992
through January 1995, Group Vice President--Timber from January 1992 to May
1992, Vice President--Forest Resources from 1991 to January 1992, and Vice
President--Eastern Wood Products Manufacturing Division from 1989 to 1991.
Lee M. Thomas, upon approval of the Letter Stock Proposal by the
shareholders of the Company, will be named Executive Vice President -- Paper
and Chemicals. He has been Executive Vice President--Paper of the Company
since January 1, 1997. Prior to that time, he served as Senior Vice
President--Paper from February 1995 until December 1996, Senior Vice
President--Environmental, Government Affairs and Communications from February
1994 through January 1995, and Senior Vice President--Environmental and
Government Affairs from March 1993 through January 1994. Prior to joining the
Company in March 1993, Mr. Thomas served as Chairman and Chief Executive
Officer of Law Companies Environmental Group, Inc. (an engineering and
environmental services company) from 1989 until March 1993.
IV-9
<PAGE>
George A. MacConnell has been Senior Vice President--Distribution and
Millwork of the Company since February 1993 and served as Senior Vice
President--Distribution and Specialty Operations from 1989 to February 1993.
EMPLOYEES. The Georgia-Pacific Group employs approximately 47,000 people.
The majority are members of unions. The Georgia-Pacific Group considers its
relationship with its employees to be good. Sixty-six union contracts are
subject to negotiation and renewal in 1997, including two at large paper
facilities.
IV-10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
GEORGIA-PACIFIC GROUP
The Georgia-Pacific Group consists of all of the Georgia-Pacific
Corporation's manufacturing mills and plants. These include 81 facilities in
the United States and one in Canada manufacturing containerboard and packaging
materials, communication papers, market pulp, tissue and other products, 153
facilities in the United States and seven in Canada which manufacture lumber,
wood panels such as plywood, oriented strand board and industrial panels,
gypsum products, chemicals and other products, and a distribution organization
that operates a network of sales centers, large distribution centers and
smaller local distribution centers throughout the United States. The
accompanying financial statements present the historical results of operations
and financial condition of the operations that comprise the Georgia-Pacific
Group. The results of operations of the Georgia-Pacific Group have
historically been, and are expected to continue to be, subject to highly
cyclical earnings patterns. See "Business--Cyclicality and Volatility of
Earnings."
The Georgia-Pacific Group also includes a procurement function that is
responsible for purchasing timber and wood fiber for all of the Georgia-
Pacific Group's manufacturing facilities. Historically, approximately 25% of
the Georgia-Pacific Group's timber requirements has been supplied by the
Timber Group and the remaining 75% has been supplied by unaffiliated third
parties.
As more fully described in Note 12 to the Georgia-Pacific Group's financial
statements, the Georgia-Pacific Group and the Timber Group have negotiated an
operating policy governing future sales of timber and wood fiber by the Timber
Group to the Georgia-Pacific Group.
SELECTED INDUSTRY SEGMENT DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------- -------------------------
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET SALES
Building products................ $ 3,678 $ 3,418 $ 7,260 $ 7,196 $ 7,455
Pulp and paper................... 2,722 2,887 5,609 6,962 5,138
Other............................ 17 15 32 37 31
------- ------- ------- ------- -------
Total net sales.................. $ 6,417 $ 6,320 $12,901 $14,195 $12,624
======= ======= ======= ======= =======
OPERATING PROFITS
Building products................ $ 217 $ 78 $ 201 $ 395 $ 791
Pulp and paper................... 32 207 390 1,611 204
Other............................ 5 5 5 8 13
------- ------- ------- ------- -------
Total operating profits.......... 254 290 596 2,014 1,008
General corporate................ (82) (76) (154) (156) (164)
Interest expense................. (196) (172) (354) (321) (372)
Provision for income taxes....... 1 (26) (54) (616) (207)
------- ------- ------- ------- -------
Income before extraordinary item
and accounting change........... (23) 16 34 921 265
Extraordinary item, net of
taxes........................... -- (5) (5) -- (11)
Cumulative effect of accounting
change, net of taxes............ -- -- -- -- (5)
------- ------- ------- ------- -------
Net income....................... $ (23) $ 11 $ 29 $ 921 $ 249
======= ======= ======= ======= =======
PRO FORMA PER SHARE:
Income before extraordinary item
and accounting change........... $ (0.26) $ 0.17 $ 0.38 $ 10.21 $ 2.98
Extraordinary item, net of
taxes........................... -- (0.05) (0.06) -- (0.12)
Cumulative effect of accounting
change, net of taxes............ -- -- -- -- (0.06)
------- ------- ------- ------- -------
Net income....................... $ (0.26) $ 0.12 $ 0.32 $ 10.21 $ 2.80
======= ======= ======= ======= =======
</TABLE>
IV-11
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
The Georgia-Pacific Group reported net sales of $6.4 billion and a net loss
of $23 million (pro forma 26 cents per share) for the six months ended June
30, 1997, compared with net sales of $6.3 billion and net income of $11
million (pro forma 12 cents per share) in 1996. The 1997 results include a
first quarter pretax gain of $14 million (pro forma 9 cents per share after
tax) from the sale of the Georgia-Pacific Group's Martell, California, assets
which included a sawmill and a particleboard plant. The 1996 results include a
pretax charge of $73 million (pro forma 50 cents per share after tax) related
to the voluntary early retirement program discussed below. An extraordinary,
after-tax loss of $5 million (pro forma 5 cents per share) was recorded in the
1996 second quarter for the early retirement of debt.
In 1996, the Georgia-Pacific Group set a goal of improving its annual pretax
earnings by approximately $400 million through a three-year effort to reduce
overhead costs and improve efficiencies throughout the Georgia-Pacific Group.
The Georgia-Pacific Group expects to achieve about half of this cost reduction
by eliminating work and the related salaried positions. As part of this
effort, the Georgia-Pacific Group implemented a voluntary early retirement
program in 1996. The Georgia-Pacific Group also expects to realize significant
efficiencies and cost savings from cost reduction efforts at its manufacturing
facilities and from substantial investments it is making to restructure its
building products distribution division (discussed below) and install new
information systems.
Selling, general and administrative expense (SG&A) was $553 million for the
six months ended June 30, 1997, compared with $681 million in 1996. The cost
reduction is largely a result of the voluntary early retirement program
initiated in 1996 and overhead reduction plans implemented in 1997. The
Georgia-Pacific Group expects full-year 1997 SG&A to be approximately $200
million lower than in 1996.
The Georgia-Pacific Group reported a loss before income taxes of $24 million
and an income tax benefit of $1 million for the six months ended June 30,
1997, compared with pretax income of $42 million and an income tax provision
of $26 million for the first six months of 1996. The effective tax rate used
to calculate the provision for income taxes for both years was higher than the
statutory rates used to calculate federal and state income taxes primarily
because of nondeductible goodwill amortization expense associated with past
business acquisitions.
The remaining discussion refers to the "Selected Industry Segment Data"
table above.
BUILDING PRODUCTS
The Georgia-Pacific Group's building products segment reported net sales of
$3.7 billion and operating profits of $217 million for the six months ended
June 30, 1997, compared with net sales of $3.4 billion and operating profits
of $78 million for the six months ended June 30, 1996. The 1996 six months'
results included a $33 million expense for the early retirement program
referred to above. Return on sales increased to 5.9% in the first half of 1997
from 2.3% in the first half of 1996. A 19% increase in lumber prices, combined
with increased gypsum prices and shipment volumes, more than offset
approximately 35% lower prices for oriented strand board and an 8% increase in
log costs.
Operating losses for the Georgia-Pacific Group's building products
distribution division were $42 million for the first half of 1997, compared
with losses of $21 million in 1996 before restructuring charges of $52
million. Operating losses were worse for the first six months of 1997 compared
to the first six months of 1996 primarily as a result of an approximate $17
million deterioration in margins. Sales volume deteriorated in the second
quarter of this year compared to last year and was flat for the first six
months compared to the same period last year. The division is currently
projecting an operating loss for the second half of 1997, as the business
continues to experience problems stemming from a restructuring of its
administrative and logistical processes that is impeding its ability to return
to profitability. Management is aggressively addressing these problems, but
cannot predict when the division will return to profitability.
IV-12
<PAGE>
Capital expenditures for the acquisition and construction of new facilities
to restructure this division are expected to total approximately $400 million,
excluding proceeds from asset sales. Approximately $375 million of that amount
had been invested as of June 30, 1997.
Selected financial and operating data for the building products distribution
business are shown in the table below.
SELECTED DISTRIBUTION DIVISION DATA
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 YEAR ENDED DECEMBER
------------------ ----------------------
1997 1996 1996 1995 1994
-------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Sales............................... $ 2,091 $ 2,062 $4,407 $4,673 $4,909
Operating (loss) profit............. (42) (73) (207) (60) 91
Capital expenditures................ 24 154 224 132 35
Depreciation........................ 23 22 45 23 18
</TABLE>
PULP AND PAPER
The Georgia-Pacific Group's pulp and paper segment reported net sales of
$2.7 billion and operating profits of $32 million for the six-month period
ended June 30, 1997, compared with net sales of $2.9 billion and operating
profits of $207 million in 1996. The 1996 six months' results included a $40
million expense for the early retirement program referred to above. Return on
sales decreased to 1.2% compared with 7.2% for the same period a year ago,
primarily as a result of substantially lower prices for most of the Georgia-
Pacific Group's pulp and paper products. Compared with the 1996 first half,
prices were 30% lower for containerboard, 6% lower for market pulp, and 12%
lower for communication papers. Tissue prices were slightly lower than a year
ago, although shipment volumes increased 13%.
1996 COMPARED WITH 1995
The Georgia-Pacific Group reported net sales of $12.9 billion and net income
of $29 million (pro forma 32 cents per share) for 1996, compared with net
sales of $14.2 billion and net income of $921 million (pro forma $10.21 per
share) in 1995. The 1996 results include net unusual pretax expenses of $116
million (pro forma 78 cents per share after tax). The unusual items include
charges of $38 million primarily related to the voluntary early retirement
program referred to above, a pretax gain of $39 million from the sale of two
gypsum wallboard facilities and $117 million of expenses resulting from a
project to change and improve certain processes in the Georgia-Pacific Group's
building products distribution division. Net income in 1996 also includes an
extraordinary, after-tax loss of $5 million (pro forma 6 cents per share) for
the early retirement of debt.
Costs associated with the three-year program to reduce overhead costs and
improve efficiencies throughout the Georgia-Pacific Group (discussed under
"Six Months Ended June 30, 1997 Compared With Six Months Ended June 30, 1996,"
above) were $38 million in 1996. This includes the cost of the voluntary early
retirement program and severance expenses for the elimination of certain
salaried positions. This net $38 million expense included expenses of $73
million in the first six months of 1996 primarily related to the accrual of
additional retirement benefits, less income of $35 million in the second half
of 1996 primarily resulting from a gain recognized upon the settlement of
pension obligations to early retirees.
The Georgia-Pacific Group reported income before income taxes of $88 million
and a tax provision of $54 million for the year ended December 31, 1996,
compared with pretax income of $1,537 million and an income tax provision of
$616 million for the year ended December 31, 1995. The effective tax rate used
to calculate the provision for income taxes for both years was higher than the
statutory rates used to calculate federal and state income taxes primarily
because of nondeductible goodwill amortization expense associated with past
business acquisitions.
The remaining discussion refers to the "Selected Industry Segment Data"
table above.
IV-13
<PAGE>
BUILDING PRODUCTS
The Georgia-Pacific Group's building products segment reported net sales of
$7.3 billion and operating profits of $201 million for 1996, compared with net
sales of $7.2 billion and operating profits of $395 million in 1995. The 1996
results include net unusual expenses of $96 million. The unusual items include
charges of $18 million primarily related to the above-mentioned voluntary
early retirement program, an unusual gain of $39 million from the sale of two
gypsum wallboard facilities and $117 million of expenses in the building
products distribution division, discussed below. Return on sales decreased to
2.8% in 1996 from 5.5% in 1995. Excluding unusual items, return on sales
decreased to 4.1% in 1996 from 6.5% in 1995. A 9% increase in lumber prices
combined with a 4% decrease in log costs, and increased gypsum volumes, were
more than offset by approximately 16% lower prices for structural panels.
Operating losses for the Georgia-Pacific Group's building products
distribution division increased by $147 million from 1995. Lower operating
margins accounted for most of the decline, while costs associated with the
restructuring of the division (discussed above under "Six Months Ended June
30, 1997 Compared With Six Months Ended June 30, 1996") increased to $117
million in 1996 compared with $70 million in 1995. Selected financial and
operating data for the division are shown in the "Selected Distribution
Division Data" table above.
PULP AND PAPER
The Georgia-Pacific Group's pulp and paper segment reported net sales of
$5.6 billion and operating profits of $390 million for 1996, compared with net
sales of $7.0 billion and operating profits of $1,611 million in 1995. The
1996 results include unusual expenses of $20 million primarily related to the
voluntary early retirement program. Return on sales decreased to 7.0% in 1996
(7.3% excluding unusual expenses) compared with 23.1% in 1995, primarily as a
result of substantially lower prices for most of the Georgia-Pacific Group's
pulp and paper products. Compared with 1995, prices were 45% lower for market
pulp, 33% lower for containerboard and 24% lower for communication papers.
Tissue prices improved approximately 6%.
1995 COMPARED WITH 1994
The Georgia-Pacific Group reported net sales of $14.2 billion in 1995
compared with $12.6 billion in 1994. Net income in 1995 was $921 million, a
significant increase from $249 million in 1994 which included a $33 million
(pro forma 37 cents per share) net after-tax gain primarily from asset sales,
an $11 million (pro forma 12 cents per share) after-tax extraordinary loss
from the early retirement of debt and a $5 million (pro forma 6 cents per
share) one-time after-tax charge for an accounting change.
The Georgia-Pacific Group's interest expense was $321 million in 1995
compared with $372 million in 1994. The 13.7% decrease in expense was
primarily attributable to an increase in capitalized interest in 1995 compared
with 1994. In addition, debt levels were lower in 1995 compared with 1994 and
$450 million in interest rate exchange agreements, which had effectively fixed
the rates on a portion of the Georgia-Pacific Group's variable rate debt at
levels above current interest rates, expired in 1995.
The Georgia-Pacific Group reported income before income taxes of $1,537
million and a tax provision of $616 million for the year ended December 31,
1995 compared with pretax income before extraordinary item and accounting
change of $472 million and an income tax provision of $207 million for the
year ended December 31, 1994. The effective tax rate used to calculate the
provision for income taxes for both years was higher than the statutory rates
used to calculate federal and state income taxes primarily because of
nondeductible goodwill amortization expense associated with past business
acquisitions.
The remaining discussion refers to the "Selected Industry Segment Data"
table above.
BUILDING PRODUCTS
The Georgia-Pacific Group's building products segment reported net sales of
$7.2 billion and operating profits of $395 million in 1995. Net sales and
operating profits in 1994 were $7.5 billion and $791 million,
IV-14
<PAGE>
respectively. Return on sales decreased to 5.5% in 1995 from 10.7% in 1994.
Average lumber prices in 1995 were approximately 13% below 1994 averages
which, combined with higher wood costs, resulted in a significant decline in
profit margins for this business. Although average structural panels prices
were slightly higher than 1994 average prices, margins for this business were
also lower as a result of higher wood costs.
Several factors impacted the building products business, including an
overall slowdown in the economy, a decline in housing starts and an increase
in the availability of lower-priced Canadian lumber. In addition, demand for
building products was weaker in 1995 as evidenced by a decline in shipments
for the Georgia-Pacific Group's structural panels and lumber businesses, both
during the second half of 1995 and for fiscal year 1995 compared with 1994.
Finally, profits for the Georgia-Pacific Group's distribution business were
lower than 1994, primarily because of costs associated with initiatives to
change and improve certain administrative and logistical processes in this
business. The Georgia-Pacific Group incurred expenses of approximately $70
million for these improvements during 1995. These expenses accounted for much
of the increase in selling, general and administrative expenses in 1995
compared with 1994.
In 1994, the Georgia-Pacific Group recognized a net pretax gain of
approximately $57 million (pro forma 37 cents per share after taxes) primarily
from the sale of five roofing plants and its envelope manufacturing business.
PULP AND PAPER
The Georgia-Pacific Group's pulp and paper segment reported an increase in
net sales to $7 billion in 1995 from $5.1 billion in 1994. Operating profits
also increased to $1.6 billion in 1995 compared with $204 million in 1994.
Return on sales in 1995 was 23.1%, up significantly from 4.0% in 1994,
primarily as a result of much higher prices for most of the Georgia-Pacific
Group's pulp and paper products. Average pulp prices in 1995 were
approximately 70% higher than 1994 averages; average containerboard prices
were approximately 45% higher than 1994 levels; and average communication
papers prices were approximately 50% higher than 1994 averages.
The Georgia-Pacific Group experienced a significant decline towards the end
of 1995 in both demand and prices for many of its pulp and paper products.
Although year-to-year comparisons showed higher average prices in 1995, prices
for containerboard finished 1995 at their lowest level for the year. In
addition, prices for market pulp and communication papers began to fall during
the 1995 fourth quarter. Shipment volume also declined for these products
during the second half of 1995.
Inventory volume grew in 1995 by approximately 65%, primarily in the areas
of market pulp, containerboard and communication papers. The Georgia-Pacific
Group reduced production by 200,000 tons by taking downtime at its mills in
the fourth quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
The Georgia-Pacific Group generated cash from operations of $1,047 million
during 1996. The Georgia-Pacific Group's cash provided by operations in 1995
was $1,335 million, after using $350 million to reduce the accounts receivable
sale program. The Company repurchased the receivables to reduce the cost of
the program, which was higher than the cost of financing from alternative
sources. Cash provided by operations was $288 million in the first six months
of 1997, compared with $518 million in the first six months of 1996. Operating
cash flow for both the six months ended June 30, 1997 and the full year ended
1996 was significantly lower than the comparable periods, primarily as a
result of lower prices for the Georgia-Pacific Group's pulp and paper
products.
INVESTING ACTIVITIES
Property, plant and equipment investments during 1996 were $1.1 billion,
which included $488 million in the pulp and paper segment, $452 million in the
building products segment and $115 million of general corporate
IV-15
<PAGE>
investments (primarily information systems). Investments in 1995 totaled $1.3
billion. Property, plant, and equipment investments for the six months ended
June 30, 1997, were $270 million compared with $650 million in the first half
of 1996. Expenditures in 1997 included $158 million in the pulp and paper
segment, $82 million in the building products segment, and $30 million of
other and general corporate. During the second half of the year, the Georgia-
Pacific Group expects to invest approximately $500 million, for a total
capital investment of approximately $750 million in 1997.
During the first six months of 1997, the Georgia-Pacific Group received $56
million of proceeds from asset sales. This amount included $38 million of
proceeds from the sale of the Georgia-Pacific Group's Martell, California,
assets on March 31. The Georgia-Pacific Group's Martell assets included a
sawmill and a particleboard plant.
In the second quarter of 1996, the Georgia-Pacific Group purchased for $363
million the United States and Canadian gypsum operations of Domtar Inc. ,
consisting of 14 plants. As part of its agreement with the United States
Department of Justice permitting the Domtar acquisition, during the third
quarter of 1996 the Georgia-Pacific Group sold its gypsum wallboard plants at
Buchanan, New York, and Wilmington, Delaware for approximately $60 million.
During 1996, the Georgia-Pacific Group invested $130 million for pollution
control and abatement. The Georgia-Pacific Group's 1997 capital expenditure
budget currently includes approximately $80 million for environmental-related
projects. Certain other capital projects that are being undertaken for the
primary reasons of improving financial returns or safety will also include
expenditures for pollution control.
By the end of 1997, the United States Environmental Protection Agency
("EPA") is expected to promulgate a set of technical provisions known as the
Cluster Rule that will establish new requirements for air emissions and
wastewater discharges from pulp and paper mills. The Georgia-Pacific Group
estimates that capital expenditures of approximately $550 million will be made
over the next eight years in order to comply with the Cluster Rule's
requirements. Of that total, about $300 million will be needed within three
years of the Cluster Rule's effective date, which is expected to be in the
fourth quarter of 1997. One of the main components of the Cluster Rule is that
pulp and paper mills use only elemental chlorine free ("ECF") technology,
which will require the complete substitution of chlorine dioxide for elemental
chlorine in the pulp bleaching process. Approximately $165 million of the
amounts required to be spent in the next three years will go toward ECF
conversion at mills located in Ashdown, Arkansas; Crossett, Arkansas;
Bellingham, Washington; Palatka, Florida; and Woodland, Maine. The bulk of the
remaining $135 million to be spent within the next three years is for
additional air emissions controls at the Georgia-Pacific Group's pulp and
paper facilities.
FINANCING ACTIVITIES
At June 30, 1997, and December 31, 1996, the Georgia-Pacific Group's debt
was $4.6 billion. The debt of the Georgia-Pacific Group bears interest at a
rate equal to the weighted average rate of the Company's total debt,
calculated on a quarterly basis. The interest rate on the Company's total debt
at June 30, 1997, was 7.7%. In the future, each Group's debt will increase or
decrease by the amount of any cash provided by or used for the Group's
operating activities, investing activities, dividend payments, share
repurchases or issuances and other (non-debt-related) financing activities.
See also Note 1 to the Georgia-Pacific Group's financial statements for
further discussion of financial activities.
The amounts of the Georgia-Pacific Group's debt and accounts receivable on
the balance sheets at both December 31, 1996, and December 31, 1995, does not
include $350 million of proceeds from the Georgia-Pacific Group's accounts
receivable sale program. That amount, although not reflected on the balance
sheet, was considered part of the Georgia-Pacific Group's total debt at
December 31, 1996, under the assumption that at the end of the program the
proceeds will be replaced by debt. In the 1997 first quarter, the Georgia-
Pacific Group adopted SFAS 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of
IV-16
<PAGE>
Liabilities." As a result, the Georgia-Pacific Group's accounts receivable
sale program is accounted for as a secured borrowing effective January 1,
1997. The $280 million of receivables outstanding under the program and the
corresponding debt are included as current receivables and short-term debt,
respectively, on the Georgia-Pacific Group's balance sheet at June 30, 1997.
The fees associated with the program are included in interest expense for all
periods.
In conjunction with the sale of the Company's Martell, California operations
in March 1997, the Company received notes receivable from the purchaser in the
amount of $270 million. These notes are included in "Other assets" on the
Georgia-Pacific Group's balance sheet at June 30, 1997. In April 1997, the
Company monetized these notes receivable through the issuance of notes payable
in a private placement. Proceeds from the notes receivable will be used to
fund payments required for the notes payable. The notes payable are classified
as "Other long-term liabilities" on the Georgia-Pacific Group's balance sheet.
At June 30, 1997, the Company had outstanding borrowings of $646 million
under certain Industrial Revenue Bonds. Approximately $15 million from the
issuance of these bonds is being held by trustees and is restricted for the
construction of certain of the Georgia-Pacific Group's capital projects.
Amounts held by trustees are classified as noncurrent assets in the
accompanying balance sheet.
The Company's total debt was $5.6 billion at June 30, 1997, including $4.6
billion allocated to the Georgia-Pacific Group and $1.0 billion allocated to
the Timber Group. The Company has a $1.5 billion unsecured revolving credit
facility that is used for direct borrowings and as support for commercial
paper and other short-term borrowings. As of June 30, 1997, $728 million of
committed credit was available in excess of all short-term borrowings
outstanding under or supported by the facility. At June 30, 1997, the
Company's weighted average interest rate on its total debt was 7.7% including
outstanding interest rate exchange agreements. At June 30, 1997, these
interest rate exchange agreements effectively converted $496 million of
floating rate obligations with a weighted average interest rate of 5.6% to
fixed rate obligations with an average effective interest rate of 9.0%. These
agreements have a weighted average maturity of approximately 1.6 years. As of
June 30, 1997, the Company's total floating rate debt exceeded related
interest rate exchange agreements by $1.4 billion.
As of June 30, 1997, the Company had registered for sale up to $500 million
of debt securities under a shelf registration statement filed with the
Securities and Exchange Commission.
In August 1995, the Board authorized management to make purchases of the
Company's common stock on the open market or in private transactions so long
as the Company's debt, including the accounts receivable sale program,
remained below $5.5 billion. During the year ended December 31, 1995, the
Company purchased and retired 618,000 shares of its common stock at an
aggregate price of $47 million on the open market. No share repurchases were
made in 1996 or the first six months of 1997 because the Company's total debt
remained above the $5.5 billion target level.
The Board has adopted a policy that earnings and cash flow generated from
the businesses of the Georgia-Pacific Group or the Timber Group will be used
only for reinvestment in the business of the Group generating such earnings
and related cash flow, for repayment of its allocated debt or for payment of
dividends on, or for the repurchase of shares of, Common Stock related to that
Group. Funds of one Group will not be loaned to or otherwise invested in the
business of the other Group.
In September 1997, the Company's Board authorized management to make
purchases of Georgia-Pacific Group stock on the open market or in private
transactions so long as Georgia-Pacific Group's total debt remains below $4.5
billion and the Company's debt is below $5.5 billion. Depending on operating
and financial considerations, debt levels of the Company and the Georgia-
Pacific Group may from time to time be above or below these thresholds.
IV-17
<PAGE>
In 1997, the Georgia-Pacific Group expects its cash flow from operations,
together with proceeds from any asset sales and available financing sources,
to be sufficient to fund planned capital investments, pay dividends and make
scheduled debt repayments.
OTHER
In February 1997, the FASB issued Financial Accounting Standard Number 128
(SFAS 128), "Earnings Per Share," that specifies the computation,
presentation, and disclosure requirements for earnings per share. The Georgia-
Pacific Group will be required to adopt the new Standard in the 1997 fourth
quarter. All prior period earnings per share data will be restated to conform
with the provisions of SFAS 128. Based on a preliminary evaluation of this
Standards' requirements, the Georgia-Pacific Group does not expect the per
share amounts reported under SFAS 128 to be materially different from those
calculated and presented under APB Opinion 15.
In June 1997, the FASB issued Financial Accounting Standard Number 130 (SFAS
130) "Reporting Comprehensive Income," that establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The Georgia-Pacific Group will be
required to adopt the new Standard in 1998. All prior periods presented will
be reported in accordance with SFAS 130 for comparative purposes.
Also in June 1997, the FASB issued Financial Accounting Standard Number 131
(SFAS 131) "Disclosure about Segments of an Enterprise and Related
Information." This statement requires companies to determine segments based on
how management makes decisions about allocating resources to segments and
measuring their performance. Disclosures for each segment are similar to those
required under current standards, with the addition of certain quarterly
disclosure requirements. SFAS 131 also requires entity-wide disclosure about
the products and services an entity provides, the countries in which it holds
material assets and reports material revenues, and its significant customers.
The Georgia-Pacific Group will be required to adopt the new standard in 1998;
prior period information will be restated. Management is evaluating the effect
of this statement on reported segment information.
The Georgia-Pacific Group expects to incur significant costs during the next
two to three years to address the impact of the so-called Year 2000 problem on
its information systems. The Year 2000 problem, which is common to most
businesses, concerns the inability of information systems, primarily computer
software programs, to properly recognize and process date-sensitive
information as the year 2000 approaches. The Georgia-Pacific Group currently
believes it will be able to modify or replace its affected systems in time to
minimize any detrimental effects on operations. While it is not possible at
present to give an accurate estimate of the cost of this work, the Georgia-
Pacific Group expects that such costs may be material to the Georgia-Pacific
Group's results of operations in one or more fiscal quarters or years, but
will not have a material adverse impact on the long-term results of
operations, liquidity or consolidated financial position of the Georgia-
Pacific Group.
For a discussion of commitments and contingencies, refer to Note 11 of the
Notes to the Georgia-Pacific Group's financial statements.
REFER TO THE "CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR'
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995" ON PAGE 20
OF THIS PROXY STATEMENT.
IV-18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of Directors of Georgia-Pacific Corporation:
We have audited the accompanying combined balance sheets of the Georgia-
Pacific Corporation--Georgia-Pacific Group (as described in Note 1) as of
December 31, 1996 and 1995 and the related combined statements of income,
Group equity, and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Georgia-Pacific
Corporation--Georgia-Pacific Group as of December 31, 1996 and 1995 and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
September 17, 1997
IV-19
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
COMBINED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31
-------------- ------------------------
1997 1996 1996 1995 1994
------ ------ ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES........................... $6,417 $6,320 $12,901 $14,195 $12,624
------ ------ ------- ------- -------
COSTS AND EXPENSES
Cost of sales, excluding
depreciation and cost of timber
harvested shown below
Timber Group...................... 214 183 424 375 311
Third parties..................... 5,050 4,732 9,801 9,763 9,501
------ ------ ------- ------- -------
TOTAL COSTS OF SALES............ 5,264 4,915 10,225 10,138 9,812
Selling, general and
administrative..................... 553 681 1,354 1,328 1,157
Depreciation and cost of timber
harvested.......................... 442 437 880 871 868
Interest............................ 196 172 354 321 372
Other (income) expense.............. (14) 73 -- -- (57)
------ ------ ------- ------- -------
Total costs and expenses........ 6,441 6,278 12,813 12,658 12,152
------ ------ ------- ------- -------
(LOSS) INCOME BEFORE INCOME TAXES,
EXTRAORDINARY ITEM AND ACCOUNTING
CHANGE............................. (24) 42 88 1,537 472
(Benefit) provision for income
taxes.............................. (1) 26 54 616 207
------ ------ ------- ------- -------
(LOSS) INCOME BEFORE EXTRAORDINARY
ITEM AND ACCOUNTING CHANGE......... (23) 16 34 921 265
Extraordinary item--loss from early
retirement of debt, net of taxes... -- (5) (5) -- (11)
Cumulative effect of accounting
change, net of taxes............... -- -- -- -- (5)
------ ------ ------- ------- -------
NET (LOSS) INCOME................... $ (23) $ 11 $ 29 $ 921 $ 249
====== ====== ======= ======= =======
PRO FORMA PER SHARE DATA:
(Loss) income before extraordinary
item and accounting change......... $(0.26) $ 0.17 $ 0.38 $ 10.21 $ 2.98
Extraordinary item--loss from early
retirement of debt, net of taxes... -- (0.05) (0.06) -- (.12)
Cumulative effect of accounting
change, net of taxes............... -- -- -- -- (.06)
------ ------ ------- ------- -------
Net (loss) income................... $(0.26) $ 0.12 $ 0.32 $ 10.21 $ 2.80
====== ====== ======= ======= =======
Average number of shares
outstanding........................ 91.1 90.5 90.6 90.2 89.1
====== ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
IV-20
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30 DECEMBER 31
-------------- -----------------------
1997 1996 1996 1995 1994
------ ------ ------- ------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY
OPERATIONS
Net (loss) income........ $ (23) $ 11 $ 29 $ 921 $ 249
Adjustments to reconcile
net (loss) income to
cash provided by
operations:
Depreciation........... 390 374 761 702 690
Cost of timber
harvested............. 52 63 119 169 178
Deferred income taxes.. (15) 16 11 (35) (37)
Amortization of
goodwill.............. 30 29 59 59 59
Stock compensation
programs.............. (15) 13 20 20 (4)
Other income........... (14) -- (39) -- (57)
(Gain) loss on sales of
assets................ (14) (11) (1) (6) 5
Change in other working
capital............... (79) 4 75 (575) (219)
Change in other assets
and other long-term
liabilities........... (24) 19 13 80 57
------ ------ ------- ------- -----
CASH PROVIDED BY
OPERATIONS.............. 288 518 1,047 1,335 921
------ ------ ------- ------- -----
CASH USED FOR INVESTING
ACTIVITIES
Property, plant, and
equipment investments... (270) (650) (1,055) (1,253) (843)
Timber contract
purchases............... (51) (28) (94) (182) (174)
Acquisition.............. -- (350) (363) -- --
Decrease (increase) in
cash restricted for
capital expenditures ... 11 62 84 (90) (13)
Proceeds from sales of
assets.................. 56 26 105 35 221
Other.................... (2) (5) (11) 1 (4)
------ ------ ------- ------- -----
CASH USED FOR INVESTING
ACTIVITIES.............. (256) (945) (1,334) (1,489) (813)
------ ------ ------- ------- -----
CASH (USED FOR) PROVIDED
BY FINANCING ACTIVITIES
Additions to (repayments
of) debt................ (6) 471 373 218 (24)
Cash dividends paid...... (45) (45) (91) (86) (72)
Other.................... 15 1 4 (20) --
------ ------ ------- ------- -----
CASH (USED FOR) PROVIDED
BY FINANCING
ACTIVITIES.............. (36) 427 286 112 (96)
------ ------ ------- ------- -----
(DECREASE) INCREASE IN
CASH.................... (4) -- (1) (42) 12
Balance at beginning of
year.................... 10 11 11 53 41
------ ------ ------- ------- -----
Balance at end of year... $ 6 $ 11 $ 10 $ 11 $ 53
====== ====== ======= ======= =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
IV-21
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
COMBINED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30, ----------------
1997 1996 1995
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash........................................... $ 6 $ 10 $ 11
------- ------- -------
Receivables, less allowances of $12, $10, and
$25, respectively............................. 1,385 957 947
------- ------- -------
Inventories
Raw materials................................ 325 415 526
Finished goods............................... 944 979 896
Supplies..................................... 292 293 280
LIFO reserve................................. (213) (222) (259)
------- ------- -------
TOTAL INVENTORIES.......................... 1,348 1,465 1,443
------- ------- -------
Deferred income tax assets..................... 129 129 123
------- ------- -------
Other current assets........................... 47 50 65
------- ------- -------
TOTAL CURRENT ASSETS....................... 2,915 2,611 2,589
------- ------- -------
Timber contracts............................... 66 58 81
------- ------- -------
Property, plant, and equipment
Land and improvements........................ 413 408 305
Buildings.................................... 1,314 1,352 1,122
Machinery and equipment...................... 11,738 11,601 10,482
Construction in progress..................... 381 302 598
------- ------- -------
TOTAL PROPERTY, PLANT, AND EQUIPMENT, AT
COST...................................... 13,846 13,663 12,507
Accumulated depreciation....................... (7,452) (7,128) (6,521)
------- ------- -------
Property, plant, and equipment, net............ 6,394 6,535 5,986
------- ------- -------
Goodwill....................................... 1,628 1,658 1,714
------- ------- -------
Other assets................................... 907 630 617
------- ------- -------
TOTAL ASSETS............................... $11,910 $11,492 $10,987
======= ======= =======
LIABILITIES AND GROUP EQUITY
Current liabilities
Short term debt................................ $ 1,112 $ 922 $ 397
Accounts payable............................... 551 661 642
Accrued compensation........................... 182 196 218
Accrued interest............................... 74 85 87
Other current liabilities...................... 341 336 272
------- ------- -------
TOTAL CURRENT LIABILITIES.................. 2,260 2,200 1,616
------- ------- -------
Long term debt, excluding current portion........ 3,495 3,340 3,479
------- ------- -------
Other long term liabilities...................... 1,541 1,272 1,199
------- ------- -------
Deferred income tax liabilities.................. 972 987 967
------- ------- -------
Commitments and contingencies
Group equity..................................... 3,642 3,693 3,726
------- ------- -------
TOTAL LIABILITIES AND GROUP EQUITY......... $11,910 $11,492 $10,987
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
IV-22
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
COMBINED STATEMENTS OF GROUP EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30 DECEMBER 31
-------------- ----------------------
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
GROUP EQUITY BALANCE, BEGINNING OF
PERIOD............................... $3,693 $3,726 $3,726 $2,837 $2,607
Net (loss) income..................... (23) 11 29 921 249
Cash dividends paid................... (45) (45) (91) (86) (72)
Other................................. 17 5 29 54 53
------ ------ ------ ------ ------
GROUP EQUITY BALANCE, END OF PERIOD... $3,642 $3,697 $3,693 $3,726 $2,837
====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
IV-23
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Georgia-Pacific Corporation, a Georgia corporation ("Georgia-Pacific" or the
"Company"), is broadly engaged in two lines of business: the manufacture and
sale of pulp and paper products (including pulp, communication papers,
containerboard, packaging and tissue products) and of a wide variety of
manufactured building products (including plywood, oriented strand board,
various industrial wood products, and softwood and hardwood lumber) as well as
certain non-wood products including gypsum board and chemicals. All of such
products are manufactured in whole or in part from timber or other wood fiber
sources. The Company owns or controls approximately 5.8 million acres of
timberland, which in 1996 have supplied approximately 25% of the overall
timber and wood fiber requirements of the Company's manufacturing operations.
The Board of Directors (the "Board") of the Company has recommended
shareholder approval of a proposal, (the "Letter Stock Proposal"), that would
create two classes of common stock that are intended to reflect separately the
performance of the Company's manufacturing and timber businesses. Under the
Letter Stock Proposal, the Company's Articles of Incorporation (the
"Articles") would be amended and restated (the "Restated Articles") to (i)
designate a new class of Georgia-Pacific Corporation--Timber Group Common
Stock, $.80 par value per share (the "Timber Stock"), consisting of 250
million authorized shares, (ii) redesignate each authorized share of existing
Common Stock, $.80 par value per share (the "Existing Common Stock") as, and
convert each share into, one share of Georgia-Pacific Corporation--Georgia-
Pacific Group Common Stock, $.80 par value per share (the "Georgia-Pacific
Group Stock"), (iii) increase the number of shares of Georgia-Pacific Group
Stock authorized for issuance from 150 million shares to 400 million shares,
(iv) authorize the distribution of Timber Stock to the holders of Georgia-
Pacific Group Stock as a dividend on the basis of one share of Timber Stock
for each outstanding share of Georgia-Pacific Group Stock (the
"Distribution").
The Company's manufacturing and timber businesses are referred to
hereinafter as the "Georgia-Pacific Group" and the "Timber Group,"
respectively, or collectively as the "Groups."
The Georgia-Pacific Group is a manufacturer and distributor of building
products, as well as a producer of pulp and paper products. The Georgia-
Pacific Group's operations also include a procurement function which is
responsible for purchasing timber and wood fiber for all of the Georgia-
Pacific Group's manufacturing facilities. The Timber Group is engaged
primarily in the growing and selling of timber. In addition, the Timber Group
is engaged in certain businesses related to ownership and management of its
timber operations, including managing real estate development, hunting leases
and mineral reserves, and seedling production.
The financial statements of the Groups comprise all of the accounts included
in the corresponding consolidated financial statements of the Company. The
separate Group combined financial statements give effect to the accounting
policies that will be applicable upon implementation of the Letter Stock
Proposal. The separate Georgia-Pacific Group and Timber Group financial
statements have been prepared on a basis that management believes to be
reasonable and appropriate and include (i) the historical balance sheets,
results of operations, and cash flows of businesses that comprise each of the
Groups, with all significant intragroup transactions and balances eliminated,
(ii) in the case of the Timber Group's financial statements, corporate assets
and liabilities of the Company and related transactions identified with the
Timber Group, including allocated portions of the Company's debt and selling,
general and administrative costs, and (iii) in the case of the Georgia-Pacific
Group's financial statements, all other corporate assets and liabilities and
related transactions of the Company, including allocated portions of the
Company's debt and selling, general and administrative costs. Intergroup
timber sales between the Georgia-Pacific Group and the Timber Group have not
been eliminated in the Groups' financial statements.
IV-24
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Notwithstanding the allocation of assets and liabilities (including
contingent liabilities) and shareholders' equity between the Georgia-Pacific
Group and the Timber Group for the purpose of preparing the respective
financial statements of such Groups, holders of Georgia-Pacific Group Stock
and Timber Stock will be shareholders of the Company and will continue to be
subject to all of the risks associated with an investment in the Company and
all of its businesses, assets, and liabilities. Such allocation of assets and
liabilities and change in the equity structure of the Company contemplated by
the Letter Stock Proposal will not result in a distribution or spin-off of any
assets or liabilities of the Company or otherwise affect ownership of any
assets or responsibility for the liabilities of the Company or any of its
subsidiaries. As a result, the Letter Stock Proposal will not affect the
rights of holders of the Company's or any of its subsidiaries' debt.
Holders of Georgia-Pacific Group Stock and Timber Stock will have only the
rights customarily held by common shareholders of the Company and will not
have any rights related to their corresponding Group except as set forth in
provisions relating to dividend and liquidation rights and requirements for a
mandatory dividend, redemption or conversion upon the disposition of assets of
their corresponding Group, or have any right to vote on matters as a separate
voting group other than in limited circumstances as provided under Georgia law
or by stock exchange rules. The relative voting power of Georgia-Pacific Group
Stock and Timber Stock will fluctuate from time to time, with each share of
Georgia-Pacific Group Stock having one vote and each share of Timber Stock
having a number of votes, based upon the ratio, over a specified period, of
the time-weighted average market values of one share of Timber Stock and of
one share of Georgia-Pacific Group Stock. This formula is intended to give
each class of common stock a number of votes proportionate to its aggregate
market capitalization at the time of any vote. Accordingly, changes in the
market value of Georgia-Pacific Group Stock and Timber Stock will affect the
relative voting rights of a class of common stock. It is expected that
initially the Georgia-Pacific Group will have a substantial majority of the
voting power of the Company.
Financial effects arising from either Group that affect the Company's
results of operations or financial condition could, if significant, affect the
results of operations or financial condition of the other Group and the market
price of the class of common stock relating to the other Group. Any net losses
of the Georgia-Pacific Group or the Timber Group and dividends or
distributions on, or repurchases of, Georgia-Pacific Group Stock or Timber
Stock will reduce the assets of the Company legally available for payment of
dividends on both the Georgia-Pacific Group Stock and the Timber Stock.
The Board may, in its sole discretion, determine to convert shares of the
class of common stock related to one Group into the class of the common stock
related to the other Group, at any time at a 15% premium, or at a 10% premium
in the case of certain dispositions of all or substantially all of the
properties or assets of the Group whose stock is being converted. Any
conversion at any premium would dilute the interests in the Company of the
holders of the class of common stock being issued in the conversion. In
addition, any such conversion of a class of common stock into another class of
common stock would preclude holders of both classes of common stock from
retaining their investment in a security that is intended to reflect
separately the performance of the relevant Group.
The management and accounting policies applicable to the preparation of the
financial statements of the Georgia-Pacific Group and the Timber Group may be
modified or rescinded, or additional policies may be adopted, at the sole
discretion of the Board at any time without approval of the shareholders.
The Georgia-Pacific Group's combined financial statements reflect the
application of the management and allocation policies adopted by the Board to
various corporate activities, as described below. The Georgia-Pacific Group's
combined financial statements should be read in conjunction with the Company's
consolidated financial statements and the Timber Group's combined financial
statements.
IV-25
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FINANCIAL ACTIVITIES
The Company manages most financial activities of the Georgia-Pacific Group
and Timber Group on a centralized basis. Such financial activities include the
issuance, repayment, and repurchase of short-term and long-term debt; the
issuance and repurchase of common stock, and the payment of dividends.
At June 30, 1997, $1 billion of the Company's debt was allocated to the
Timber Group and $4.6 billion was allocated to the Georgia-Pacific Group. The
Company has not allocated specific debt securities or instruments to either
Group. The debt of each Group bears interest at a rate equal to the weighted
average interest rate of all of the Company's debt calculated on a quarterly
basis. Expenses related to the debt are reflected in the weighted average
interest rate. Management believes such method of allocation is equitable and
provides a reasonable estimate of the cost attributable to the Groups.
Each Group's debt will increase or decrease by the amount of any net cash
generated by, or required to fund, the Group's operating activities, investing
activities, dividend payments, share repurchases, and other financing
activities. Interest will be charged to each Group in proportion to the
respective amount of each Group's debt. Changes in the cost of the Company's
debt will be reflected in adjustments in the weighted average interest cost of
such debt. Dividend costs with respect to any preferred stock issued by the
Company will be charged in a similar manner.
ALLOCATION OF SHARED SERVICES
A portion of the Company's shared selling, general and administrative
expenses (such as executive management, human resources, legal, accounting and
auditing, tax, treasury, strategic planning, information systems support, and
environmental services) has been allocated to the Georgia-Pacific Group based
upon utilization of such services by the Georgia-Pacific Group. Where
determinations based on utilization alone have been impracticable, other
methods and criteria were used that management believes are equitable and
provide a reasonable estimate of the cost attributable to the Georgia-Pacific
Group. The total of these allocations were $352 million, $307 million, and
$221 million in 1996, 1995, and 1994, respectively. It is not practicable to
provide a detailed estimate of the expenses which would be recognized if the
Georgia-Pacific Group were a separate legal entity.
ALLOCATION OF EMPLOYEE BENEFITS
A portion of the Company's employee benefit costs, including pension and
postretirement health care and life insurance benefits, has been allocated to
the Georgia-Pacific Group. The Georgia-Pacific Group's pension cost related to
its participation in the Company's noncontributory defined benefit pension
plan and other employee benefit costs related to its participation in the
Company's postretirement health care and life insurance plans are actuarially
determined based on its respective employees and an allocable share of the
plan assets and are calculated in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 87 and SFAS No. 106, respectively.
Since plan assets are not segregated into separate accounts or restricted to
providing benefits to employees of the Georgia-Pacific Group, assets of the
Company's employee benefit plans may be used to provide benefits to employees
of both the Georgia-Pacific Group and the Timber Group. Plan assets have been
allocated to the Georgia-Pacific Group based on the percentage of its
projected benefit obligation to the plans' total projected benefit
obligations. Management believes that such method of allocation is equitable
and provides a reasonable estimate of the cost attributable to the Georgia-
Pacific Group.
The discussion of the Georgia-Pacific Group's retirement plans (Note 9)
should be read in conjunction with the Company's consolidated financial
statements and notes thereto.
IV-26
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
ALLOCATION OF FEDERAL AND STATE INCOME TAXES
The federal income taxes of the Company and the subsidiaries which own
assets allocated between the Groups are determined on a consolidated basis.
Consolidated federal income tax provisions and related tax payments or refunds
will be allocated between the Groups based principally on the taxable income
and tax credits directly attributable to each Group. Such allocations will
reflect each Group's contribution (positive or negative) to the Company's
consolidated federal taxable income and the consolidated federal tax liability
and tax credit position. Tax benefits that cannot be used by the Group
generating those benefits but can be used on a consolidated basis will be
credited to the Group that generated such benefits. Accordingly, the amounts
of taxes payable or refundable which will be allocated to each Group may not
necessarily be the same as that which would have been payable or refundable
had the Group filed a separate income tax return.
Depending on the tax laws of the respective jurisdictions, state and local
income taxes are calculated on either a consolidated or combined basis or on a
separate corporation basis. State income tax provisions and related tax
payments or refunds determined on a consolidated or combined basis will be
allocated between the Groups based on their respective contributions to such
consolidated or combined state taxable incomes. State and local income tax
provisions and related tax payments which are determined on a separate
corporation basis will be allocated between the Groups in a manner designed to
reflect the respective contributions of the Groups to the corporation's
separate state or local taxable income.
The discussion of the Georgia-Pacific Group's income taxes (Note 8) should
be read in conjunction with the Company's consolidated financial statements
and notes thereto.
DIVIDENDS
For purposes of the historical financial statements of the Georgia-Pacific
Group and the Timber Group, all dividends declared and paid by the Company
were evenly allocated between the Groups. Management believes that such method
of allocation is equitable and provides a reasonable estimate of the dividends
which may have been declared and paid in respect of each class of common
stock.
REVENUE RECOGNITION
The Georgia-Pacific Group recognizes revenue when title to the goods sold
passes to the buyer, which is generally at the time of shipment.
INCOME PER SHARE
Historical income per share is omitted from the statements of income because
the Georgia-Pacific Group Stock was not part of the capital structure of the
Company for the periods presented. Following implementation of the Letter
Stock Proposal, the method of calculating income per share for the Georgia-
Pacific Group Stock will reflect the terms of the proposed amendments to the
Company's Articles and will be computed by dividing the net income of the
Georgia-Pacific Group by the weighted average number of shares of Georgia-
Pacific Group Stock outstanding during the applicable period. The effects of
assuming issuance of Georgia-Pacific Group Stock on a pro forma basis under
existing long-term incentive, stock option, and stock purchase plans will
either be insignificant or antidilutive. Pro forma income per share,
reflecting the Georgia-Pacific Group Stock issued under the Letter Stock
Proposal, is presented in the Georgia-Pacific Group's statements of income.
IV-27
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INVENTORY VALUATION
Inventories are valued at the lower of average cost or market and include
the costs of materials, labor, and manufacturing overhead. The last-in, first-
out ("LIFO") dollar value pool method was used to determine the cost of
approximately 58% and 62% of inventories at December 31, 1996 and 1995,
respectively. The cost for the remaining portion of the inventories was
determined using the year-to-date average actual cost.
TIMBER CONTRACTS
The Georgia-Pacific Group capitalizes purchases of standing timber related
to its timber and wood fiber procurement function, and does not purchase
timberland. The cost of timber harvested is calculated by individual tract and
is based on the volume of timber harvested and its capitalized cost.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Lease obligations for
which the Georgia-Pacific Group assumes or retains substantially all the
property rights and risks of ownership are capitalized. Replacements of major
units of property are capitalized, and the replaced properties are retired.
Replacements of minor components of property and repair and maintenance costs
are charged to expense as incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Useful lives are 25 years for land
improvements, 20 to 45 years for buildings, and 3 to 20 years for machinery
and equipment. Upon retirement or disposition of assets, cost and accumulated
depreciation are removed from the related accounts, and any gain or loss is
included in income.
The Georgia-Pacific Group capitalizes incremental costs that are directly
associated with the development of software for internal use and
implementation of the related systems. Amounts are amortized over five years
beginning when the assets are placed in service. Capitalized costs were $121
million at December 31, 1996 and $65 million at December 31, 1995. Amounts are
included as property, plant, and equipment in the Georgia-Pacific Group's
balance sheets.
The Georgia-Pacific Group capitalizes interest on projects when construction
takes considerable time and entails major expenditures. Such interest is
charged to the property, plant, and equipment accounts and is amortized over
the approximate life of the related assets. Interest capitalized, expensed,
and paid was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Total interest costs............................... $ 385 $ 360 $ 379
Interest capitalized............................... (31) (39) (7)
------- ------- -------
Interest expense................................... $ 354 $ 321 $ 372
======= ======= =======
Interest paid by the Company....................... $ 488 $ 470 $ 514
======= ======= =======
Portion of interest paid charged to the Georgia-
Pacific Group..................................... $ 383 $ 359 $ 400
======= ======= =======
</TABLE>
IV-28
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
LANDFILLS AND LAGOONS
The Georgia-Pacific Group accrues for landfill closure costs over the
periods that benefit from the use of the landfill and accrues for lagoon
clean-out costs over the useful period between clean-outs.
GOODWILL
The Georgia-Pacific Group amortizes costs in excess of fair value of net
assets of businesses acquired using the straight-line method over a period not
to exceed 40 years. Recoverability is reviewed annually or sooner if events or
changes in circumstances indicate that the carrying amount may exceed fair
value. Recoverability is then determined by comparing the undiscounted net
cash flows of the assets to which the goodwill applies to the net book value,
including goodwill of those assets.
Amortization expense was $59 million in 1996, 1995, and 1994. Accumulated
amortization at December 31, 1996 and 1995 was $425 million and $366 million,
respectively.
ENVIRONMENTAL MATTERS
The Georgia-Pacific Group recognizes a liability for environmental
remediation costs when it believes that it is probable that a liability has
been incurred and the amount can be reasonably estimated. The liabilities are
developed based on currently available information and reflect the
participation of other potentially responsible parties depending on the
parties' financial condition and probable contribution. The accruals are
recorded at undiscounted amounts and are reflected as other liabilities in the
accompanying balance sheets.
Environmental costs are generally capitalized when the costs improve the
condition of the property or the costs prevent or mitigate future
contamination. All other costs are expensed.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements as well as reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
these estimates.
RECENT ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share," which specifies the computation,
presentation, and disclosure requirements for earnings per share. The Georgia-
Pacific Group will be required to adopt the new standard in the 1997 fourth
quarter. Based on a preliminary evaluation of this standard's requirements,
the Georgia-Pacific Group does not expect the per share amounts reported under
SFAS No. 128 to be materially different from the pro forma per share amounts
calculated and presented under APB Opinion 15.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The Georgia-Pacific Group will be required to adopt the
new standard in 1998. All prior periods presented will be reported in
accordance with SFAS No. 130 for comparative purposes.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments
of an Enterprise and Related Information." This statement requires companies
to determine segments based on how management
IV-29
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
makes decisions about allocating resources to segments and measuring their
performance. Disclosures for each segment are similar to those required under
current standards, with the addition of certain quarterly disclosure
requirements. SFAS No. 131 also requires entity-wide disclosure about the
products and services an entity provides, the countries in which it holds
material assets and reports material revenues, and its significant customers.
The Georgia-Pacific Group will be required to adopt the new standard in 1998.
Management is evaluating the effect of this statement on its reporting of
segment information.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed combined interim financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and in accordance with the Securities and
Exchange Commission's rules and regulations for interim reporting.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Georgia-Pacific Group's management, the unaudited
combined interim financial statements include all adjustments, consisting of
only normal recurring adjustments, necessary to present fairly such interim
financial information.
2. FACTORS AFFECTING THE GEORGIA-PACIFIC GROUP'S BUSINESS
CYCLICALITY AND VOLATILITY OF EARNINGS
The pulp and paper industry and, to a lesser extent, the building products
industry, are subject to highly cyclical earnings patterns which in recent
years have become more volatile. This cyclicality is attributed in large
measure to capital spending patterns in these industries. Historically, the
Company and its competitors have tended to invest large amounts of capital in
building new manufacturing plants and in maintaining and rebuilding existing
manufacturing facilities. These capital investments typically have been made
at or shortly after earnings peaks. Given the long periods of time required to
build new facilities and install new manufacturing equipment (generally 18-36
months), new manufacturing capacity in both the pulp and paper and the
buildings products industries has frequently come on-line at times when prices
for these products are falling, thus exacerbating supply and demand imbalances
and causing the prices of many of the Company's products to fall sharply.
Furthermore, the Georgia-Pacific Group's position as one of the leading
worldwide manufacturers of several key products that are essentially
commodities has further exacerbated the volatility of the Company's earnings.
This increased volatility results from the fact that relatively minor
movements in the price of finished products cause major fluctuations in the
Georgia-Pacific Group's operating income due to the significant percentage of
worldwide volume produced by it. There can be no assurance that the
cyclicality that has characterized the pulp and paper and the building
products industries in the past will not continue or increase in future years.
RAW MATERIALS
The Georgia-Pacific Group relies on supplies of timber and wood fiber to
manufacture its wood products and pulp, the latter of which it processes
further in the production of a variety of paper products and tissue.
Historically, the Georgia-Pacific Group has purchased approximately 25% of its
timber and wood fiber needs from its own timberlands, and the remainder from a
large number of other suppliers. Under the operating policy governing future
sales of timber and wood fiber by the Timber Group to the Georgia-Pacific
Group, the Timber Group will continue to supply a portion of the Georgia-
Pacific Group's needs for these raw materials. For a discussion of the
operating policy governing future sales of timber and wood fiber by the Timber
Group to the Georgia-Pacific Group, see Note 12 "Related Party Transactions."
IV-30
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Because the Georgia-Pacific Group is highly dependent on supplies of timber
and wood fiber, risk factors associated with suppliers' operations and the
forest industry in general, including harvesting limitations, competition and
environmental regulation, could affect the Georgia-Pacific Group's results of
operations.
COMPETITION
The Georgia-Pacific Group experiences competition in virtually all of its
product lines from both large and small producers. Because most of its
products are essentially commodities, it competes principally on the basis of
price. Competition is intense, particularly in periods of excess supply.
Increased competitive pressures could have a material adverse effect on the
net sales, operating income and cash flows of the Georgia-Pacific Group.
ENVIRONMENTAL REGULATION
The Georgia-Pacific Group's key businesses also are subject to extensive
environmental regulation that has resulted and in the next few years will
result in major capital expenditures and modifications to production processes
to assure compliance. Among these requirements are the Clean Air Act, the
Clean Water Act, and the so-called "Cluster Rule." If the Cluster Rule is
enacted as currently proposed, the Georgia-Pacific Group estimates that
capital expenditures of approximately $550 million will be required over the
next eight years to comply with the Cluster Rule's requirements. Of such
amount, expenditures of approximately $300 million will be required within
three years of the Cluster Rule's effective date, which is expected to be in
the fourth quarter of 1997. The Georgia-Pacific Group is also subject to other
federal and state laws, including the Resource Conservation and Recovery Act
and the Comprehensive Environmental Response, Compensation and Liability Act.
There can be no assurance that such laws or future legislation or
administrative or judicial action with respect to protection of the
environment will not have a material adverse effect on net sales, operating
income or cash flows of the Georgia-Pacific Group.
3. INDUSTRY SEGMENT INFORMATION
The Georgia-Pacific Group is a building products and pulp and paper company.
Manufactured products in the building products segment consist primarily of
wood panels (plywood, oriented strand board, hardboard, and particleboard),
lumber, gypsum products, and chemicals. The distribution division of this
segment sells a wide range of building products manufactured by the Georgia-
Pacific Group or purchased from others. This segment of the business is
primarily affected by the level of housing starts; the level of repairs,
remodeling, and additions; industrial markets; commercial building activity;
the availability and cost of financing; and changes in industry capacity.
The Georgia-Pacific Group's pulp and paper segment produces containerboard
and packaging (linerboard, medium, bleached board, kraft paper, and corrugated
packaging), communication papers, market pulp, and tissue. Markets for this
segment are affected primarily by changes in industry capacity, the level of
economic growth in the United States and export markets, and fluctuations in
currency exchange rates.
The Georgia-Pacific Group has a large and diverse customer base, which
includes some customers located in foreign countries. Sales to foreign markets
in 1996, 1995, and 1994 were 8%, 10%, and 8%, respectively. These sales were
primarily to customers in Asia, Europe, and Latin America. No single
unaffiliated customer accounted for more than 10% of total sales in any year
during that period.
The Georgia-Pacific Group employs approximately 47,000 people at more than
400 facilities primarily located throughout the United States and Canada.
IV-31
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
NET SALES
Building products................................... $ 7,260 $ 7,196 $ 7,455
Pulp and paper...................................... 5,609 6,962 5,138
Other operations.................................... 32 37 31
------- ------- -------
Total net sales................................... $12,901 $14,195 $12,624
======= ======= =======
OPERATING PROFITS*
Building products................................... $ 201 $ 395 $ 791
Pulp and paper...................................... 390 1,611 204
Other operations.................................... 5 8 13
------- ------- -------
Total operating profits........................... 596 2,014 1,008
General corporate expense........................... (154) (156) (164)
Interest expense.................................... (354) (321) (372)
Provision for income taxes.......................... (54) (616) (207)
------- ------- -------
Income before extraordinary item and accounting
change............................................. 34 921 265
Extraordinary item--loss from early retirement of
debt, net of taxes (5) -- (11)
Cumulative effect of accounting change, net of tax-
es................................................. -- -- (5)
------- ------- -------
Net income.......................................... $ 29 $ 921 $ 249
======= ======= =======
DEPRECIATION, COST OF TIMBER HARVESTED, AND GOODWILL
AMORTIZATION
Building products................................... $ 347 $ 329 $ 323
Pulp and paper...................................... 568 576 586
Other and general corporate......................... 24 25 18
------- ------- -------
Total depreciation, cost of timber harvested, and
goodwill amortization............................ $ 939 $ 930 $ 927
======= ======= =======
CAPITAL EXPENDITURES**
Building products................................... $ 836 $ 576 $ 394
Pulp and paper...................................... 452 599 410
Timber contracts.................................... 94 182 174
Other and general corporate......................... 115 78 39
------- ------- -------
Total capital expenditures........................ $ 1,497 $ 1,435 $ 1,017
======= ======= =======
ASSETS
Building products................................... $ 3,356 $ 2,631 $ 2,009
Pulp and paper...................................... 7,185 7,342 6,917
Timber contracts.................................... 58 81 71
Other and general corporate......................... 893 933 523
------- ------- -------
Total assets...................................... $11,492 $10,987 $ 9,520
======= ======= =======
</TABLE>
- --------
* Segment operating profits include expenses of $117 million in 1996 and $70
million in 1995 for the restructuring of the Georgia-Pacific Group's
building products distribution business, gains on major asset sales of $39
million in 1996 and $57 million in 1994, and $39 million of net expenses in
1996 primarily related to an early retirement program. With the exception
of distribution business restructuring charges, these items are included in
"Other income" on the income statement. If these amounts had been excluded
IV-32
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
from segment operating profits, building products operating profits would
have been $613 million in 1996, $739 million in 1995, and $989 million in
1994. Pulp and paper operating profits would have been $410 million in 1996
and $171 million in 1994.
** Capital expenditures represent additions (at cost) to property, plant, and
equipment and timber contracts.
4. ACQUISITIONS AND DIVESTITURES
The following acquisitions and divestitures were completed during the years
1996 and 1994:
. In April 1996, the Georgia-Pacific Group completed the purchase of
Domtar Inc.'s gypsum wallboard business for $363 million in cash.
Domtar's gypsum business included nine United States wallboard
manufacturing plants, four Canadian wallboard plants, three joint
compound plants, an industrial plaster plant, and a gypsum paperboard
plant.
. In September 1996, the Georgia-Pacific Group completed the sale of two
gypsum wallboard facilities in Buchanan, New York, and Wilmington,
Delaware. The sale resulted in after-tax cash proceeds of approximately
$39 million. The Georgia-Pacific Group had agreed with the United States
Department of Justice to sell these plants in order to complete the
Domtar acquisition. The Georgia-Pacific Group recognized a pretax gain
of $39 million ($24 million after taxes).
. In February 1994, the Georgia-Pacific Group completed the sale of five
roofing plants located in Oklahoma, Texas, Ohio, Georgia, and
Pennsylvania. The sale resulted in after-tax cash proceeds of
approximately $39 million. The Georgia-Pacific Group recognized a pretax
gain of $24 million ($15 million after taxes).
. In February 1994, the Georgia-Pacific Group completed the sale of its
envelope manufacturing business, which included 15 envelope
manufacturing plants and certain assets of another plant. The sale
resulted in after-tax cash proceeds of approximately $117 million. The
Georgia-Pacific Group recognized a pretax gain of $39 million ($24
million after taxes).
Except for the gains on divestitures discussed above, acquisitions and
divestitures did not have a material effect on the sales or net income of the
Georgia-Pacific Group.
On March 31, 1997, the Company sold its Martell, California operations for
$308 million. Assets included in this transaction were 127,000 acres of
timberlands allocated to the Timber Group, and a sawmill and a particleboard
plant allocated to the Georgia-Pacific Group. In conjunction with the sale of
its Martell operations, the Company received notes receivable from the
purchaser in the amount of $270 million related to the timberlands. The
Company, in April 1997, monetized the notes receivable through the issuance of
notes payable in a private placement. The proceeds of this transaction were
credited to the Timber Group through the intergroup account. The notes
receivable are included in other assets and the notes payable are classified
as other long-term liabilities on the Georgia-Pacific Group's balance sheet.
The Georgia-Pacific Group recognized a pretax gain of approximately $14
million on the portion of the sale allocated to the sawmill and the
particleboard plant, which is included in other income in the accompanying
statements of income.
5. RECEIVABLES
The Georgia-Pacific Group has a large, diversified customer base, which
includes some customers that are located in foreign countries. The Georgia-
Pacific Group closely monitors extensions of credit and has not experienced
significant losses related to its receivables. In addition, a portion of the
receivables from foreign sales is covered by confirmed letters of credit to
help ensure collectibility.
IV-33
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Supplemental information on the accounts receivable balances at December 31,
1996 and 1995 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
Receivables
Trade........................................................ $883 $888
Other........................................................ 84 84
------ ------
967 972
Less allowances................................................ 10 25
------ ------
Receivables, net............................................... $ 957 $ 947
====== ======
</TABLE>
The Georgia-Pacific Group had sold fractional ownership interests in a
defined pool of trade accounts receivable for $350 million as of December 31,
1996 and 1995. The sold accounts receivable are excluded from receivables in
the accompanying balance sheets. The full amount of the allowance for doubtful
accounts has been retained because the Georgia-Pacific Group has retained
substantially the same risk of credit loss as if the receivables had not been
sold. A portion of the cost of the accounts receivable sale program is based
on the purchasers' level of investment and borrowing costs. The Georgia-
Pacific Group pays fees based on the Company's senior debt ratings. The total
cost of the program, which was $20 million in 1996, $37 million in 1995, and
$33 million in 1994, is included in interest expense in the accompanying
statements of income.
Under the accounts receivable sale agreement, the maximum amount of the
purchasers' investment is subject to change based on the level of eligible
receivables and restrictions on concentrations of receivables. During 1995,
the Georgia-Pacific Group repurchased $350 million of receivables in order to
reduce the cost of the program, which was higher than the cost of financing
from alternative sources. The program has been extended to May 1998.
In June 1996, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," which established
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities. The Georgia-Pacific Group adopted
the new standard in the 1997 first quarter. As of June 30, 1997, the Georgia-
Pacific Group's accounts receivable program is accounted for as a secured
borrowing; the receivables and the corresponding debt are included as an asset
and liability, respectively, on the balance sheet.
IV-34
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. INDEBTEDNESS
The Company's debt includes the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
Debentures, 9% average rate, payable through 2025.......... $3,200 $3,350
Notes, 7.8% average rate, payable through 2006............. 817 717
Revenue bonds, 4.9% average rate, payable through 2026..... 646 628
Other loans, 8.1% average rate, payable through 2012....... 45 53
Less unamortized discount.................................. (26) (29)
------ ------
4,682 4,719
Less long-term portion of debt............................. 4,371 4,704
------ ------
Current portion of long-term debt.......................... 311 15
Commercial paper and other short-term notes, 5.7% average
rate...................................................... 645 321
Bank overdrafts, net....................................... 251 201
------ ------
Total short-term debt.................................. 1,207 537
------ ------
Total debt............................................. $5,578 $5,241
====== ======
Georgia-Pacific Group's portion of Company debt:
Short-term debt.......................................... $ 922 $ 397
Long-term debt, excluding current portion................ 3,340 3,479
------ ------
Georgia-Pacific Group's total debt..................... $4,262 $3,876
====== ======
Timber Group's portion of Company debt:
Short-term debt.......................................... $ 285 $ 140
Long-term debt, excluding current portion................ 1,031 1,225
------ ------
Timber Group's total debt.............................. $1,316 $1,365
====== ======
Weighted average interest rate on Company debt at period-
end....................................................... 7.7% 8.1%
====== ======
</TABLE>
For additional information regarding financial instruments, see Note 7.
The scheduled maturities of the Company's long-term debt for the next five
years are as follows: $311 million in 1997, $439 million in 1998, $21 million
in 1999, $40 million in 2000, and $12 million in 2001.
NOTES AND DEBENTURES
During 1996, the Company issued $100 million of 7.2% notes due December 15,
2006.
In 1996, the Company redeemed $150 million of its 9.25% debentures due March
15, 2016. The Company recorded an after-tax extraordinary loss of
approximately $5 million related to this redemption which was recognized in
the Georgia-Pacific Group's results of operations.
During 1995, the Company issued $250 million of 8 5/8% Debentures Due April
30, 2025, $250 million of 7.7% Debentures Due June 15, 2015, and $250 million
of 7 3/8% Debentures Due December 1, 2025.
In 1995, the Company redeemed approximately $203 million of its outstanding
debt. The after-tax loss on this redemption was less than $1 million.
IV-35
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
REVOLVING CREDIT FACILITY
In 1996, the Company entered into an agreement with Bank of America National
Trust and Savings Association and 19 other domestic and international banks
which provides an unsecured revolving credit facility of $1.5 billion. The
revolving credit facility is being used for direct borrowings and as support
for commercial paper and other short-term borrowings. The agreement will
terminate in 2001. As of December 31, 1996, $856 million of committed credit
was available in excess of all short-term borrowings outstanding under or
supported by the facility.
Borrowings under the agreement bear interest, at the election of the
Company, at either (A) the higher of the Federal Funds Rate plus 1/2% or the
stipulated bank lending rate or (B) LIBOR plus .2625% or (C) fixed or floating
rates set by competitive bids. Fees associated with this revolving credit
facility include a commitment fee of .0625% per annum on the unused portion of
the commitments and a facility fee of .0625% per annum on the aggregate
commitments of the lenders. Fees and margins may be adjusted upward or
downward according to a pricing grid based on the Company's long-term debt
ratings. At December 31, 1996, $465 million was borrowed under the credit
agreement at a weighted average interest rate of 5.7%.
The revolving credit agreement contains certain restrictive covenants. The
covenants include a maximum leverage ratio (funded indebtedness to operating
cash flow) of 4.5 to 1.0, which is to be maintained by the Company throughout
the term of the credit agreement. As of December 31, 1996, the Company's
leverage ratio was 3.3 to 1.0.
COMMERCIAL PAPER AND OTHER SHORT-TERM NOTES
These borrowings are classified by the Company as current liabilities,
although all or a portion of them might be refinanced on a long-term basis in
1997.
REVENUE BONDS
At December 31, 1996, the Company had outstanding borrowings of
approximately $646 million under certain industrial revenue bonds,
approximately $22 million of which was entered into during 1996 at variable
interest rates. Approximately $26 million from the issuance of these bonds is
being held by trustees for the Company and is restricted for the construction
of certain capital projects of the Georgia-Pacific Group.
OTHER
At December 31, 1996, the amount of long-term debt secured by property,
plant, and equipment and timber and timberlands was not material.
In September 1995, the Company sold certain assets of the Georgia-Pacific
Group for $354 million and has agreed to lease the assets back from the
purchaser over a period of 30 years. Under the agreement with the purchaser,
the Company will maintain a deposit (initially in the amount of $322 million),
which together with interest earned is expected to be sufficient to fund the
Company's lease obligation including the repurchase of assets at the end of
the term. This transaction is being accounted for as a financing arrangement.
At December 31, 1995, the Georgia-Pacific Group recorded on its balance sheet
an asset for the deposit from the sale of $305 million and a liability for the
lease obligation of $346 million, of which approximately $16 million was
recorded as a current asset and a current liability. At December 31, 1996, the
deposit and lease obligation balances were $339 million and $340 million,
respectively.
IV-36
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1996 1995
--------------- ---------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Commercial paper and other short-term
notes (Note 6)........................... $ 645 $ 645 $ 321 $ 321
Notes and debentures (Note 6)............. 4,017 4,215 4,067 4,470
Revenue bonds (Note 6).................... 646 637 628 628
Other loans (Note 6)...................... 45 45 53 53
Interest rate exchange agreements......... * 12 * 21
Accounts receivable sale program (Note
5)....................................... 350 350 350 350
</TABLE>
- --------
* The Company's consolidated balance sheet at December 31, 1996 and 1995
included accrued interest of $6 million and $5 million, respectively,
related to these agreements.
COMMERCIAL PAPER AND OTHER SHORT-TERM NOTES
The carrying amounts approximate fair value because of the short maturities
of these instruments.
NOTES AND DEBENTURES
The fair value of notes and debentures was estimated primarily by obtaining
quotes from brokers for these and similar issues. For notes and debentures for
which there are no quoted market prices, the fair value was estimated by
calculating the present value of anticipated cash flows. The discount rate
used was an estimated borrowing rate for similar debt instruments with like
maturities.
REVENUE BONDS AND OTHER LOANS
The fair value of revenue bonds and other loans was estimated by calculating
the present value of anticipated cash flows. The discount rate used was an
estimated borrowing rate for similar debt instruments with like maturities.
INTEREST RATE AND FOREIGN CURRENCY EXCHANGE AGREEMENTS
The Company has used interest rate and foreign currency exchange agreements
in the normal course of business to manage and reduce the risk inherent in
interest rate and foreign currency fluctuations.
Under the interest rate exchange agreements, the Company makes payments to
counterparties at fixed interest rates and in turn receives payments at
variable rates. The Company entered into interest rate exchange agreements in
prior years to protect against the increased cost associated with a rise in
interest rates. At December 31, 1996, the Company had outstanding interest
rate exchange agreements that effectively converted $496 million of floating
rate obligations with a weighted average interest rate of 5.7% to fixed rate
obligations with an average effective interest rate of approximately 9%. These
agreements have a weighted average maturity of approximately 2.1 years. As of
December 31, 1996, the Company's total floating rate debt, including the
accounts receivable sale program, exceeded related interest rate exchange
agreements by $1,363 million.
The estimated fair value of the Company's liability under interest rate
exchange agreements at December 31, 1996 and 1995 was $12 million and $21
million, respectively, and represents the estimated amount
IV-37
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
the Company could have paid to terminate the agreements. The fair value at
December 31, 1996 and 1995 was estimated by calculating the present value of
anticipated cash flows. The discount rate used was an estimated borrowing rate
for similar debt instruments with like maturities.
The Company enters into foreign currency exchange agreements, the amounts of
which were not material to the consolidated financial position of the Company
at December 31, 1996 and 1995.
The Company may be exposed to losses in the event of nonperformance of
counterparties but does not anticipate such nonperformance.
OTHER
Due to the short-term nature of current assets and current liabilities,
their carrying amounts approximate fair value.
GEORGIA-PACIFIC GROUP'S DEBT
The estimated fair value of the Georgia-Pacific Group's debt approximates
fair market value of the Company's financial instruments discussed above.
8. INCOME TAXES
The provision for income taxes includes the Georgia-Pacific Group's
allocated portion of income taxes currently payable and those deferred because
of temporary differences between the financial statement and tax bases of
assets and liabilities. The Georgia-Pacific Group's provision for income taxes
consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1996 1995 1994
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Federal income taxes:
Current........................................ $ 37 $ 549 $ 199
Deferred....................................... 11 (28) (22)
State income taxes:
Current........................................ 4 102 45
Deferred....................................... 2 (7) (15)
------- ------- -------
Provision for income taxes....................... $ 54 $ 616 $ 207
======= ======= =======
Income taxes paid by the Company, net of re-
funds........................................... $ 135 $ 686 $ 251
======= ======= =======
Georgia-Pacific Group's portion of income taxes
paid, net of refunds............................ $ 48 $ 625 $ 216
======= ======= =======
</TABLE>
Income taxes paid by the Company during 1996 are net of refunds of
approximately $73 million, primarily related to a 1995 federal overpayment and
1991 and 1992 federal audits that related solely to taxes of the Georgia-
Pacific Group.
Income taxes paid by the Company during 1995 and 1994 included tax and
interest payments of $12 million and $84 million, respectively, to the
Internal Revenue Service to settle substantially all pending income tax issues
for years prior to 1991 that related solely to the Georgia-Pacific Group.
IV-38
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The federal statutory income tax rate was 35%. The Georgia-Pacific Group's
provision for income taxes is reconciled to the federal statutory rate as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Provision for income taxes computed at the federal
statutory tax rate............................... $ 31 $ 537 $ 165
State income taxes, net of federal benefit........ 4 62 19
Goodwill amortization............................. 23 23 23
Foreign sales corporation......................... (7) (9) (5)
Meals and entertainment disallowance.............. 4 3 3
Other............................................. (1) -- 2
------ ------- -------
Provision for income taxes........................ $ 54 $ 616 $ 207
====== ======= =======
</TABLE>
The components of the Georgia-Pacific Group's net deferred income tax
liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------- -------
(IN MILLIONS)
<S> <C> <C>
Deferred income tax assets:
Compensation related accruals.............................. $ 333 $ 315
Other accruals and reserves................................ 76 67
Other...................................................... (16) 12
------- -------
393 394
------- -------
Valuation allowance........................................ -- --
------- -------
393 394
------- -------
Deferred income tax liabilities:
Property, plant, and equipment............................. (1,211) (1,192)
Timber contracts........................................... (2) (2)
Other...................................................... (38) (44)
------- -------
(1,251) (1,238)
------- -------
Deferred income tax liabilities, net......................... $ (858) $ (844)
======= =======
Included in the balance sheets:
Deferred income tax assets*................................ $ 129 $ 123
Deferred income tax liabilities**.......................... (987) (967)
------- -------
Deferred income tax liabilities, net....................... $ (858) $ (844)
======= =======
</TABLE>
- --------
* Net of current liabilities of $4 million at December 31, 1996 and 1995.
** Net of long-term assets of $260 million and $267 million at December 31,
1996 and 1995, respectively.
9. RETIREMENT PLANS
DEFINED BENEFIT PENSION PLANS
Most of the Company's employees participate in noncontributory defined
benefit pension plans. These include plans which are administered solely by
the Company and union-administered multiemployer plans. The Company's funding
policy for solely administered plans is based on actuarial calculations and
the applicable
IV-39
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
requirements of federal law. Contributions to multiemployer plans are
generally based on negotiated labor contracts.
Benefits under the majority of plans for hourly employees (including
multiemployer plans) are primarily related to years of service. The Company
has separate plans for salaried employees and officers under which benefits
are primarily related to compensation and years of service. The officers' plan
is not funded and is nonqualified for federal income tax purposes.
For the Georgia-Pacific Group, plan assets consist principally of common
stocks, bonds, mortgage securities, interests in limited partnerships, cash
equivalents, and real estate. At December 31, 1996 and 1995, $65 million and
$27 million, respectively, of noncurrent prepaid pension cost was included in
other assets. Accrued pension cost of $66 million and $73 million at December
31, 1996 and 1995, respectively, was included in other long-term liabilities.
Pursuant to the provisions of SFAS No. 87, "Employers' Accounting for
Pensions," intangible assets of $3 million and $56 million were recorded as of
December 31, 1996 and 1995, respectively, in order to recognize the required
minimum liability.
The following table sets forth the Georgia-Pacific Group's actuarially-
determined share of the funded status of the solely administered plans and the
amounts recognized in the accompanying balance sheets.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------
PLANS HAVING PLANS HAVING
ASSETS IN EXCESS ACCUMULATED
OF ACCUMULATED BENEFITS IN
BENEFITS EXCESS OF ASSETS
---------------- ----------------
(IN MILLIONS)
<S> <C> <C>
Accumulated benefit obligation at November
30, 1996
Vested portion............................ $1,378 $ 92
Nonvested portion......................... 33 3
------ ----
1,411 95
Effect of projected future compensation lev-
els........................................ 12 13
------ ----
Projected benefit obligation at November 30,
1996....................................... 1,423 108
Plan assets at fair value at November 30,
1996....................................... 1,694 29
------ ----
Plan assets in excess of (less than) pro-
jected benefit obligation.................. 271 (79)
Unrecognized net (gain) loss................ (239) 20
Unrecognized prior service cost............. 42 3
Unrecognized net asset from initial applica-
tion of SFAS 87............................ (9) --
Adjustment required to recognize minimum li-
ability.................................... -- (10)
------ ----
Prepaid (accrued) pension cost at December
31, 1996................................... $ 65 $(66)
====== ====
</TABLE>
IV-40
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------
PLANS HAVING PLANS HAVING
ASSETS IN EXCESS ACCUMULATED
OF ACCUMULATED BENEFITS IN
BENEFITS EXCESS OF ASSETS
---------------- ----------------
(IN MILLIONS)
<S> <C> <C>
Accumulated benefit obligation at November
30, 1995
Vested portion............................ $ 905 $518
Nonvested portion......................... 20 14
------ ----
925 532
Effect of projected future compensation
levels..................................... 9 13
------ ----
Projected benefit obligation at November 30,
1995....................................... 934 545
Plan assets at fair value at November 30,
1995....................................... 1,148 459
------ ----
Plan assets in excess of (less than)
projected benefit obligation............... 214 (86)
Unrecognized net (gain) loss................ (165) 47
Unrecognized prior service cost............. (15) 56
Unrecognized net asset from initial
application of SFAS 87..................... (7) (11)
Adjustment required to recognize minimum
liability.................................. -- (79)
------ ----
Prepaid (accrued) pension cost at December
31, 1995................................... $ 27 $(73)
====== ====
</TABLE>
The Georgia-Pacific Group's share of the net periodic pension cost for solely
administered and union-administered pension plans included the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost of benefits earned...................... $ 82 $ 74 $ 80
Interest cost on projected benefit obligation........ 105 106 92
Actual return on plan assets......................... (296) (308) (21)
Net amortization and deferral........................ 126 166 (124)
Contributions to multiemployer pension plans......... 4 4 4
------- ------- -------
Net periodic pension cost............................ $ 21 $ 42 $ 31
======= ======= =======
</TABLE>
The following assumptions were used:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Discount rate used to determine the projected
benefit obligation................................ 7.0% 7.0% 8.5%
Rate of increase in future compensation levels used
to determine the projected benefit obligation..... 5.5 5.5 6.0
Expected long-term rate of return on plan assets
used to determine net periodic pension cost....... 10.0 10.0 10.0
</TABLE>
DEFINED CONTRIBUTION PLANS
The Company sponsors several defined contribution plans to provide eligible
employees with additional income upon retirement. The Company's contributions
to the plans are based on employee contributions and compensation. The
allocated portion of the Company's contributions related to the Georgia-Pacific
Group totaled $49 million in 1996, $45 million in 1995, and $42 million in
1994.
IV-41
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company provides certain health care and life insurance benefits to
eligible retired employees. Salaried participants generally become eligible
for retiree health care benefits after reaching age 55 with ten years of
service or after reaching age 65. Benefits, eligibility, and cost-sharing
provisions for hourly employees vary by location and/or bargaining unit.
Generally, the medical plans pay a stated percentage of most medical expenses,
reduced for any deductible and payments made by government programs and other
group coverage. Effective December 1995, the plans were funded through a trust
established for the payment of future active and retiree benefits. The trust
was funded with an initial contribution of which $31 million was allocated to
the Georgia-Pacific Group. The Company will continue to contribute to the
trust in the amounts necessary to fund current obligations of the plans.
In 1991, the Company began transferring its share of the cost of post-age 65
health care benefits to future salaried retirees. It is currently anticipated
that the Company will continue to reduce the percentage of the cost of post-
age 65 benefits that it will pay on behalf of salaried employees who retire in
each of the years 1995 through 1999 and that the Company will continue to
share the pre-age 65 cost with future salaried retirees but will no longer pay
any of the post-age 65 cost for salaried employees who retire after 1999.
The following table sets forth the status of the plans, reconciled to the
accrued postretirement benefit cost recognized in the Georgia-Pacific Group's
balance sheets, at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31
--------------
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees...................................................... $ 340 $ 288
Fully eligible active plan participants....................... 26 32
Other active participants..................................... 164 143
------ ------
530 463
Unrecognized net gain (loss).................................... (45) (47)
Unrecognized prior service cost................................. (13) 5
------ ------
Accrued postretirement benefit cost ............................ $ 472 $ 421
====== ======
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
---------------
1996 1995 1994
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost of benefits earned............................... $10 $ 6 $ 9
Interest cost on accumulated postretirement benefit
obligation................................................... 29 27 28
Amortization of (gain) loss................................... -- (1) 1
--- --- ---
Net periodic postretirement benefit cost...................... $39 $32 $38
=== === ===
</TABLE>
For measuring the expected postretirement benefit obligation, a 10%, 11%,
and 12% annual rate of increase in the per capita claims cost was assumed for
1996, 1995, and 1994, respectively. The rate was assumed to decrease 1% per
year to 7% in 1999 and remain at that level thereafter. The weighted average
discount rate used in determining the accumulated postretirement benefit
obligation was 6.5% at December 31, 1996 and 1995 and 8% at December 31, 1994.
IV-42
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
If the annual health care cost trend rate were increased by 1%, the
accumulated postretirement benefit obligation would have increased by 14% as
of December 31, 1996 and December 31, 1995 and 13% as of December 31, 1994.
The effect of this change on the aggregate of service and interest costs would
be an increase of 11% for 1996, 15% for 1995, and 17% for 1994.
OTHER
Effective January 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." SFAS No. 112 requires accrual-basis
recognition of benefits provided by an employer to former or inactive
employees after employment but before retirement. The adoption of SFAS No. 112
resulted in a one-time, after-tax charge of $5 million in 1994 allocated to
the Georgia-Pacific Group.
10. STOCK INCENTIVE PLANS
1997 INCENTIVE STOCK PLANS
The Board has approved the Georgia-Pacific Group 1997 Long-Term Incentive
Plan (the "Georgia-Pacific Group Plan") and the Timber Group 1997 Long-Term
Incentive Plan (the "Timber Group Plan"), subject to shareholder approval. The
Georgia-Pacific Group Plan authorizes grants of stock options, restricted
stock and performance awards with respect to Georgia-Pacific Group Stock. The
Timber Group Plan authorizes grants of stock options, restricted stock and
performance awards with respect to Timber Stock. The Company does not
currently intend to grant awards under the Georgia-Pacific Group Plan to
members of the Timber Group. It is intended, however, that certain officers
and employees of the Company with responsibilities involving both the Georgia-
Pacific Group and the Timber Group may be granted options, restricted stock or
performance awards under both the Georgia-Pacific Group Plan and the Timber
Group Plan in a manner which reflects their responsibilities. The Board
believes that permitting incentive awards to be made to participants with
respect to the class of common stock which reflects the performance of the
Company's business in which the participants work will better serve the
Company's interests.
Several existing stock incentive plans which offer benefits in the form of,
or based on the performance of, Georgia-Pacific common stock will be affected
by the Letter Stock Proposal. The affected plans and management's intentions
with respect to those plans upon the approval and implementation of the Letter
Stock Proposal are discussed below.
EMPLOYEE STOCK PURCHASE PLANS
At December 31, 1996, the Company had 952,000 shares of common stock
reserved for issuance under the 1995 Employee Stock Purchase Plan ("Purchase
Plan") at a subscription price of $73.84 per share. The subscription period
for the Purchase Plan expired on September 15, 1995. A subscriber must
purchase and pay for shares subscribed not later than September 30, 1997, but
prior to the time that the subscriber's last contribution to the Purchase Plan
is paid, the subscriber may obtain a refund of his/her payments plus interest
at a rate of 6% per annum in lieu of stock. Approximately 7,300 subscribers
remained in the Purchase Plan at December 31, 1996.
The Company's 1997 Employee Stock Purchase Plan ("97 Plan") offers to
employees a right to subscribe for Existing Common Stock at a subscription
price of $78.09 per share representing 85% of the mean of the high and low
prices of the Company's Existing Common Stock on September 2, 1997. The
subscription period for the 97 Plan expires on November 14, 1997. A subscriber
must purchase and pay for shares subscribed not later than November 30, 1999,
but prior to the time that the subscriber's last contribution to the 97 Plan
is paid, the subscriber may obtain a refund of his/her payments plus interest
at a rate of 6% per annum in lieu of stock. If the Letter Stock Proposal is
approved by the shareholders and implemented by the Board, the terms of the
subscription agreements will be adjusted to allow employees, pursuant to the
terms of the plan, to purchase at the same subscription price a package
consisting of one share of Timber Stock and one share of Georgia-Pacific Group
Stock for each share of Existing Common Stock for which they originally
subscribed.
IV-43
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
OUTSIDE DIRECTORS STOCK PLAN
The Outside Directors Stock Plan ("Directors Plan") provides for the
granting of Existing Common Stock to nonemployee directors on a restricted
basis. Each nonemployee director was granted 200 restricted shares of common
stock in 1995 and 193 shares in 1996. Beginning in 1997, each outside director
will be granted annually a number of shares equal to $40,000 divided by the
mean between the high and low sales price for the Company's common stock price
on the date of issuance. The restrictions on the shares lapse at the time of
death, retirement from the board, or disability.
After the Letter Stock Proposal is approved and implemented, each share of
restricted stock currently held will be redesignated as Georgia-Pacific Group
Stock, and an equal number of shares of Timber Stock (subject to the same
restrictions as the original restricted shares) will be added to the
outstanding award. In addition, it is intended that each director's annual
grant will consist of a number of shares of Timber Stock and of
Georgia-Pacific Group Stock determined so that (i) a substantially equal
number of shares of Timber Stock and Georgia-Pacific Group Stock will be
granted for any year and (ii) the total market value of the shares granted in
any year (based on the mean of the high and low prices of each stock on the
date of grant) is $40,000 (subject to immaterial rounding differentials).
1990 LONG-TERM INCENTIVE PLAN
The Company initially reserved 4,000,000 shares for issuance under the 1990
Long-Term Incentive Plan ("Incentive Plan"), which expired March 9, 1995.
Restricted stock was awarded to employees at no cost, based on increases in
average market value of the Company's common stock. At the time restricted
shares were awarded, the market value of the stock was added to common stock
and additional paid-in capital and was deducted from shareholders' equity
(long-term incentive plan deferred compensation) in the Company's consolidated
financial statements. Long-term incentive plan deferred compensation is
amortized over the vesting (restriction) period, generally five years, with
adjustments made quarterly for market price fluctuations. At the time awarded
shares become vested, the Company will pay on behalf of each participant a
cash bonus in the amount of the estimated income tax liability to be incurred
by the participant as a result of the award and cash bonus. Shares totaling
1,155,000 were awarded under the Incentive Plan, of which 676,000 restricted
shares remained outstanding as of December 31, 1996.
Compensation expense allocated to the Georgia-Pacific Group was $28 million
in 1996, $21 million in 1995, and $36 million in 1994 related to these
incentive plans.
Upon approval and implementation of the Letter Stock Proposal, each share of
restricted stock currently held will be redesignated as Georgia-Pacific Group
Stock, and an equal number of restricted shares of Timber Stock will be added
to the outstanding award. These shares will be distributed upon vesting under
the terms of the plan. The tax gross-up provided in the plan will be
calculated based on the aggregate market value of the two classes of shares
distributed to an individual at such time.
EMPLOYEE STOCK OPTION PLANS
The 1995 Shareholder Value Incentive Plan ("SVIP") provides for the granting
of stock options having a term of either 5 1/2 or 10 years to officers and key
employees. At December 31, 1996, the Company had 8,100,000 shares of common
stock reserved for issue under the SVIP. Options having a term of 10 years
become exercisable in 9 1/2 years unless certain performance targets tied to
the Company's common stock performance are met which would enable the holder
to exercise such options after 3, 4, or 5 years from the grant date. Options
having a term of 5 1/2 years may be exercised only if such performance targets
are met in the third, fourth, or fifth
IV-44
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
year after such grant date. At the time options are exercised, the exercise
price is payable in cash or by surrender of shares of common stock already
owned by the optionee.
The 1994 Employee Stock Option Plan ("1994 Option Plan") provided for the
granting of stock options to certain nonofficer key employees. There are also
options outstanding under the 1993 Employee Stock Option Plan ("1993 Option
Plan").
Except with respect to the SVIP and the 1994 Option Plan, holders of stock
options are paid cash bonuses, payable upon exercise of an option, of an
amount not to exceed the amount by which the market value of the common stock,
as defined, exceeds the option price. In addition, holders of options granted
under plans other than the SVIP and the 1994 Option Plan may surrender all or
part of the related stock option in exchange for common stock with a fair
market value equal to the amount by which the market value of the shares
covered by the option exceeds the aggregate option exercise price.
Except for the SVIP and the 1994 Option Plan (which are noncompensatory for
financial reporting purposes), compensation resulting from stock options and
cash bonuses was initially measured at the grant date based on the market
value of the common stock and adjustments are made quarterly for market price
fluctuations. The Georgia-Pacific Group was allocated compensation expense
related to the 1993 Option Plan and the 1984 Employee Stock Option Plan of $2
million in 1996 and $6 million in 1995 and 1994.
If the Letter Stock Proposal is approved by the shareholders and implemented
by the Board, each outstanding stock option under the SVIP, 1994 Option Plan
and 1993 Option Plan will be converted into separately-exercisable options to
acquire a number of shares of Georgia-Pacific Group Stock and Timber Stock,
each of which equals the number of shares of Existing Common Stock specified
in the original option. The exercise price for the resulting Georgia-Pacific
Group Stock options and Timber Stock options will be calculated by multiplying
the exercise price under the original option from which they were converted by
a fraction, the numerator of which is the average of the high and low price of
Georgia-Pacific Group Stock or Timber Stock, as the case may be, on the first
date such stocks are traded, regular way, on the New York Stock Exchange
(respectively, the "Georgia-Pacific Group Stock Price" and the "Timber Stock
Price") and the denominator of which is the sum of such Georgia-Pacific Group
and Timber Stock Prices. These changes, as applied to the SVIP, are subject to
shareholder approval of an amended and restated SVIP document reflecting the
changes and of the Georgia-Pacific Group Plan and the Timber Group Plan. This
is intended to ensure that the aggregate intrinsic value of the options will
be preserved, and the ratio of the exercise price per option to the market
value per share will not be reduced. In addition, the vesting provisions and
option periods of the original grants will remain the same when converted.
Under the amended and restated SVIP, no further grants may be made under that
plan.
IV-45
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Additional information relating to the Company's existing employee stock
option plans is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Options outstanding at January 1.......... 2,217,000 1,646,000 1,055,000
Options granted........................... 2,150,500 1,223,200 937,000
Options exercised/surrendered............. (117,400) (619,000) (291,000)
Options cancelled......................... (91,600) (33,200) (55,000)
--------- --------- ---------
Options outstanding at December 31........ 4,158,500 2,217,000 1,646,000
Options available for grant at December
31....................................... 4,811,000 6,895,000 111,000
--------- --------- ---------
Total reserved shares................. 8,969,500 9,112,000 1,757,000
========= ========= =========
Options exercisable at December 31........ 869,000 1,012,000 757,000
========= ========= =========
Option prices per share:
Granted................................. $73-$77 $ 81 $64-$75
Exercised/surrendered................... $39-$75 $39-$75 $39-$66
Cancelled............................... $39-$81 $39-$81 $39-$75
========= ========= =========
</TABLE>
SHAREHOLDER RIGHTS PLAN
The Company has a shareholder rights agreement (the "Original Rights
Agreement") pursuant to which preferred stock purchase rights (the "Original
Rights") are issued at the rate of one right for each share of Existing Common
Stock. The Original Rights expire on July 31, 1999, unless redeemed earlier or
extended. The Original Rights are exercisable only if a person or group
acquires 15% or more of the Company's Existing Common Stock or announces a
tender offer for 30% or more of the common stock. In such event, each Original
Right entitles the holder to buy, at an exercise price of $175, one one-
hundredth of a newly issued share of Series A Junior Preferred Stock, of which
5 million shares were reserved at December 31, 1996. Due to the nature of its
dividend, liquidation and voting rights, the economic value of one one-
hundredth of a share of Junior Preferred Stock should approximate the economic
value of one share of common stock. In addition, if one of several specified
events (generally involving self-dealing transactions by an acquirer of the
Company's Existing Common Stock or a business combination involving the
Company) occurs, each Original Right generally entitles the holder to buy, at
an exercise price of $175 (subject to adjustments), shares of either the
Company's Series A Junior Preferred Stock or the acquirer's common stock, in
either case having a market value of twice the exercise price. If the Letter
Stock Proposal is approved by the shareholders and implemented by the Board,
the Original Rights Agreement will be amended and restated (the "Restated
Rights Agreement") to, among other things, (i) reflect the new equity
structure of the Company, (ii) reset the prices at which rights issued
pursuant thereto may be exercised into units of Junior Preferred Stock, (iii)
extend the expiration date of the rights issued pursuant thereto from July 31,
1999 to December 31, 2007, (iv) change the triggering percentage with respect
to a tender or exchange offer from 30% to 15%, and (v) replace the Board's
ability to redeem the rights issued pursuant thereto for $.01 per right with
the ability to terminate the rights.
If the Letter Stock Proposal is approved by the shareholders and implemented
by the Board, as of the effective date of the Distribution, the Board will by
resolution amend the Articles to (i) reduce the authorized number of shares of
Series A Junior Preferred Stock to zero, (ii) designate a new series of Junior
Preferred Stock as the Series B Junior Preferred Stock, (iii) designate
another new series of Junior Preferred Stock as the Series C Junior Preferred
Stock, (iv) redesignate each Original Right as a "Georgia-Pacific Group
Right," which will entitle the holders thereof to purchase shares of Series B
Junior Preferred Stock under the conditions specified in the Restated Rights
Agreement, and (v) issue one right with respect to each share of Timber Stock
(a "Timber Right"), which will entitle the holders thereof to purchase shares
of Series C Junior Preferred Stock under the
IV-46
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
conditions specified in the Restated Rights Agreement. The Georgia-Pacific
Group Rights and the Timber Rights are herein collectively referred to as the
"Rights."
The Rights will expire on December 31, 2007, unless earlier redeemed by the
Company or extended. The Rights would be exercisable only if a person or group
acquires 15% or more of the total voting rights of the then outstanding shares
of common stock or commences a tender offer that would result in such person
or group beneficially owning 15% or more of the total voting rights of the
then outstanding shares of common stock. The Original Rights Agreement
provided that the triggering percentage with respect to a tender or exchange
offer would be 30% of the outstanding voting rights. The Restated Rights
Agreement would decrease this percentage from 30% to 15% in order to make the
triggering percentages for acquisitions of stock generally and for tender or
exchange offers the same. In such event, each Right would entitle the holder
to purchase from the Company (i) in the case of a Georgia-Pacific Group Right,
one one-hundredth of a share of Series B Junior Preferred Stock (a "Series B
Unit") at a purchase price of $350 (the "Series B Unit Purchase Price"),
subject to adjustment, of which 5 million shares will be reserved and (ii) in
the case of a Timber Right, one one-hundredth of a share of Series C Junior
Preferred Stock (a "Series C Unit") at a purchase price of $100 (the "Series C
Unit Purchase Price"), subject to adjustment, of which 5 million shares will
be reserved.
Because of the nature of the dividend, liquidation and voting rights of each
series of Junior Preferred Stock related to the Rights, the economic value of
one Series B Unit and one Series C Unit should approximate the economic value
of one share of Georgia-Pacific Group Stock and one share of Timber Stock,
respectively. In addition, if one of several specified events (generally
involving self-dealing transactions by an acquirer of the Company's common
stock or a business combination involving the Company) occurs, each Georgia-
Pacific Group Right and each Timber Right will entitle its holder to purchase,
for the Series B Unit Purchase Price and the Series C Unit Purchase Price,
respectively, a number of shares of common stock of such entity or purchaser
with a market value equal to twice the applicable Purchase Price.
OTHER
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
in 1996. The Company has elected to continue to account for its stock-based
compensation plans under APB Opinion No. 25 and disclose pro forma effects of
the plans on net income and earnings per share as provided by SFAS No. 123.
Accordingly, no compensation cost has been recognized for the SVIP plan or the
Employee Stock Purchase Plan. Since the Georgia-Pacific Group Stock was not
part of the capital structure of the Company for the periods presented, there
were no stock options outstanding. Therefore, the pro forma effect of Georgia-
Pacific Group Stock options on the accompanying historical combined financial
statements is not presented.
11. COMMITMENTS AND CONTINGENCIES
The holders of Georgia-Pacific Group Stock will be shareholders of the
Company and will continue to be subject to all of the risks associated with an
investment in the Company, including any legal proceedings and claims
affecting the Timber Group. The Georgia-Pacific Group is subject to various
legal proceedings and claims that arise in the ordinary course of its
business. As is the case with other companies in similar industries, the
Company faces exposure from actual or potential claims and legal proceedings
involving environmental matters. Liability insurance in effect during the last
several years provides very limited coverage for environmental matters.
The following sets forth legal proceedings and claims arising out of the
operations of the Georgia-Pacific Group to which the Company is a party.
The Company is involved in environmental remediation activities at
approximately 200 sites, both owned by the Company and owned by others, where
it has been notified that it is or may be a potentially responsible party
under the Comprehensive Environmental Response, Compensation and Liability Act
or similar state "superfund" laws. Of the known sites in which it is involved,
the Georgia-Pacific Group estimates that approximately 31% are being
investigated, approximately 43% are being remediated, and approximately 26%
IV-47
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
are being monitored (an activity which occurs after either site investigation
or remediation has been completed). The ultimate costs to the Georgia-Pacific
Group for the investigation, remediation, and monitoring of many of these
sites cannot be predicted with certainty due to the often unknown magnitude of
the pollution or the necessary cleanup, the varying costs of alternative
cleanup methods, the amount of time necessary to accomplish such cleanups, the
evolving nature of cleanup technologies and government regulations, and the
inability to determine the Georgia-Pacific Group's share of multiparty
cleanups or the extent to which contribution will be available from other
parties. The Georgia-Pacific Group has established reserves for environmental
remediation costs for these sites in amounts which it believes are probable
and reasonably estimable. Based on analysis of currently available information
and previous experience with respect to the cleanup of hazardous substances,
the Georgia-Pacific Group believes that it is reasonably possible that costs
associated with these sites may exceed current reserves by amounts that may
prove insignificant or that could range, in the aggregate, up to approximately
$63 million. This estimate of the range of reasonably possible additional
costs is less certain than the estimates upon which reserves are based, and in
order to establish the upper limit of such range, assumptions least favorable
to the Georgia-Pacific Group among the range of reasonably possible outcomes
were used. In estimating both its current reserve for environmental
remediation and the possible range of additional costs, the Georgia-Pacific
Group has not assumed it will bear the entire cost of remediation of every
site to the exclusion of other known potentially responsible parties who may
be jointly and severally liable. The ability of other potentially responsible
parties to participate has been taken into account, based generally on the
parties' financial condition and probable contribution on a per site basis.
The Company reached an agreement in August 1997 with the New York Department
of Environmental Conservation concerning alleged disposal of PCB-contaminated
wastes from the Georgia-Pacific Group's Plattsburgh, New York, facility into
Cumberland Bay of Lake Champlain. The Company has agreed to pay $9 million to
the State of New York in full settlement of its remediation obligations with
respect to this site.
The Company and many other companies are defendants in suits brought in
various courts around the nation by plaintiffs who allege that they have
suffered personal injury as a result of exposure to asbestos-containing
products. These suits allege a variety of lung and other diseases based on
alleged exposure to products previously manufactured by the Georgia-Pacific
Group. In many cases the plaintiffs are unable to demonstrate that they have
suffered any compensable loss as a result of such exposure.
The Company generally resolves asbestos cases by voluntary dismissal or
settlement for amounts it considers reasonable given the facts and
circumstances of each case. The amounts it has paid to defend and settle these
cases to date have been substantially covered by product liability insurance.
The Company is currently defending claims of approximately 50,000 such
plaintiffs and anticipates that additional suits will be filed against it over
the next several years. The Company has insurance available in amounts which
it believes are adequate to cover substantially all of the reasonably
foreseeable damages and settlement amounts arising out of claims and suits
currently pending. The Company has further insurance coverage available for
the disposition of suits that may be filed against it in the future, but there
can be no assurance that the amounts of such insurance will be adequate to
cover all future claims. The Georgia-Pacific Group has established reserves
for liabilities and legal defense costs it believes are probable and
reasonably estimable with respect to pending suits and claims and a receivable
for expected insurance recoveries.
The Company is defending an action in Alabama state court that seeks to
recover damages on behalf of a class of all persons currently owning
structures in the United States on which hardboard siding manufactured by the
Georgia-Pacific Group after January 1, 1980 has been installed. The plaintiffs
allege that this hardboard siding was inadequately designed and manufactured
and, as a consequence, prematurely discolors and deteriorates. They also
dispute the validity and availability of the warranty issued with the product.
On July 24, 1997, the court preliminarily approved a proposed settlement of
this case, authorized a program to provide notice to class members and set a
date in January 1998 for a hearing on the fairness of the settlement.
Accordingly, the
IV-48
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
settlement remains subject to final court approval. The settlement provides a
procedure for resolving product warranty claims on certain of the Georgia-
Pacific Group's hardboard siding products and for payment of $3 million in
legal fees to plaintiffs' counsel, plus expenses not to exceed $200,000. In
addition, plaintiffs' counsel will be entitled to additional fees based upon a
percentage of claims paid by the Company. The Georgia-Pacific Group has
previously established financial reserves it believes to be adequate to pay
eligible claims and legal fees. However, the volume and timing of actual
claims, or the number of potential claimants who choose not to participate in
the settlement, could cause settlement costs to exceed established reserves. A
similar case has been filed against the Company and another defendant in state
court in Georgia seeking to certify a class of individuals whose mobile homes
contain the Georgia-Pacific Group's hardboard siding. On July 8, 1997, a
purported nationwide class action was filed against the Company in state court
in Georgia making claims substantially similar to those alleged in the Alabama
class action. The Georgia-Pacific Group believes the claims of the members of
these purported class actions are encompassed within the settlement of the
Alabama case and it will seek to have these cases dismissed.
In May of 1997, the Company and nine other companies were named as
defendants in a class action suit alleging that they engaged in a conspiracy
to fix the prices of sanitary commercial paper products, such as towels and
napkins, in violation of federal and state laws. At present, approximately 35
similar suits are pending in Federal courts in California, Florida, Georgia
and Wisconsin, and in the state courts of California and Tennessee. The
Company and the other defendants have removed the California actions to
federal court. However, plaintiffs have filed actions seeking to have these
cases remanded to state court. On September 4, 1997, one of these California
actions was remanded back to state court.
In addition, the Company and the other defendants have filed a petition with
the Federal Judicial Panel on Multi-District Litigation asking the Panel to
consolidate all of the federal court cases in Milwaukee. A hearing has been
set on this petition for September 19, 1997. The Company has denied that it
has engaged in any of the illegal conduct alleged in these cases and intends
to defend itself vigorously.
Although the ultimate outcome of these environmental matters and legal
proceedings cannot be determined with certainty, based on presently available
information, management believes that adequate reserves have been established
by the Georgia-Pacific Group, for probable losses with respect thereto.
Management of the Company further believes that the ultimate outcome of such
environmental matters and legal proceedings could be material to operating
results of the Georgia-Pacific Group in any given quarter or year but will not
have a material adverse effect on the long-term results of operations,
liquidity, or financial position of the Georgia-Pacific Group.
12. RELATED-PARTY TRANSACTIONS
For all periods in which statements of income of the Groups are presented,
timber has been transferred from the Company's timberlands at prices intended
to reflect fair market prices based on prices paid by independent purchasers
and sellers for similar kinds of timber, the benefit of having controlled
access to timber and the location and quality of such timber.
The Timber Group and the Georgia-Pacific Group have negotiated an operating
policy governing future sales of timber and wood fiber by the Timber Group to
the Georgia-Pacific Group with an initial term of three years. Under this
policy, the Georgia-Pacific Group will be required to purchase in the years
1998-2000, on a take-or-pay basis, 60% of the volume of timber and wood fiber
harvested annually from the Timber Group's Southern forests. In 1998, the
Georgia-Pacific Group has a right of first refusal to purchase up to 90% of
the Timber Group's total annual harvest from each forest (which amount must
include the 60% take-or-pay amount described above). In 1999 and 2000, the
volume subject to this right of first refusal will decrease to 80%, and the
Georgia-Pacific Group must exercise its right not later than October 15th of
the preceding year. All quantities of timber and wood fiber committed under
the take-or-pay arrangement described above, and all quantities as to which
the Georgia-Pacific Group exercises its right of first refusal for a
particular year, will be sold at market
IV-49
<PAGE>
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
prices determined quarterly. Such prices are intended to approximate prices
negotiated between unaffiliated third
parties in the open market and will be based upon (i) an average of the actual
prices during the immediately preceding quarter received by the Timber Group
for sales made by it to third parties, and prices paid by the Georgia-Pacific
Group for purchases made by it from third parties, in the same forest region
of timber and wood fiber of the same species, grade and size, and (ii) the
benefit to the Georgia-Pacific Group of having access to a committed quantity
of high quality timber and wood fiber in close proximity to its mills and
plants.
All quantities of timber and wood fiber harvested each year by the Timber
Group and not committed to the Georgia-Pacific Group as described above may be
sold by the Timber Group to any purchaser, including the Georgia-Pacific
Group. In such case, the Georgia-Pacific Group may purchase such timber at
negotiated prices or at prices determined in competitive bidding. Sales to the
Georgia-Pacific Group and third parties will generally be made on a stumpage
basis, except that sales in the Western region and of thinnings and selective
harvests by the Timber Group may be made on a delivered basis.
This policy is intended to ensure that the Georgia-Pacific Group will be
able to purchase from the Timber Group specified amounts of timber and wood
fiber, while ensuring that the Timber Group, beginning in 1999, will be able
to sell at up to 20% of its annual harvest in the open market. This policy
will remain in effect through 2000. If neither party gives written notice to
the other of its desire to renegotiate or terminate the policy by October 15,
1998, the policy will automatically be extended through 2001 and thereafter
will be extended for an additional year on each January 1 until any such
notice of renegotiation or termination is received. As a result, the policy in
effect has a two-year termination clause to allow both the Georgia-Pacific
Group and the Timber Group time to find other sellers and purchasers,
respectively, of timber and wood fiber.
The Company is a 50% partner in a joint venture ("GA-MET") with Metropolitan
Life Insurance Company ("Metropolitan"). GA-MET owns and operates the
Company's main office building in Atlanta, Georgia. The Company accounts for
its investment in GA-MET under the equity method which is included in the
Georgia-Pacific Group's financial statements.
At December 31, 1996, GA-MET had an outstanding mortgage loan payable to
Metropolitan in the amount of $153 million. The note bears interest at 9 1/2%,
requires monthly payments of principal and interest through 2011, and is
secured by the land and building owned by the joint venture. In the event of
foreclosure, each partner has severally guaranteed payment of one-half of any
shortfall of collateral value to the outstanding secured indebtedness. Based
on the present market conditions and building occupancy, the likelihood of any
obligation to the Company or the Georgia-Pacific Group with respect to this
guarantee is considered remote.
IV-50
<PAGE>
ANNEX V
TIMBER GROUP
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business................................................................... V-2
Management's Discussion and Analysis....................................... V-18
Combined Financial Statements.............................................. V-23
</TABLE>
V-1
<PAGE>
BUSINESS
GENERAL
The Timber Group is engaged in the business of growing and selling timber
and wood fiber. The Timber Group is the third largest private owner of
timberlands in the United States, owning approximately 5.4 million acres of
timberland in the United States and Canada, and managing an additional 400,000
acres under long-term leases (collectively, the "Timberlands"). The
Timberlands are located in three regions: (i) the Southern region, consisting
of 3.9 million acres of primarily pine forests, spanning eleven states; (ii)
the Western region, consisting of 500,000 acres of primarily Douglas fir and
second growth redwood forests in Oregon and California; and (iii) the Northern
region, consisting of 1.4 million acres of hardwood and conifer forests in the
northern United States and New Brunswick, Canada. The Timber Group grows
various commercial species of trees on the Timberlands and sells timber and
wood fiber to the Georgia-Pacific Group and other industrial wood users. The
principal products sold by the Timber Group are softwood sawtimber, softwood
pulpwood, hardwood sawtimber and hardwood pulpwood. In 1996 it sold 16.1
million tons of timber, of which 13.0 million tons were sold directly to the
Georgia-Pacific Group. During 1995, the Timber Group sold 13.3 million tons,
of which 10.5 million tons were sold directly to the Georgia-Pacific Group.
The Timber Group's standing inventory on January 1, 1997 totaled 214.5 million
tons of timber and wood fiber.
The Timber Group plants in excess of 125 million conifer seedlings each year
and aggressively manages its forests to maximize growth and productivity
through application of advanced genetics, fertilization, vegetation control
and selective harvesting and thinning. The Timber Group does not own or
operate logging equipment or facilities that convert timber into intermediate
or finished products. Logging operations on the Timberlands are performed by
independent contractors retained either by purchasers of the standing timber
or, in the case of thinnings, selective harvests and in the Western region, by
the Timber Group itself.
The Timber Group's net sales of timber in 1996 and 1995 were $520 million
and $471 million, respectively, of which $424 million and $375 million,
respectively, were derived from direct sales to the Georgia-Pacific Group. The
remaining $96 million in both 1996 and 1995 timber sales consisted principally
of timber swaps with other producers which in turn furnished wood to mills of
the Georgia-Pacific Group. In both years sales to third parties in the open
market accounted for approximately 5% of total timber sales.
The Timber Group is also engaged in certain businesses related to ownership
and management of the Timberlands, including managing hunting leases and
mineral reserves, seedling production and real estate development. Revenues
from these businesses totaled $27 million in 1996 and $22 million in 1995.
The Timber Group believes that it is well-positioned to compete in the
timber business because of its well distributed and strategically located
Timberlands, experienced management team, low overhead costs and historically
stable cash flows. Its business strategies are focused on maximizing
timberland productivity through intensive forest management, continuing cost
control, seeking attractive acquisition and divestiture opportunities, and
ensuring that its timber operations are environmentally sustainable. However,
there are a number of factors affecting the Timber Group's businesses which
could impact these strategies. See "Factors Affecting the Timber Group's
Business".
INDUSTRY OVERVIEW
The key end-use products for timber and wood fiber, including pulp and
paper, lumber, structural panels and engineered wood products, are
manufactured in the United States on a regional basis in relative proximity to
available timber resources. In addition to available timber, both
transportation infrastructure and water resources influence the location of
wood-consuming manufacturing facilities. Consequently, pulp and paper
manufacturing is generally located in the Southeast and Great Lakes regions,
lumber is manufactured primarily in the Northwest and South, and plywood mills
are concentrated in the South Central region. Manufacturers of oriented strand
board ("OSB"), medium density fiber board and other engineered wood products
are more widely scattered, generally located where low cost pulpwood, small
sawlogs and wood residues are available. As it is generally inefficient to
transport logs, pulpwood and wood residues distances greater than 100 to 150
miles, wood-using
V-2
<PAGE>
manufacturing facilities are generally located within such distance from their
sources of timber. Within those parameters, timber harvested from the
Timberlands has the potential to efficiently supply more than 1,000 industrial
wood-using facilities.
As discussed below, the reduced availability of timber from public lands,
particularly in the Pacific Northwest, has resulted in increased utilization
of timber-based manufacturing facilities in the South. This has resulted in a
shift in demand for timber toward the South, where 63% of the Timber Group's
standing inventory is located. In 1996, lumber production in the South hit a
modern-day record of 15.26 billion board feet ("BBF"), according to the
Southern Forest Products Association. The Timber Group expects continuing
benefits from this regional shift in demand and production.
SUPPLY AND DEMAND. Since 1988, the United States government has
significantly reduced its sales of timber in response to environmental and
endangered species concerns resulting in increased prices for logs and lumber.
Between 1988 and 1996, the volume of timber sold by the United States Forest
Service ("USFS") decreased by 71%, from 12.7 to 3.7 BBF. The USFS historically
has been a major supplier of softwood sawtimber to the domestic forest
products industry, particularly in the West.
[GRAPH APPEARS HERE]
HARVEST - U.S. FOREST SERVICE
BBF
------
87 12.712
88 12.649
89 11.951
90 10.500
91 8.474
92 7.289
93 5.917
94 4.815
95 3.866
96 3.724
While USFS harvests have fallen, harvest levels on private timberlands in
the South and West have remained relatively stable. The following chart
illustrates the stability of Southern softwood sawtimber harvests over the
past decade:
[GRAPH APPEARS HERE]
HARVEST - SOFTWOOD SAWTIMBER
TOTAL U.S. SOUTH
---------- -----
(BBF) (BBF)
87 38.08 13.55
88 37.62 13.55
89 35.92 12.84
90 33.26 12.60
91 30.02 11.89
92 29.74 12.43
93 27.62 12.44
94 27.60 12.43
95 25.63 12.08
96 25.99 12.18
V-3
<PAGE>
Given the reduced supply of sawtimber resulting from the loss of USFS supply,
particularly in the Northwest, lumber production necessary to meet demand has
come from increases in Southern production and Canadian imports. The following
chart highlights this shift in supply:
[GRAPH APPEARS HERE]
LUMBER PRODUCTION
SOUTHERN CANADIAN
U.S. SOFTWOOD LUMBER
LUMBER LUMBER IMPORTS
------ ------ ------
80 26.246 8.200 9.520
81 24.676 8.415 9.180
82 23.787 8.754 9.090
83 29.726 10.181 11.940
84 31.174 10.674 13.210
85 31.492 10.901 14.510
86 35.401 11.806 14.400
87 38.235 12.473 14.570
88 38.130 12.676 13.700
89 37.545 12.544 13.530
90 35.790 12.911 12.070
91 33.161 12.507 11.650
92 34.528 14.106 13.260
93 32.947 14.392 15.040
94 34.107 15.010 16.100
95 31.955 14.762 17.200
96 33.900 15.200 18.100
Since 1996, Canadian imports have been subject to the United States--Canadian
Lumber Trade Agreement. Rather than placing a cap on import levels, the trade
agreement seeks to influence the cost of Canadian imports by imposing a two-
tiered tax on all volume in excess of specified thresholds. Accordingly, the
trade agreement's effect on import levels at any given time will depend upon
whether United States lumber prices are at a level which justifies Canadian
suppliers' payment of the applicable tax. The Timber Group believes that the
trade agreement, together with increasing environmental and conservation
pressures in Canada, will likely preclude any material increase in Canadian
harvest and import levels for the foreseeable future. The Timber Group also
believes that sales of timber by United States government agencies will remain
at historically low levels for the foreseeable future.
Environmental and conservation pressures, while present, are somewhat less
restrictive in the South, primarily due to the large and widely-distributed
private ownership of Southern timberlands. Accordingly, the Timber Group
anticipates that an increasing percentage of future growth in the United States
timber supply will come from the South as population increases continue to
consume North American timber supplies and conservation pressures continue to
shrink land dedicated to commercial forestry.
V-4
<PAGE>
PRICING. While the supply of timber in the United States has been subject to
constraint, demand has remained relatively strong, driven by economic expansion
and population increases, which in turn drive growth in housing starts, repair
and remodeling activities and industrial wood use. The Timber Group expects
demand for timber to remain strong as economies in the United States and abroad
continue to expand. This stable demand in the face of a constrained supply has
resulted in real price appreciation for timber. As the following charts
illustrate, between 1988 and 1996 stumpage prices for two of the Timber Group's
largest timber products, southern pine pulpwood and sawtimber, increased at
real compound annual growth rates of 4% and 5%, respectively.
[GRAPH APPEARS HERE]
<TABLE>
REAL SOUTHERN SOFTWOOD STUMPAGE PRICES (1982 $)
PULPWOOD
<CAPTION>
$/TON
-------
<S> <C>
87 5.33
88 5.52
89 5.89
90 6.40
91 6.77
92 7.73
93 8.63
94 8.13
95 8.52
96 7.71
97E 7.93
</TABLE>
[GRAPH APPEARS HERE]
<TABLE>
REAL SOUTHERN SOFTWOOD STUMPAGE PRICES (1982 $)
SAWTIMBER
<CAPTION>
$/TON
-------
<S> <C>
87 20.00
88 22.00
89 21.00
90 21.00
91 21.00
92 26.00
93 30.00
94 37.00
95 38.00
96 33.00
97E 39.00
</TABLE>
The Timber Group anticipates that continuing constraints on timber supply and
increasing demand will continue to support higher real timber prices,
particularly in the South.
BUSINESS STRATEGY
The Timber Group is committed to operating a high productivity, low overhead
business, and to aggressively managing its forests to maximize long-term
sustainable cash flows. Consistent with that commitment, the Timber Group has
adopted the following business strategies:
MAXIMIZE TIMBERLAND PRODUCTIVITY. The Timber Group's productivity strategy is
to increase forest growth rates to allow higher, but sustainable, harvest
volumes and to use proprietary growth modeling techniques to optimally time
harvests to maximize cash flows. Current projections indicate that, even with
planned increases in harvest volumes over the next decade, the Timber Group's
standing inventory will increase by over 10 million tons by 2007 as a result of
increased growth rates and the resulting maturation of stands to merchantable
status. Growth rates on the Timberlands will continue to be increased through
the development and use of genetically improved seedlings, soil mapping,
intensive fertilization, vegetation control, thinning and selective harvesting
V-5
<PAGE>
practices. In the Southern region, average growth rates are expected to
increase from approximately 3.2 tons per acre per year for current
merchantable stands to 6.0 tons per acre per year, or more, for stands now
being established. See "--Harvest and Inventory Plans and Projections."
FOCUS ON COST CONTROL. The Timber Group will continue to focus on
opportunities to control and reduce costs. As part of a recent Company-wide
overhead cost reduction initiative, cost saving opportunities for the Timber
Group's operations were identified in management consolidations, staff
operating costs and research realignments totaling $6.5 million or 15% of
direct and indirect overhead expenses. Implementation of these cost savings
began in the fourth quarter of 1996, and the identified savings are expected
to be fully realized by early 1998. In the first half of 1997, $2.3 million in
cost savings were realized. The costs associated with job eliminations,
primarily through an early retirement program, were fully absorbed in 1996.
SELECTIVE ACQUISITIONS AND DIVESTITURES. Private timberland ownership in the
United States is highly fragmented, creating opportunities for the Timber
Group to pursue a selective acquisition program. This program will be focused
on improving the Timber Group's competitive position in selected timber basins
and diversifying its product and geographic mix to address anticipated market
shifts. According to the International Wood Fiber Report, over the last two
years more than $5 billion, representing over 5.5 million acres, in commercial
forest lands in the United States changed hands. The Timber Group believes
that its strong cash flows, its forest management expertise, and the
availability of Timber Group Stock as a targeted acquisition currency, will
leave it well-positioned to participate in the market for available forest
lands. Additionally, the Timber Group anticipates using tax-free like-kind
exchanges of forest lands with other owners as a cost-effective means of
strengthening its competitive position in selected forest basins. In 1996, the
Timber Group effected tax-free exchanges on over 16,000 acres valued at $16.7
million. The Timber Group will also divest underperforming acreage or tracts
which are more valuable to others.
ENVIRONMENTAL STEWARDSHIP. The Timber Group is a recognized leader in
environmental stewardship. It believes that environmentally sustainable forest
management practices will enhance the future value of the Timberlands. The
Timber Group has developed and implemented an Eleven Point Environmental
Strategy that serves as the blueprint for plans and actions in specific
regions around the country to implement the provisions of the American Forest
& Paper Association's Sustainable Forestry Initiative as well as the Timber
Group's own specific environmental goals. This strategy focuses on water
resource concerns, regeneration and sustained yield objectives, harvest
practices, wildlife and fisheries, flora, special area designations, private
landowner education and research and technical development. Among the Timber
Group's major environmental and conservation initiatives is an agreement with
the United States Fish & Wildlife Service to conserve the habitat of the red-
cockaded woodpecker, and an agreement with The Nature Conservancy to
cooperatively manage more than 21,000 acres of ecologically sensitive
Timberlands along North Carolina's Lower Roanoke River.
V-6
<PAGE>
PROPERTIES
THE TIMBERLANDS--GENERAL
[MAPS APPEAR HERE]
Four maps are depicting the United States and one each
depicting the Western Region, Northern Region and the
Southern Region of the United States; the latter three
maps show the Company's forests and the acreage thereof.
The Timberlands span eleven Southern states, two Western states, four
Northern states, and New Brunswick, Canada. As of January 1, 1997, the Timber
Group's acreage and standing inventories, by region and product, were
distributed as follows:
ACRES AND STANDING INVENTORY AT JANUARY 1, 1997
<TABLE>
<CAPTION>
MILLION TONS MILLION TONS (BBF)
----------------- ---------------------
MILLION SOFTWOOD HARDWOOD SOFTWOOD HARDWOOD TOTALS
REGION ACRES PULPWOOD PULPWOOD SAWTIMBER SAWTIMBER (TONS)
------ ------- -------- -------- ---------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Southern.......... 3.9 42.3 31.9 48.3 (5.9) 13.5 (1.7) 136.0
Western........... 0.5 2.1 5.7 24.3 (3.6) 1.6 (0.2) 33.7
Northern.......... 1.4 11.6 21.9 6.3 (0.8) 5.0 (0.8) 44.8
--- ---- ---- ---------- --------- -----
Total........... 5.8 56.0 59.5 78.9 (10.3) 20.1 (2.7) 214.5
=== ==== ==== ========== ========= =====
</TABLE>
V-7
<PAGE>
THE TIMBERLANDS--BY REGION
SOUTHERN REGION. The Southern Timberlands currently consist of approximately
3.9 million acres in eleven states distributed as follows:
<TABLE>
<CAPTION>
ACRES (000S)
-----------------
ACREAGE BY STATE FEE LEASE TOTAL
---------------- ----- ----- -----
<S> <C> <C> <C>
Georgia.................................................. 839 153 992
Mississippi.............................................. 742 77 819
Arkansas................................................. 767 35 802
Florida.................................................. 471 115 586
North Carolina........................................... 152 -- 152
Oklahoma................................................. 130 -- 130
South Carolina........................................... 130 -- 130
Louisiana................................................ 125 1 126
Alabama.................................................. 76 -- 76
Virginia................................................. 73 -- 73
Texas.................................................... 23 2 25
----- --- -----
Total.................................................. 3,528 383 3,911
===== === =====
</TABLE>
Of the 3.9 million acres in the Southern Timberlands, approximately 3.0
million acres consist of softwood species, including loblolly, slash, and
shortleaf pines which are valued as raw material for structural panels,
lumber, and pulp and paper. Approximately 900,000 acres consist of mixed
hardwood species, including red oak, yellow poplar, gum, ash and maple which
are used in the manufacture of furniture, flooring, structural panels, and
pulp and paper. Approximately 1.6 million acres of the Southern Timberlands
consist of merchantable softwood timber, and approximately 2.3 million acres
consist of mixed hardwoods and pre-merchantable softwood timber. The
distinguishing characteristic of the Southern Timberlands is rapid height and
diameter growth in the early years of stand development. Consequently, the
optimum economic harvest ages of 20 to 35 years tend to be only 50% to 70% of
those for other forest regions in North America.
The Timber Group's Southern softwood forests are predominantly managed as
even-aged plantations and are distributed across a wide range of ages. The
current distribution, by age, of the Southern Timberlands is as follows:
SOUTHERN SOFTWOOD FORESTS--FIVE-YEAR AGE CLASSES
<TABLE>
<CAPTION>
AGE ACRES (000'S)
--- -------------
<S> <C>
0-5........................... 630
6-10.......................... 530
11-15.......................... 450
16-20.......................... 330
21-25.......................... 290
26-30.......................... 200
31-35.......................... 130
36+............................ 440
-----
Total........................ 3,000
=====
</TABLE>
Timber harvested from the Southern Timberlands has the potential to provide
products to as many as 600 different manufacturing facilities, including
approximately 70 pulpmills, 450 lumber mills, 80 plywood and OSB plants and
numerous other wood-using facilities, including satellite chipmills and remote
pulpwood receiving yards.
V-8
<PAGE>
WESTERN REGION. The Western Timberlands consist principally of Douglas fir
in Oregon and second growth redwood in California. The Douglas fir forest
consists of 286,000 acres in the Coast Range of Central and Southern Oregon.
Douglas fir lumber is a premium construction material noted for its strength,
stability and appearance. The redwood forest consists of 196,000 acres in
coastal Northern California. Second growth redwood is a premium product used
in decking and decorative fencing. The redwood forests of California, as well
as the hardwood forests of the Northern region, are managed on an uneven-aged
basis so that the value of a particular tree, rather than the stand,
determines the optimal harvest time.
Timber harvested from the Western Timberlands has the potential to provide
products to as many as 118 different manufacturing facilities, including
approximately 13 pulpmills, 79 lumber mills and 26 plywood plants.
NORTHERN REGION. The Northern Timberlands cover 1.4 million acres in four
states and New Brunswick Canada. The West Virginia and Pennsylvania forests
are 330,000 acres of Appalachian hardwood species such as red oak, cherry,
yellow poplar and other commercially valuable species. The high quality lumber
manufactured from these Appalachian hardwood sawlogs is used in furniture
manufacturing and commands a premium price. The smaller diameter trees are
sold as raw material for pulp and paper and OSB panels.
The Maine and New Brunswick, Canada forests cover 835,000 acres. Aspen,
spruce, fir, northern pines and mixed hardwoods are the principal species.
Aspen and mixed hardwoods are used as raw material for pulp and paper, and
spruce, fir, and other softwood are used for lumber and OSB production.
The 254,000 acres in Wisconsin contain red, white and jack pine, aspen and
various mixed hardwoods. These species are used for high quality hardwood
lumber and veneer, OSB and as raw material for pulp and paper.
Timber harvested from the Northern Timberlands has the potential to provide
products to as many as 282 different manufacturing facilities, including
approximately 49 pulpmills, 210 lumber mills and 23 plywood and OSB plants.
HARVEST AND INVENTORY PLANS AND PROJECTIONS
STRATEGY. The Timber Group's primary objective is to significantly increase
growth rates on the Timberlands to allow higher harvest volumes while
maintaining a stable or increasing inventory of standing timber. The Timber
Group intends to achieve this objective by (i) harvesting older, mature
timber, (ii) aggressively managing pre-merchantable stands to accelerate their
growth into merchantable status, (iii) replacing harvested timber with a
greater number of high quality seedlings which the Timber Group expects will
have significantly higher survival and growth rates, and (iv) to a lesser
extent, capitalizing on improvements in conversion technology that permit
mills to use smaller diameter sawtimber.
GROWTH RATES. Growth rates vary depending on species, location, weather
conditions, age and forest management practices. The average annual growth
rate on the Timber Group's established stands in the Southern Timberlands is
approximately 3.2 tons per acre. The Timber Group has achieved annual growth
rates on some newly-established stands in the Southern Timberlands in excess
of 6.0 tons per acre. Increases in growth rates for Douglas fir plantations on
the Timber Group's Western Timberlands are expected to exhibit similar trends.
V-9
<PAGE>
HARVEST LEVELS. The Timber Group prepares its harvest plans annually based
on information on current and projected timber inventories assuming various
productivity and harvesting scenarios, current and expected market conditions,
competition, customer requirements, the age, species and size distribution of
its timber, expected acquisitions and divestitures, access to timber and
environmental and regulatory constraints. The following tables set forth the
Timber Group's historical and projected average annual softwood and hardwood
harvest volumes, by region and product, for the five year periods 1993 to
1997, 1998 to 2002, and 2003 to 2007:
SOFTWOOD HARVEST PLAN
<TABLE>
<CAPTION>
ACTUAL PROJECTED
----------- ------------------------
1993-1997 1998-2002 2003-2007
----------- ----------- -----------
THOUSAND TONS
PULPWOOD -------------
<S> <C> <C> <C> <C> <C> <C>
Southern......................... 4,408 4,373 4,538
Western.......................... 45 174 173
Northern......................... 198 195 197
------ ------ ------
Total........................... 4,651 4,742 4,908
<CAPTION>
THOUSAND TONS (MMBF)
SAWTIMBER --------------------
<S> <C> <C> <C> <C> <C> <C>
Southern......................... 4,909 (586) 6,217 (741) 6,635 (792)
Western.......................... 1,666 (247) 1,149 (170) 1,247 (184)
Northern......................... 146 (19) 173 (22) 173 (22)
----------- ----------- -----------
Total........................... 6,721 (852) 7,539 (933) 8,055 (998)
Total Average Annual Softwood
Harvest.......................... 11,372 12,281 12,963
====== ====== ======
HARDWOOD HARVEST PLAN
<CAPTION>
ACTUAL PROJECTED
----------- ------------------------
1993-1997 1998-2002 2003-2007
----------- ----------- -----------
THOUSAND TONS
PULPWOOD -------------
<S> <C> <C> <C> <C> <C> <C>
Southern......................... 1,486 1,334 1,162
Western.......................... 18 306 394
Northern......................... 574 604 578
------ ------ ------
Total........................... 2,078 2,244 2,134
<CAPTION>
THOUSAND TONS (MMBF)
SAWTIMBER --------------------
<S> <C> <C> <C> <C> <C> <C>
Southern......................... 258 (32) 218 (27) 183 (23)
Western.......................... 41 (5) 90 (11) 62 (8)
Northern......................... 111 (18) 201 (32) 197 (32)
----------- ----------- -----------
Total........................... 410 (55) 509 (70) 442 (63)
Total Average Annual Hardwood
Harvest.......................... 2,488 2,753 2,576
====== ====== ======
</TABLE>
The Timber Group's objective is to increase harvests of mature timber
significantly over the next ten years, and to replace these harvests by
planting and cultivating younger, faster-growing trees. The Timber Group
believes that this approach, together with aggressive management of pre-
merchantable stands to accelerate their growth, will permit the Timber Group
to achieve the above harvest projections while maintaining or increasing
standing inventory levels. The Timber Group expects that harvest volumes will
continue to rise after 2007 as a result of increased productivity and an
improving age class distribution of its Southern Timberlands.
INVENTORY LEVELS. The Timber Group prepares its inventory estimates annually
based on an analysis of samples collected from merchantable timber stands and
use of proprietary growth and yield estimation
V-10
<PAGE>
techniques. The following table sets forth the Timber Group's projected
standing inventory levels, by region and product, at January 1, 2008. These
projected levels assume fulfillment of the Timber Group's harvest plans
described above.
PROJECTED STANDING INVENTORY AT JANUARY 1, 2008
<TABLE>
<CAPTION>
MILLION TONS MILLION TONS (BBF)
----------------- ---------------------
SOFTWOOD HARDWOOD SOFTWOOD HARDWOOD TOTALS
REGION PULPWOOD PULPWOOD SAWTIMBER SAWTIMBER (TONS)
------ -------- -------- ---------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Southern................... 56.0 30.6 46.1 (5.5) 14.9 (1.9) 147.6
Western.................... 2.0 4.1 28.1 (4.2) 1.3 (0.2) 35.5
Northern................... 12.5 19.2 6.2 (0.8) 3.9 (0.6) 41.8
---- ---- ---------- --------- -----
Totals................... 70.5 53.9 80.4 (10.5) 20.1 (2.7) 224.9
==== ==== ========== ========= =====
</TABLE>
While the Timber Group projects hardwood inventories to remain relatively
constant from 1997 through 2007, it projects softwood inventories to increase
by approximately 12%, from 134.9 million tons to 150.9 million tons, over the
same period. Moreover, the ratio of inventory to total harvest for Southern
softwood is projected to remain constant from 1997 through 2007 despite annual
harvest levels increasing by approximately 2 million tons over the same
period. This reflects the higher growth rates expected from intensive forest
management, particularly in the Timber Group's Southern forests, and large
amounts of younger timber reaching merchantable status. Collectively, the
Timber Group's harvest plans and inventory projections reflect its objective
of increasing harvest volumes while at the same time maintaining a stable or
increasing inventory of standing timber.
As the Timber Group intends to harvest older trees more quickly, the size of
sawtimber trees included in its inventory will necessarily decrease over time.
However, the Timber Group does not believe that this shift toward smaller
sawtimber trees will result in lower prices because continuing improvements in
mill conversion technology, both in new small-log mills and in existing mills,
make smaller sawlogs as commercially desirable as larger logs.
ASSUMPTIONS. The foregoing future harvest plans and inventory projections
are forward-looking statements (as such term is defined under the Private
Securities Litigation Reform Act of 1995) based on current expectations. See
"Cautionary Statement for Purposes of the "Safe Harbor' Provisions of the
Private Securities Litigation Reform Act of 1995." The accuracy of such
statements is subject to a number of risks, uncertainties and assumptions,
including those listed below, with the uncertainty of forecasts increasing
with time. The inaccuracy over time of any of the following assumptions could
cause actual harvests and inventories to differ materially from the above
plans and projections. Accordingly, there can be no guarantee that any of the
projected levels of harvests or inventories will be achieved. The most
critical assumptions made in connection with these projections include:
1) Acreage presently owned will not materially change through acquisition
or divestiture.
2) Silviculture programs for reforestation and timber stand improvement
will be implemented in accordance with management's expectations and future
timber growth and product yield responses to various forestry practices
will be in accordance with management's present expectations.
3) Government, legislative and environmental restrictions will not
materially differ from those currently applicable to commercial timber
management on private industrial lands.
4) Volume projections have accounted for losses caused by normal stand
and individual tree mortality resulting from minor pests, disease,
crowding, forest roads, lightning, and other recurring and anticipated
events. Allowances have not been incorporated to account for catastrophic
losses such as may result from fires, floods, windstorms, earthquakes,
volcanic eruptions, or diseases.
5) Market demand for the various timber products within each operating
region will not materially differ from historical levels.
MANAGEMENT PRACTICES.
FOREST MANAGEMENT. The Timber Group practices intensive forest management,
recognizing that the growth potential of most forests in the United States has
not been achieved, and that reaching higher per acre
V-11
<PAGE>
yields will require continued investment and applied forest science. Forest
growth on the Timberlands is being accelerated through intensive, site-
specific use of genetically improved seedlings which, in combination with
intensive fertilization and vegetation control practices, more effectively and
rapidly grow trees with specific characteristics desired for a given market.
The Timber Group also uses selective harvesting and thinning practices which
not only improve the productivity of the remaining stand, but also generate
cash flows from sales as pulpwood or sawtimber. All silviculture treatments
are environmentally sustainable, adhere to state Best Management Practices and
comply with the American Forest & Paper Association's Sustainable Forestry
Initiative. All harvesting is performed by independent logging contractors
under contract either with the purchaser of the standing timber or, in certain
circumstances, with the Timber Group.
The Timber Group plants in excess of 125 million conifer seedlings each
year, with 90% of these being southern pine species. The Timber Group operates
five conifer nurseries which annually produce 55 million seedlings, and
contracts with other nurseries to produce seedlings using the Timber Group's
genetically improved seed. In order to fully capture seedling growth potential
and reduce growing costs and the risk of seedling shortages, the Timber Group
is currently constructing a large scale nursery in Mississippi with an
expected annual capacity of 60 million southern pine seedlings.
The Timber Group uses the maximization of net present value to guide its
harvest scheduling process. Rotation lengths of 20 to 35 years for pine
plantations under intensive forest management are expected. Similarly, Douglas
fir plantations in the Pacific Northwest are generally managed on a 40 to 50
year rotation. Optimal rotation length will vary depending upon the species
planted, location, the forest management practices employed, prevailing timber
values in the region, and opportunity costs used in the financial analysis.
Since 1994, the Timber Group has invested over $6 million in the development
of proprietary forest management information systems. These systems consist of
a series of computerized decision support models that enhance both financial
and operational planning by providing information on current and projected
timber inventories assuming various management and harvesting scenarios. This
modeling capability allows harvest volumes to be established by planning
methods focused on maximizing the net present value of the standing timber
taking into account the current and projected conditions of regional timber
markets. These systems use current forest structure as input to a series of
statistical models that project growth from the forest based upon age, trees
per acre, average tree height and other attributes. These models provide
future inventory estimates that are then used in conjunction with future
estimates of market prices to project future cash flows from the forest. These
techniques represent substantial improvements over previous planning methods
used by the Company that focused on target tree size regardless of financial
return.
SALES AND MARKETING. The Timber Group has historically provided
approximately 95% of its annual harvest to the Georgia-Pacific Group for
consumption in its mills either by direct sales or through sales to third
parties which in turn deliver other quantities of timber and wood fiber to
mills of the Georgia-Pacific Group on an exchange basis. While these exchanged
quantities have historically been accounted for as outside sales, they
actually represent indirect sales to the Georgia-Pacific Group. The balance of
the Timber Group's timber sales, averaging approximately 5% of its annual
harvest, have been to unaffiliated third parties, usually on a stumpage basis
and consisting of species which were not needed in the Georgia-Pacific Group's
operations.
In the future, the Timber Group may sell up to 80% to 90% of its annual
harvests to the Georgia-Pacific Group pursuant to a negotiated operating
policy. See "Proposal 1--The Letter Stock Proposal--Certain Management and
Allocation Policies." However, the Timber Group may offer for sale in the open
market up to 10% of its total harvest in 1998 and up to 20% of its total
harvest in 1999 and 2000. These quantities will be made available from each
forest and will cover all types of species being offered for sale. Sales to
the Georgia-Pacific Group and third parties will generally be made on a
stumpage basis, except for sales in the Western region, thinnings and
selective harvests, which may be made on a delivered basis. This shift to a
stumpage-based sales philosophy is consistent with the Timber Group's focus on
forest management, rather than harvesting and conversion. Subject to the
exceptions noted above, the Georgia-Pacific Group and other purchasers will be
V-12
<PAGE>
responsible for all costs associated with retaining and overseeing logging and
hauling contractors for standing timber purchased from the Timber Group.
The prices for all timber sold by the Timber Group to the Georgia-Pacific
Group under the operating policy described above are intended to approximate
prices negotiated between unaffiliated third parties in the open market and
will be based upon an average of the actual prices during the immediately
preceding quarter received by the Timber Group for sales made by it to third
parties, and prices paid by the Georgia-Pacific Group for purchases made by it
from third parties, in the same forest region for timber and wood fiber of the
same species, grade and size, and the benefit to the Georgia-Pacific Group of
having access to a committed quantity of high quality timber and wood fiber in
close proximity to its facilities. See "Proposal 1--The Letter Stock
Proposal--Certain Management and Allocation Policies."
OTHER BUSINESSES
As part of its strategy to maximize cash flows from the Timberlands, the
Timber Group engages in several business activities complementary to its land
holdings.
The Company enters into hunting leases on the Timberlands with private clubs
and state agencies. The revenue from these leases has been stable, and with
continued demand for hunting lands is likely to increase in real terms. The
presence of paying hunters also provides additional security against trespass,
theft and wildfire.
The Timberlands contain significant mineral reserves with royalty producing
interests in coal, coal bed methane, kaolin, oil and natural gas.
Approximately 380,052 acres are under lease for the mining of coal, and
approximately 281,743 acres are under lease for the production of oil and gas
or coal bed methane.
The Timber Group's real estate development business consists of two master
planned communities. Dunes West is a 3,000 acre gated community located near
Charleston, South Carolina. Build-out of this development is projected to
occur in 2003. Hunter's Ridge is a 5,037 acre Planned Unit Development located
near Daytona Beach, Florida. Build-out of Hunter's Ridge is projected to occur
in 2012. At this time the Timber Group is seeking to sell this development.
REGULATION
Timberland ownership and management is subject to a variety of extensive and
changing federal, state, and local environmental laws and regulations. The
most significant federal statutes influencing forest land management are the
Endangered Species Act ("ESA") and the Clean Water Act ("CWA"). State and
local governments develop their own varied approaches to regulation of forest
land management through a number of different mechanisms. Modification of any
of these statutes or regulations has the potential to impact the Timber Group
beyond current projections. However, the Timber Group believes that any such
impacts would also affect other commercial timberland owners to a generally
similar extent.
The ESA and counterpart state legislation protect species threatened with
possible extinction and may restrict timber harvesting, road building and
other silvicultural activities in areas containing the affected species. The
provisions of ESA require landowners to develop and implement management
strategies to avoid the taking, harm or harassment of particular species of
wildlife listed as "endangered" or "threatened." In some circumstances, the
Timber Group may choose to pursue and develop a formal legal agreement
referred to as a Habitat Conservation Plan ("HCP") with the United States Fish
and Wildlife Service and/or the National Marine Fisheries Service. HCPs
outline in detail an acceptable management approach between the company and
the appropriate agency in dealing with a subject species and the potential
impacts of forest land management activities.
The CWA impacts forestry operations both from the standpoint of water
quality and wetlands protection. From the standpoint of commercial timber
operations, water quality concerns are primarily non point source in nature
and are normally regulated by states through Best Management Practices
requirements. The United States
V-13
<PAGE>
Environmental Protection Agency and the states are in the process of
implementing the Total Maximum Daily Load ("TMDL") program under Section 303
of the CWA. The program is focusing on pollutants of concern in waters which
do not meet water quality standards. Both point and nonpoint sources,
including forestry operations, may be impacted. There is an exemption from the
wetland regulatory program for normal silvicultural activities. This exemption
is occasionally challenged regarding the limits of its extent under Section
404 of the CWA.
States typically influence forest management activities through the
implementation of various programs to control water quality impacts. Some of
these programs have also regulated other impacts of forest management
activities such as wildlife and aesthetics. California is generally regarded
as having the most stringent state forest practice laws in the nation, with
individually approved Timber Harvest Plans and Sustained Yield Plans a
requirement for major landowners. States in the Southern region tend to take a
less rigorous approach to forest land regulation, with some implementing their
forest land water quality control programs through nonregulatory Best
Management Practices. In addition, counties, municipalities, and other
regional governmental authorities may develop their own ordinances, permits,
or other land use control mechanisms which can negatively impact forest
management activities.
FACTORS AFFECTING THE TIMBER GROUP'S BUSINESS
FACTORS AFFECTING SUPPLY AND DEMAND.
The results of operations of the Timber Group are and will continue to be
affected by cyclical supply and demand factors related to the forest products
industry. The supply of timber is significantly affected by land use
management policies of the United States government, which in recent years
have limited and are likely to continue to limit the amount of timber offered
for sale by certain United States government agencies. Such government
agencies historically have been major suppliers of timber to the United States
forest products industry, but timber sales by such government agencies
currently are at historically low levels. Any reversal of government land use
management policies that substantially increases sales of timber by United
States government agencies could significantly reduce prices for logs, lumber,
and other forest products. The demand for logs and manufactured wood products
also has been, and in the future can be expected to be, subject to cyclical
fluctuations. The demand for logs and manufactured wood products is primarily
affected by the level of housing starts, repair and remodeling activity,
industrial wood product use, competition from non-wood products, and the
demand for pulp and paper products. These factors are subject to fluctuations
due to changes in economic conditions, interest rates, population growth,
weather conditions, competitive pressures, and other factors. Any decrease in
the level of industry demand for logs and wood products generally can be
expected to result in lower net sales, operating income and cash flow of the
Timber Group.
HARVESTING LIMITATIONS.
Net sales, operating income and cash flow of the Timber Group are dependent
to a significant extent on the continued ability of purchasers of standing
timber and, to a lesser extent, the Timber Group to harvest timber at adequate
levels. Weather conditions, timber growth cycles, access limitations and
regulatory requirements associated with the protection of wildlife and water
resources may restrict harvesting of the Timberlands. From time to time,
proposals have been made in state legislatures that would regulate the level
of timber harvesting. Timber harvests also may be affected by various natural
factors, including damage by fire, insect infestation, disease, prolonged
drought, severe weather conditions and other causes. The effects of such
natural disasters may be particularly damaging to young timber. Although
damage from such natural causes usually is localized and affects only a
limited percentage of the timber, there can be no assurance that any damage
affecting the Timberlands will in fact be so limited. Consistent with industry
practice, the Timber Group does not maintain insurance coverage with respect
to damage to the Timberlands. Any of the above factors which materially limit
the ability of purchasers or the Timber Group to harvest timber could have a
significant adverse impact on the net sales, operating income and cash flow of
the Timber Group.
V-14
<PAGE>
COMMITTED PRODUCT PURCHASES BY GEORGIA-PACIFIC GROUP; POSSIBLE INABILITY TO
DEVELOP NEW MARKETS.
During 1996 and the first six months of 1997, the Timber Group derived
approximately 95% of its net sales from sales of timber and wood fiber
directly or indirectly to the Georgia-Pacific Group. For a description of the
terms of sales of timber and wood fiber by the Timber Group to the Georgia-
Pacific Group, see "Proposal 1--The Letter Stock Proposal--Certain Management
and Allocation Policies." While management of the Timber Group believes that
there is significant demand for the Timber Group's timber and wood fiber
products from users other than the Georgia-Pacific Group, no assurance can be
given that such demand exists, that the Timber Group will be able to develop
new customers on a timely basis, if at all, or that it will be able to sell
its products to third parties at market prices. Any excess supply of timber
and wood fiber that results from the inability of the Timber Group to sell its
products to users other than the Georgia-Pacific Group could result in lower
prices for the Timber Group's products which could have a material adverse
effect on the net sales, operating income and cash flow of the Timber Group.
ENVIRONMENTAL REGULATION.
The Timber Group is subject to extensive and changing federal, state, and
local environmental laws and regulations, the provisions and enforcement of
which are expected to become more stringent in the future. The Timber Group's
operations generate air emissions, discharge industrial wastewater and
stormwater and generate and dispose of both hazardous and non-hazardous
wastes. The Timber Group is subject to regulation under the ESA, the CWA, the
Clean Air Act, the RCRA, the CERCLA, the Federal Insecticide, Fungicide and
Rodentcide Act and the Toxic Substances Control Act as well as similar state
laws and regulations. Violations of various statutory and regulatory programs
that apply to the Timber Group's operations can result in civil penalties,
remediation expenses, natural resource damages, potential injunctions, cease
and desist orders and criminal penalties. Some environmental statutes impose
strict liability, rendering a person liable for environmental damage without
regard to negligence or fault on the part of such person. There can be no
assurance that such laws or future legislation or administrative or judicial
action with respect to protection of the environment will not adversely affect
the Timber Group.
The ESA and counterpart state legislation protect species threatened with
possible extinction. A number of species indigenous to the Timberlands have
been and in the future may be protected under these laws, including the
northern spotted owl, marbled murrelet, gray wolf, grizzly bear, mountain
caribou, bald eagle, red cockaded woodpecker, and various other species.
Protection of endangered and threatened species may include restrictions on
timber harvesting, road building and other silvicultural activities on
private, federal, and state land containing the affected species.
POTENTIAL ACQUISITION RISKS.
The Timber Group intends to pursue acquisitions as part of its strategy in
order to increase the Group's cash flow and returns to its shareholders. There
can be no guarantee, however, that the Timber Group will be able to identify
any assets for acquisition on terms that are economically feasible.
Additionally any acquisition strategy involves numerous risks, including
difficulties inherent in the integration of systems, operations, and
personnel, diversion of management attention away from other business
concerns, and the need to potentially secure additional financing to
consummate such acquisitions.
LITIGATION
There are no material legal proceedings pending in connection with the
properties or operations of the Timber Group. See Note 9 of the Timber Group's
financial statements.
V-15
<PAGE>
MANAGEMENT AND EMPLOYEES
MANAGEMENT.
<TABLE>
<CAPTION>
DATE FIRST
ELECTED AS AN POSITION OR
NAME/OFFICE AGE OFFICER OFFICE
----------- --- ------------- -----------
<C> <C> <C> <S>
A. D. Correll......... 55 1988 Chairman, Chief Executive
Officer and
President
Donald L. Glass....... 48 1982 President and
Chief Executive
Officer--Timber
Group
William L. Covington.. 47 N/A Director--
Minerals and
Real Estate
Gary A. Myers......... 45 N/A Vice President--
Resource
Management
Robert J. Olszewski... 41 N/A Director--
Environmental
Affairs
Patricia Todd......... 43 N/A Director--Human
Resources
Tyler L. Woolson...... 34 N/A Vice President--
Finance
</TABLE>
With the exception of Mr. Correll, naming of the above individuals to the
referenced positions or offices is contingent upon approval of the Letter
Stock Proposal by the shareholders of the Company. See "Annex IV--Georgia-
Pacific Group--Business--Management and Employees" for biographical
information regarding Mr. Correll.
Donald L. Glass has been Executive Vice President--Building Products of the
Company since January 1, 1997, and has 25 years of management and sales
experience with the Company. Mr. Glass has led the Company's building products
manufacturing businesses since 1989, serving as Senior Vice President--
Building Products Manufacturing and Sales from 1991 until December 1996 and as
Senior Vice President--Building Products Manufacturing from 1989 to 1991.
Prior to 1989, Mr. Glass served as vice president of various businesses of the
Company, including its international division, gypsum and roofing division,
and the Midwest region of its building products distribution division. He
joined the Company in 1972 as a building products distribution sales
representative. Mr. Glass holds a business management degree from West
Virginia University.
William L. Covington has been Corporate Director of Minerals and Real Estate
of the Company since 1991. He has managed the Company's mineral and real
estate assets since 1986, serving as Corporate Manager of Minerals and Real
Estate from 1986 until 1991. Prior to joining the Company, Mr. Covington
worked in numerous oil and gas exploration and production positions generally
dealing with the acquisition of land rights. He holds a degree from the
University of Southern Mississippi and a Masters of Business Administration
from Loyola University.
Gary A. Myers has been Director--Land Management, Forest Resources of the
Company since January 1996. Mr. Myers served as Manager--Strategic Planning
and Analysis, Forest Resources from September 1993 until December 1995. He has
fee land management responsibility for the Company's 5.8 million acres of
V-16
<PAGE>
timberlands, including technical services, forest productivity and timberland
sales and acquisitions. Mr. Myers was previously employed by Jefferson Smurfit
Corporation where his management responsibilities included strategic planning
for wood supply, land management, silvicultural investments and evaluation of
acquisition opportunities. He holds an undergraduate degree from Stetson
University and a Masters of Forestry degree from Duke University.
Robert J. Olszewski has been Director of Environmental Affairs--Forest
Resources of the Company since January 1996. Mr. Olszewski served as Manager--
Regulatory and Environmental Affairs from March 1993 until December 1995,
working with the Company's Environmental Policy, Training, and Regulatory
Group on environmental issues impacting forestry operations. Prior to joining
the Company, he was employed with the Florida Forestry Association where he
worked with the forestry community, environmental organizations and federal,
state and local governments on a variety of environmental and land use
regulations. Mr. Olszewski previously served as the State Forest Hydrologist
for the Florida Division of Forestry where he implemented the forestry
nonpoint source pollution element of the state water quality plan and trained
the state's forestry community in Best Management Practice applications. He
holds a forestry degree from Michigan Technological University and a Master of
Science degree in Forest Hydrology from the University of Georgia. Mr.
Olszewski currently serves as Chairman of the American Forest & Paper
Association's Forest Wetland and Nonpoint Source Committee.
Patricia A. Todd has been Division Human Resources Manager--Forest Resources
of the Company since November 1994. She is responsible for all human resources
functions in the Forest Resources division, including safety, compensation,
training, recruiting, succession planning and Equal Employment and Affirmative
Action. Ms. Todd has been with the Company since 1992. She currently holds
officer positions with the American Society of Training and Development and
the Society of Human Resource Management. Ms. Todd holds a psychology degree
from the College of Charleston and a Masters of Personnel and Industrial
Relations from Winthrop University.
Tyler L. Woolson has been Director--Corporate Planning and Analysis of the
Company since April 1996, and previously served as Senior Manager--Corporate
Planning and Analysis from August 1995 through March 1996. His primary
responsibilities with the Company include development of long-term strategic
planning processes, building financial models, evaluating potential
acquisitions and reviewing capital expenditure projects. Prior to joining the
Company, Mr. Woolson worked as a corporate finance consultant for Finegan &
Gressle and Towers Perrin, and as a financial analyst with Stern Stewart & Co.
He earned his undergraduate degree and a Masters of Business Administration
from Dartmouth College.
EMPLOYEES. The Timber Group currently has approximately 450 employees,
consisting primarily of professional foresters, forestry technicians and
equipment operators. There are 28 unionized employees, and the Timber Group
believes that its employee relations are good.
V-17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
TIMBER GROUP
The Timber Group consists of approximately 5.8 million acres of timberlands
owned or leased by the Company, together with related facilities and
equipment. The accompanying financial statements present the historical
results of operations, and financial conditions of the timberlands and
operations that will comprise the Timber Group. Historically, the Timber Group
grew and sold timber and wood fiber, substantially all of which was sold to
the Georgia-Pacific Group. As more fully described in Note 10 to the Timber
Group's financial statements, the Timber Group and the Georgia-Pacific Group
have negotiated an operating policy governing future sales of timber and wood
fiber by the Timber Group to the Georgia-Pacific Group.
Management of the Timber Group estimates that the volumes of wood to be
harvested in the last half of 1997 will be approximately 5% below the level of
the first half of 1997. Harvest volumes in 1996 and 1997 were above initial
plan levels and actual 1995 harvest levels predominantly due to accelerated
harvests in late 1996 and early 1997 in the mid-south central U.S. This was a
result of the Company's strategy to assure continuous mill operations during
abnormally wet weather conditions which impaired open market wood availability
and mill inventories. In the near term, harvests will decline from levels
experienced in 1996 and the first half of 1997, but will remain approximately
5-10% above 1995 levels. In the future, management of the Timber Group expects
to adjust harvest levels to respond to varying market conditions and prices,
while complying with the operating policy governing sales to the Georgia-
Pacific Group.
The operations of Timber Group, and its financial results, are affected by a
number of factors, including prices for timber and wood fiber generally,
selling prices for manufactured wood products, including lumber, structural
panels and other wood products, supplies of timber and wood fiber from other
wood sources in the United States and competition for these raw materials, as
well as seasonal factors such as weather. The demand for lumber and other wood
products is in turn affected by demand for residential housing construction
and, to a lesser extent, home remodeling activity. See "Business--Factors
Affecting the Timber Group's Business."
V-18
<PAGE>
ANALYSIS OF TIMBER SALES
During the periods presented in the table below, the volume of timber
harvested from the Timberlands has varied significantly as a result of demand
from the Company's mills, weather conditions and availability and price of
timber being sold by third parties. As the following tables indicate, volumes
of the principal grades of timber sold were relatively stable from 1994 to
1995, but increased sharply in 1996 as the Company elected to harvest larger
amounts of all principal wood types from its owns timberlands, as opposed to
purchasing them from third parties. Selling prices during these three years
remained relatively stable or increased slightly, with the largest increase
coming in softwood pulpwood, but the much higher volumes of timber harvested
in 1996 account for the significant increase in total revenues in that year.
Harvesting from the Timberlands has continued at a high level in the first six
months of 1997, particularly for softwood sawtimber which is used principally
in making plywood and lumber. Prices have remained stable with the exception
of hardwood sawtimber, which has increased substantially. Management of the
Timber Group believes that the volume of wood harvested in the last half of
1997 will be about 5% below the level of the first six months of 1997.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31
------------- -----------------------
1997 1996 1996 1995 1994
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET SALES (IN MILLIONS)
Southern softwood sawtimber.............. $ 146 $ 115 $ 251 $ 195 $ 166
Western softwood sawtimber............... 55 62 144 176 153
Softwood pulpwood........................ 37 36 88 68 65
Hardwood sawtimber....................... 6 3 14 10 10
Hardwood pulpwood........................ 12 13 23 22 14
Other.................................... 12 11 27 22 17
------ ------ ------- ------- -------
Total net sales........................ $ 268 $ 240 $ 547 $ 493 $ 425
====== ====== ======= ======= =======
VOLUME (IN THOUSAND TONS)
Southern softwood sawtimber.............. 3,152 2,593 6,003 4,430 4,335
Western softwood sawtimber............... 734 850 1,891 2,096 1,894
Softwood pulpwood........................ 2,651 2,476 5,492 4,804 4,646
Hardwood sawtimber....................... 149 127 415 320 323
Hardwood pulpwood........................ 1,172 1,058 2,359 2,147 1,840
------ ------ ------- ------- -------
Total volume........................... 7,858 7,104 16,160 13,797 13,038
====== ====== ======= ======= =======
SELLING PRICES (PER TON)
Southern softwood sawtimber.............. $ 46 $ 44 $ 42 $ 44 $ 38
Western softwood sawtimber............... 75 73 76 84 81
Softwood pulpwood........................ 14 15 16 14 14
Hardwood sawtimber....................... 40 24 34 31 31
Hardwood pulpwood........................ 10 12 10 10 8
Weighted average price................. $ 33 $ 32 $ 32 $ 34 $ 31
</TABLE>
Domestic timber markets were strong over these periods due to a high level
of housing starts, increasing repair and remodeling expenditures and a
tightening worldwide timber supply. Environmental concerns, particularly in
the western United States, have significantly reduced the supply of lumber,
especially from government-owned lands, and increased prices because of higher
costs of managing and harvesting timberlands. It is expected that
environmental concerns, particularly concerning harvesting methods, will
become an increasingly important operational issue for the Timber Group and
its competitors, and could lead to further tightening of timber supplies in
the foreseeable future.
V-19
<PAGE>
The Timber Group is also engaged in certain businesses related to the
ownership and management of timberlands, including real estate development,
the sale of minerals and mineral rights, and the sale of hunting leases.
Revenues from those activities are presented in the table below.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30 DECEMBER 31
-------------- --------------
1997 1996 1996 1995 1994
------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C>
OTHER NET SALES (IN MILLIONS)
Real estate................................. $ 4 $ 2 $10 $ 7 $ 3
Hunting leases.............................. 4 3 9 9 8
Minerals.................................... 3 5 7 6 5
Other....................................... 1 1 1 -- 1
------ ------ --- --- ---
Total..................................... $ 12 $ 11 $27 $22 $17
====== ====== === === ===
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
The Timber Group reported net sales of $268 million and net income of $140
million (pro forma $1.54 per share) in the first half of 1997, compared with
net sales of $240 million and net income of $44 million (pro forma 49 cents
per share) in 1996. The 1997 results include a $114 million pretax gain (pro
forma 78 cents per share after tax) from the sale of 127,000 acres of
timberlands located near Martell, California. As a percentage of the Timber
Group's total net sales, sales from the Martell timberlands were 6% in 1996,
9% in 1995, and 8% in 1994. There were no sales from the Martell timberlands
in 1997, and the operating profits from those timberlands were not significant
for any of the periods presented in the financial statements.
Excluding the gain on the Martell sale, earnings before interest and taxes
increased $33 million, to $160 million in the first six months of 1997,
compared with $127 in the first six months of 1996. The increase is primarily
a result of a 10% increase in volumes. Volume in the first half of 1997 was
high relative to both the first half of 1996 and the 1997 harvest plan.
Unusually wet weather in the early part of the year reduced the accessibility
of other suppliers' timber, thus increasing the demand for timber from the
Timber Group. However, management of the Timber Group estimates that the
volumes of wood to be harvested in the last half of 1997 will be approximately
5% below the level of the first half of 1997.
Selling, general and administrative expenses were $21 million in first six
months of 1997, compared with $23 million in the first six months of 1996. In
an effort to improve earnings by reducing overhead costs and improving
efficiencies, the Timber Group implemented a voluntary early retirement
program in the second quarter of 1996. The Timber Group also conducted an
extensive review of its overhead and administrative activities during late
1996 and early 1997. As a result, management expects the Timber Group's annual
selling, general and administrative expenses to decline by approximately $6.5
million. Approximately $2.3 million of the cost savings were realized in the
first half of 1997, with the remaining amount expected to be realized in the
second half of 1997 and early 1998.
Interest expense declined 17%, to $45 million in the first six months of
1997, compared with $54 million in the first half of 1996. The primary reason
for the decline was a lower level of debt that resulted from applying the $270
million proceeds from the sale of the Martell timberlands.
1996 COMPARED WITH 1995
The Timber Group reported net sales of $547 million and net income of $127
million (pro forma $1.40 per share) for 1996, compared with net sales of $493
million and net income of $97 million (pro forma $1.08 per share) in 1995.
Earnings before interest and taxes increased $42 million, to $313 million in
1996, compared with $271 million in 1995. Increased sales and net income were
primarily a result of a 17% increase in harvest volumes, partially offset by a
5% decline in prices for Southern softwood sawtimber. Harvest volumes in 1996
were above initial plan levels and actual 1995 harvest levels predominantly
due to accelerated harvests in late 1996 in the mid-south central U.S.
V-20
<PAGE>
Other revenue in 1996 exceeded 1995 by $5 million, as a result of a $5
million bulk sale of property at the Dunes West real estate development. Cost
of sales, excluding depreciation and cost of timber harvested increased by $10
million, up 8% from 1995 as a result of increased silviculture activity.
Interest expense declined by $6 million from 1995, due to lower debt levels
and interest rates.
1995 COMPARED WITH 1994
The Timber Group reported net sales of $493 million in 1995 compared with
$425 million in 1994. Net income in 1995 was $97 million (pro forma $1.08 per
share), compared with $61 million (pro forma 68 cents per share) in 1994.
Earnings before interest and taxes increased $57 million from 1994. Increased
sales and earnings for the Timber Group were primarily a result of an 16%
increase in the price of southern sawtimber and a 6% increase in total
volumes. The primary reason for the increase in demand and prices was
declining harvests from government-owned timberlands.
LIQUIDITY AND CAPITAL RESOURCES
Free Cash Flow
The Timber Group generated free cash flow (cash provided by operations less
cash used for investing activities) of $670 million over the three and one-
half years ended June 30, 1997. Cash from operations over that period was $500
million, and cash provided by investing activities was $170 million, including
the $270 million proceeds from the sale of the Martell timberlands in March
1997. Excluding that transaction, the Timber Group's free cash flow over the
three and one-half year period was $400 million.
On March 31, 1997, the Company sold 127,000 acres of timberlands, a sawmill
and a particleboard plant near Martell, California for $308 million, having
determined that the timberland and associated manufacturing facilities did not
fit the Company's long-term strategy. The portion of proceeds allocated to the
Timber Group for the timberland sold was $270 million.
Financing Activities
The Timber Group's cash dividends of $46 million in the first half of 1997,
$92 million in 1996, $87 million in 1995, and $73 million in 1994 were equal
to one half of the Company's total dividends paid in each of those periods.
The increase from 1994 to 1995 is primarily a result of a 10 cent-per-share
increase in the Company's dividend rate beginning in the second quarter of
1995, half of which was attributed to the Timber Group as "Cash dividends
paid" in the accompanying Statements of Cash Flows for the Timber Group. The
other increases in dividends are related to increases in the number of the
Company's shares outstanding, which resulted from the Company's stock
compensation and employee stock purchase programs. After dividends totaling
$298 million over the past three and one-half years, the remaining free cash
flow of $372 million was applied to reduce the Timber Group's debt.
At June 30, 1997, the Timber Group's debt was $1 billion, compared with $1.3
billion at December 31, 1996. The decrease was primarily attributable to the
proceeds received from the sale of the Martell timberlands. The debt of the
Timber Group bears interest at a rate equal to the weighted average rate of
the Company's total debt, calculated on a quarterly basis. The interest rate
on the Company's total debt at June 30, 1997, was 7.7%. In the future, the
Timber Group's debt will increase or decrease by the amount of any cash
provided by or used for the Group's operating activities, investing
activities, dividend payments, share repurchases or issuances and other (non-
debt-related) financing activities. See also Note 1 to the Timber Group's
financial statements for further discussion of financial activities.
In conjunction with the sale of the Company's Martell, California,
operations, the Company received notes from the purchaser in the amount of
$270 million for the timberlands of the Timber Group. The notes are included
in "Other assets" on the Company's balance sheet at June 30, 1997. In April
1997, the Company monetized these notes receivable through the issuance of
notes payable in a private placement. Proceeds from the notes receivable will
be used to fund payments required for the notes payable, which are classified
as "Other long-term liabilities" on the Company's balance sheet. These
transactions with respect to the Timber Group are reflected as "Proceeds from
asset sales" on the Statement of Cash Flows of the Timber Group. Proceeds were
used to reduce the Timber Group's debt.
V-21
<PAGE>
The Company's total debt was $5.6 billion at June 30, 1997, including $1.0
billion allocated to the Timber Group and $4.6 billion allocated to the
Georgia-Pacific Group. The Company has a $1.5 billion unsecured revolving
credit facility that is used for direct borrowings and as support for
commercial paper and other short-term borrowings. As of June 30, 1997, $728
million of committed credit was available in excess of all short-term
borrowings outstanding under or supported by the facility. At June 30, 1997,
the Company's weighted average interest rate on its total debt was 7.7%
including outstanding interest rate exchange agreements. At June 30, 1997,
these interest rate exchange agreements effectively converted $496 million of
floating rate obligations with a weighted average interest rate of 5.6% to
fixed rate obligations with an average effective interest rate of 9.0%. These
agreements have a weighted average maturity of approximately 1.6 years. As of
June 30, 1997, the Company's total floating rate debt exceeded related
interest rate exchange agreements by $1.4 billion.
As of June 30, 1997, the Company had registered for sale up to $500 million
of debt securities under a shelf registration statement filed with the
Securities and Exchange Commission.
In August 1995, the Company's Board authorized management to make purchases
of Company's common stock on the open market or in private transactions so
long as Company's total debt, remains below $5.5 billion. During the year
ended December 31, 1995, Company purchased and retired 618,000 shares of its
common stock at an aggregate price of $47 million on the open market. No share
repurchases were made in 1996 or in the first six months of 1997 because the
Company's total debt remained above the $5.5 billion target level.
The Board has adopted a policy that earnings and cash flow generated from
the businesses of the Georgia-Pacific Group or the Timber Group will be used
only for reinvestment in the business of the Group generating such earnings
and related cash flow, for repayment of its allocated debt or for payment of
dividends on, or for the repurchase of shares of, Common Stock related to that
Group. Funds of one Group will not be loaned to or otherwise invested in the
business of the other Group.
In September 1997, the Company's Board authorized management to make
purchases of Timber Group stock on the open market or in private transactions
so long as Timber Group's total debt remains below $1.0 billion and Company's
debt is below $5.5 billion. Depending on operating and financial
considerations, debt levels of the Company and the Timber Group may from time
to time be above or below these thresholds.
In 1997, the Timber Group expects its cash flow from operations, together
with proceeds from any asset sales and available financing sources, to be
sufficient to fund planned capital investments, pay dividends and make
scheduled debt repayments.
OTHER
In June 1997, the FASB issued Financial Accounting Standard Number 130 (SFAS
130) "Reporting Comprehensive Income," that establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The Timber Group will be required to
adopt the new standard in 1998.
Also in June 1997, the FASB issued Financial Accounting Standard Number 131
(SFAS 131) "Disclosure about Segments of an Enterprise and Related
Information." This statement requires companies to determine segments based on
how management makes decisions about allocating resources to segments and
measuring their performance. The Timber Group will be required to adopt the
new standard in 1998, but is not expected to be impacted significantly as the
Timber Group is not expected to have any reportable segments under the new
standard.
For a discussion of commitments and contingencies, see Note 9 of the Notes
to the Timber Group's financial statements.
SEE THE "CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR' PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995" ON PAGE 20 0F THIS
PROXY STATEMENT.
V-22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of
Directors of Georgia-Pacific Corporation:
We have audited the accompanying combined balance sheets of the Georgia-
Pacific Corporation--Timber Group (as described in Note 1) as of December 31,
1996 and 1995 and the related combined statements of income, Group deficit,
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Georgia-Pacific
Corporation--Timber Group as of December 31, 1996 and 1995 and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
September 17, 1997
V-23
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
COMBINED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30 DECEMBER 31
------------ -----------------
1997 1996 1996 1995 1994
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES
Timber--Georgia-Pacific Group................. $ 214 $ 183 $ 424 $ 375 $ 311
Timber--third parties
Delivered................................... 34 43 89 89 91
Stumpage.................................... 8 3 7 7 6
Other......................................... 12 11 27 22 17
----- ----- ----- ----- -----
TOTAL NET SALES........................... 268 240 547 493 425
COSTS AND EXPENSES
Cost of sales, excluding depreciation and cost
of timber harvested shown below.............. 62 66 132 122 119
Selling, general, and administrative.......... 21 23 45 45 47
Depreciation and cost of timber harvested..... 25 23 57 55 45
Interest...................................... 45 54 105 111 114
Other (income) expense--Martell sale.......... (114) 1 -- -- --
----- ----- ----- ----- -----
TOTAL COSTS AND EXPENSES.................. 39 167 339 333 325
INCOME BEFORE INCOME TAXES...................... 229 73 208 160 100
Provision for income taxes...................... 89 29 81 63 39
----- ----- ----- ----- -----
NET INCOME...................................... $ 140 $ 44 $ 127 $ 97 $ 61
===== ===== ===== ===== =====
PRO FORMA PER SHARE DATA:
Net income...................................... $1.54 $0.49 $1.40 $1.08 $0.68
===== ===== ===== ===== =====
Average number of shares outstanding............ 91.1 90.5 90.6 90.2 89.1
===== ===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
V-24
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30 DECEMBER 31
------------------ -----------------
1997 1996 1996 1995 1994
-------- -------- ----- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH PROVIDED BY OPERATIONS
Net income.............................. $ 140 $ 44 $ 127 $ 97 $ 61
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and cost of timber
harvested............................ 25 23 57 55 45
Deferred income taxes................. 55 (3) (6) 2 4
Other income.......................... (114) -- -- -- --
Gain on sales of assets............... (4) (4) (16) (12) (19)
Change in other working capital....... 3 -- (1) (1) --
Other................................. 2 (6) 5 (2) (3)
-------- ------- ----- ---- ----
CASH PROVIDED BY OPERATIONS............. 107 54 166 139 88
-------- ------- ----- ---- ----
CASH PROVIDED BY (USED FOR) INVESTING
ACTIVITIES
Machinery and equipment investments..... -- (2) (4) (6) (7)
Timber and timberlands investments...... (20) (12) (48) (62) (37)
Proceeds from sales of assets........... 275 9 27 24 28
-------- ------- ----- ---- ----
CASH PROVIDED BY (USED FOR) INVESTING
ACTIVITIES............................. 255 (5) (25) (44) (16)
-------- ------- ----- ---- ----
CASH USED FOR FINANCING ACTIVITIES
(Repayments of) additions to debt....... (316) (3) (49) (8) 1
Cash dividends paid..................... (46) (46) (92) (87) (73)
-------- ------- ----- ---- ----
CASH USED FOR FINANCING ACTIVITIES...... (362) (49) (141) (95) (72)
-------- ------- ----- ---- ----
INCREASE (DECREASE) IN CASH............. -- -- -- -- --
Balance at beginning of year............ -- -- -- -- --
-------- ------- ----- ---- ----
Balance at end of year.................. $ -- $ -- $ -- $-- $--
======== ======= ===== ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
V-25
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
COMBINED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30, --------------
1997 1996 1995
----------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Timber and timberlands
Timberlands...................................... $ 300 $ 307 $ 306
Fee timber....................................... 612 772 791
Reforestation.................................... 165 154 145
Other............................................ 34 46 51
------ ------ ------
TOTAL TIMBER AND TIMBERLANDS................... 1,111 1,279 1,293
Machinery and equipment, less accumulated
depreciation of $47, $45, and $42, respectively.. 23 25 27
Investment in real estate held for development and
sale............................................. 19 17 20
Other assets...................................... 8 5 8
------ ------ ------
TOTAL ASSETS................................... $1,161 $1,326 $1,348
====== ====== ======
LIABILITIES AND GROUP DEFICIT
Debt.............................................. $1,000 $1,316 $1,365
Other liabilities................................. 10 8 10
Deferred income tax liabilities................... 229 174 180
------ ------ ------
TOTAL LIABILITIES.............................. 1,239 1,498 1,555
Group deficit..................................... (78) (172) (207)
------ ------ ------
TOTAL LIABILITIES AND GROUP DEFICIT............ $1,161 $1,326 $1,348
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
V-26
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
COMBINED STATEMENTS OF GROUP DEFICIT
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30 DECEMBER 31
-------------- -------------------
1997 1996 1996 1995 1994
------ ------ ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
GROUP DEFICIT BALANCE, BEGINNING OF
PERIOD.................................. $ (172) $ (207) $(207) $(217) $(205)
Net income............................... 140 44 127 97 61
Cash dividends paid...................... (46) (46) (92) (87) (73)
------ ------ ----- ----- -----
GROUP DEFICIT BALANCE, END OF PERIOD..... $ (78) $ (209) $(172) $(207) $(217)
====== ====== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
V-27
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Georgia-Pacific Corporation, a Georgia corporation ("Georgia-Pacific" or the
"Company"), is broadly engaged in two lines of business: the manufacture and
sale of pulp and paper products (including pulp, communication papers,
containerboard, packaging and tissue products) and of a wide variety of
manufactured building products (including plywood, oriented strand board,
various industrial wood products, and softwood and hardwood lumber) as well as
certain non-wood products including gypsum board and chemicals. All of such
products are manufactured in whole or in part from timber or other wood fiber
sources. The Company owns or controls approximately 5.8 million acres of
timberland, which in 1996 have supplied approximately 25% of the overall
timber and wood fiber requirements of the Company's manufacturing operations.
The Board of Directors (the "Board") of the Company has recommended
shareholder approval of a proposal (the "Letter Stock Proposal"), that would
create two classes of common stock that are intended to reflect separately the
performance of the Company's manufacturing and timber businesses. Under the
Letter Stock Proposal, the Company's Articles of Incorporation (the
"Articles") would be amended and restated (the "Restated Articles") to (i)
designate a new class of Georgia-Pacific Corporation--Timber Group Common
Stock, $.80 par value per share (the "Timber Stock"), consisting of 250
million authorized shares, (ii) redesignate each authorized share of existing
Common Stock, $.80 par value per share (the "Existing Common Stock") as, and
convert each share into, one share of Georgia-Pacific Corporation--Georgia-
Pacific Group Common Stock, $.80 par value per share (the "Georgia-Pacific
Group Stock"), (iii) increase the number of shares of Georgia-Pacific Group
Stock authorized for issuance from 150 million shares to 400 million shares,
(iv) authorize the distribution of Timber Stock to the holders of Georgia-
Pacific Group Stock as a share dividend on the basis of one share of Timber
Stock for each outstanding share of Georgia-Pacific Group Stock (the
"Distribution").
The Company's manufacturing and timber businesses are referred to
hereinafter as the "Georgia-Pacific Group" and the "Timber Group,"
respectively, or collectively as the "Groups."
The Georgia-Pacific Group is a manufacturer and distributor of building
products, as well as a producer of pulp and paper products. The Georgia-
Pacific Group's operations also include a procurement function which is
responsible for purchasing timber and wood fiber for all of the Georgia-
Pacific Group's manufacturing facilities. The Timber Group is engaged
primarily in the growing and selling of timber. In addition, the Timber Group
is engaged in certain businesses related to ownership and management of its
timber operations, including managing real estate development, hunting leases
and mineral reserves, and seedling production.
The financial statements of the Groups comprise all of the accounts included
in the corresponding consolidated financial statements of the Company. The
separate Group combined financial statements give effect to the accounting
policies that will be applicable upon implementation of the Letter Stock
Proposal. The separate Georgia-Pacific Group and Timber Group financial
statements have been prepared on a basis that management believes to be
reasonable and appropriate and include (i) the historical balance sheets,
results of operations, and cash flows of businesses that comprise each of the
Groups, with all significant intragroup transactions and balances eliminated,
(ii) in the case of the Timber Group's financial statements, corporate assets
and liabilities of the Company and related transactions identified with the
Timber Group, including allocated portions of the Company's debt and selling,
general and administrative costs, and (iii) in the case of the Georgia-Pacific
Group's financial statements, all other corporate assets and liabilities and
related transactions of the Company, including allocated portions of the
Company's debt and selling, general and administrative costs. Intergroup
timber sales between the Georgia-Pacific Group and the Timber Group have not
been eliminated in the Groups' financial statements.
V-28
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Notwithstanding the allocation of assets and liabilities (including
contingent liabilities) and shareholders' equity between the Georgia-Pacific
Group and the Timber Group for the purpose of preparing the respective
financial statements of such Groups, holders of Georgia-Pacific Group Stock
and Timber Stock will be shareholders of the Company and will continue to be
subject to all of the risks associated with an investment in the Company and
all of its businesses, assets, and liabilities. Such allocation of assets and
liabilities and change in the equity structure of the Company contemplated by
the Letter Stock Proposal will not result in a distribution or spin-off of any
assets or liabilities of the Company or otherwise affect ownership of any
assets or responsibility for the liabilities of the Company or any of its
subsidiaries. As a result, the Letter Stock Proposal will not affect the
rights of holders of the Company's or any of its subsidiaries' debt.
Holders of Georgia-Pacific Group Stock and Timber Stock will have only the
rights customarily held by common shareholders of the Company and will not
have any rights related to their corresponding Group except as set forth in
provisions relating to dividend and liquidation rights and requirements for a
mandatory dividend, redemption or conversion upon the disposition of assets of
their corresponding Group, or have any right to vote on matters as a separate
voting group other than in limited circumstances as provided under Georgia law
or by stock exchange rules. The relative voting power of Georgia-Pacific Group
Stock and Timber Stock will fluctuate from time to time, with each share of
Georgia-Pacific Group Stock having one vote and each share of Timber Stock
having a number of votes, based upon the ratio, over a specified period, of
the time-weighted average market values of one share of Timber Stock and of
one share of Georgia-Pacific Group Stock. This formula is intended to give
each class of common stock a number of votes proportionate to its aggregate
market capitalization at the time of any vote. Accordingly, changes in the
market value of Georgia-Pacific Group Stock and Timber Stock will affect the
relative voting rights of a class of common stock. It is expected that
initially the Georgia-Pacific Group will have a substantial majority of the
voting power of the Company.
Financial effects arising from either Group that affect the Company's
results of operations or financial condition could, if significant, affect the
results of operations or financial condition of the other Group and the market
price of the class of common stock relating to the other Group. Any net losses
of the Georgia-Pacific Group or the Timber Group and dividends or
distributions on, or repurchases of, Georgia-Pacific Group Stock or Timber
Stock will reduce the assets of the Company legally available for payment of
dividends on both the Georgia-Pacific Group Stock and the Timber Stock.
The Board may, in its sole discretion, determine to convert shares of the
class of common stock related to one Group into the class of the common stock
related to the other Group, at any time at a 15% premium, or at a 10% premium
in the case of certain dispositions of all or substantially all of the
properties or assets of the Group whose stock is being converted. Any
conversion at any premium would dilute the interests in the Company of the
holders of the class of common stock being issued in the conversion. In
addition, any such conversion of a class of common stock into another class of
common stock would preclude holders of both classes of common stock from
retaining their investment in a security that is intended to reflect
separately the performance of the relevant Group.
The management and accounting policies applicable to the preparation of the
financial statements of the Georgia-Pacific Group and the Timber Group may be
modified or rescinded, or additional policies may be adopted, at the sole
discretion of the Board at any time without approval of the shareholders.
The Timber Group's combined financial statements reflect the application of
the management and allocation policies adopted by the Board to various
corporate activities, as described below. The Timber Group's combined
financial statements should be read in conjunction with the Company's
consolidated financial statements and the Georgia-Pacific Group's combined
financial statements.
V-29
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FINANCIAL ACTIVITIES
The Company manages most financial activities of the Georgia-Pacific Group
and Timber Group on a centralized basis. Such financial activities include the
issuance, repayment, and repurchase of short-term and long-term debt; the
issuance and repurchase of common stock; and the payment of dividends.
At June 30, 1997, $1 billion of the Company's debt was allocated to the
Timber Group and $4.6 billion was allocated to the Georgia-Pacific Group. The
Company has not allocated specific debt securities or instruments to either
Group. The debt of each Group bears interest at a rate equal to the weighted
average interest rate of all of the Company's debt calculated on a quarterly
basis. Expenses related to the debt are reflected in the weighted average
interest rate. Management believes such method of allocation is equitable and
provides a reasonable estimate of the cost attributable to the Groups.
Each Group's debt will increase or decrease by the amount of any net cash
generated by, or required to fund, the Group's operating activities, investing
activities, dividend payments, share repurchases and other financing
activities. Interest will be charged to each Group in proportion to the
respective amount of each Group's debt. Changes in the cost of the Company's
debt will be reflected in adjustments in the weighted average interest cost of
such debt. Dividend costs with respect to any preferred stock issued by the
Company will be charged in a similar manner.
ALLOCATION OF SHARED SERVICES
A portion of the Company's shared selling, general and administrative
expenses (such as executive management, human resources, legal, accounting and
auditing, tax, treasury, strategic planning, information systems support, and
environmental services) has been allocated to the Timber Group based upon
utilization of such services by the Timber Group. Where determinations based
on utilization alone have been impracticable, other methods and criteria were
used that management believes are equitable and provide a reasonable estimate
of the cost attributable to the Timber Group. The total of these allocations
were $7 million, $6 million, and $6 million in 1996, 1995, and 1994,
respectively. It is not practicable to provide a detailed estimate of the
expenses which would be recognized if the Timber Group were a separate legal
entity.
ALLOCATION OF EMPLOYEE BENEFITS
A portion of the Company's employee benefit costs, including pension and
postretirement health care and life insurance benefits, has been allocated to
the Timber Group. The Timber Group's pension cost related to its participation
in the Company's noncontributory defined benefit pension plan and other
employee benefit costs related to its participation in the Company's
postretirement health care and life insurance plans are actuarially determined
based on its respective employees and an allocable share of the plan assets
and are calculated in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 87 and SFAS No. 106, respectively.
Since plan assets are not segregated into separate accounts or restricted to
providing benefits to employees of the Timber Group, assets of the Company's
employee benefit plans may be used to provide benefits to employees of both
the Georgia-Pacific Group and the Timber Group. Plan assets have been
allocated to the Timber Group based on the percentage of its projected benefit
obligation to the plans' total projected benefit obligations. Management
believes such method of allocation is equitable and provides a reasonable
estimate of the cost attributable to the Timber Group.
The discussion of the Timber Group's retirement plans (Note 7) should be
read in conjunction with the Company's consolidated financial statements and
notes thereto.
V-30
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
ALLOCATION OF FEDERAL AND STATE INCOME TAXES
The federal income taxes of the Company and the subsidiaries which own
assets allocated between the Groups are determined on a consolidated basis.
Consolidated federal income tax provisions and related tax payments or refunds
will be allocated between the Groups based principally on the taxable income
and tax credits directly attributable to each Group. Such allocations will
reflect each Group's contribution (positive or negative) to the Company's
consolidated federal taxable income and the consolidated federal tax liability
and tax credit position. Tax benefits that cannot be used by the Group
generating those benefits but can be used on a consolidated basis will be
credited to the Group that generated such benefits. Accordingly, the amounts
of taxes payable or refundable which will be allocated to each Group may not
necessarily be the same as that which would have been payable or refundable
had the Group filed a separate income tax return.
Depending on the tax laws of the respective jurisdictions, state and local
income taxes are calculated on either a consolidated or combined basis or on a
separate corporation basis. State income tax provisions and related tax
payments or refunds determined on a consolidated or combined basis will be
allocated between the Groups based on their respective contributions to such
consolidated or combined state taxable incomes. State and local income tax
provisions and related tax payments which are determined on a separate
corporation basis will be allocated between the Groups in a manner designed to
reflect the respective contributions of the Groups to the corporation's
separate state or local taxable income.
The discussion of the Timber Group's income taxes (Note 6) should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto.
DIVIDENDS
For purposes of the historical financial statements of the Timber Group and
the Georgia-Pacific Group, all dividends declared and paid by the Company were
evenly allocated between the Groups. Management believes such method of
allocation is equitable and provides a reasonable estimate of the dividends
which may have been declared and paid in respect of each class of common
stock.
REVENUE RECOGNITION
Timber sales are generally recognized when legal ownership or the risk of
loss passes to the purchaser and the quantity sold is determinable. This
generally occurs when the purchaser harvests the timber under a stumpage
purchase agreement. For delivered sales, the risk of loss passes when the
timber is delivered to the customer. Revenues are determined by multiplying
actual harvest volumes by contractually agreed-upon prices negotiated with the
purchasers, including the Georgia-Pacific Group. Other revenues are recognized
when earned.
INCOME PER SHARE
Historical income per share is omitted from the statements of income because
the Timber Stock was not part of the capital structure of the Company for the
periods presented. Following implementation of the Letter Stock Proposal, the
method of calculating income per share for the Timber Stock will reflect the
terms of the proposed amendments to the Company's Articles and will be
computed by dividing the net income of the Timber Group by the weighted
average number of shares of Timber Stock outstanding during the applicable
period. The effects of assuming issuance of Timber Stock on a pro forma basis
under existing long-term incentive, stock option, and stock purchase plans
will either be insignificant or antidilutive. Pro forma income per share,
reflecting the Timber Stock issued under the Letter Stock Proposal, is
presented in the Timber Group's statements of income.
V-31
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
TIMBER AND TIMBERLANDS
The Timber Group capitalizes timber and timberland purchases and
reforestation costs. The cost of timber harvested is based on the volume of
timber harvested, the capitalized cost, and the total timber volume estimated
to be available over the growth cycle. Timber carrying costs are expensed as
incurred.
MACHINERY AND EQUIPMENT
Machinery and equipment are recorded at cost. Lease obligations for which
the Timber Group assumes or retains substantially all the property rights and
risks of ownership are capitalized. Replacements of major units of property
are capitalized, and the replaced properties are retired. Replacements of
minor components of property and repair and maintenance costs are charged to
expense as incurred. Depreciation is computed using the straight-line method
over the estimated useful lives of the related assets. Useful lives generally
range from 3 to 20 years. Upon retirement or disposition of assets, cost and
accumulated depreciation are removed from the related accounts and any gain or
loss is included in income.
INVESTMENT IN REAL ESTATE HELD FOR DEVELOPMENT AND SALE
Real estate held for development and sale is stated at the lower of cost or
net realizable value, and includes direct costs of land and land development
and indirect costs, including amenities, less amounts charged to cost of
sales. These costs are allocated to individual lots or acreage sold based on
relative sales value. Direct costs are allocated on a specific neighborhood
basis, while indirect costs are allocated over the projects. The Timber Group
recognizes sales of retail homesites developed when all conditions, as set
forth in SFAS No. 66, "Accounting for Sales of Real Estate," have occurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements as well as reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
these estimates.
RECENT ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share," which specifies the computation,
presentation, and disclosure requirements for earnings per share. The Timber
Group will be required to adopt the new standard in the 1997 fourth quarter.
Based on a preliminary evaluation of this standard's requirements, the Timber
Group does not expect the per share amounts reported under SFAS No. 128 to be
materially different from the pro forma per share amounts calculated and
presented under APB Opinion 15.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The Timber Group will be required to adopt the new
standard in 1998. All prior periods presented will be reported in accordance
with SFAS No. 130 for comparative purposes.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments
of an Enterprise and Related Information." This statement requires companies
to determine segments based on how management makes decisions about allocating
resources to segments and measuring their performance. Disclosures for each
segment are similar to those required under current standards, with the
addition of certain quarterly disclosure
V-32
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
requirements. SFAS No. 131 also requires entitywide disclosure about the
products and services an entity provides, the countries in which it holds
material assets and reports material revenues, and its significant customers.
The Timber Group will be required to adopt the new standard in 1998, but is
not expected to be impacted significantly as the Timber Group is not expected
to have any reportable segments under the new standard.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed combined interim financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and in accordance with the Securities and
Exchange Commission's rules and regulations for interim reporting.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Timber Group's management, the unaudited combined
interim financial statements include all adjustments, consisting of only
normal recurring adjustments, necessary to present fairly such interim
financial information.
2. FACTORS AFFECTING THE TIMBER GROUP'S BUSINESS
FACTORS AFFECTING SUPPLY AND DEMAND
The results of operations of the Timber Group are and will continue to be
affected by cyclical supply and demand factors related to the forest products
industry. The supply of timber is significantly affected by land use
management policies of the United States government, which in recent years
have limited and are likely to continue to limit the amount of timber offered
for sale by certain United States government agencies. Such government
agencies historically have been major suppliers of timber to the United States
forest products industry, but timber sales by such government agencies
currently are at historically low levels. Any reversal of government land use
management policies that substantially increases sales of timber by United
States government agencies could significantly reduce prices for logs, lumber,
and other forest products. The demand for logs and manufactured wood products
also has been, and in the future can be expected to be, subject to cyclical
fluctuations. The demand for logs and manufactured wood products is primarily
affected by the level of housing starts, repair and remodeling activity,
industrial wood product use, competition from non-wood products, and the
demand for pulp and paper products. These factors are subject to fluctuations
due to changes in economic conditions, interest rates, population growth,
weather conditions, competitive pressures, and other factors. Any decrease in
the level of industry demand for logs and wood products generally can be
expected to result in lower net sales, operating income, and cash flow of the
Timber Group.
HARVESTING LIMITATIONS
Net sales, operating income, and cash flow of the Timber Group are dependent
to a significant extent on the continued ability of purchasers of standing
timber and, to a lesser extent, the Timber Group to harvest timber at adequate
levels. Weather conditions, timber growth cycles, access limitations, and
regulatory requirements associated with the protection of wildlife and water
resources may restrict harvesting of the Timber Group's timberlands. From time
to time, proposals have been made in state legislatures that would regulate
the level of timber harvesting. Timber harvests also may be affected by
various natural factors, including damage by fire, insect infestation,
disease, prolonged drought, severe weather conditions, and other causes. The
effects of such natural disasters may be particularly damaging to young
timber. Although damage from such natural causes usually is localized and
affects only a limited percentage of the timber, there can be no assurance
that any damage affecting the Timber Group's timberlands will in fact be so
limited. Consistent with industry practice, the Timber Group does not maintain
insurance coverage with respect to damage to its timberlands. Any of the above
factors which materially limit the ability of purchasers or the Timber Group
to harvest timber could have a significant adverse impact on the net sales,
operating income and cash flow of the Timber Group.
V-33
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
COMMITTED PRODUCT PURCHASES BY GEORGIA-PACIFIC GROUP; POSSIBLE INABILITY TO
DEVELOP NEW MARKETS
During 1996 and the first six months of 1997, the Timber Group derived
approximately 80% of its net sales from sales of timber and wood fiber to the
Georgia-Pacific Group. For a description of the terms of sales of timber and
wood fiber by the Timber Group to Georgia-Pacific Group see Note 10 "Related
Party Transactions." While management of the Timber Group believes that there
is significant demand for the Timber Group's timber and wood fiber products
from users other than the Georgia-Pacific Group, no assurance can be given
that such demand exists, that the Timber Group will be able to develop new
customers on a timely basis, if at all, or that it will be able to sell its
products to third parties at market prices. Any excess supply of timber and
wood fiber that results from the inability of the Timber Group to sell its
products to users other than the Georgia-Pacific Group could result in lower
prices for the Timber Group's products, which could have a material adverse
effect on the net sales, operating income and cash flow of the Timber Group.
ENVIRONMENTAL REGULATION
The Timber Group is subject to extensive and changing federal, state, and
local environmental laws and regulations, the provisions and enforcement of
which are expected to become more stringent in the future. The Timber Group's
operations generate air emissions, discharge industrial wastewater and
stormwater and generate and dispose of both hazardous and nonhazardous wastes.
The Timber Group is subject to regulation under the Endangered Species Act
(the "ESA"), the Clean Water Act, the Clean Air Act, the Resource Conservation
and Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Federal Insecticide, Fungicide and Rodenticide Act
and the Toxic Substances Control Act as well as similar state laws and
regulations. Violations of various statutory and regulatory programs that
apply to the Timber Group's operations can result in civil penalties,
remediation expenses, natural resource damages, potential injunctions, cease
and desist orders and criminal penalties. Some environmental statutes impose
strict liability, rendering a person liable for environmental damage without
regard to negligence or fault on the part of such person. There can be no
assurance that such laws or future legislation or administrative or judicial
action with respect to protection of the environment will not adversely affect
the Timber Group.
The ESA and counterpart state legislation protect species threatened with
possible extinction. A number of species indigenous to the Timber Group's
timberlands have been and in the future may be protected under these laws,
including the northern spotted owl, marbled murrelet, gray wolf, grizzly bear,
mountain caribou, bald eagle, red cockaded woodpecker, and various other
species. Protection of endangered and threatened species may include
restrictions on timber harvesting, road building and other silvicultural
activities on private, federal, and state land containing the affected
species.
POTENTIAL ACQUISITION RISKS
The Timber Group intends to pursue acquisitions as part of its strategy in
order to increase the Group's cash flow and returns to its shareholders. There
can be no guarantee, however, that the Timber Group will be able to identify
any assets for acquisition on terms that are economically feasible.
Additionally any acquisition strategy involves numerous risks, including
difficulties inherent in the integration of systems, operations, and
personnel, diversion of management attention away from other business
concerns, and the need to potentially secure additional financing to
consummate such acquisitions.
3. DIVESTITURES
On March 31, 1997, the Company sold its Martell, California operations for
$308 million. Assets included in this transaction were 127,000 acres of
timberlands allocated to the Timber Group and a sawmill and a particleboard
plant allocated to the Georgia-Pacific Group. In conjunction with the sale of
its Martell operations,
V-34
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
the Company received notes receivable from the purchaser in the amount of $270
million related to the timberlands. The Company, in April 1997, monetized the
notes receivable through the issuance of notes payable in a private placement.
The proceeds of this transaction were credited to the Timber Group through the
intergroup account. The notes receivable are included in other assets and the
notes payable are classified as other long-term liabilities on the Company's
balance sheet. The Timber Group recognized a pretax gain of $114 million on
the portion of the sale allocated to the timberlands, which is included in
other income in the accompanying statements of income.
V-35
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. INDEBTEDNESS
The Company's debt includes the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
Debentures, 9% average rate, payable through 2025............ $3,200 $3,350
Notes, 7.8% average rate, payable through 2006............... 817 717
Revenue bonds, 4.9% average rate, payable through 2026....... 646 628
Other loans, 8.1% average rate, payable through 2012......... 45 53
Less: Unamortized discount................................... (26) (29)
------ ------
4,682 4,719
Less: Long-term portion of debt.............................. 4,371 4,704
------ ------
Current portion of long-term debt............................ 311 15
Commercial paper and other short-term notes, 5.7% average
rate........................................................ 645 321
Bank overdrafts, net......................................... 251 201
------ ------
Total short-term debt...................................... 1,207 537
------ ------
Total debt................................................. $5,578 $5,241
====== ======
Georgia-Pacific Group's portion of Company debt:
Short-term debt............................................. $ 922 $ 397
Long-term debt, excluding current portion................... 3,340 3,479
------ ------
Georgia-Pacific Group's total debt......................... $4,262 $3,876
====== ======
Timber Group's portion of Company debt:
Short-term debt............................................. $ 285 $ 140
Long-term debt, excluding current portion................... 1,031 1,225
------ ------
Timber Group's total debt.................................. $1,316 $1,365
====== ======
Weighted average interest rate on Company debt at period-
end......................................................... 7.7% 8.1%
====== ======
</TABLE>
For additional information regarding financial instruments, see Note 5.
The scheduled maturities of the Company's long-term debt for the next five
years are as follows: $311 million in 1997, $439 million in 1998, $21 million
in 1999, $40 million in 2000, and $12 million in 2001.
NOTES AND DEBENTURES
During 1996, the Company issued $100 million of 7.2% Notes due December 15,
2006.
In 1996, the Company redeemed $150 million of its 9.25% Debentures due March
15, 2016. The Company recorded an after-tax extraordinary loss of
approximately $5 million related to this redemption which was recognized in
the Georgia-Pacific Group's results of operations.
During 1995, the Company issued $250 million of 8 5/8% Debentures due April
30, 2025, $250 million of 7.7% Debentures due June 15, 2015, and $250 million
of 7 3/8% Debentures due December 1, 2025.
In 1995, the Company redeemed approximately $203 million of its outstanding
debt. The after-tax loss on this redemption was less than $1 million.
V-36
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
REVOLVING CREDIT FACILITY
In 1996, the Company entered into an agreement with Bank of America National
Trust and Savings Association and 19 other domestic and international banks
which provides an unsecured revolving credit facility of $1.5 billion. The
revolving credit facility is being used for direct borrowings and as support
for commercial paper and other short-term borrowings. The agreement will
terminate in 2001. As of December 31, 1996, $856 million of committed credit
was available in excess of all short-term borrowings outstanding under or
supported by the facility.
Borrowings under the agreement bear interest, at the election of the
Company, at either (A) the higher of the Federal Funds Rate plus 1/2% or the
stipulated bank lending rate or (B) LIBOR plus .2625% or (C) fixed or floating
rates set by competitive bids. Fees associated with this revolving credit
facility include a commitment fee of .0625% per annum on the unused portion of
the commitments and a facility fee of .0625% per annum on the aggregate
commitments of the lenders. Fees and margins may be adjusted upward or
downward according to a pricing grid based on the Company's long-term debt
ratings. At December 31, 1996, $465 million was borrowed under the credit
agreement at a weighted average interest rate of 5.7%.
The revolving credit agreement contains certain restrictive covenants. The
covenants include a maximum leverage ratio (funded indebtedness to operating
cash flow) of 4.5 to 1.0 which is to be maintained by the Company throughout
the term of the credit agreement. As of December 31, 1996, the Company's
leverage ratio was 3.3 to 1.0.
COMMERCIAL PAPER AND OTHER SHORT-TERM NOTES
These borrowings are classified by the Company as current liabilities,
although all or a portion of them might be refinanced on a long-term basis in
1997.
REVENUE BONDS
At December 31, 1996, the Company had outstanding borrowings of
approximately $646 million under certain Industrial Revenue Bonds,
approximately $22 million of which were entered into during 1996 at variable
interest rates. Approximately $26 million from the issuance of these bonds is
being held by trustees for the Company and is restricted for the construction
of certain capital projects of the Georgia-Pacific Group.
OTHER
At December 31, 1996, the amount of long-term debt secured by property,
plant, and equipment and timber and timberlands was not material.
In September 1995, the Company sold certain assets of the Georgia-Pacific
Group for $354 million and has agreed to lease the assets back from the
purchaser over a period of 30 years. Under the agreement with the purchaser,
the Company will maintain a deposit (initially in the amount of $322 million)
which, together with interest earned, is expected to be sufficient to fund the
Company's lease obligation, including the repurchase of assets at the end of
the term. This transaction is being accounted for as a financing arrangement.
At December 31, 1995, the Georgia-Pacific Group recorded on its balance sheet
an asset for the deposit from the sale of $305 million and a liability for the
lease obligation of $346 million, of which approximately $16 million was
recorded as a current asset and a current liability. At December 31, 1996, the
deposit and lease obligation balances were $339 million and $340 million,
respectively.
V-37
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INTEREST PAID
The Company paid interest of $488 million, $470 million, and $514 million in
1996, 1995, and 1994, respectively, of which $105 million, $111 million, and
$114 million was charged to the Timber Group, respectively.
5. FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1996 1995
--------------- ---------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Commercial paper and other short term
notes (Note 4)........................... $ 645 $ 645 $ 321 $ 321
Notes and debentures (Note 4)............. 4,017 4,215 4,067 4,470
Revenue bonds (Note 4).................... 646 637 628 628
Other loans (Note 4)...................... 45 45 53 53
Interest rate exchange agreements......... * 12 * 21
Accounts receivable sale program.......... 350 350 350 350
</TABLE>
- --------
* The Company's consolidated balance sheets at December 31, 1996 and 1995
included accrued interest of $6 million and $5 million, respectively,
related to these agreements.
COMMERCIAL PAPER AND OTHER SHORT-TERM NOTES
The carrying amounts approximate fair value because of the short maturity of
these instruments.
NOTES AND DEBENTURES
The fair value of notes and debentures was estimated primarily by obtaining
quotes from brokers for these and similar issues. For notes and debentures for
which there are no quoted market prices, the fair value was estimated by
calculating the present value of anticipated cash flows. The discount rate
used was an estimated borrowing rate for similar debt instruments with like
maturities.
REVENUE BONDS AND OTHER LOANS
The fair value of revenue bonds and other loans was estimated by calculating
the present value of anticipated cash flows. The discount rate used was an
estimated borrowing rate for similar debt instruments with like maturities.
INTEREST RATE AND FOREIGN CURRENCY EXCHANGE AGREEMENTS
The Company has used interest rate and foreign currency exchange agreements
in the normal course of business to manage and reduce the risk inherent in
interest rate and foreign currency fluctuations.
Under the interest rate exchange agreements, the Company makes payments to
counterparties at fixed interest rates and in turn receives payments at
variable rates. The Company entered into interest rate exchange agreements in
prior years to protect against the increased cost associated with a rise in
interest rates. At December 31, 1996, the Company had outstanding interest
rate exchange agreements that effectively converted $496 million of floating
rate obligations with a weighted average interest rate of 5.7% to fixed rate
obligations
V-38
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
with an average effective interest rate of approximately 9%. These agreements
have a weighted average maturity of approximately 2.1 years. As of December
31, 1996, the Company's total floating rate debt, including the accounts
receivable sale program, exceeded related interest rate exchange agreements by
$1,363 million.
The estimated fair value of the Company's liability under interest rate
exchange agreements at December 31, 1996 and 1995 was $12 million and $21
million, respectively, and represents the estimated amount the Company could
have paid to terminate the agreements. The fair value at December 31, 1996 and
1995 was estimated by calculating the present value of anticipated cash flows.
The discount rate used was an estimated borrowing rate for similar debt
instruments with like maturities.
The Company enters into foreign currency exchange agreements, the amounts of
which were not material to the consolidated financial position of the Company
at December 31, 1996 and 1995.
The Company may be exposed to losses in the event of nonperformance of
counterparties but does not anticipate such nonperformance.
OTHER
Due to the short-term nature of current assets and current liabilities,
their carrying amounts approximate fair value.
TIMBER GROUP'S DEBT
The estimated fair value of the Timber Group's debt approximates the fair
market value of the Company's financial instruments discussed above.
6. INCOME TAXES
The provision for income taxes includes the Timber Group's allocated portion
of income taxes currently payable and those deferred because of temporary
differences between the financial statement and tax bases of assets and
liabilities. The Timber Group's provision for income taxes consists of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1996 1995 1994
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Federal income taxes:
Current.......................................... $ 74 $ 51 $ 30
Deferred......................................... (5) 2 3
State income taxes:
Current.......................................... 13 10 5
Deferred......................................... (1) -- 1
------- ------- -------
Provision for income taxes......................... $ 81 $ 63 $ 39
======= ======= =======
Income taxes paid by the Company, net of refunds... $ 135 $ 686 $ 251
======= ======= =======
Timber Group's portion of income taxes paid........ $ 87 $ 61 $ 35
======= ======= =======
</TABLE>
V-39
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The federal statutory income tax rate was 35%. The Timber Group's provision
for income taxes is reconciled to the federal statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Provision for income taxes computed at the
federal statutory tax rate..................... $ 73 $ 57 $ 35
State income taxes, net of federal benefit...... 8 6 4
------- ------- -------
Provision for income taxes...................... $ 81 $ 63 $ 39
======= ======= =======
</TABLE>
The components of the Timber Group's net deferred income tax liabilities are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
Deferred income tax assets:
Other accruals and reserves............................... $ -- $ 1
Other..................................................... 2 2
------ ------
2 3
Valuation allowance......................................... -- --
------ ------
2 3
------ ------
Deferred income tax liabilities:
Machinery and equipment................................... (4) (4)
Timber and timberlands.................................... (172) (177)
Other..................................................... -- (2)
------ ------
(176) (183)
------ ------
Deferred income tax liabilities, net........................ $ (174) $ (180)
====== ======
</TABLE>
7. RETIREMENT PLANS
DEFINED BENEFIT PENSION PLANS
Most of the Company's employees participate in noncontributory defined
benefit pension plans. These include plans which are administered solely by
the Company and union-administered multiemployer plans. The Company's funding
policy for solely administered plans is based on actuarial calculations and
the applicable requirements of federal law. Contributions to multiemployer
plans are generally based on negotiated labor contracts.
Benefits under the majority of plans for hourly employees (including
multiemployer plans) are primarily related to years of service. The Company
has separate plans for salaried employees and officers under which benefits
are primarily related to compensation and years of service. The officers' plan
is not funded and is nonqualified for federal income tax purposes.
V-40
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the Timber Group's actuarially-determined
share of the funded status of the solely administered plans and the amounts
recognized in the accompanying balance sheets.
<TABLE>
<CAPTION>
PLANS HAVING
ASSETS IN EXCESS
OF ACCUMULATED
BENEFITS
----------------
(IN MILLIONS)
<S> <C>
Accumulated benefit obligation at November 30, 1996
Vested portion............................................... $14
Nonvested portion............................................ --
---
14
Effect of projected future compensation levels................. --
---
Projected benefit obligation at November 30, 1996.............. 14
Plan assets at fair value at November 30, 1996................. 17
---
Plan assets in excess of projected benefit obligation.......... 3
Unrecognized net gain.......................................... (4)
---
Accrued pension cost at December 31, 1996...................... $(1)
===
</TABLE>
No plans have accumulated benefits in excess of assets as of December 31,
1996.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------
PLANS HAVING PLANS HAVING
ASSETS IN EXCESS ACCUMULATED
OF ACCUMULATED BENEFITS IN
BENEFITS EXCESS OF ASSETS
---------------- ----------------
(IN MILLIONS)
<S> <C> <C>
Accumulated benefit obligation at November
30, 1995
Vested portion............................ $12 $ 2
Nonvested portion......................... -- --
--- ----
12 2
Effect of projected future compensation
levels..................................... -- --
--- ----
Projected benefit obligation at November 30,
1995....................................... 12 2
Plan assets at fair value at November 30,
1995....................................... 15 2
--- ----
Plan assets in excess of projected benefit
obligation................................. 3 --
Unrecognized net gain....................... (4) --
--- ----
Accrued pension cost at December 31, 1995... $(1) $--
=== ====
</TABLE>
V-41
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Timber Group's share of the net periodic pension cost for solely
administered and union-administered pension plans included the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost of benefits earned.................... $ 1 $ 1 $ 1
Interest cost on projected benefit obligation...... 1 1 1
Actual return on plan assets....................... (3) (3) --
Net amortization and deferral...................... 1 2 (2)
------- ------ -------
Net periodic pension cost.......................... $ -- $ 1 $ --
======= ====== =======
</TABLE>
The following assumptions were used:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Discount rate used to determine the projected
benefit obligation................................ 7.0% 7.0% 8.5%
Rate of increase in future compensation levels used
to determine the projected benefit obligation..... 5.5 5.5 6.0
Expected long-term rate of return on plan assets
used to determine net periodic pension cost....... 10.0 10.0 10.0
</TABLE>
DEFINED CONTRIBUTION PLANS
The Company sponsors several defined contribution plans to provide eligible
employees with additional income upon retirement. The Company's contributions
to the plans are based on employee contributions and compensation. The
allocated portion of the Company's contributions related to the Timber Group
totaled $1 million in 1996, $1 million in 1995, and $1 million in 1994.
HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company provides certain health care and life insurance benefits to
eligible retired employees. Salaried participants generally become eligible
for retiree health care benefits after reaching age 55 with 10 years of
service or after reaching age 65. Benefits, eligibility, and cost-sharing
provisions for hourly employees vary by location and/or bargaining unit.
Generally, the medical plans pay a stated percentage of most medical expenses,
reduced for any deductible and payments made by government programs and other
group coverage. Effective December 1995, the plans were funded through a trust
established for the payment of future active and retiree benefits. The trust
was funded with an initial contribution of which an immaterial amount was
allocated to the Timber Group. The Company will continue to contribute to the
trust in the amounts necessary to fund current obligations of the plans.
In 1991, the Company began transferring its share of the cost of post-age 65
health care benefits to future salaried retirees. It is currently anticipated
that the Company will continue to reduce the percentage of the cost of post-
age 65 benefits that it will pay on behalf of salaried employees who retire in
each of the years 1995 through 1999 and that the Company will continue to
share the pre-age 65 cost with future salaried retirees but will no longer pay
any of the post-age 65 cost for salaried employees who retire after 1999.
V-42
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Timber Group's accumulated postretirement benefit obligation and accrued
postretirement benefit cost was approximately $1 million as of December 31,
1996 and 1995.
The Timber Group's net periodic postretirement benefit cost consists of
service cost of benefits earned, interest cost on accumulated postretirement
benefit obligation and amortization of gains and losses. Total net periodic
postretirement benefit costs were $119,210, $98,974, and $116,067 at December
31, 1996, 1995, and 1994, respectively.
For measuring the expected postretirement benefit obligation, a 10%, 11%,
and 12% annual rate of increase in the per capita claims cost was assumed for
1996, 1995, and 1994, respectively. The rate was assumed to decrease 1% per
year to 7% in 1999 and remain at that level thereafter. The weighted average
discount rate used in determining the accumulated postretirement benefit
obligation was 6.5% at December 31, 1996 and December 31, 1995 and 8% at
December 31, 1994.
If the annual health care cost trend rate were increased by 1%, the
accumulated postretirement benefit obligation would have increased by 14% as
of December 31, 1996 and 1995 and 13% as of December 31, 1994. The effect of
this change on the aggregate of service and interest costs would be an
increase of 11% for 1996, 15% for 1995, and 17% for 1994.
8. STOCK INCENTIVE PLANS
1997 INCENTIVE STOCK PLANS
The Board has approved the Timber Group 1997 Long-Term Incentive Plan (the
"Timber Group Plan") and the Georgia-Pacific Group 1997 Long-Term Incentive
Plan (the "Georgia-Pacific Group Plan"), subject to shareholder approval. The
Timber Group Plan authorizes grants of stock options, restricted stock and
performance awards with respect to Timber Stock. The Georgia-Pacific Group
Plan authorizes grants of stock options, restricted stock and performance
awards with respect to Georgia-Pacific Group Stock. The Company does not
currently intend to grant awards under the Georgia-Pacific Group Plan to
members of the Timber Group. It is intended, however, that certain officers
and employees of the Company with responsibilities involving both the Timber
Group and the Georgia-Pacific Group may be granted options, restricted stock
or performance awards under both the Timber Group Plan and the Georgia-Pacific
Group Plan in a manner which reflects their responsibilities. The Board
believes that permitting incentive awards to be made to participants with
respect to the class of common stock which reflects the performance of the
Company's business in which the participants work will better serve the
Company's interests.
Several existing stock incentive plans which offer benefits in the form of,
or based on the performance of, Georgia-Pacific common stock will be affected
by the Letter Stock Proposal. The affected plans and management's intentions
with respect to those plans upon the approval and implementation of the Letter
Stock Proposal are discussed below.
EMPLOYEE STOCK PURCHASE PLANS
At December 31, 1996, the Company had 952,000 shares of common stock
reserved for issuance under the 1995 Employee Stock Purchase Plan ("Purchase
Plan") at a subscription price of $73.84 per share. The subscription period
for the Purchase Plan expired on September 15, 1995. A subscriber must
purchase and pay for shares subscribed not later than September 30, 1997, but
prior to the time that the subscriber's last contribution to the Purchase Plan
is paid, the subscriber may obtain a refund of his/her payments plus interest
at a rate of 6% per annum in lieu of stock. Approximately 7,300 subscribers
remained in the Purchase Plan at December 31, 1996.
V-43
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Company's 1997 Employee Stock Purchase Plan ("97 Plan") offers to
employees a right to subscribe for Existing Common Stock at a subscription
price of $78.09 per share representing 85% of the mean of the high and low
prices of the Company's Existing Common Stock on September 2, 1997. The
subscription period for the 97 Plan expires on November 14, 1997. A subscriber
must purchase and pay for shares subscribed not later than November 30, 1999,
but prior to the time that the subscriber's last contribution to the 97 Plan
is paid, the subscriber may obtain a refund of his/her payments plus interest
at a rate of 6% per annum in lieu of stock. If the Letter Stock Proposal is
approved by the shareholders and implemented by the Board, the terms of the
subscription agreements will be adjusted to allow employees, pursuant to the
terms of the plan, to purchase at the same subscription price a package
consisting of one share of Timber Stock and one share of Georgia-Pacific Group
Stock for each share of Existing Common Stock for which they originally
subscribed.
OUTSIDE DIRECTORS STOCK PLAN
The Outside Directors Stock Plan ("Directors Plan") provides for the
granting of Common Stock to nonemployee directors on a restricted basis. Each
nonemployee director was granted 200 restricted shares of common stock in 1995
and 193 shares in 1996. Beginning in 1997, each outside director will be
granted annually a number of shares equal to $40,000 divided by the mean
between the high and low sales prices for the Company's common stock price on
the date of issuance. The restrictions on the shares lapse at the time of
death, retirement from the board, or disability.
After the Letter Stock Proposal is approved and implemented, each share of
restricted stock currently held will be redesignated as Georgia-Pacific Group
Stock, and an equal number of shares of Timber Stock (subject to the same
restrictions as the original restricted shares) will be added to the
outstanding award. In addition, it is intended that each director's annual
grant will consist of a number of shares of Timber Stock and of
Georgia-Pacific Group Stock determined so that (i) a substantially equal
number of shares of Timber Stock and Georgia-Pacific Group Stock will be
granted for any year and (ii) the total market value of the shares granted in
any year (based on the mean of the high and low prices of each stock on the
date of grant) is $40,000 (subject to immaterial rounding differentials).
1990 LONG-TERM INCENTIVE PLAN
The Company initially reserved 4,000,000 shares for issuance under the 1990
Long-Term Incentive Plan ("Incentive Plan"), which expired March 9, 1995.
Restricted stock was awarded to employees at no cost, based on increases in
average market value of the Company's common stock. At the time restricted
shares were awarded, the market value of the stock was added to common stock
and additional paid-in capital and was deducted from shareholders' equity
(long-term incentive plan deferred compensation) in the Company's consolidated
financial statements. Long-term incentive plan deferred compensation is
amortized over the vesting (restriction) period, generally five years, with
adjustments made quarterly for market price fluctuations. At the time awarded
shares become vested, the Company will pay on behalf of each participant a
cash bonus in the amount of the estimated income tax liability to be incurred
by the participant as a result of the award and cash bonus. Shares totaling
1,155,000 were awarded under the Incentive Plan, of which 676,000 restricted
shares remained outstanding as of December 31, 1996.
Compensation expense allocated to the Timber Group was $1 million in 1996,
$1 million in 1995, and $1 million in 1994 related to these incentive plans.
Upon approval and implementation of the Letter Stock Proposal, each share of
restricted stock currently held will be redesignated as Georgia-Pacific Group
Stock, and an equal number of restricted shares of Timber
V-44
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Stock will be added to the outstanding award. These shares will be distributed
upon vesting under the terms of the plan. The tax gross-up provided in the
plan will be calculated based on the aggregate market value of the two classes
of shares distributed to an individual at such time.
EMPLOYEE STOCK OPTION PLANS
The 1995 Shareholder Value Incentive Plan ("SVIP") provides for the granting
of stock options having a term of either 5 1/2 or 10 years to officers and key
employees. At December 31, 1996, the Company had 8,100,000 shares of common
stock reserved for issue under the SVIP. Options having a term of 10 years
become exercisable in 9 1/2 years unless certain performance targets tied to
the Company's common stock performance are met, which would enable the holder
to exercise such options after 3, 4, or 5 years from the grant date. Options
having a term of 5 1/2 years may be exercised only if such performance targets
are met in the third, fourth, or fifth year after such grant date. At the time
options are exercised, the exercise price is payable in cash or by surrender
of shares of common stock already owned by the optionee.
The 1994 Employee Stock Option Plan ("1994 Option Plan") provided for the
granting of stock options to certain nonofficer key employees. There also are
options outstanding under the 1993 Employee Stock Option Plan ("1993 Option
Plan").
Except with respect to the SVIP and the 1994 Option Plan, holders of stock
options are paid cash bonuses, payable upon exercise of an option, of an
amount not to exceed the amount by which the market value of the common stock,
as defined, exceeds the option price. In addition, holders of options granted
under plans other than the SVIP and the 1994 Option Plan may surrender all or
part of the related stock option in exchange for common stock with a fair
market value equal to the amount by which the market value of the shares
covered by the option exceeds the aggregate option exercise price.
Except for the SVIP and the 1994 Option Plan (which are noncompensatory for
financial reporting purposes), compensation resulting from stock options and
cash bonuses was initially measured at the grant date based on the market
value of the common stock, and adjustments are made quarterly for market price
fluctuations. The Timber Group was allocated compensation expense related to
the 1993 Option Plan and the 1984 Employee Stock Option Plan. Such amounts
were not material.
If the Letter Stock Proposal is approved by the shareholders and implemented
by the Board, each outstanding stock option under the SVIP, 1994 Option Plan
and 1993 Option Plan will be converted into separately-exercisable options to
acquire a number of shares of Georgia-Pacific Group Stock and Timber Stock,
each of which equals the number of shares of Existing Common Stock specified
in the original option. The exercise price for the resulting Georgia-Pacific
Group Stock options and Timber Stock options will be calculated by multiplying
the exercise price under the original option from which they were converted by
a fraction, the numerator of which is the average of the high and low price of
Georgia-Pacific Group Stock or Timber Stock, as the case may be, on the first
date such stocks are traded, regular way, on the New York Stock Exchange
(respectively, the "Georgia-Pacific Group Stock Price" and the "Timber Stock
Price") and the denominator of which is the sum of such Georgia-Pacific Group
and Timber Stock Prices. These changes, as applied to the SVIP, are subject to
shareholder approval of an amended and restated SVIP document reflecting the
changes and of the Georgia-Pacific Group Plan and the Timber Plan. This is
intended to ensure that the aggregate intrinsic value of the options will be
preserved and the ratio of the exercise price per option to the market value
per share will not be reduced. In addition, the vesting provisions and option
periods of the original grants will remain the same when converted. Under the
amended and restated SVIP, no further grants may be made under that plan.
V-45
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Additional information relating to the Company's existing employee stock
option plans is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Options outstanding at January 1.............. 2,217,000 1,646,000 1,055,000
Options granted............................... 2,150,500 1,223,200 937,000
Options exercised/surrendered................. (117,400) (619,000) (291,000)
Options cancelled............................. (91,600) (33,200) (55,000)
--------- --------- ---------
Options outstanding at December 31............ 4,158,500 2,217,000 1,646,000
Options available for grant at December 31.... 4,811,000 6,895,000 111,000
--------- --------- ---------
Total reserved shares..................... 8,969,500 9,112,000 1,757,000
========= ========= =========
Options exercisable at December 31............ 869,000 1,012,000 757,000
========= ========= =========
Option prices per share:
Granted..................................... $73-$77 $ 81 $64-$75
Exercised/surrendered....................... $39-$75 $39-$75 $39-$66
Cancelled................................... $39-$81 $39-$81 $39-$75
</TABLE>
SHAREHOLDER RIGHTS PLAN
The Company has a shareholder rights agreement (the "Original Rights
Agreement") pursuant to which preferred stock purchase rights (the "Original
Rights") are issued at the rate of one Right for each share of Existing Common
Stock. The Original Rights expire on July 31, 1999, unless redeemed earlier or
extended. The Original Rights are exercisable only if a person or group
acquires 15% or more of the Company's Existing Common Stock or announces a
tender offer for 30% or more of the common stock. In such event, each Original
Right entitles the holder to buy, at an exercise price of $175, one one-
hundredth of a newly issued share of Class A Junior Preferred Stock, of which
5 million shares were reserved at December 31, 1996. Due to the nature of its
dividend, liquidation, and voting rights, the economic value of one one-
hundredth of a share of Junior Preferred Stock should approximate the economic
value of one share of common stock. In addition, if one of several specified
events (generally involving self-dealing transactions by an acquirer of the
Company's Existing Common Stock or a business combination involving the
Company) occurs, each Original Right generally entitles the holder to buy, at
an exercise price of $175 (subject to adjustments), shares of either the
Company's Class A Junior Preferred Stock or the acquirer's common stock, in
either case having a market value of twice the exercise price. If the Letter
Stock Proposal is approved by the shareholders and implemented by the Board,
the Original Rights Agreement will be amended and restated (the "Restated
Rights Agreement") to, among other things, (i) reflect the new equity
structure of the Company, (ii) reset the prices at which rights issued
pursuant thereto may be exercised into units of Junior Preferred Stock, (iii)
extend the expiration date of the rights issued pursuant thereto from July 31,
1999 to December 31, 2007, (iv) change the triggering percentage with respect
to a tender or exchange offer from 30% to 15%, and (v) replace the Board's
ability to redeem the rights issued pursuant thereto for $.01 per right with
the ability to terminate the rights.
If the Letter Stock Proposal is approved by the shareholders and implemented
by the Board, as of the effective date of the Distribution, the Board will by
resolution amend the Articles to (i) reduce the authorized number of shares of
Series A Junior Preferred Stock to zero, (ii) designate a new series of Junior
Preferred Stock as the Series B Junior Preferred Stock, (iii) designate
another new series of Junior Preferred Stock as the Series C Junior Preferred
Stock, (iv) redesignate each Original Right as a "Georgia-Pacific Group
Right," which will entitle the holders thereof to purchase shares of Series B
Junior Preferred Stock under the conditions specified in the Restated Rights
Agreement, and (v) issue one right with respect to each share of Timber Stock
(a "Timber Right"), which will entitle the holders thereof to purchase shares
of Series C Junior Preferred Stock under the conditions specified in the
Restated Rights Agreement. The Georgia-Pacific Group Rights and the Timber
Rights are herein collectively referred to as the "Rights."
V-46
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Rights will expire on December 31, 2007, unless earlier redeemed by the
Company or extended. The Rights would be exercisable only if a person or group
acquires 15% or more of the total voting rights of the then outstanding shares
of common stock or commences a tender offer that would result in such person
or group beneficially owning 15% or more of the total voting rights of the
then outstanding shares of common stock. The Original Rights Agreement
provided that the triggering percentage with respect to a tender or exchange
offer would be 30% of the outstanding voting rights. The Restated Rights
Agreement would decrease this percentage from 30% to 15% in order to make the
triggering percentages for acquisitions of stock generally and for tender or
exchange offers the same. In such event, each Right would entitle the holder
to purchase from the Company (i) in the case of a Georgia-Pacific Group Right,
one one-hundredth of a share of Class B Junior Preferred Stock (a "Series B
Unit") at a purchase price of $350 (the "Series B Unit Purchase Price"),
subject to adjustment, of which 5 million shares will be reserved and (ii) in
the case of a Timber Right, one one-hundredth of a share of Class C Junior
Preferred Stock (a "Series C Unit") at a purchase price of $100 (the "Series C
Unit Purchase Price"), subject to adjustment, of which 5 million shares will
be reserved.
Because of the nature of the dividend, liquidation and voting rights of each
class of Junior Preferred Stock related to the Rights, the economic value of
one Series B Unit and one Series C Unit should approximate the economic value
of one share of Georgia-Pacific Group Stock and one share of Timber Stock,
respectively. In addition, if one of several specified events (generally
involving self-dealing transactions by an acquirer of the Company's common
stock or a business combination involving the Company) occurs, each Georgia-
Pacific Group Right and each Timber Right will entitle its holder to purchase,
for the Series B Unit Purchase Price and the Series C Unit Purchase Price,
respectively, a number of shares of common stock of such entity or purchaser
with a market value equal to twice the applicable Purchase Price.
OTHER
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
in 1996. The Company has elected to continue to account for its stock-based
compensation plans under APB Opinion No. 25 and disclose pro forma effects of
the plans on net income and earnings per share as provided by SFAS No. 123.
Accordingly, no compensation cost has been recognized for the SVIP plan or the
Employee Stock Purchase Plan. Since the Timber Stock was not part of the
capital structure of the Company for the periods presented, there were no
stock options outstanding. Therefore, the pro forma effect of Timber Stock
options on the accompanying historical combined financial statements is not
presented.
9. COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal proceedings incidental to the
businesses of the Georgia-Pacific Group and the Timber Group and is subject to
a variety of environmental and pollution control laws and regulations in all
jurisdictions in which it operates. As is the case with other companies in
similar industries, the Company faces exposure from actual or potential claims
and legal proceedings involving environmental matters. Liability insurance in
effect during the last several years provides only very limited coverage for
environmental matters. The management of the Timber Group believes that the
Company has established adequate reserves for probable losses with respect to
such environmental matters and legal proceedings. However, holders of Timber
Stock will be shareholders of the Company and will continue to be subject to
all of the risks associated with an investment in the Company, including the
environmental matters and legal proceedings affecting the Georgia-Pacific
Group discussed below.
COMMITMENTS AND CONTINGENCIES WITH RESPECT TO TIMBER GROUP
The Timber Group is subject to various legal proceedings and claims that
arise in the ordinary course of its business. Although the ultimate outcome of
these matters and legal proceedings cannot be determined with certainty, based
on presently available information, management of the Company believes that
the final outcome of such matters and legal proceedings could be material to
the operating results of the Timber Group in any
V-47
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
given quarter or year, but will not have a material adverse effect on the
long-term results of operations, liquidity, or financial position of the
Timber Group.
COMMITMENTS AND CONTINGENCIES WITH RESPECT TO GEORGIA-PACIFIC GROUP
The following sets forth legal proceedings to which the Company is a party
and claims related to the operations of the Georgia-Pacific Group.
The Company is involved in environmental remediation activities at
approximately 200 sites, both owned by the Company and owned by others, where
it has been notified that it is or may be a potentially responsible party
under the Comprehensive Environmental Response, Compensation, and Liability
Act or similar state "superfund" laws. Of the known sites in which it is
involved, the Georgia-Pacific Group estimates that approximately 31% are being
investigated, approximately 43% are being remediated, and approximately 26%
are being monitored (an activity which occurs after either site investigation
or remediation has been completed). The ultimate costs to the Georgia-Pacific
Group for the investigation, remediation, and monitoring of many of these
sites cannot be predicted with certainty, due to the often unknown magnitude
of the pollution or the necessary cleanup, the varying costs of alternative
cleanup methods, the amount of time necessary to accomplish such cleanups, the
evolving nature of cleanup technologies and government regulations, and the
inability to determine the Georgia-Pacific Group's share of multiparty
cleanups or the extent to which contribution will be available from other
parties. The Georgia-Pacific Group has established reserves for environmental
remediation costs for these sites in amounts which it believes are probable
and reasonably estimable. Based on analysis of currently available information
and previous experience with respect to the cleanup of hazardous substances,
the Georgia-Pacific Group believes that it is reasonably possible that costs
associated with these sites may exceed current reserves by amounts that may
prove insignificant or that could range, in the aggregate, up to approximately
$63 million. This estimate of the range of reasonably possible additional
costs is less certain than the estimates upon which reserves are based, and in
order to establish the upper limit of such range, assumptions least favorable
to the Georgia-Pacific Group among the range of reasonably possible outcomes
were used. In estimating both its current reserve for environmental
remediation and the possible range of additional costs, the Georgia-Pacific
Group has not assumed that it will bear the entire cost of remediation of
every site to the exclusion of other known potentially responsible parties
that may be jointly and severally liable. The ability of other potentially
responsible parties to participate has been taken into account, based
generally on the parties' financial condition and probable contribution on a
per site basis.
The Company reached an agreement in August 1997 with the New York Department
of Environmental Conservation concerning alleged disposal of PCB-contaminated
wastes from the Georgia-Pacific Group's Plattsburgh, New York, facility into
Cumberland Bay of Lake Champlain. The Company has agreed to pay $9 million to
the State of New York in full settlement of its remediation obligations with
respect to this site.
The Company and many other companies are defendants in suits brought in
various courts around the nation by plaintiffs who allege that they have
suffered personal injury as a result of exposure to asbestos-containing
products. These suits allege a variety of lung and other diseases based on
alleged exposure to products previously manufactured by the Georgia-Pacific
Group. In many cases, the plaintiffs are unable to demonstrate that they have
suffered any compensable loss as a result of such exposure.
The Company generally resolves asbestos cases by voluntary dismissal or
settlement for amounts it considers reasonable given the facts and
circumstances of each case. The amounts it has paid to defend and settle these
cases to date have been substantially covered by product liability insurance.
The Company currently is defending claims of approximately 50,000 such
plaintiffs and anticipates that additional suits will be filed against it over
the next several years. The Company has insurance available in amounts which
it believes are adequate to cover substantially all of the reasonably
foreseeable damages and settlement amounts arising out of claims
V-48
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
and suits currently pending. The Company has further insurance coverage
available for the disposition of suits that may be filed against it in the
future, but there can be no assurance that the amounts of such insurance will
be adequate to cover all future claims. The Georgia-Pacific Group has
established reserves for liabilities and legal defense costs it believes are
probable and reasonably estimable with respect to pending suits and claims and
a receivable for expected insurance recoveries.
The Company is defending an action in Alabama state court that seeks to
recover damages on behalf of a class of all persons currently owning
structures in the United States on which hardboard siding manufactured by the
Georgia-Pacific Group after January 1, 1980 has been installed. The plaintiffs
allege that this hardboard siding was inadequately designed and manufactured
and, as a consequence, prematurely discolors and deteriorates. They also
dispute the validity and availability of the warranty issued with the product.
On July 24, 1997, the court preliminarily approved a proposed settlement of
this case, authorized a program to provide notice to class members and set a
date in January 1998 for a hearing on the fairness of the settlement.
Accordingly, the settlement remains subject to final court approval. The
settlement provides a procedure for resolving product warranty claims on
certain of the Georgia-Pacific Group's hardboard siding products and for
payment of $3 million in legal fees to plaintiffs' counsel, plus expenses not
to exceed $200,000. In addition, plaintiffs' counsel will be entitled to
additional fees based upon a percentage of claims paid by the Company. The
Georgia-Pacific Group has previously established financial reserves it
believes to be adequate to pay eligible claims and legal fees. However, the
volume and timing of actual claims, or the number of potential claimants who
choose not to participate in the settlement, could cause settlement costs to
exceed established reserves. A similar case has been filed against the Company
and another defendant in state court in Georgia seeking to certify a class of
individuals whose mobile homes contain the Georgia-Pacific Group's hardboard
siding. On July 8, 1997, a purported nationwide class action was filed against
the Company in state court in Georgia making claims substantially similar to
those alleged in the Alabama class action. The Georgia-Pacific Group believes
the claims of the members of these purported class actions are encompassed
within the settlement of the Alabama case and it will seek to have these cases
dismissed.
In May of 1997, the Company and nine other companies were named as
defendants in a class action suit alleging that they engaged in a conspiracy
to fix the prices of sanitary commercial paper products, such as towels and
napkins, in violation of federal and state laws. At present, approximately 35
similar suits are pending in Federal courts in California, Florida, Georgia
and Wisconsin, and in the state courts of California and Tennessee. The
Company and the other defendants have removed the California actions to
federal court. However, plaintiffs have filed actions seeking to have these
cases remanded to state court. On September 4, 1997, one of these California
actions was remanded back to state court.
In addition, the Company and the other defendants have filed a petition with
the Federal Judicial Panel on Multi-District Litigation asking the Panel to
consolidate all of the federal court cases in Milwaukee. A hearing has been
set on this petition for September 19, 1997. The Company has denied that it
has engaged in any of the illegal conduct alleged in these cases and intends
to defend itself vigorously.
Although the ultimate outcome of these environmental matters and legal
proceedings cannot be determined with certainty, based on presently available
information, management believes that adequate reserves have been established
by the Georgia-Pacific Group for probable losses with respect thereto.
Management of the Company further believes that the ultimate outcome of such
environmental matters and legal proceedings could be material to operating
results of the Georgia-Pacific Group in any given quarter or year but will not
have a material adverse effect on the long-term results of operations,
liquidity, or financial position of the Georgia-Pacific Group.
10. RELATED-PARTY TRANSACTIONS
For all periods in which combined statements of income of the Groups are
presented, timber has been transferred from the Company's timberlands at
prices intended to reflect fair market prices based on prices paid
V-49
<PAGE>
GEORGIA-PACIFIC CORPORATION--TIMBER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
by independent purchasers and sellers for similar kinds of timber, the benefit
of having controlled access to timber and the location and quality of such
timber.
The Timber Group and the Georgia-Pacific Group have negotiated an operating
policy governing future sales of timber and wood fiber by the Timber Group to
the Georgia-Pacific Group with an initial term of three years. Under this
policy, the Georgia-Pacific Group will be required to purchase in the years
1998-2000, on a take-or-pay basis, 60% of the volume of timber and wood fiber
harvested annually from the Timber Group's southern forests. In 1998, the
Georgia-Pacific Group has a right of first refusal to purchase up to 90% of
the Timber Group's total annual harvest from each forest (which amount must
include the 60% take-or-pay amount described above). In 1999 and 2000, the
volume subject to this right of first refusal will decrease to 80%, and the
Georgia-Pacific Group must exercise its right not later than October 15th of
the preceding year. All quantities of timber and wood fiber committed under
the take-or-pay arrangement described above, and all quantities as to which
the Georgia-Pacific Group exercises its right of first refusal for a
particular year, will be sold at market prices determined quarterly. Such
prices are intended to approximate prices negotiated between unaffiliated
third parties in the open market and will be based upon (i) an average of the
actual prices during the immediately preceding quarter received by the Timber
Group for sales made by it to third parties, and prices paid by the Georgia-
Pacific Group for purchases made by it from third parties, in the same forest
region of timber and wood fiber of the same species, grade and size, and (ii)
the benefit to the Georgia-Pacific Group of having access to a committed
quantity of high quality timber and wood fiber in close proximity to its mills
and plants.
All quantities of timber and wood fiber harvested each year by the Timber
Group and not committed to the Georgia-Pacific Group as described above may be
sold by the Timber Group to any purchaser, including the Georgia-Pacific
Group. In such case, the Georgia-Pacific Group may purchase such timber at
negotiated prices or at prices determined in competitive bidding. Sales to the
Georgia-Pacific Group and third parties will generally be made on a stumpage
basis, except that sales in the Western region and of thinnings and selective
harvests by the Timber Group may be made on a delivered basis.
This policy is intended to ensure that the Georgia-Pacific Group will be
able to purchase from the Timber Group specified amounts of timber and wood
fiber, while ensuring that the Timber Group, beginning in 1999, will be able
to sell at up to 20% of its annual harvest in the open market. This policy
will remain in effect through 2000. If neither party gives written notice to
the other of its desire to renegotiate or terminate the policy by October 15,
1998, the policy will automatically be extended through 2001 and thereafter
will be extended for an additional year on each January 1 until any such
notice of renegotiation or termination is received. As a result, the policy in
effect has a two-year termination clause to allow both the Georgia-Pacific
Group and the Timber Group time to find other sellers and purchasers,
respectively, of timber and wood fiber.
The Company is a 50% partner in a joint venture ("GA-MET") with Metropolitan
Life Insurance Company ("Metropolitan"). GA-MET owns and operates the
Company's main office building in Atlanta, Georgia. The Company accounts for
its investment in GA-MET under the equity method which is included in the
Georgia-Pacific Group's financial statements.
At December 31, 1996, GA-MET had an outstanding mortgage loan payable to
Metropolitan in the amount of $153 million. The note bears interest at 9 1/2%,
requires monthly payments of principal and interest through 2011, and is
secured by the land and building owned by the joint venture. In the event of
foreclosure, each partner has severally guaranteed payment of one-half of any
shortfall of collateral value to the outstanding secured indebtedness. Based
on the present market conditions and building occupancy, the likelihood of any
obligation to the Georgia-Pacific Group or the Timber Group with respect to
this guarantee is considered remote.
V-50
<PAGE>
ANNEX VI
GEORGIA-PACIFIC CORPORATION
1995 SHAREHOLDER VALUE INCENTIVE PLAN
(AS AMENDED AND RESTATED EFFECTIVE DECEMBER , 1997)
ADOPTED BY THE BOARD OF DIRECTORS: SEPTEMBER 17, 1997
APPROVED BY THE SHAREHOLDERS: DECEMBER , 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <C> <S> <C>
ARTICLE I DEFINITIONS.................................................. 1
1.1 Board.................................................. 1
1.2 Cause.................................................. 1
1.3 Committee.............................................. 1
1.4 Corporation............................................ 2
1.5 Effective Date......................................... 2
1.6 Employee............................................... 2
1.7 Fair Market Value of the Stock......................... 2
1.8 Grant Date............................................. 2
1.9 Group Stock............................................ 2
1.10 Letter Stock Proposal.................................. 2
1.11 Option Agreement....................................... 2
1.12 Option Grant........................................... 2
1.13 Option Price........................................... 2
1.14 Original Plan.......................................... 3
1.15 Participant............................................ 3
1.16 Peer Group Companies................................... 3
1.17 Plan................................................... 3
1.18 Plan Administrator..................................... 3
1.19 Stock.................................................. 3
1.20 Subsidiary............................................. 3
1.21 Timber Stock........................................... 3
1.22 Term or Term of the Plan............................... 3
1.23 Total Shareholder Return............................... 3
1.24 Vesting Date........................................... 4
1.25 Weighted Average Total Shareholder Return.............. 4
ARTICLE II ELIGIBILITY.................................................. 4
2.1 Participants........................................... 4
ARTICLE III INCENTIVE AWARDS............................................. 4
3.1 Option Grants.......................................... 4
3.2 Special Discretionary Option Grants.................... 5
3.3 Normal and Accelerated Vesting of Option Grants........ 5
3.4 Special Vesting........................................ 6
3.5 Restrictions on Option Grants/Forfeitures.............. 7
3.6 No Bar to Corporate Restructuring...................... 7
3.7 Capital Readjustments/Option Grant Modifications....... 8
3.8 Change of Control...................................... 8
3.9 Fractional Shares...................................... 9
ARTICLE IV PLAN ADMINISTRATION.......................................... 9
4.1 Plan Administrator..................................... 9
4.2 Delegation............................................. 9
ARTICLE V AMENDMENT AND TERMINATION.................................... 10
5.1 Amendment and Termination.............................. 10
</TABLE>
VI-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <C> <S> <C>
ARTICLE VI MISCELLANEOUS PROVISIONS...................................... 10
6.1 Non-Transferability/Designation of Beneficiary.......... 10
6.2 Continued Employment.................................... 10
6.3 Plan Unfunded........................................... 10
6.4 Taxation................................................ 10
6.5 Retirement Plans and Welfare Benefit Plans.............. 11
6.6 Medium of Payment....................................... 11
6.7 No Cash Bonuses or Surrender Rights..................... 11
6.8 Option Agreements....................................... 11
6.9 Governing Law........................................... 11
6.10 Severability............................................ 11
6.11 Headings/Gender......................................... 11
ARTICLE VII EFFECTIVE DATE/SHAREHOLDER APPROVAL........................... 11
7.1 Effective Date.......................................... 11
7.2 Shareholder Approval.................................... 11
</TABLE>
VI-ii
<PAGE>
GEORGIA-PACIFIC CORPORATION
1995 SHAREHOLDER VALUE INCENTIVE PLAN
(AS AMENDED AND RESTATED EFFECTIVE DECEMBER , 1997)
By action of its Board of Directors and with the approval of its
shareholders, Georgia-Pacific Corporation (the "Corporation") established the
Georgia-Pacific Corporation 1995 Shareholder Value Incentive Plan (the
"Original Plan"), effective as of April 1, 1995, the purpose of which is to
attract and retain qualified and competent Employees, to enhance the growth
and profitability of the Corporation and its Subsidiaries and to maximize
shareholder value by providing Employees with the incentive of long-term
rewards if they continue their employment and attain established performance
objectives.
On September 17, 1997, the Board of Directors of the Corporation (the
"Board") adopted, subject to subsequent approval of the Corporation's
shareholders, (i) a letter stock proposal pursuant to which two classes of
common stock of the Corporation would be created by redesignating and
converting each share of Georgia-Pacific Corporation Common Stock, par value
$.80 per share ("Stock"), into one share of Georgia-Pacific Corporation-
Georgia-Pacific Group Common Stock ("Group Stock"), par value $.80 per share
and distributing to Group Stock shareholders one share of Georgia-Pacific
Timber Group Common Stock ("Timber Stock"), for each share of Group Stock (the
"Letter Stock Proposal"); (ii) two new long-term incentive plans (the Georgia-
Pacific Group 1997 Long Term Incentive Plan and the Georgia-Pacific Timber
Group 1997 Long Term Incentive Plan; collectively the "Replacement Plans") to
replace the Original Plan with respect to future incentive grants; and (iii)
contingent upon the approval of the Corporation's shareholders of the Letter
Stock Proposal and both of the Replacement Plans, this amendment and
restatement of the Original Plan. The shareholders of the Corporation approved
the Letter Stock Proposal, the Replacement Plans and this Plan on December ,
1997, and consequently, effective as of the Effective Date (as defined below)
no further Option Grants may be made under this Plan, and administration of
outstanding Option Grants shall be in accordance with this Plan on and after
the Effective Date.
ARTICLE I
DEFINITIONS
For purposes of this Plan, the following terms or phrases shall have the
indicated meanings:
1.1 Board.
The Board of Directors of the Corporation.
1.2 Cause.
"Cause" shall mean any of the following: (i) the willful failure of a
Participant to perform satisfactorily the duties consistent with his title and
position reasonably required of him by the Board or supervising management
(other than by reason of incapacity due to physical or mental illness); (ii)
the commission by a Participant of a felony, or the perpetration by a
Participant of a dishonest act or common law fraud against the Corporation or
any of its Subsidiaries; or (iii) any other willful act or omission (including
without limitation the violation of any corporate policy or regulation) which
could reasonably be expected to expose the Corporation to civil liability
under the law of the applicable jurisdiction or causes or may reasonably be
expected to cause significant injury to the financial condition or business
reputation of the Corporation or any of its Subsidiaries.
1.3 Committee.
The Compensation Committee of the Board of Directors of the Corporation, as
constituted from time to time, or such subcommittee of that body as the
Compensation Committee shall specify to act for the Compensation Committee
with respect to this Plan. Each Member of the Committee shall be a "non-
employee director" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended, and shall
VI-1
<PAGE>
be an "outside director" within the meaning of Section 162(m) of the Internal
Revenue Code of 1986 and the regulations promulgated thereunder, as amended
from time to time. The Committee shall be composed of at least two (2) such
directors.
1.4 Corporation.
Georgia-Pacific Corporation , a Georgia corporation, its successors and
assigns.
1.5 Effective Date.
The Effective Date of this amendment and restatement of the Original Plan
shall be the effective date of the Letter Stock Proposal.
1.6 Employee.
A full-time, salaried employee of the Corporation (including, without
limitation, any officer of the Corporation).
1.7 Fair Market Value.
On any date, the mean between the high and low sales prices of a share of
Stock, Group Stock or Timber Stock on that date (or, if that date is not a
trading day, the next preceding trading day) as reported in The Wall Street
Journal "New York Stock Exchange--Composite Transactions", or as reported in
any successor quotation system adopted prospectively for this purpose by the
Committee, in its discretion. The Fair Market Value shall be rounded to the
nearest whole cent (with 0.5 cent being rounded to the next higher whole
cent).
1.8 Grant Date.
The date as of which an Option Grant is deemed to have been made, which
shall be the effective date of the Option Grant as specified in the applicable
Option Agreement.
1.9 Group Stock.
The class of the Corporation's Common Stock which is intended to reflect the
business and operations of the manufacturing segment of the Corporation's
business, par value of $0.80 per share, and which is designated "Georgia-
Pacific Corporation--Georgia-Pacific Group Common Stock".
1.10 Letter Stock Proposal.
The proposal, recommended by the Board on September 17, 1997, and approved
by the shareholders on December , 1997, converting each share of Stock into
one share of Group Stock, and providing for a share dividend of one share of
Timber Stock for each outstanding share of Group Stocks as further described
in the introduction to this Plan and in the Corporation's Form S-4 filed with
the Securities and Exchange Commission on September 17, 1997.
1.11 Option Agreement.
A written agreement specifying the terms and conditions of each Option Grant
under this Plan, as described in Section 6.8.
1.12 Option Grant.
A non-qualified stock option to purchase a specified number of shares of
Stock, Group Stock or Timber Stock at the Option Price, subject to the terms
and conditions of this Plan and the governing Option Agreement.
1.13 Option Price.
The option price stated in the applicable Option Agreement.
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1.14 Original Plan.
The Georgia-Pacific Corporation 1995 Shareholder Value Incentive Plan as
originally effective April 1, 1995, as amended from time to time prior to the
Effective Date.
1.15 Participant.
An Employee or former Employee who holds outstanding Option Grants.
1.16 Peer Group Companies.
The companies included in the Standard & Poors Paper and Forest Products
Industry Index from time to time (but excluding the Corporation).
1.17 Plan.
The Georgia-Pacific Corporation 1995 Shareholder Value Incentive Plan as
effective on and after the Effective Date and as described in this plan
document.
1.18 Plan Administrator.
The person or entity having administrative authority under this Plan, as
specified in Article IV.
1.19 Stock.
Georgia-Pacific Corporation Common Stock, par value eighty cents ($0.80) per
share, as constituted prior to the effective date of the Letter Stock
Proposal.
1.20 Subsidiary.
Subsidiary shall mean any corporation (other than the Corporation) in any
unbroken chain of corporations beginning with the Corporation if, at the time
of reference, each of the corporations other than the last corporation in the
unbroken chain owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
1.21 Timber Stock.
The class of the Corporation's Common Stock which is intended to reflect the
business and operations of the timber segment of the Corporation's business,
par value of $0.80 per share, and which is designated "Georgia-Pacific
Corporation--Timber Group Common Stock".
1.22 Term or Term of the Plan.
The period commencing on the effective date of the Original Plan and ending
on the last date on which any Option Grant remains outstanding.
1.23 Total Shareholder Return.
For a given period and a given common stock, the number determined by the
formula [(SB+SD)PE-100] /100, where (i) "SB" is the number of shares of the
common stock (including fractional shares) that could be bought with an
initial $100 investment at PB, or $100/PB; (ii) "SD" is the total number of
shares of the common stock (including fractional shares) which could be
purchased with the dividends (or allocated portion of a per share dividend)
paid on SB shares of the common stock during the measurement period (and any
additional shares or fractional shares allocated in accordance with this
subsection (ii) with respect to dividends paid during the measurement period
but prior to the dividend in question), determined in the case of each such
dividend paid using the closing price of the common stock on the trading date
coincident with or next preceding the date of payment of the dividend; (iii)
"PB" is the closing price of the common stock on the last trading day before
the first day of the measurement period; and (iv) "PE" is the closing price of
the common stock on the last trading
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day of the measurement period; provided, however, that in determining Total
Shareholder Return of the Stock for any period ending after the Effective
Date, the following adjustments shall be made: (i) the sum of SB and SD shall
be calculated through the day preceding the Effective Date using Stock; (ii)
effective on the Effective Date, each share of Stock determined in (i) above
shall automatically be converted to one share of Group Stock and one share of
Timber Stock; (iii) from and after the Effective Date, the sum of SB and SD
will be calculated separately with respect to each such class of the
Corporation's common stock, and additions to SD for each such class of common
stock will be based on the dividends declared on that class of common stock
and the stock price for that class of common stock on the appropriate date;
(iv) at the end of a measurement period, the Total Shareholder Return for the
Corporation's Stock used for purposes of comparison with Total Shareholder
Return of the common stock of Peer Group Companies will be based on the sum of
(A) the product of the number of shares of Group Stock (SB + SD) accrued
through the close of the measurement period in accordance with (ii) and (iii)
above and PE determined for this class of common stock and (B) a corresponding
product with respect to the number of shares of Timber Stock. In calculating
the Total Shareholder Return for Group Stock or Timber Stock, the Plan
Administrator will apply the principles of Section 3.7 (except for the proviso
in the last sentence of that section) as if that section applied to the Stock.
1.24 Vesting Date.
The date upon which an Option Grant under this Plan first becomes
exercisable in accordance with the provisions of Sections 3.3 or 3.4.
1.25 Weighted Average Total Shareholder Return.
For any given measurement period, the average of the Total Shareholder
Returns for a named group of corporations with the return of each such
corporation weighted on the basis of its market capitalization at the
beginning of the measurement period.
ARTICLE II
ELIGIBILITY
2.1 Participants.
The only participants in this Plan are those Employees or former Employees
who had received Option Grants of Stock under the Original Plan which were
outstanding on the Effective Date and which will continue to be administered
under the terms of this Plan on and after the Effective Date.
ARTICLE III
INCENTIVE AWARDS
3.1 Option Grants.
Outstanding Option Grants of Stock held by Participants on the Effective
Date shall be converted into two separate Option Grants (each independently
exercisable), one to purchase shares of Group Stock ("Group Stock Option") and
the other to purchase shares of Timber Stock ("Timber Stock Option"), in each
case for a number of shares equal to the number of shares of Stock specified
in such original Option Grant. The Grant Date for each such Group Stock Option
and Timber Stock Option will be the original Grant Date for the Option Grant
from which it was converted. The Option Price for each Group Stock Option and
each Timber Stock Option shall be determined by using the average of the high
and low price for Timber Stock (the "Timber Stock Price") and Group Stock (the
"Group Stock Price") on the first date such stocks are traded, regular way, on
the New York Stock Exchange. The Option Price of each Group Stock Option will
be calculated by multiplying the Option Price under the original Option Grant
from which it was derived by a fraction, the numerator of which is the Group
Stock Price and the denominator of which is the sum of the Group Stock Price
and the Timber Stock
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Price. The Option Price of each Timber Stock Option will be calculated by
multiplying the Option Price under the original Option Grant from which it was
derived by a fraction, the numerator of which is the Timber Stock Price and
the denominator of which is the sum of the Group Stock Price and the Timber
Stock Price. Except as provided in Section 3.7 and in this Section 3.1, the
Option Price for an Option Grant may not be modified after the Grant Date.
Each such Option Grant shall be subject to the provisions of this Plan and the
Option Agreement approved by the Committee pursuant to Section 6.8 governing
that Option Grant. New Option Agreements for each Group Stock Option and
Timber Stock Option (containing the same provisions as the Option Agreements
with respect to the corresponding original Option Grant, modified to the
extent necessary to reflect the provisions of this Plan) will be issued to
each Participant as of the Effective Date, and the original Option Grants of
Stock will be cancelled as of that date. At no time during the Term of the
Plan may the aggregate of Option Grants outstanding and the number of shares
of Stock issued upon exercise of Option Grants under this Plan exceed
shares of Group Stock and shares of Timber Stock
(subject to adjustment in accordance with Section 3.7). Option Grants remain
"outstanding" for purposes of this Section 3.1 until forfeited under Section
3.5 or, to the extent not exercised, for a period of 10 years from the Grant
Date. Shares issued pursuant to the exercise of a vested Option Grant under
this Plan may be authorized but unissued shares of Group Stock or Timber
Stock, as the case may be, or treasury Group Stock or Timber Stock.
3.2 Special Discretionary Option Grants.
Option Grants of Stock made under Section 3.2A of the Original Plan
("Discretionary Grants") will be treated in all respects like other Option
Grants, except as otherwise explicitly provided in this Plan and in the
applicable Option Agreements. Timber Stock Options and Group Stock Options
derived from a Discretionary Grant under the Original Plan will also be
considered Discretionary Grants for purposes of this Plan.
3.3 Normal and Accelerated Vesting of Option Grants.
No Option Grant may be exercised prior to its Vesting Date, but on and after
its Vesting Date, an Option Grant may be exercised in accordance with (and to
the extent permitted under) the terms of this Plan and the applicable Option
Agreement. Option Grants (other than Discretionary Grants) will vest without
regard to performance standards stated in this Section 3.3 on the 183rd day
following the 9th anniversary of the Grant Date. Discretionary Grants will
vest only in accordance with the accelerated performance-based vesting
provisions of this Section 3.3. Option Grants are subject to accelerated
performance-based vesting in accordance with any of the following rules:
(a) An Option Grant will vest on the 3rd anniversary of the Grant Date if
the Corporation's Total Shareholder Return for the immediately preceding 3
full fiscal years exceeds the Weighted Average Total Shareholder Return of
all Peer Group Companies for the same period.
(b) An Option Grant will vest on the 4th anniversary of the Grant Date if
the Corporation's Total Shareholder Return for the immediately preceding 4
full fiscal years exceeds the Weighted Average Total Shareholder Return of
all Peer Group Companies for the same period.
(c) An Option Grant will vest on the 5th anniversary of the Grant Date if
the Corporation's Total Shareholder Return for the immediately preceding 5
full fiscal years exceeds the Weighted Average Total Shareholder Return of
all Peer Group Companies for the same period.
Vesting under subsections (a), (b) and (c) shall be conditioned upon the
Committee's written certification that the performance vesting standards of
this Section 3.3 have been met. Vesting of Option Grants under this Section
3.3 is subject in all cases to the restrictions/forfeiture rules in Section
3.5. Option Grants vesting pursuant to this Section 3.3 may be exercised at
any time on or after the Vesting Date and prior to (in the case of Option
Grants under Sections 3.1 and 3.2) the 10th anniversary of the Grant Date (not
inclusive) or (in the case of Discretionary Grants) the date which is 183 days
following the fifth anniversary of the Option Grant (not inclusive), provided
that if a Participant's employment with the Corporation and its Subsidiaries
terminates for any reason other than retirement (as defined in Section
3.4(b)(i)) or death or disability (as defined in Section 3.4(b)(iii)) after
the Vesting Date of an Option Grant and before that Option Grant has expired,
the vested Option Grant may be exercised only during the 90-day period
following the Participant's date of termination or, if
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shorter, during the remaining period before the Option Grant expires. If a
Participant's employment with the Corporation and its Subsidiaries terminates
for any reason (other than retirement (as defined in Section 3.4(b)(i)) or
death or disability (as defined in Section 3.4(b)(iii)) prior to the Vesting
Date of an Option Grant, the Option Grant will terminate as of the
Participant's termination date, and the Participant will have no further
rights under that Option Grant.
3.4 Special Vesting.
(a) Notwithstanding anything in Sections 3.3 or 3.5 to the contrary, the
performance-based vesting provisions of subsections (a), (b) and (c) of
Section 3.3 shall operate to vest any then-outstanding Option Grants (other
than Discretionary Grants) held by Participants who retire (as defined in
Section 3.4(b)(i)), die or become disabled (as defined in Section
3.4(b)(iii)) prior to the Vesting Dates of such Option Grants even if such
vesting occurs after the termination of their employment with the
Corporation and its Subsidiaries.
(b) Notwithstanding anything in Sections 3.3 or 3.5 to the contrary, if
an Option Grant (other than a Discretionary Grant) is not vested pursuant
to the performance-based vesting standards of subsections (a), (b) and (c)
of Section 3.3 or another provision of this Plan, it will vest in the
circumstances and on the date specified in paragraphs (i) through (iii)
below to the extent permitted by the schedule set forth in Section 3.4(c):
(i) If a Participant terminates employment with the Corporation and
its Subsidiaries after attaining age 65 or age 55 and 10 years of
service for vesting purposes under the Georgia-Pacific Corporation
Savings and Capital Growth Plan (other than a termination for Cause),
on the later of his/her retirement date or the 5th anniversary of the
Grant Date;
(ii) If the Participant dies, on the later of his/her date of death
or the 5th anniversary of the Grant Date; or
(iii) If the Participant becomes totally disabled as defined under
the Georgia-Pacific Corporation Salaried Long-Term Disability Plan
(whether or not the Participant actually participates in that plan), as
determined by the Plan Administrator in its sole discretion, on the
later of his/her date of termination of employment with the Corporation
and its Subsidiaries because of such disability or the 5th anniversary
of the Grant Date.
(c) A Participant who is entitled to special vesting in accordance with
Section 3.4(b) above will vest in his/her outstanding Option Grants as of
the applicable date specified in Section 3.4(b) to the extent indicated in
paragraphs (i) through (vi) below:
(i) If special vesting described in Section 3.4(b)(i) through (iii)
occurs prior to the 5th anniversary of the Grant Date of an outstanding
Option Grant that has not otherwise vested, 50% of that Option Grant
will vest and 50% will be forfeited.
(ii) If special vesting described in Section 3.4(b)(i) through (iii)
occurs on or after the 5th anniversary, but prior to the 6th
anniversary, of the Grant Date of an outstanding Option Grant that has
not otherwise vested, 60% of that Option Grant will vest and 40% will
be forfeited.
(iii) If special vesting described in Section 3.4(b)(i) through (iii)
occurs on or after the 6th anniversary, but prior to the 7th
anniversary, of the Grant Date of an outstanding Option Grant that has
not otherwise vested, 70% of that Option Grant will vest and 30% will
be forfeited.
(iv) If special vesting described in Section 3.4(b)(i) through (iii)
occurs on or after the 7th anniversary, but prior to the 8th
anniversary, of the Grant Date of an outstanding Option Grant that has
not otherwise vested, 80% of that Option Grant will vest and 20% will
be forfeited.
(v) If special vesting described in Section 3.4(b)(i) through (iii)
occurs on or after the 8th anniversary, but prior to the 9th
anniversary, of the Grant Date of an outstanding Option Grant that has
not otherwise vested, 90% of that Option Grant will vest and 10% will
be forfeited.
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(vi) If special vesting described in Section 3.4(b)(i) through (iii)
occurs on or after the 9th anniversary of the Grant Date of an
outstanding Option Grant that has not otherwise vested, 100% of that
Option Grant will vest.
(c) The special vesting dates specified in this Section 3.4 shall be
considered Vesting Dates for purposes of this Plan.
(d) Option Grants vesting pursuant to Section 3.4(a) may be exercised at
any time on or after the Vesting Date and prior to the 10th anniversary of
the applicable Grant Date (not inclusive). Option Grants vesting pursuant
to Section 3.4(b) may be exercised at any time on or after the Vesting Date
and prior to the 183rd day following the Vesting Date (not inclusive) or,
if earlier, prior to the 10th anniversary of the applicable Grant Date (not
inclusive).
3.5 Restrictions on Option Grants /Forfeitures.
Option Grants under this Plan will be subject to the following restrictions
and forfeiture rules:
(a) Subject to Section 3.4, if a Participant's employment with the
Corporation is terminated for any reason prior to the Vesting Date for an
Option Grant, the Participant shall forfeit all rights with respect to that
Option Grant, and the Option Agreement governing that Option Grant shall be
null, void and of no effect as of the date of his/her employment
terminates.
(b) An Option Grant shall be nontransferable and may not be sold,
hypothecated or otherwise assigned or conveyed by a Participant to any
party; provided that in the event of the incapacity (as determined by the
Plan Administrator) or death of the Participant (but subject to Section
6.1), his/her attorney-in-fact pursuant to a valid power of attorney giving
general or specific authority to make elections with respect to outstanding
Option Grants, his/her court-appointed guardian or the custodian of his/her
affairs or the executor or administrator of his/her estate (as the case may
be) may exercise any rights with respect to any vested Option Grant that
the Participant could have exercised if he/she were still alive or not
incapacitated. No assignment or transfer of any Option Grant or the rights
represented thereby, whether voluntary, involuntary, or by operation of law
or otherwise, except by will or the laws of descent and distribution, shall
vest in the assignee or transferee any interest or right herein whatsoever,
and immediately upon any attempt to assign or transfer this Option Grant,
this Option Grant shall terminate and be of no force or effect.
(c) A Participant shall have no rights as a stockholder with respect to
outstanding Option Grants until the date of the issuance or transfer of the
shares to him and only after such shares are fully paid. No adjustment
shall be made for dividends or other rights for which the record date is
prior to the date of such issuance or transfer.
(d) To the extent that a vested Option Grant is not exercised during the
period provided for its exercise under this Plan and the related Option
Agreement, the Participant shall forfeit all rights with respect to that
Option Grant and the Option Agreement shall expire as of the close of the
last day of the prescribed exercise period.
(e) Notwithstanding anything in this Plan to the contrary, if a
Participant is terminated for Cause, all of such Participant's outstanding
Option Grants under this Plan for which the Vesting Date has occurred on or
prior to his/her date of termination shall terminate as of such date of
termination unless and to the extent that the Committee determines (after
taking into account the provisions of Section 6.9) that such forfeiture in
a given case would violate applicable law.
3.6 No Bar to Corporate Restructuring.
The existence of this Plan or outstanding Option Grants under this Plan
shall not affect in any way the right or power of the Corporation or its
stockholders to make or authorize any and all adjustments, recapitalizations,
reorganizations or other changes in the Corporation's capital structure or its
business, or any merger or consolidation of the Corporation, or any issue of
bonds, debentures, preferred or preference stocks ahead of or affecting the
Stock or the rights thereof, or the dissolution or liquidation of the
Corporation, or any sale or
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transfer of all or part of its assets or business or any other corporate act
or proceeding, whether of a similar character or otherwise. Any shares of
stock accruing to outstanding Option Grants as a result of any adjustment
under Section 3.7 will be subject to the same restrictions (and have the same
Vesting Date) as the shares to which they accrue.
3.7 Capital Readjustments/Option Grant Modifications.
On and after the Effective Date, Option Grants outstanding under this Plan
will be in respect of shares of Group Stock or Timber Stock as constituted on
the Effective Date. Each such Option Grant will be derived from an Option
Grant for Stock as constituted on the applicable Grant Date under the Original
Plan in accordance with Section 3.1. In the event of any merger,
reorganization, consolidation, recapitalization, stock dividend, stock split,
or extraordinary distribution with respect to the Group Stock or Timber Stock
or other change in corporate structure affecting the Group Stock or Timber
Stock, the Plan Administrator shall have the authority to make such
substitution or adjustments in the aggregate number and kind of shares
reserved for issuance under the Plan, in the maximum number of shares which
may be granted in any calendar year and in the number, kind and Option Price
of shares subject to outstanding Option Grants and/or such other equitable
substitution or adjustments as it may determine in its sole discretion to be
appropriate to ensure that all Participants are treated equitably as a result
of any such event; provided, however, that the number of shares subject to any
Option Grant shall always be a whole number.
3.8 Change of Control.
Notwithstanding any other provision of this Plan to the contrary, in the
event of a Change of Control of the Corporation (as defined in this Section
3.8), all outstanding Option Grants which are not yet vested shall vest as of
the effective date of such Change of Control if the Total Shareholder Return
of the Corporation for at least one of the 3-year, 4-year or 5-year periods
ending on the effective date of the Change of Control exceeds the Weighted
Average Total Shareholder Return of all Peer Group Companies for the same
period. Option Grants vested pursuant to this Section 3.8 may be exercised at
any time from and after the effective date of the Change of Control (which
shall be considered the applicable Vesting Date) and prior to the 10th
anniversary of the Grant Date. For the purposes of this Plan, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of the combined voting power of the then outstanding voting
securities of the Corporation entitled to vote generally in the election of
directors (the "Outstanding Voting Securities"); provided, however, that
for purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition by a Person who on the
effective date of the Original Plan was the beneficial owner of 20% or more
of the Outstanding Voting Securities, (ii) any acquisition directly from
the Corporation, including without limitation a public offering of
securities, (iii) any acquisition by the Corporation, (iv) any acquisition
by any employee benefit plan (or related trust) sponsored or maintained by
the Corporation or any of its Subsidiaries or (v) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i),
(ii), and (iii) of subsection (c) of this Section 3.8; or
(b) Individuals who, as of the effective date of the Original Plan,
constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the effective date of the
Original Plan whose election, or nomination for election, by the
Corporation's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board or actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board; or
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(c) Consummation of a reorganization, merger or consolidation to which
the Corporation is a party or sale or other disposition of all or
substantially all of the assets of the Corporation (a "Business
Combination"), in each case, unless, following such Business Combination,
(i) all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Voting Securities
immediately prior to such Business Combination beneficially own, directly
or indirectly, more than 50% of the combined voting power of the then
Outstanding Voting Securities of the corporation resulting from such
Business Combination (including, without limitation, a corporation which as
a result of such transaction owns the Corporation or all or substantially
all of the Corporation's assets either directly or through one or more
subsidiaries) (the "Successor Entity") in substantially the same
proportions as their ownership, immediately prior to such Business
Combination, of Outstanding Voting Securities and (ii) no Person (excluding
any Successor Entity or any employee benefit plan, or related trust, of the
Corporation or such Successor Entity) beneficially owns, directly or
indirectly, 20% or more of, respectively, the combined voting power of the
then outstanding voting securities of the Successor Entity, except to the
extent that such ownership existed prior to the Business Combination and
(iii) at least a majority of the members of the board of directors of the
Successor Entity were members of the Incumbent Board (including persons
deemed to be members of the Incumbent Board by reason of the proviso to
subsection (c) of this Section 3.8) at the time of the execution of the
initial agreement, or of the action of the Board, providing for such
Business Combination; or
(d) Approval by the shareholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
3.9 Fractional Shares.
Notwithstanding anything in this Plan to the contrary, Option Grants shall
always be in whole numbers of shares. In the event any adjustment to an Option
Grant pursuant to this Plan would otherwise result in the creation of a
fractional share interest, the affected Option Grant shall be rounded to the
nearest whole share (with 0.5 share rounded to the next higher whole number).
ARTICLE IV
PLAN ADMINISTRATION
4.1 Plan Administrator.
The Plan will be administered by the Committee. Decisions and determinations
by the Committee shall be final and binding upon all parties, including the
Corporation, shareholders, Participants and other employees. The Committee
shall have the authority to administer the Plan, make all determinations with
respect to the construction and application of the Plan and the Board
resolutions establishing the Plan, adopt and revise rules and regulations
relating to the Plan and make any other determinations which it believes
necessary or advisable for the administration of the Plan. No member of the
Committee shall be liable to any person for any action taken or omitted in
connection with the interpretation and administration of this Plan unless
attributable to the member's own willful misconduct or lack of good faith.
Where specified in this Plan, Plan Administrator actions will be subject to
approval of the shareholders of the Corporation.
4.2 Delegation.
The Committee is expressly authorized to appoint one or more individuals,
who need not be members of the Committee, or entities to administer the Plan
and to make all determinations with respect to the construction and
application of the Plan, and otherwise exercise all powers vested in the
Committee under the Plan. Such agents shall serve at the pleasure of the
Committee. The decisions of any such agents taken within the scope of his/her
authority will have the same effect as decisions by the Committee.
Notwithstanding anything in this Section 4.2 to the contrary, the Committee
may not delegate its authority to adjust Option Grants under this Plan.
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ARTICLE V
AMENDMENT AND TERMINATION
5.1 Amendment and Termination.
The Board expressly reserves the right to amend or terminate the Plan at any
time, provided, however, that no amendment or termination may modify the terms
and conditions of any Option Grant made to a Participant prior to the adoption
of any such amendment or termination or of the related Option Agreement
(except as may be required by law or permitted under Section 3.7) without the
written approval of the affected Participant(s). Notwithstanding the
foregoing, no amendment may, without the approval of the Shareholders of the
Corporation:
(a) Increase the maximum number of shares of Stock, Group Stock or Timber
Stock authorized for aggregate outstanding and individual Option Grants
under Section 3.1 (increases pursuant to Section 3.7 will not be considered
amendments for purposes of this Section);
(b) Extend the Term of this Plan;
(c) Amend the provisions of this Section 5.1; or
(d) Modify or permit modification of the Option Price for any outstanding
Option Grant made pursuant to this Plan (modifications of the Option Price
pursuant to Section 3.7 will not be considered amendments for purposes of
this Section).
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1 Non-Transferability/Designation of Beneficiary.
(a) Except as provided in subparagraph (b), a Participant may not either
voluntarily or involuntarily assign, anticipate, alienate, commute, pledge
or encumber any Option Grant which he/she may hold under the Plan, nor may
the same be subject to attachment or garnishment by any creditor of a
Participant.
(b) Notwithstanding anything in subsection (a) to the contrary, a
Participant may designate a person or persons to receive, in the event of
his death, any rights to which he would be entitled under the Plan. Such a
designation shall be made in writing, and filed with the Corporation. A
beneficiary designation may be changed or revoked by a Participant at any
time by filing a written statement of such change or revocation with the
Corporation. If a Participant fails to designate a beneficiary, then
Section 3.5(b) will apply.
6.2 Continued Employment.
Neither participation in this Plan nor any Option Agreement shall constitute
an agreement (1) of the Participant to remain in the employ of and to render
his/her services to the Corporation or a Subsidiary or (2) of the Corporation
or a Subsidiary to continue to employ such Participant, and the Corporation
may terminate a Participant at any time with or without cause.
6.3 Plan Unfunded.
The compensation provided pursuant to this Plan (if any) shall be provided
solely from the general assets of the Corporation. No trust or other funding
device providing for the identification or segregation of assets to fund this
Plan has been established, nor is it the Corporation's intention to do so.
Each Participant shall be a general and unsecured creditor of the Corporation
with respect to any interest he/she may have under this Plan.
6.4 Taxation.
This Plan may give rise to compensation subject to federal and state tax
withholding (including, without limitation, FICA withholding) in the calendar
year in which vested Option Grants are exercised, and such withholding taxes
shall be the responsibility of the Participant exercising the options.
VI-10
<PAGE>
6.5 Retirement Plans and Welfare Benefit Plans.
Except as otherwise specified in this Plan and the plan in question, the
value of compensation under this Plan will not be included as "compensation"
for purposes of the Corporation's retirement plans (both qualified and non-
qualified) or welfare benefit plans.
6.6 Medium of Payment.
The Committee, in its discretion, may specify in the Option Agreements that
the Option Price shall be payable upon the exercise of the Option Grant either
(i) in United States dollars in cash or by certified check, bank draft or
postal or express money order payable to the order of the Corporation, or (ii)
in shares of Group Stock and/or Timber Stock Stock having at the time the
Option Grant is exercised a Fair Market Value equal to the purchase price of
the shares acquired pursuant to the exercise of the Option Grant, or (iii) a
combination thereof.
6.7 No Cash Bonuses or Surrender Rights.
No cash bonuses may be granted with respect to an Option Grant under this
Plan, and no Option Grant or Option Agreement may provide that in lieu of the
exercise of the Option Grant, or any portion thereof, the Participant may
surrender his/her Option Grant, or any portion thereof, to the Corporation.
6.8 Option Agreements.
Option Grants made pursuant to the Plan shall be evidenced by Option
Agreements in such form as the Committee shall, from time to time, approve,
provided that such agreements shall comply with, reflect and be subject to the
terms of this Plan.
6.9 Governing Law.
The Plan shall be construed and its provisions enforced and administered in
accordance with the laws of the State of Georgia and, where applicable,
federal law.
6.10 Severability.
If any provision of this Plan should be held illegal or invalid for any
reason, such determination shall not affect the provisions of this Plan, but
instead the Plan shall be construed as if such provisions had never been
included herein.
6.11 Headings/Gender.
Headings contained in this Plan are for convenience only and shall in no
event be construed as part of this Plan. Any reference to the masculine,
feminine or neuter gender shall be a reference to other genders as
appropriate.
ARTICLE VII
EFFECTIVE DATE/SHAREHOLDER APPROVAL
7.1 Effective Date.
This Plan shall become effective on the Effective Date as defined in Section
1.5.
7.2 Shareholder Approval.
This Plan is subject to the approval of the Corporation's shareholders on or
prior to September 17, 1998, and has in fact been approved by affirmative
votes of the holders of a majority of the securities of the Corporation
present or represented by proxy and entitled to vote at a meeting duly held in
accordance with the applicable corporate law of the State of Georgia and the
By-Laws of the Corporation on December , 1997.
VI-11
<PAGE>
ANNEX VII
GEORGIA-PACIFIC CORPORATION/
GEORGIA-PACIFIC GROUP
1997 LONG-TERM INCENTIVE PLAN
ADOPTED BY THE BOARD OF DIRECTORS, SEPTEMBER 17, 1997
APPROVED BY THE SHAREHOLDERS, DECEMBER , 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<C> <C> <S> <C>
1. ADOPTION AND PURPOSE................................................ 1
2. DEFINITIONS......................................................... 1
(a) Award.......................................................... 1
(b) Award Agreement................................................ 1
(c) Board.......................................................... 1
(d) Cause.......................................................... 1
(e) Change of Control.............................................. 1
(f) Code........................................................... 1
(g) Committee...................................................... 2
(h) Common Stock................................................... 2
(i) Company........................................................ 2
(j) Effective Date................................................. 2
(k) Employee....................................................... 2
(l) Exchange Act................................................... 2
(m) Fair Market Value.............................................. 2
(n) Incentive Stock Option......................................... 2
(o) Non-Qualified Stock Option..................................... 2
(p) Option......................................................... 2
(q) Participant.................................................... 2
(r) Performance Goals.............................................. 3
(s) Performance Award.............................................. 3
(t) Performance Period............................................. 3
(u) Plan........................................................... 3
(v) Plan Year...................................................... 3
(w) Restricted Shares.............................................. 3
(x) Restriction Period............................................. 3
(y) Subsidiary..................................................... 3
3. ELIGIBILITY......................................................... 3
4. STOCK SUBJECT TO THE PROVISIONS OF THIS PLAN; LIMITATIONS........... 3
(a) Applicable Stock............................................... 3
(b) Plan Limitations............................................... 4
(c) Individual Limitations......................................... 4
(d) Calculation Procedures......................................... 4
5. AWARDS UNDER THIS PLAN.............................................. 4
(a) Stock Options.................................................. 4
(b) Performance Awards............................................. 4
(i)Administration.............................................. 4
(ii)Payment of Award........................................... 5
(iii)Further Restriction Period................................ 5
(c) Restricted Shares.............................................. 5
(i)Issuance of Stock Certificates.............................. 5
(ii)Status of Restricted Shares................................ 5
(iii)Participant Rights With Respect to Issued Restricted
Shares......................................................... 6
</TABLE>
VII-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<C> <C> <S> <C>
6. OTHER TERMS AND CONDITIONS.......................................... 6
(a) Assignability; Designation of Beneficiaries.................... 6
(i) Prohibition on Transfer.................................... 6
(ii) Designation of Beneficiaries.............................. 6
(b) Award Agreement................................................ 7
(c) Rights as a Shareholder........................................ 7
(d) No Obligation to Exercise...................................... 7
(e) Payments by Participants....................................... 7
(f) Tax Withholding................................................ 7
(g) Restrictions on Exercise....................................... 7
(h) Surrender of Options........................................... 8
(i) Requirements of Law............................................ 8
(j) Non-Exclusivity of the Plan.................................... 8
(k) Unfunded Plan.................................................. 8
(l) Legends........................................................ 8
(m) Company's Retirement and Welfare Plans......................... 8
(n) Forfeitures.................................................... 9
(i) Violations of Company Policies............................. 9
(ii) For Cause Termination..................................... 9
(o) Requirement of Employment...................................... 9
(p) Code Section 162(m)............................................ 9
7. PLAN ADMINISTRATION................................................. 9
(a) Committee as Plan Administrator................................ 9
(b) Delegation..................................................... 9
(c) Determinations Final........................................... 10
8. AMENDMENTS AND TERMINATION.......................................... 10
(a) Authority to Amend or Terminate................................ 10
(b) Limitations.................................................... 10
9. CORPORATE RESTRUCTURING............................................. 10
(a) No Bar to Corporate Restructuring.............................. 10
(b) Capital Readjustments/Award Modifications...................... 10
10. NO RIGHT TO EMPLOYMENT.............................................. 10
11. CHANGE OF CONTROL................................................... 11
(a) Special Rights Upon Change of Control.......................... 11
(i)Lapse of Restrictions; Acceleration of Exercise and/or
Vesting........................................................ 11
(ii)Election of Cash or Stock Distribution..................... 11
(iii)Extended Exercise Period.................................. 11
(iv)Awards Non-Cancellable..................................... 11
(b) Definition of "Change of Control".............................. 12
(i)Acquisition of Stock........................................ 12
(ii)Change in Board Membership................................. 12
(iii)Shareholder-Approved Reorganization, Merger or
Consolidation.................................................. 12
(iv)Liquidation or Dissolution................................. 12
12. GOVERNING LAW....................................................... 13
13. CAPTIONS............................................................ 13
14. RESERVATION OF SHARES............................................... 13
15. SAVINGS CLAUSE...................................................... 13
16. EFFECTIVE DATE AND TERM............................................. 13
</TABLE>
VII-ii
<PAGE>
GEORGIA-PACIFIC CORPORATION/
GEORGIA-PACIFIC GROUP
1997 LONG-TERM INCENTIVE PLAN
1. ADOPTION AND PURPOSE
Georgia-Pacific Corporation (the "Company") hereby adopts this Georgia-
Pacific Corporation/Georgia-Pacific Group 1997 Long-Term Incentive Plan, which
was approved by its Board of Directors on September 17, 1997, subject to
further approval by the Company's shareholders (the "Plan"). The purposes of
the Plan are to promote the interests of the Company and its stockholders by
(a) attracting and retaining exceptional executive personnel and other key
employees for the Company and its Subsidiaries (as defined below), (b)
motivating such employees by means of performance-related incentives to
achieve long-range performance goals and (c) enabling such employees to
participate in the long-term growth and financial success of the Company.
2. DEFINITIONS
The following words and phrases shall have the following meanings unless a
different meaning is plainly required by the context:
(a) Award
"Award" means, individually or collectively, a grant under this Plan of
Options, Restricted Shares and/or a Performance Award. The issuance of
Options, Restricted Shares and/or shares of unrestricted Common Stock
pursuant to a Performance Award or taking any other action mandated under
the terms and conditions of an Award shall not be a new Award under this
Plan.
(b) Award Agreement
"Award Agreement" means a written agreement entered into between the
Company and a Participant setting forth the terms and conditions of an
Award made to such Participant under this Plan, in the form prescribed by
the Committee.
(c) Board
"Board" means the Board of Directors of the Company.
(d) Cause
"Cause" shall mean any of the following: (i) the willful failure of a
Participant to perform satisfactorily the duties consistent with his title
and position reasonably required of him by the Board or supervising
management (other than by reason of incapacity due to physical or mental
illness); (ii) the commission by a Participant of a felony, or the
perpetration by a Participant of a dishonest act or common law fraud
against the Company or any of its Subsidiaries; or (iii) any other willful
act or omission (including without limitation the deliberate and willful
violation of any corporate policy or regulation) which could reasonably be
expected to expose the Company to civil liability under the law of the
applicable jurisdiction or causes or may reasonably be expected to cause
significant injury to the financial condition or business reputation of the
Company or any of its Subsidiaries.
(e) Change of Control
"Change of Control" shall have the meaning specified in Section 11(b).
(f) Code
"Code" means the Internal Revenue Code of 1986, as amended. Reference to
a specific section of the Code or regulation thereunder shall include such
section or regulation, any valid regulation promulgated under such section,
and any comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or regulation.
VII-1
<PAGE>
(g) Committee
"Committee" means the Compensation Committee of the Board of Directors of
the Company, as constituted from time to time, or such subcommittee of that
body as the Compensation Committee shall specify to act for the
Compensation Committee with respect to this Plan. Each member of the
Committee shall be a "non-employee director" within the meaning of Rule
16b-3 under the Exchange Act and shall be an "outside director" within the
meaning of Section 162(m) of the Code. The Committee shall be composed of
at least two (2) such directors.
(h) Common Stock
"Common Stock" means the class of the Company's common stock which is
intended to reflect the business and operations of the manufacturing
segment of the Company's business, the par value of which is $0.80 per
share and which is designated "Georgia-Pacific Corporation--Georgia-Pacific
Group Common Stock".
(i) Company
"Company" means Georgia-Pacific Corporation, a Georgia corporation
headquartered in Atlanta, Georgia.
(j) Effective Date
"Effective Date" means the effective date of this Plan as defined in
Section 16.
(k) Employee
"Employee" means a common law employee of the Company or a Subsidiary
(including, without limitation, any Company or Subsidiary officer).
(l) Exchange Act
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
Reference to a specific section of the Exchange Act or regulation
thereunder shall include such section or regulation, any valid regulation
promulgated under such section, and any comparable provision of any future
legislation or regulation amending, supplementing or superseding such
section or regulation.
(m) Fair Market Value
"Fair Market Value" means, on any date, the mean between the high and low
sales prices of a share of Common Stock on that date as reported in The
Wall Street Journal, New York Stock Exchange--Composite Transactions, or as
reported in any successor quotation system adopted prospectively for this
purpose by the Committee, in its discretion. If the date of determination
is not a trading date on the New York Stock Exchange, Fair Market value
shall be determined using the high and low sales prices of a share of
Common Stock on the next preceding trading date. The Fair Market Value of
the Stock shall be rounded to the nearest whole cent (with 0.5 cent being
rounded to the next higher whole cent).
(n) Incentive Stock Option
"Incentive Stock Option" has the meaning specified in Section 5(a).
(o) Non-Qualified Stock Option
"Non-Qualified Stock Option" has the meaning specified in Section 5(a).
(p) Option
"Option" means an Incentive Stock Option or a Non-Qualified Stock Option
as defined in this Plan.
(q) Participant
"Participant" means an Employee who has been granted an Award under this
Plan.
VII-2
<PAGE>
(r) Performance Goals
"Performance Goals" means, with respect to any Performance Period, one or
more objective performance goals based on one of more of the following
objective criteria established by the Committee prior to the beginning of
such Performance Period or within such period after the beginning of the
Performance Period as shall meet the requirements to be considered "pre-
established performance goals" for purposes of Code Section 162(m): (i)
increases in the price of the Common Stock; (ii) market share; (iii) sales;
(iv) return on equity, assets or capital; (v) economic profit (economic
value added); (vi) total shareholder return; (vii) costs; (viii) margins;
(ix) earnings or earnings per share; (x) cash flow; (xi) customer
satisfaction; (xii) operating profit; or (xiii) any combination of the
foregoing. Such Performance Goals may be particular to an Employee or may
be based, in whole or part, on the performance of the division, department,
line of business, Subsidiary or other business unit, whether or not legally
constituted, in which the Employee works or on the performance of the
Company generally.
(s) Performance Award
"Performance Award" shall have the meaning specified in Section 5(d).
(t) Performance Period
"Performance Period" means the period of service designated by the
Committee applicable to a Performance Award during which the Performance
Goals will be measured.
(u) Plan
"Plan" means the Georgia-Pacific Corporation/Georgia-Pacific Group 1997
Long-Term Incentive Plan as described in this plan document.
(v) Plan Year
"Plan Year" means the calendar year.
(w) Restricted Shares
"Restricted Shares" shall have the meaning specified in Section 5(c).
(x) Restriction Period
"Restriction Period" means a Performance Period and/or any other period
during which full ownership of compensation contemplated in an Award
remains restricted pursuant to the terms and conditions of that Award.
(y) Subsidiary
"Subsidiary" means any corporation or other entity, whether domestic or
foreign, in which the Company has or obtains, directly or indirectly, a
proprietary interest of more than 50% by reason of stock ownership or
otherwise.
3. ELIGIBILITY
Any Employee designated by the Committee (in its sole discretion) as a
Participant under this Plan will be eligible to receive an Award specified by
the Committee in accordance with this Plan.
4. STOCK SUBJECT TO THE PROVISIONS OF THIS PLAN; LIMITATIONS
(a) Applicable Stock
The stock subject to the provisions of this Plan shall either be shares of
authorized but unissued Common Stock, shares of Common Stock held as treasury
stock or previously issued shares of Common Stock reacquired by the Company,
including shares purchased on the open market.
VII-3
<PAGE>
(b) Plan Limitations
Subject to adjustment in accordance with the provisions of Section 9, the
total number of shares of Common Stock with respect to which Awards of
Options, Restricted Shares and/or unrestricted Common Stock may be granted
under this Plan may not exceed shares, provided, however, that
the total number of Restricted Shares that may be granted as Awards under this
Plan may not exceed shares.
(c) Individual Limitations
Subject to adjustment in accordance with Section 9, and subject to Section
4(b), (i) the total number of shares of Common Stock with respect to which
Awards of Options may be granted in any Plan Year to any Employee shall not
exceed shares, (ii) the total number of shares of Common Stock
(including unrestricted shares of Common Stock, Restricted Shares and shares
of Common Stock subject to options) with respect to which Performance Awards
may be granted in any Plan Year to any Employee shall not exceed
shares and (iii) the value of any Performance Awards payable in cash that may
be granted in any Plan Year to any Employee shall not exceed $ .
(d) Calculation Procedures
For purposes of calculating the total number of shares of Common Stock
available for grants of Awards, (i) the grant of an Award of Options,
Restricted Shares or a Performance Award shall be deemed to be equal to the
maximum number of shares of Common Stock which may be issued under the Award
and (ii) subject to the provisions of Sections 4(b) and 4(c), there shall
again be available for Awards under this Plan all of the following: (A) shares
of Common Stock represented by Awards which have been cancelled, forfeited,
surrendered or terminated or which expire unexercised; and (B) the excess
portion of variable Awards which become fixed at less than their maximum
limitations.
5. AWARDS UNDER THIS PLAN
Subject to the provisions of this Plan, the Committee shall have the sole
and complete authority to determine the Employees to whom Awards shall be
granted and the type, terms and conditions of such Awards. As the Committee
may determine, the following types of Awards may be granted under this Plan to
Employees on a stand alone, combination or tandem basis:
(a) Stock Options
An Award consisting of a right to buy a specified number of shares of
Common Stock at a fixed exercise price during a specified time, and subject
to such other terms and conditions, all as the Committee may determine.
Such Options may be Non-Qualified Stock Options or Incentive Stock Options.
The exercise price for an Award of Incentive Stock Options may not be less
than 100% of the Fair Market Value of the Common Stock on the grant date,
and the terms and conditions for an Award of Incentive Stock Options must
otherwise comply with the requirements of Section 422 of the Code or any
successor Section as it may be amended from time to time. Non-Qualified
Stock Options are not intended to satisfy the Code requirements for
Incentive Stock Options and need not meet such requirements. Each Stock
Option granted as an Award under this Plan shall be subject to the
provisions of this Plan and the applicable Award Agreement approved by the
Committee pursuant to Section 6(b) governing that Option.
(b) Performance Awards
An Award granted to an Employee consisting of the right to receive cash,
shares of Common Stock, Options or Restricted Shares that are not to be
issued to the Employee until after the satisfaction of the related
Performance Goals during the related Performance Period. Such Awards shall
be subject to the following conditions and procedures:
(i) Administration
Performance Awards may be granted to Employees either alone or in
addition to other Awards granted under this Plan. The Committee shall
determine the Employees to whom Performance Awards
VII-4
<PAGE>
shall be awarded for any Performance Period, the duration of the
applicable Performance Period, the Performance Goals which must be met
for the Award to be paid and the amount of cash and/or the number of
shares of Common Stock, Options and/or Restricted Shares to be awarded
at the end of a Performance Period to Employees if the Performance
Goals are met or exceeded. Each such Performance Award shall be subject
to the provisions of this Plan and the applicable Award Agreement
approved by the Committee pursuant to Section 6(b) governing that
Award.
(ii) Payment of Award
After the end of a Performance Period, the degree to which the
Performance Goals related to such Performance Period have been met
shall be determined by the Committee. If the Performance Goals are not
met, no compensation shall be issued pursuant to the Performance Award.
If the Performance Goals are met or exceeded, the Committee shall
certify that fact in writing in the Committee minutes or elsewhere and
authorize the payment of the amount of cash or issuance of the number
of shares of Common Stock, Options and/or Restricted Shares as
contemplated under the affected Performance Award in accordance with
the related Award Agreement.
(iii) Further Restriction Period
At the discretion of the Committee, a Performance Award may provide
for deferral of vesting and/or transfer rights with respect to all or
some of the incidents of ownership of the compensation contemplated in
the Award based on the satisfaction of terms and conditions in addition
to the attainment of the stated Performance Goals during the related
Performance Period over a further Restriction Period following the
Performance Period. In such a case, such vesting and/or transfer rights
with respect to the affected incidents of ownership shall be postponed
until the Committee certifies that the additional conditions have been
timely met and authorizes such vesting and/or transfer. Such acts by
the Committee shall not be deemed to be a new Award.
(c) Restricted Shares
An Award consisting of a transfer of shares of Common Stock to a
Participant, subject to such restrictions (e.g., the attainment of
specified Performance Goals during a designated Performance Period, the
passage of time or a combination of such restrictions and/or of other
delayed vesting conditions) on transfer or other incidents of ownership,
for such periods of time (with respect to each Award, the Restriction
Period) as the Committee may determine. If the issuance, vesting and/or
transfer of ownership of Restricted Shares granted under this Plan is
contingent upon the attainment of Performance Goals during a designated
Performance Period, the Award shall also be considered a Performance Award
and shall be subject to the provisions of Section 6(b) as well as those of
this Section 6(c). Awards of Restricted Shares under this Plan shall be
subject to the following conditions and procedures:
(i) Issuance of Stock Certificates
At the time specified for issuance of the Restricted Shares under the
applicable Award Agreement, the stock certificate or certificates
representing Restricted Shares shall be registered in the name of the
Participant to whom such Restricted Shares shall have been awarded.
During the Restriction Period, certificates representing the Restricted
Shares shall bear a restrictive legend to the effect that the
Restricted Shares are subject to the restrictions, terms and conditions
provided in this Plan and the applicable Award Agreement. Such
certificates shall remain in the custody of the Company and the
Participant shall deposit with the Company stock powers or other
instruments of assignment, each endorsed in blank, so as to permit
retransfer to the Company of all or any portion of the Restricted
Shares that shall be forfeited or otherwise not become vested in
accordance with the Plan and the applicable Award Agreement.
(ii) Status of Restricted Shares
Restricted Shares which have been issued in accordance with an Award
Agreement shall constitute issued and outstanding shares of Common
Stock for all corporate purposes.
VII-5
<PAGE>
(iii) Participant Rights With Respect to Issued Restricted Shares
The Participant will have the right to vote issued Restricted Shares,
to receive and retain all dividends and distributions paid or
distributed on such Restricted Shares, and to exercise all other
rights, powers and privileges of a holder of Common Stock with respect
to such Restricted Shares; except that (A) the Participant will not be
entitled to delivery of the stock certificate or certificates
representing such Restricted Shares until the Restriction Period shall
have expired and unless all other vesting requirements with respect
thereto shall have been fulfilled or waived; (B) the Company will
retain custody of the stock certificate or certificates representing
the Restricted Shares during the Restriction Period; (C) any such
dividends and distributions paid in shares of Common Stock shall
constitute Restricted Shares and be subject to all of the same
restrictions during the Restriction Period as the Restricted Shares
with respect to which they were paid; (D) the Participant may not sell,
assign, transfer, pledge, exchange, encumber or dispose of the
Restricted Shares or his or her interest in any of them during the
Restriction Period; and (E) a breach of any restrictions, terms or
conditions provided in the Plan or established by the Committee with
respect to any Restricted Shares will cause a forfeiture of such
Restricted Shares.
6. OTHER TERMS AND CONDITIONS
(a) Assignability; Designation of Beneficiaries
(i) Prohibition on Transfer
An Award shall be nontransferable and may not be sold, hypothecated,
assigned, anticipated, alienated, commuted, pledged, encumbered or
otherwise conveyed by a Participant (whether voluntarily or involuntarily)
to any party, nor may any award be subject to attachment or garnishment by
any creditor or a Participant; provided that in the event of the incapacity
(as determined by the Plan Administrator) or death of the Participant (but
subject to Section 6(m) of this Plan), his/her attorney-in-fact pursuant to
a valid power of attorney giving general or specific authority to make
elections with respect to outstanding Awards, his/her court-appointed
guardian or the custodian of his/her affairs or the executor or
administrator of his/her estate (as the case may be) may exercise any
rights with respect to any vested Award that the Participant could have
exercised if he/she were still alive or not incapacitated. No assignment or
transfer of any Award or the rights represented thereby, whether voluntary,
involuntary, or by operation of law or otherwise, except by will or the
laws of descent and distribution, shall vest in the assignee or transferee
any interest or right herein whatsoever, and immediately upon any attempt
to assign or transfer an Award, the Award shall terminate and be of no
force or effect.
Notwithstanding anything in this Section 6(a)(i) to the contrary, the
Committee in its sole discretion may (but need not) permit transfers of
Awards in other situations where the Committee concludes that such
transferability (A) does not result in accelerated taxation, (B) does not
cause any Option intended to be an Incentive Stock Option to fail to meet
the statutory requirements for such Options referenced in Section 5(a), and
(C) is otherwise appropriate and desirable, taking into account the impact
on the Participant and the Company of applicable tax laws and/or securities
laws as applied to transferable Awards.
(ii) Designation of Beneficiaries
Notwithstanding anything in Section 6(a)(i) to the contrary, a
Participant may designate a person or persons to receive, in the event of
his death, any rights to which he would be entitled under an Award granted
under this Plan (the extent permitted under the applicable Award
Agreement). A beneficiary designation may be changed or revoked by a
Participant at any time by filing a written statement of such change or
revocation with the Company. Such a designation (or modification of
designation) shall be made in writing, and filed with the office of the
Company designated in the Award Agreement. If a Participant fails to
designate a beneficiary, then Section 6(a)(i) will apply.
VII-6
<PAGE>
(b) Award Agreement
Awards made pursuant to the Plan shall be evidenced by Award Agreements in
such form as the Committee shall, from time to time, approve, provided that
such agreements shall comply with, reflect and be subject to all the terms of
this Plan. The Award Agreement will state the characteristics of the Award and
all terms and conditions applicable to the Award, provided that the provisions
of this Plan which apply to an Award Agreement will be deemed incorporated in
such agreement regardless of whether they are specifically reiterated in the
text of the Award Agreement. Whenever an Employee is granted an Award under
this Plan, the Plan Administrator shall have the responsibility to provide to
the designated Participant an Award Agreement governing the particular Award
executed on behalf of the Company and, if one has not been supplied
previously, a copy of this Plan.
(c) Rights as a Shareholder
Except as otherwise specifically provided in this Plan or in any Award
Agreement, a Participant shall have no rights as a shareholder with respect to
shares of Common Stock covered by an Award until the date the Participant is
the holder of record of such shares.
(d) No Obligation to Exercise
The grant of an Award shall impose no obligation upon the Participant to
exercise the Award.
(e) Payments by Participants
No payments or contributions are required to be made by Participants in this
Plan other than the payment of any purchase price upon the exercise of a stock
option. The Committee may determine that Awards for which a payment is due
from a Participant may be payable: (i) in U. S. dollars by personal check,
bank draft or money order payable to the order of the Company, by money
transfers or direct account debits; (ii) through the delivery or deemed
delivery based on attestation to the ownership of shares of Common Stock with
a Fair Market Value on the date of delivery to the Company equal to the total
payment due from the Participant; (iii) by a combination of the methods
described in (i) and (ii) above; or (iv) by such other methods as the
Committee may deem appropriate. If shares of Common Stock are to be used in
payment pursuant to an Award and such shares were acquired upon the exercise
of a stock option (whether or not granted under this Plan), such shares must
have been held by the Participant for at least six months.
(f) Tax Withholding
The Company shall have the power and the right to deduct or withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
federal, state and local taxes (including the Participant's FICA obligation)
required to be withheld with respect to an Award or any dividends or other
distributions payable with respect thereto. The Committee, in its sole
discretion and pursuant to such procedures as it may specify from time to
time, may permit a Participant to satisfy such tax withholding obligation, in
whole or in part, by (i) electing to have the Company withhold otherwise
deliverable shares of Common Stock having a Fair Market Value not exceeding
the minimum amount required to be withheld, (ii) delivering to the Company
shares of Common Stock then owned by the Participant or (iii) such other
methods as the Committee may deem appropriate. If shares of Common Stock are
to be used in payment of such taxes and such shares were acquired upon the
exercise of a stock option (whether or not granted under this Plan), such
shares must have been held by the Participant for at least six months. The
amount of the withholding obligation satisfied by shares of Common Stock
withheld or delivered shall be the Fair Market Value of such shares determined
as of the date that the taxes are required to be withheld.
(g) Restrictions on Exercise
No Option may be exercisable on or after the date which is the tenth
anniversary of the date such Option was granted.
VII-7
<PAGE>
(h) Surrender of Options
The Committee, in its sole discretion, may incorporate one or more
provisions in any Option granted under this Plan to allow a Participant to
surrender his/her Option in whole or part in lieu of the exercise of all or
part of that Option or in payment of any amounts due the Company upon the
exercise of such Award. Such provision(s) may specify that the Committee may
authorize such surrender after the grant, but before the exercise, of any such
Option.
(i) Requirements of Law
The granting of Awards and the issuance of shares of Common Stock upon the
exercise of Awards shall be subject to all applicable requirements imposed by
federal and state securities and other laws, rules and regulations and by any
regulatory agencies having jurisdiction, and by any stock exchanges upon which
the Common Stock may be listed. As a condition precedent to the issuance of
shares of Common Stock pursuant to the grant or exercise of an Award, the
Company may require the Participant to take any reasonable action to meet such
requirements.
(j) Non-Exclusivity of the Plan
Neither the adoption of the Plan by the Board nor the submission of the Plan
to the shareholders of the Company for approval shall be construed as creating
any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and the awarding of stock and cash otherwise than
under the Plan, and such arrangements may be either generally applicable or
applicable only in specific cases.
(k) Unfunded Plan
Neither the Company nor any Subsidiary shall be required to segregate any
cash or any shares of Common Stock which may at any time be represented by
Awards, and the Plan shall constitute an "unfunded" plan of the Company.
Neither the Company nor any Subsidiary shall, by any provisions of the Plan,
be deemed to be a trustee of any Common Stock or any other property, and the
liabilities of the Company and any subsidiary to any Employee pursuant to the
Plan shall be those of a debtor pursuant to such contract obligations as are
created by or pursuant to the Plan, and the rights of any Employee, former
employee or beneficiary under the Plan shall be limited to those of a general
creditor of the Company or the applicable Subsidiary, as the case may be. In
its sole discretion, the Board may authorize the creation of trusts or other
arrangements to meet the obligations of the Company under the Plan, provided,
however, that the existence of such trusts or other arrangements is consistent
with the unfunded status of the Plan.
(l) Legends
In addition to any legend contemplated by Section 5(c), each certificate
evidencing Common Stock subject to an Award shall bear such legends as the
Committee deems necessary or appropriate to reflect or refer to any terms,
conditions or restrictions of the Award applicable to such shares, including,
without limitation, any to the effect that the shares represented thereby may
not be disposed of unless the Company has received an opinion of counsel,
acceptable to the Company, that such disposition will not violate any federal
or state securities laws.
(m) Company's Retirement and Welfare Plans
The value of compensation under this Plan will not be included as
"compensation" for purposes of computing the benefits payable to any
participant under the Company's retirement plans (both qualified and non-
qualified) or welfare benefit plans unless such other plan expressly provides
that such compensation shall be taken into account in computing a
participant's benefit. No compensation paid pursuant to any Award under this
Plan will constitute "annual management incentive bonuses" for purposes of
calculating benefits under any Executive Retirement Agreement covering any
Employee.
VII-8
<PAGE>
(n) Forfeitures
Notwithstanding anything in this Plan to the contrary, to the extent
permitted by applicable law:
(i) Violations of Company Policies
Any Award under this Plan may be reduced by the Committee (including
reduction to zero) in the event that it determines (in its sole
discretion) that the performance of the Participant or the business
unit for which the Participant is responsible has resulted in the
deliberate violation of the Company's standing corporate policies (as
in effect from time to time) and/or in the violation of federal, state
or local statutes or regulations. The Company policies considered for
this purpose will include in particular (but without limitation) the
Company's Code of Business Conduct and its antitrust, safety and
environmental policies.
(ii) For Cause Termination
If a Participant is terminated for Cause, all of such Participant's
outstanding Awards under this Plan (whether or not vested under the
terms of the applicable Award Agreement) shall terminate as of the
Participant's date of termination.
(o) Requirement of Employment
To be entitled to receive the benefit of an Award under this Plan, a
Participant must remain in the employment of the Company or its Subsidiaries
through the end of the applicable Performance Period or further Restriction
Period; provided, however, that the Committee may provide for partial or
complete exceptions to this requirement (e.g., in the case of retirement,
death or disability) as it deems equitable in its sole discretion.
(p) Code Section 162(m)
Except where the Committee deems it in the best interest of the Company, the
Committee shall use its best efforts to grant Awards under this plan which
will qualify as "performance based compensation" under Code Section 162(m) or
under such other circumstances as the Committee deems likely to result in an
income tax deduction for the Company for the full amount of the compensation
paid with respect to such Awards.
7. PLAN ADMINISTRATION
(a) Committee as Plan Administrator
This Plan shall be administered by the Committee. The Committee shall
periodically make determinations with respect to the participation of
Employees in this Plan and, except as otherwise required by law or this Plan,
the grant terms of Awards including vesting schedules, price, performance
standards (including Performance Goals), length of relevant performance,
restriction or option period, dividend rights, post-retirement and termination
rights, payment alternatives such as cash, stock, contingent awards or other
means of payment consistent with the purposes of this Plan, and such other
terms and conditions as the Committee deems appropriate. Except as otherwise
expressly required by this Plan, the Committee shall have the complete
authority and absolute discretion to interpret and construe the provisions of
this Plan and the Award Agreements and make determinations pursuant to any
Plan provision or Award Agreement which shall be final and binding on all
persons. No member of the Committee shall be liable to any person for any
action taken or omitted in connection with the interpretation and
administration of this Plan unless attributable to the member's own willful
misconduct or lack of good faith.
(b) Delegation
The Committee, in its sole discretion and on such terms and conditions as it
may provide, may delegate all or any part of its authority and powers under
this Plan to one or more directors or officers of the Company; provided,
however, that the Committee may not delegate its authority and powers (i) to
identify Participants under this Plan, (ii) to make or adjust Awards under
this Plan or (iii) in any way which would jeopardize this Plan's qualification
under Section 162(m) of the Code.
VII-9
<PAGE>
(c) Determinations Final
All determinations and decisions made by the Committee, the Board and any
delegate of the Committee appointed in accordance with Section 7(b) shall be
final, conclusive, and binding on all persons, and shall be given the maximum
deference permitted by law.
8. AMENDMENTS AND TERMINATION
(a) Authority to Amend or Terminate
Except as otherwise provided in this Plan, the Board may at any time
terminate and, from time to time, may amend or modify this Plan. Any such
action of the Board may be taken without the approval of the Company's
shareholders, but only to the extent that such shareholder approval is not
required by applicable law or regulation.
(b) Limitations
Notwithstanding the foregoing: (i) no amendment may, without the approval of
the shareholders of the Company, (A) increase any of the grant limitations
under Section 4 of this Plan or (B) extend the term of this Plan; (ii) no
amendment, modification or termination of this Plan shall in any manner
adversely affect any Awards theretofore granted to a Participant under this
Plan without the consent of such Participant; and (iii) no amendment may
change any Performance Goal or increase the compensation payable for the
achievement of a Performance Goal, once the Committee has established such
Performance Goal with respect to a Performance Award.
9. CORPORATE RESTRUCTURING
(a) No Bar to Corporate Restructuring
The existence of this Plan or outstanding Award under this Plan shall not
affect in any way the right or power of the Company or its shareholders (i) to
make or authorize any and all adjustments, recapitalizations, reorganizations
or other changes in the Company's capital structure or its business, or any
merger or consolidation of the Company, (ii) to issue bonds, debentures,
preferred or preference stocks ahead of or affecting the Common Stock or the
rights thereof, to dissolve or liquidate the Company, (iii) to sell or
transfer all or part of its assets or business or (iv) to effect any other
corporate act or proceeding, whether of a similar character or otherwise. Any
shares of Common Stock accruing to outstanding Awards as a result of any
adjustment under Section 9(b) will be subject to the same restrictions (and
have the same terms and conditions) as the Awards to which they accrue.
(b) Capital Readjustments/Award Modifications
The Awards under this Plan involving Common Stock will be made in shares of
the Common Stock as constituted on the date the Award is granted, but shares
of stock actually issued in connection with an Award shall reflect the
adjustments (if any) with respect to the Common Stock in connection with such
Award contemplated in this Section 9(b). In the event of any merger,
reorganization, consolidation, recapitalization, stock dividend, stock split,
or extraordinary distribution with respect to the Common Stock or other change
in corporate structure affecting the Common Stock, the Plan Administrator
shall have the authority to make such substitution or adjustments in the
aggregate number and kind of shares reserved for issuance under the Plan, in
the maximum number of shares which may be granted in any calendar year and in
the number, kind and exercise price of shares subject to outstanding Awards
and/or such other equitable substitution or adjustments as it may determine in
its sole discretion to be appropriate to ensure that all Participants are
treated equitably as a result of any such event. Any such adjustment may
provide for the elimination of fractional shares.
10. NO RIGHT TO EMPLOYMENT
No person shall have any claim or right to be granted an Award, and the
grant of an Award shall not be construed as giving a Participant the right to
be retained in the employ of the Company or a Subsidiary. Nothing
VII-10
<PAGE>
in this Plan shall interfere with or limit in any way the right of the Company
or any Subsidiary to terminate any Participant's employment at any time, nor
confer upon any Participant any right to continue in the employ of the Company
or any Subsidiary.
11. CHANGE OF CONTROL
(a) Special Rights Upon Change of Control
Notwithstanding anything contained in this Plan or any Award Agreement to
the contrary, in the event of a Change of Control, as defined below:
(i) Lapse of Restrictions; Acceleration of Exercise and/or Vesting
All restrictions relating to the exercise or vesting of Options and
Restricted Shares shall automatically lapse and any time periods relating
to the exercise or vesting of Options and Restricted Shares shall
automatically be accelerated so that such Awards may be immediately
exercised and shall be vested in full as of the date of such Change of
Control; and all Performance Goals applicable to any Award shall be deemed
automatically satisfied with respect to the maximum compensation attainable
pursuant to such Performance Awards, so that all of such compensation shall
be immediately vested as of the date of such Change of Control, provided,
however, that such acceleration in any case will occur only with specific
authorization of the Committee if, in the opinion of the Company's
accountants, such acceleration could preclude the use of pooling-of-
interest accounting treatment for a Change of Control transaction that
would otherwise qualify for such accounting treatment and is contingent
upon qualifying for such accounting treatment;
(ii) Election of Cash or Stock Distribution
Upon exercise of an Option during the 60-day period from and after the
date of a Change of Control, the Participant exercising the Option may, in
lieu of the receipt of Common Stock upon the exercise of the Option, elect
by written notice to the Company to receive an amount in cash equal to the
excess of the aggregate Value (as defined below) of the shares of Common
Stock covered by the Option or portion thereof surrendered determined on
the date the Option is exercised, over the aggregate exercise price of the
Option, provided, however, that such a right to receive a cash distribution
will be effective only with specific authorization of the Committee if, in
the opinion of the Company's accountants, the availability of such a right
could preclude the use of pooling-of-interest accounting treatment for a
Change of Control transaction that would otherwise qualify for such
accounting treatment and is contingent upon qualifying for such accounting
treatment. As used in this Section 11(a)(ii) the term "Value" means the
higher of (i) the highest Fair Market Value during the 60-day period from
and after the date of a Change of Control and (ii) if the Change of Control
is the result of a transaction or series of transactions described in
paragraphs (i) or (iii) of Section 11(b), the highest price per share of
the Common Stock paid in such transaction or series of transactions (which,
in the case of paragraph (i), shall be the highest price per share of the
Common Stock as reflected in a Schedule 13D filed by the person having made
the acquisition);
(iii) Extended Exercise Period
Following a Change of Control, if a Participant's employment terminates
for any reason other than retirement or death, any Options held by such
Participant may be exercised by such Participant until the earlier of
ninety (90) days after the termination of employment or the expiration date
of such Options, provided, however, that this provision shall not reduce
the exercise period otherwise authorized under the applicable Award
Agreement; and
(iv) Awards Non-Cancellable
All Awards shall become non-cancellable.
VII-11
<PAGE>
(b) Definition of "Change of Control"
A "Change of Control" of the Company shall be deemed to have occurred upon
the happening of any of the following events:
(i) Acquisition of Stock
The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this Section 11(b)(i), the
following acquisitions shall not constitute a Change of Control: (A) any
acquisition by a Person who on the Effective Date is the beneficial owner
of 20% or more of the Outstanding Company Voting Securities; (B) any
acquisition directly from the Company, including without limitation, a
public offering of securities, (C) any acquisition by the Company, (D) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any of its Subsidiaries or (E) any acquisition
by any corporation pursuant to a transaction which complies with
subparagraphs (A), (B) and (C) of Section 11(c)(iii);
(ii) Change in Board Membership
Individuals who constitute the Board as of the Effective Date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board, provided that any individual becoming a director subsequent
to the Effective Date whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office is
in connection with an actual or threatened election contest relating to the
election or removal of the directors of the Company or other actual or
threatened solicitation of proxies of consents by or on behalf of a Person
other than the Board; or
(iii) Shareholder-Approved Reorganization, Merger or Consolidation
Consummation of a reorganization, merger or consolidation to which the
Company is a party or a sale or other disposition of all or substantially
all of the assets of the Company (a "Business Combination"), in each case
unless, following such Business Combination: (A) all or substantially all
of the individuals and entities who were the beneficial owners of
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of the
combined voting power of the outstanding voting securities entitled to vote
generally in the election of directors of the corporation resulting from
the Business Combination (including, without limitation, a corporation
which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or
more subsidiaries) (the "Successor Entity") in substantially the same
proportions as their ownership immediately prior to such Business
Combination of the Outstanding Company Voting Securities; and (B) no Person
(excluding any Successor Entity or any employee benefit plan, or related
trust, of the Company or such Successor Entity beneficially owns, directly
or indirectly, 20% or more of the combined voting power of the then
outstanding voting securities of the Successor Entity, except to the extent
that such ownership existed prior to the Business Combination; and (C) at
least a majority of the members of the board of directors of the Successor
Entity were members of the Incumbent Board (including persons deemed to be
members of the Incumbent Board by reason of the proviso to paragraph (ii)
of this Section 11(b)) at the time of the execution of the initial
agreement or of the action of the Board providing for such Business
Combination.; or
(iv) Liquidation or Dissolution
Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
VII-12
<PAGE>
12. GOVERNING LAW
To the extent that federal laws do not otherwise control, this Plan shall be
construed in accordance with and governed by the law of the State of Georgia.
13. CAPTIONS
Captions are provided herein for convenience of reference only, and shall
not serve as a basis for interpretation or construction of this Plan.
14. RESERVATION OF SHARES
The Company, during the term of the Plan, will at all times reserve and keep
available such number of shares of Common Stock as shall be sufficient to
satisfy the requirements of the Plan. The final and unappealable inability of
the Company to obtain the necessary approvals from any regulatory body having
jurisdiction or approval deemed necessary by the Company's counsel to the
lawful issuance and sale of any shares of Common Stock under the Plan shall
relieve the Company of any liability in respect of the nonissuance or sale of
such shares of Common Stock as to which such requisite authority shall not
have been obtained.
15. SAVINGS CLAUSE
This Plan is intended to comply in all aspects with applicable law and
regulations. In case any one or more of the provisions of this Plan shall be
held invalid, illegal or unenforceable in any respect under applicable law and
regulation, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby and the
invalid, illegal or unenforceable provision shall be deemed null and void;
however, to the extent permitted by law, any provision which could be deemed
null and void shall first be construed, interpreted or revised retroactively
to permit this Plan to be construed in compliance with all applicable laws so
as to foster the intent of this Plan.
16. EFFECTIVE DATE AND TERM
The effective date (the "Effective Date") of this Plan shall be the later of
the date of its approval by the Company's shareholders or the implementation
date of the Letter Stock Proposal (as defined in the draft SEC Form S-4
approved by the Board on September 17, 1997). If shareholder approval is not
obtained on or before September 17, 1998, this Plan shall terminate on such
date. No new Awards shall be granted under this Plan after the fifth
anniversary of the Effective Date. Unless otherwise expressly provided in the
Plan or in an applicable Award Agreement, any Award granted hereunder may, and
the authority of the Board or the Committee to amend, alter, adjust, suspend,
discontinue, or terminate any such Award or to waive any conditions or rights
under any such Award shall, continue after the authority for grant of new
Awards hereunder has been exhausted.
VII-13
<PAGE>
ANNEX VIII
GEORGIA-PACIFIC CORPORATION/TIMBER GROUP
1997 LONG-TERM INCENTIVE PLAN
ADOPTED BY BOARD OF DIRECTORS, SEPTEMBER 17, 1997
APPROVED BY SHAREHOLDERS, DECEMBER , 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. ADOPTION AND PURPOSE..................................................... 1
2. DEFINITIONS.............................................................. 1
(a) Award................................................................. 1
(b) Award Agreement....................................................... 1
(c) Board................................................................. 1
(d) Cause................................................................. 1
(e) Change of Control..................................................... 1
(f) Code.................................................................. 1
(g) Committee............................................................. 2
(h) Common Stock.......................................................... 2
(i) Company............................................................... 2
(j) Effective Date........................................................ 2
(k) Employee.............................................................. 2
(l) Exchange Act.......................................................... 2
(m) Fair Market Value..................................................... 2
(n) Incentive Stock Option................................................ 2
(o) Non-Qualified Stock Option............................................ 2
(p) Option................................................................ 2
(q) Participant........................................................... 3
(r) Performance Goals..................................................... 3
(s) Performance Award..................................................... 3
(t) Performance Period.................................................... 3
(u) Plan.................................................................. 3
(v) Plan Year............................................................. 3
(w) Restricted Shares..................................................... 3
(x) Restriction Period.................................................... 3
(y) Subsidiary............................................................ 3
3. ELIGIBILITY.............................................................. 3
4. STOCK SUBJECT TO THE PROVISIONS OF THIS PLAN; LIMITATIONS................ 4
(a) Applicable Stock...................................................... 4
(b) Plan Limitations...................................................... 4
(c) Individual Limitations................................................ 4
(d) Calculation Procedures................................................ 4
5. AWARDS UNDER THIS PLAN................................................... 4
(a) Stock Options......................................................... 4
(b) Performance Awards.................................................... 4
(i) Administration...................................................... 5
(ii) Payment of Award................................................... 5
(iii) Further Restriction Period........................................ 5
(c) Restricted Shares..................................................... 5
(i) Issuance of Stock Certificates...................................... 5
(ii) Status of Restricted Shares........................................ 6
(iii) Participant Rights With Respect to Issued Restricted Shares....... 6
6. OTHER TERMS AND CONDITIONS............................................... 6
(a) Assignability; Designation of Beneficiaries........................... 6
(i) Prohibition on Transfer............................................. 6
(ii) Designation of Beneficiaries....................................... 6
</TABLE>
VIII-i
<PAGE>
<TABLE>
<S> <C>
(b) Award Agreement....................................................... 7
(c) Rights as a Shareholder............................................... 7
(d) No Obligation to Exercise............................................. 7
(e) Payments by Participants.............................................. 7
(f) Tax Withholding....................................................... 7
(g) Restrictions on Exercise.............................................. 8
(h) Surrender of Options.................................................. 8
(i) Requirements of Law................................................... 8
(j) Non-Exclusivity of the Plan........................................... 8
(k) Unfunded Plan......................................................... 8
(l) Legends............................................................... 8
(m) Company's Retirement and Welfare Plans................................ 8
(n) Forfeitures........................................................... 9
(i) Violations of Company Policies...................................... 9
(ii) For Cause Termination.............................................. 9
(o) Requirement of Employment............................................. 9
(p) Code Section 162(m)................................................... 9
7. PLAN ADMINISTRATION...................................................... 9
(a) Committee as Plan Administrator....................................... 9
(b) Delegation............................................................ 10
(c) Determinations Final.................................................. 10
8. AMENDMENTS AND TERMINATION............................................... 10
(a) Authority to Amend or Terminate....................................... 10
(b) Limitations........................................................... 10
9. CORPORATE RESTRUCTURING.................................................. 10
(a) No Bar to Corporate Restructuring..................................... 10
(b) Capital Readjustments/Award Modifications............................. 10
10. NO RIGHT TO EMPLOYMENT.................................................. 11
11. CHANGE OF CONTROL....................................................... 11
(a) Special Rights Upon Change of Control................................. 11
(i) Lapse of Restrictions; Acceleration of Exercise and/or Vesting...... 11
(ii) Election of Cash or Stock Distribution............................. 11
(iii) Extended Exercise Period.......................................... 11
(iv) Awards Non-Cancellable............................................. 12
(b) Definition of "Change of Control"..................................... 12
(i) Acquisition of Stock................................................ 12
(ii) Change in Board Membership......................................... 12
(iii) Shareholder-Approved Reorganization, Merger or Consolidation...... 12
(iv) Liquidation or Dissolution......................................... 13
12. GOVERNING LAW........................................................... 13
13. CAPTIONS................................................................ 13
14. RESERVATION OF SHARES................................................... 13
15. SAVINGS CLAUSE.......................................................... 13
16. EFFECTIVE DATE AND TERM................................................. 13
</TABLE>
VIII-ii
<PAGE>
GEORGIA-PACIFIC CORPORATION/TIMBER GROUP
1997 LONG-TERM INCENTIVE PLAN
1. ADOPTION AND PURPOSE
Georgia-Pacific Corporation (the "Company") hereby adopts this Georgia-
Pacific Corporation/Timber Group 1997 Long-Term Incentive Plan, which was
approved by its Board of Directors on September 17, 1997, subject to further
approval by the Company's shareholders (the "Plan"). The purposes of the Plan
are to promote the interests of the Company and its stockholders by (a)
attracting and retaining exceptional executive personnel and other key
employees for the Company and its Subsidiaries (as defined below), (b)
motivating such employees by means of performance-related incentives to
achieve long-range performance goals and (c) enabling such employees to
participate in the long-term growth and financial success of the Company.
2. DEFINITIONS
The following words and phrases shall have the following meanings unless a
different meaning is plainly required by the context:
(a) Award
"Award" means, individually or collectively, a grant under this Plan of
Options, Restricted Shares and/or a Performance Award. The issuance of
Options, Restricted Shares and/or shares of unrestricted Common Stock
pursuant to a Performance Award or taking any other action mandated under
the terms and conditions of an Award shall not be a new Award under this
Plan.
(b) Award Agreement
"Award Agreement" means a written agreement entered into between the
Company and a Participant setting forth the terms and conditions of an
Award made to such Participant under this Plan, in the form prescribed by
the Committee.
(c) Board
"Board" means the Board of Directors of the Company.
(d) Cause
"Cause" shall mean any of the following: (i) the willful failure of a
Participant to perform satisfactorily the duties consistent with his title
and position reasonably required of him by the Board or supervising
management (other than by reason of incapacity due to physical or mental
illness); (ii) the commission by a Participant of a felony, or the
perpetration by a Participant of a dishonest act or common law fraud
against the Company or any of its Subsidiaries; or (iii) any other willful
act or omission (including without limitation the deliberate and willful
violation of any corporate policy or regulation) which could reasonably be
expected to expose the Company to civil liability under the law of the
applicable jurisdiction or causes or may reasonably be expected to cause
significant injury to the financial condition or business reputation of the
Company or any of its Subsidiaries.
(e) Change of Control
"Change of Control" shall have the meaning specified in Section 11(b).
(f) Code
"Code" means the Internal Revenue Code of 1986, as amended. Reference to
a specific section of the Code or regulation thereunder shall include such
section or regulation, any valid regulation promulgated under such section,
and any comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or regulation.
VIII-1
<PAGE>
(g) Committee
"Committee" means the Compensation Committee of the Board of Directors of
the Company, as constituted from time to time, or such subcommittee of that
body as the Compensation Committee shall specify to act for the
Compensation Committee with respect to this Plan. Each member of the
Committee shall be a "non-employee director" within the meaning of Rule
16b-3 under the Exchange Act and shall be an "outside director" within the
meaning of Section 162(m) of the Code. The Committee shall be composed of
at least two (2) such directors.
(h) Common Stock
"Common Stock" means the class of the Company's common stock which is
intended to reflect the business and operations of the forest resources
segment of the Company's business, the par value of which is $0.80 per
share and which is designated "Georgia-Pacific Corporation--Timber Stock".
(i) Company
"Company" means Georgia-Pacific Corporation, a Georgia corporation
headquartered in Atlanta, Georgia.
(j) Effective Date
"Effective Date" means the effective date of this Plan as defined in
Section 16.
(k) Employee
"Employee" means a common law employee of the Company or a Subsidiary
(including, without limitation, any Company or Subsidiary officer).
(l) Exchange Act
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
Reference to a specific section of the Exchange Act or regulation
thereunder shall include such section or regulation, any valid regulation
promulgated under such section, and any comparable provision of any future
legislation or regulation amending, supplementing or superseding such
section or regulation.
(m) Fair Market Value
"Fair Market Value" means, on any date, the mean between the high and low
sales prices of a share of Common Stock on that date as reported in The
Wall Street Journal, New York Stock Exchange--Composite Transactions, or as
reported in any successor quotation system adopted prospectively for this
purpose by the Committee, in its discretion. If the date of determination
is not a trading date on the New York Stock Exchange, Fair Market Value
shall be determined using the high and low sales prices of a share of
Common Stock on the next preceding trading date. The Fair Market Value of
the Stock shall be rounded to the nearest whole cent (with 0.5 cent being
rounded to the next higher whole cent).
(n) Incentive Stock Option
"Incentive Stock Option" has the meaning specified in Section 5(a).
(o) Non-Qualified Stock Option
"Non-Qualified Stock Option" has the meaning specified in Section 5(a).
(p) Option
"Option" means an Incentive Stock Option or a Non-Qualified Stock Option
as defined in this Plan.
VIII-2
<PAGE>
(q) Participant
"Participant" means an Employee who has been granted an Award under this
Plan.
(r) Performance Goals
"Performance Goals" means, with respect to any Performance Period, one or
more objective performance goals based on one or more of the following
objective criteria established by the Committee prior to the beginning of
such Performance Period or within such period after the beginning of the
Performance Period as shall meet the requirements to be considered "pre-
established performance goals" for purposes of Code Section 162(m): (i)
increases in the price of the Common Stock; (ii) market share; (iii) sales;
(iv) return on equity, assets or capital; (v) economic profit (economic
value added); (vi) total shareholder return; (vii) costs; (viii) margins;
(ix) earnings or earnings per share; (x) cash flow; (xi) customer
satisfaction; (xii) operating profit; or (xiii) any combination of the
foregoing. Such Performance Goals may be particular to an Employee or may
be based, in whole or part, on the performance of the division, department,
line of business, Subsidiary or other business unit, whether or not legally
constituted, in which the Employee works or on the performance of the
Company generally.
(s) Performance Award
"Performance Award" shall have the meaning specified in Section 5(d).
(t) Performance Period
"Performance Period" means the period of service designated by the
Committee applicable to a Performance Award during which the Performance
Goals will be measured.
(u) Plan
"Plan" means the Georgia-Pacific Corporation/Timber Group 1997 Long-Term
Incentive Plan as described in this plan document.
(v) Plan Year
"Plan Year" means the calendar year.
(w) Restricted Shares
"Restricted Shares" shall have the meaning specified in Section 5(c).
(x) Restriction Period
"Restriction Period" means a Performance Period and/or any other period
during which full ownership of compensation contemplated in an Award
remains restricted pursuant to the terms and conditions of that Award.
(y) Subsidiary
"Subsidiary" means any corporation or other entity, whether domestic or
foreign, in which the Company has or obtains, directly or indirectly, a
proprietary interest of more than 50% by reason of stock ownership or
otherwise.
3. ELIGIBILITY
Any Employee designated by the Committee (in its sole discretion) as a
Participant under this Plan will be eligible to receive an Award specified by
the Committee in accordance with this Plan.
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4. STOCK SUBJECT TO THE PROVISIONS OF THIS PLAN; LIMITATIONS
(a) Applicable Stock
The stock subject to the provisions of this Plan shall either be shares
of authorized but unissued Common Stock, shares of Common Stock held as
treasury stock or previously issued shares of Common Stock reacquired by
the Company, including shares purchased on the open market.
(b) Plan Limitations
Subject to adjustment in accordance with the provisions of Section 9, the
total number of shares of Common Stock with respect to which Awards of
Options, Restricted Shares and/or unrestricted Common Stock may be granted
under this Plan may not exceed shares, provided, however, that the
total number of Restricted Shares that may be granted as Awards under this
Plan may not exceed shares.
(c) Individual Limitations
Subject to adjustment in accordance with Section 9, and subject to
Section 4(b), (i) the total number of shares of Common Stock with respect
to which Awards of Options may be granted in any Plan Year to any Employee
shall not exceed shares, (ii) the total number of shares of Common
Stock (including unrestricted shares of Common Stock, Restricted Shares and
shares of Common Stock subject to options) with respect to which
Performance Awards may be granted in any Plan Year to any Employee shall
not exceed shares and (iii) the value of any Performance Awards payable
in cash that may be granted in any Plan Year to any Employee shall not
exceed $ .
(d) Calculation Procedures
For purposes of calculating the total number of shares of Common Stock
available for grants of Awards, (i) the grant of an Award of Options,
Restricted Shares or a Performance Award shall be deemed to be equal to the
maximum number of shares of Common Stock which may be issued under the
Award and (ii) subject to the provisions of Sections 4(b) and 4(c), there
shall again be available for Awards under this Plan all of the following:
(A) shares of Common Stock represented by Awards which have been cancelled,
forfeited, surrendered or terminated or which expire unexercised; and (B)
the excess portion of variable Awards which become fixed at less than their
maximum limitations.
5. AWARDS UNDER THIS PLAN
Subject to the provisions of this Plan, the Committee shall have the sole
and complete authority to determine the Employees to whom Awards shall be
granted and the type, terms and conditions of such Awards. As the Committee
may determine, the following types of Awards may be granted under this Plan to
Employees on a stand alone, combination or tandem basis:
(a) Stock Options
An Award consisting of a right to buy a specified number of shares of
Common Stock at a fixed exercise price during a specified time, and subject
to such other terms and conditions, all as the Committee may determine.
Such Options may be Non-Qualified Stock Options or Incentive Stock Options.
The exercise price for an Award of Incentive Stock Options may not be less
than 100% of the Fair Market Value of the Common Stock on the grant date,
and the terms and conditions for an Award of Incentive Stock Options must
otherwise comply with the requirements of Section 422 of the Code or any
successor Section as it may be amended from time to time. Non-Qualified
Stock Options are not intended to satisfy the Code requirements for
Incentive Stock Options and need not meet such requirements. Each Stock
Option granted as an Award under this Plan shall be subject to the
provisions of this Plan and the applicable Award Agreement approved by the
Committee pursuant to Section 6(b) governing that Option.
(b) Performance Awards
An Award granted to an Employee consisting of the right to receive cash,
shares of Common Stock, Options or Restricted Shares that are not to be
issued to the Employee until after the satisfaction of the
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related Performance Goals during the related Performance Period. Such
Awards shall be subject to the following conditions and procedures:
(i) Administration
Performance Awards may be granted to Employees either alone or in
addition to other Awards granted under this Plan. The Committee shall
determine the Employees to whom Performance Awards shall be awarded for
any Performance Period, the duration of the applicable Performance
Period, the Performance Goals which must be met for the Award to be
paid and the amount of cash and/or the number of shares of Common
Stock, Options and/or Restricted Shares to be awarded at the end of a
Performance Period to Employees if the Performance Goals are met or
exceeded. Each such Performance Award shall be subject to the
provisions of this Plan and the applicable Award Agreement approved by
the Committee pursuant to Section 6(b) governing that Award.
(ii) Payment of Award
After the end of a Performance Period, the degree to which the
Performance Goals related to such Performance Period have been met
shall be determined by the Committee. If the Performance Goals are not
met, no compensation shall be issued pursuant to the Performance Award.
If the Performance Goals are met or exceeded, the Committee shall
certify that fact in writing in the Committee minutes or elsewhere and
authorize the payment of the amount of cash or issuance of the number
of shares of Common Stock, Options and/or Restricted Shares as
contemplated under the affected Performance Award in accordance with
the related Award Agreement.
(iii) Further Restriction Period
At the discretion of the Committee, a Performance Award may provide
for deferral of vesting and/or transfer rights with respect to all or
some of the incidents of ownership of the compensation contemplated in
the Award based on the satisfaction of terms and conditions in addition
to the attainment of the stated Performance Goals during the related
Performance Period over a further Restriction Period following the
Performance Period. In such a case, such vesting and/or transfer rights
with respect to the affected incidents of ownership shall be postponed
until the Committee certifies that the additional conditions have been
timely met and authorizes such vesting and/or transfer. Such acts by
the Committee shall not be deemed to be a new Award.
(c) Restricted Shares
An Award consisting of a transfer of shares of Common Stock to a
Participant, subject to such restrictions (e.g., the attainment of
specified Performance Goals during a designated Performance Period, the
passage of time or a combination of such restrictions and/or of other
delayed vesting conditions) on transfer or other incidents of ownership,
for such periods of time (with respect to each Award, the Restriction
Period) as the Committee may determine. If the issuance, vesting and/or
transfer of ownership of Restricted Shares granted under this Plan is
contingent upon the attainment of Performance Goals during a designated
Performance Period, the Award shall also be considered a Performance Award
and shall be subject to the provisions of Section 6(b) as well as those of
this Section 6(c). Awards of Restricted Shares under this Plan shall be
subject to the following conditions and procedures:
(i) Issuance of Stock Certificates
At the time specified for issuance of the Restricted Shares under the
applicable Award Agreement, the stock certificate or certificates
representing Restricted Shares shall be registered in the name of the
Participant to whom such Restricted Shares shall have been awarded.
During the Restriction Period, certificates representing the Restricted
Shares shall bear a restrictive legend to the effect that the
Restricted Shares are subject to the restrictions, terms and conditions
provided in this Plan and the applicable Award Agreement. Such
certificates shall remain in the custody of the Company and the
Participant shall deposit with the Company stock powers or other
instruments of assignment, each endorsed in blank, so as to permit
retransfer to the Company of all or any portion of the Restricted
Shares that shall be forfeited or otherwise not become vested in
accordance with the Plan and the applicable Award Agreement.
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(ii) Status of Restricted Shares
Restricted Shares which have been issued in accordance with an Award
Agreement shall constitute issued and outstanding shares of Common
Stock for all corporate purposes.
(iii) Participant Rights With Respect to Issued Restricted Shares
The Participant will have the right to vote issued Restricted Shares,
to receive and retain all dividends and distributions paid or
distributed on such Restricted Shares, and to exercise all other
rights, powers and privileges of a holder of Common Stock with respect
to such Restricted Shares; except that (A) the Participant will not be
entitled to delivery of the stock certificate or certificates
representing such Restricted Shares until the Restriction Period shall
have expired and unless all other vesting requirements with respect
thereto shall have been fulfilled or waived; (B) the Company will
retain custody of the stock certificate or certificates representing
the Restricted Shares during the Restriction Period; (C) any such
dividends and distributions paid in shares of Common Stock shall
constitute Restricted Shares and be subject to all of the same
restrictions during the Restriction Period as the Restricted Shares
with respect to which they were paid; (D) the Participant may not sell,
assign, transfer, pledge, exchange, encumber or dispose of the
Restricted Shares or his or her interest in any of them during the
Restriction Period; and (E) a breach of any restrictions, terms or
conditions provided in the Plan or established by the Committee with
respect to any Restricted Shares will cause a forfeiture of such
Restricted Shares.
6. OTHER TERMS AND CONDITIONS
(a) Assignability; Designation of Beneficiaries
(i) Prohibition on Transfer
An Award shall be nontransferable and may not be sold, hypothecated,
assigned, anticipated, alienated, commuted, pledged, encumbered or
otherwise conveyed by a Participant (whether voluntarily or
involuntarily) to any party, nor may any award be subject to attachment
or garnishment by any creditor of a Participant; provided that in the
event of the incapacity (as determined by the Plan Administrator) or
death of the Participant (but subject to Section 6(m) of this Plan),
his/her attorney-in-fact pursuant to a valid power of attorney giving
general or specific authority to make elections with respect to
outstanding Awards, his/her court-appointed guardian or the custodian
of his/her affairs or the executor or administrator of his/her estate
(as the case may be) may exercise any rights with respect to any vested
Award that the Participant could have exercised if he/she were still
alive or not incapacitated. No assignment or transfer of any Award or
the rights represented thereby, whether voluntary, involuntary, or by
operation of law or otherwise, except by will or the laws of descent
and distribution, shall vest in the assignee or transferee any interest
or right herein whatsoever, and immediately upon any attempt to assign
or transfer an Award, the Award shall terminate and be of no force or
effect.
Notwithstanding anything in this Section 6(a)(i) to the contrary, the
Committee in its sole discretion may (but need not) permit transfers of
Awards in other situations where the Committee concludes that such
transferability (A) does not result in accelerated taxation, (B) does
not cause any Option intended to be an Incentive Stock Option to fail
to meet the statutory requirements for such Options referenced in
Section 5(a), and (C) is otherwise appropriate and desirable, taking
into account the impact on the Participant and the Company of
applicable tax laws and/or securities laws as applied to transferable
Awards.
(ii) Designation of Beneficiaries
Notwithstanding anything in Section 6(a)(i) to the contrary, a
Participant may designate a person or persons to receive, in the event
of his death, any rights to which he would be entitled under an Award
granted under this Plan (the extent permitted under the applicable
Award Agreement). A beneficiary designation may be changed or revoked
by a Participant at any time by filing a written
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statement of such change or revocation with the Company. Such a
designation (or modification of designation) shall be made in writing,
and filed with the office of the Company designated in the Award
Agreement. If a Participant fails to designate a beneficiary, then
Section 6(a)(i) will apply.
(b) Award Agreement
Awards made pursuant to the Plan shall be evidenced by Award Agreements
in such form as the Committee shall, from time to time, approve, provided
that such agreements shall comply with, reflect and be subject to all the
terms of this Plan. The Award Agreement will state the characteristics of
the Award and all terms and conditions applicable to the Award, provided
that the provisions of this Plan which apply to an Award Agreement will be
deemed incorporated in such agreement regardless of whether they are
specifically reiterated in the text of the Award Agreement. Whenever an
Employee is granted an Award under this Plan, the Plan Administrator shall
have the responsibility to provide to the designated Participant an Award
Agreement governing the particular Award executed on behalf of the Company
and, if one has not been supplied previously, a copy of this Plan.
(c) Rights as a Shareholder
Except as otherwise specifically provided in this Plan or in any Award
Agreement, a Participant shall have no rights as a shareholder with respect
to shares of Common Stock covered by an Award until the date the
Participant is the holder of record of such shares.
(d) No Obligation to Exercise
The grant of an Award shall impose no obligation upon the Participant to
exercise the Award.
(e) Payments by Participants
No payments or contributions are required to be made by Participants in
this Plan other than the payment of any purchase price upon the exercise of
a stock option. The Committee may determine that Awards for which a payment
is due from a Participant may be payable: (i) in U. S. dollars by personal
check, bank draft or money order payable to the order of the Company, by
money transfers or direct account debits; (ii) through the delivery or
deemed delivery based on attestation to the ownership of shares of Common
Stock with a Fair Market Value on the date of delivery to the Company equal
to the total payment due from the Participant; (iii) by a combination of
the methods described in (i) and (ii) above; or (iv) by such other methods
as the Committee may deem appropriate. If shares of Common Stock are to be
used in payment pursuant to an Award and such shares were acquired upon the
exercise of a stock option (whether or not granted under this Plan), such
shares must have been held by the Participant for at least six months.
(f) Tax Withholding
The Company shall have the power and the right to deduct or withhold, or
require a Participant to remit to the Company, an amount sufficient to
satisfy federal, state and local taxes (including the Participant's FICA
obligation) required to be withheld with respect to an Award or any
dividends or other distributions payable with respect thereto. The
Committee, in its sole discretion and pursuant to such procedures as it may
specify from time to time, may permit a Participant to satisfy such tax
withholding obligation, in whole or in part, by (i) electing to have the
Company withhold otherwise deliverable shares of Common Stock having a Fair
Market Value not exceeding the minimum amount required to be withheld, (ii)
delivering to the Company shares of Common Stock then owned by the
Participant or (iii) such other methods as the Committee may deem
appropriate. If shares of Common Stock are to be used in payment of such
taxes and such shares were acquired upon the exercise of a stock option
(whether or not granted under this Plan), such shares must have been held
by the Participant for at least six months. The amount of the withholding
obligation satisfied by shares of Common Stock withheld or delivered shall
be the Fair Market Value of such shares determined as of the date that the
taxes are required to be withheld.
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(g) Restrictions on Exercise
No Option may be exercisable on or after the date which is the tenth
anniversary of the date such Option was granted.
(h) Surrender of Options
The Committee, in its sole discretion, may incorporate one or more
provisions in any Option granted under this Plan to allow a Participant to
surrender his/her Option in whole or part in lieu of the exercise of all or
part of that Option or in payment of any amounts due the Company upon the
exercise of such Award. Such provision(s) may specify that the Committee
may authorize such surrender after the grant, but before the exercise, of
any such Option.
(i) Requirements of Law
The granting of Awards and the issuance of shares of Common Stock upon
the exercise of Awards shall be subject to all applicable requirements
imposed by federal and state securities and other laws, rules and
regulations and by any regulatory agencies having jurisdiction, and by any
stock exchanges upon which the Common Stock may be listed. As a condition
precedent to the issuance of shares of Common Stock pursuant to the grant
or exercise of an Award, the Company may require the Participant to take
any reasonable action to meet such requirements.
(j) Non-Exclusivity of the Plan
Neither the adoption of the Plan by the Board nor the submission of the
Plan to the shareholders of the Company for approval shall be construed as
creating any limitations on the power of the Board to adopt such other
incentive arrangements as it may deem desirable, including, without
limitation, the granting of stock options and the awarding of stock and
cash otherwise than under the Plan, and such arrangements may be either
generally applicable or applicable only in specific cases.
(k) Unfunded Plan
Neither the Company nor any Subsidiary shall be required to segregate any
cash or any shares of Common Stock which may at any time be represented by
Awards, and the Plan shall constitute an "unfunded" plan of the Company.
Neither the Company nor any Subsidiary shall, by any provisions of the
Plan, be deemed to be a trustee of any Common Stock or any other property,
and the liabilities of the Company and any subsidiary to any Employee
pursuant to the Plan shall be those of a debtor pursuant to such contract
obligations as are created by or pursuant to the Plan, and the rights of
any Employee, former employee or beneficiary under the Plan shall be
limited to those of a general creditor of the Company or the applicable
Subsidiary, as the case may be. In its sole discretion, the Board may
authorize the creation of trusts or other arrangements to meet the
obligations of the Company under the Plan, provided, however, that the
existence of such trusts or other arrangements is consistent with the
unfunded status of the Plan.
(l) Legends
In addition to any legend contemplated by Section 5(c), each certificate
evidencing Common Stock subject to an Award shall bear such legends as the
Committee deems necessary or appropriate to reflect or refer to any terms,
conditions or restrictions of the Award applicable to such shares,
including, without limitation, any to the effect that the shares
represented thereby may not be disposed of unless the Company has received
an opinion of counsel, acceptable to the Company, that such disposition
will not violate any federal or state securities laws.
(m) Company's Retirement and Welfare Plans
The value of compensation under this Plan will not be included as
"compensation" for purposes of computing the benefits payable to any
participant under the Company's retirement plans (both qualified and non-
qualified) or welfare benefit plans unless such other plan expressly
provides that such compensation shall be taken into account in computing a
participant's benefit. No compensation paid pursuant to any
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Award under this Plan will constitute "annual management incentive bonuses"
for purposes of calculating benefits under any Executive Retirement
Agreement covering any Employee.
(n) Forfeitures
Notwithstanding anything in this Plan to the contrary, to the extent
permitted by applicable law:
(i) Violations of Company Policies
Any Award under this Plan may be reduced by the Committee (including
reduction to zero) in the event that it determines (in its sole
discretion) that the performance of the Participant or the business
unit for which the Participant is responsible has resulted in the
deliberate violation of the Company's standing corporate policies (as
in effect from time to time) and/or in the violation of federal, state
or local statutes or regulations. The Company policies considered for
this purpose will include in particular (but without limitation) the
Company's Code of Business Conduct and its antitrust, safety and
environmental policies.
(ii) For Cause Termination
If a Participant is terminated for Cause, all of such Participant's
outstanding Awards under this Plan (whether or not vested under the
terms of the applicable Award Agreement) shall terminate as of the
Participant's date of termination.
(o) Requirement of Employment
To be entitled to receive the benefit of an Award under this Plan, a
Participant must remain in the employment of the Company or its
Subsidiaries through the end of the applicable Performance Period or
further Restriction Period; provided, however, that the Committee may
provide for partial or complete exceptions to this requirement (e.g., in
the case of retirement, death or disability) as it deems equitable in its
sole discretion.
(p) Code Section 162(m)
Except where the Committee deems it in the best interest of the Company,
the Committee shall use its best efforts to grant Awards under this plan
which will qualify as "performance based compensation" under Code Section
162(m) or under such other circumstances as the Committee deems likely to
result in an income tax deduction for the Company for the full amount of
the compensation paid with respect to such Awards.
7. PLAN ADMINISTRATION
(a) Committee as Plan Administrator
This Plan shall be administered by the Committee. The Committee shall
periodically make determinations with respect to the participation of
Employees in this Plan and, except as otherwise required by law or this
Plan, the grant terms of Awards including vesting schedules, price,
performance standards (including Performance Goals), length of relevant
performance, restriction or option period, dividend rights, post-retirement
and termination rights, payment alternatives such as cash, stock,
contingent awards or other means of payment consistent with the purposes of
this Plan, and such other terms and conditions as the Committee deems
appropriate. Except as otherwise expressly required by this Plan, the
Committee shall have the complete authority and absolute discretion to
interpret and construe the provisions of this Plan and the Award Agreements
and make determinations pursuant to any Plan provision or Award Agreement
which shall be final and binding on all persons. No member of the Committee
shall be liable to any person for any action taken or omitted in connection
with the interpretation and administration of this Plan unless attributable
to the member's own willful misconduct or lack of good faith.
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(b) Delegation
The Committee, in its sole discretion and on such terms and conditions as
it may provide, may delegate all or any part of its authority and powers
under this Plan to one or more directors or officers of the Company;
provided, however, that the Committee may not delegate its authority and
powers (i) to identify Participants under this Plan, (ii) to make or adjust
Awards under this Plan or (iii) in any way which would jeopardize this
Plan's qualification under Section 162(m) of the Code.
(c) Determinations Final
All determinations and decisions made by the Committee, the Board and any
delegate of the Committee appointed in accordance with Section 7(b) shall
be final, conclusive, and binding on all persons, and shall be given the
maximum deference permitted by law.
8. AMENDMENTS AND TERMINATION
(a) Authority to Amend or Terminate
Except as otherwise provided in this Plan, the Board may at any time
terminate and, from time to time, may amend or modify this Plan. Any such
action of the Board may be taken without the approval of the Company's
shareholders, but only to the extent that such shareholder approval is not
required by applicable law or regulation.
(b) Limitations
Notwithstanding the foregoing: (i) no amendment may, without the approval
of the shareholders of the Company, (A) increase any of the grant
limitations under Section 4 of this Plan or (B) extend the term of this
Plan; (ii) no amendment, modification or termination of this Plan shall in
any manner adversely affect any Awards theretofore granted to a Participant
under this Plan without the consent of such Participant; and (iii) no
amendment may change any Performance Goal or increase the compensation
payable for the achievement of a Performance Goal, once the Committee has
established such Performance Goal with respect to a Performance Award.
9. CORPORATE RESTRUCTURING
(a) No Bar to Corporate Restructuring
The existence of this Plan or outstanding Award under this Plan shall not
affect in any way the right or power of the Company or its shareholders (i)
to make or authorize any and all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, (ii) to issue
bonds, debentures, preferred or preference stocks ahead of or affecting the
Common Stock or the rights thereof, to dissolve or liquidate the Company,
(iii) to sell or transfer all or part of its assets or business or (iv) to
effect any other corporate act or proceeding, whether of a similar
character or otherwise. Any shares of Common Stock accruing to outstanding
Awards as a result of any adjustment under Section 9(b) will be subject to
the same restrictions (and have the same terms and conditions) as the
Awards to which they accrue.
(b) Capital Readjustments/Award Modifications
The Awards under this Plan involving Common Stock will be made in shares
of the Common Stock as constituted on the date the Award is granted, but
shares of stock actually issued in connection with an Award shall reflect
the adjustments (if any) with respect to the Common Stock in connection
with such Award contemplated in this Section 9(b). In the event of any
merger, reorganization, consolidation, recapitalization, stock dividend,
stock split, or extraordinary distribution with respect to the Common Stock
or other change in corporate structure affecting the Common Stock, the Plan
Administrator shall have the authority to make such substitution or
adjustments in the aggregate number and kind of shares reserved for
issuance under the Plan, in the maximum number of shares which may be
granted in any calendar year and
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in the number, kind and exercise price of shares subject to outstanding
Awards and/or such other equitable substitution or adjustments as it may
determine in its sole discretion to be appropriate to ensure that all
Participants are treated equitably as a result of any such event. Any such
adjustment may provide for the elimination of fractional shares.
10. NO RIGHT TO EMPLOYMENT
No person shall have any claim or right to be granted an Award, and the
grant of an Award shall not be construed as giving a Participant the right
to be retained in the employ of the Company or a Subsidiary. Nothing in
this Plan shall interfere with or limit in any way the right of the Company
or any Subsidiary to terminate any Participant's employment at any time,
nor confer upon any Participant any right to continue in the employ of the
Company or any Subsidiary.
11. CHANGE OF CONTROL
(a) Special Rights Upon Change of Control
Notwithstanding anything contained in this Plan or any Award Agreement to
the contrary, in the event of a Change of Control, as defined below:
(i) Lapse of Restrictions; Acceleration of Exercise and/or Vesting
All restrictions relating to the exercise or vesting of Options and
Restricted Shares shall automatically lapse and any time periods
relating to the exercise or vesting of Options and Restricted Shares
shall automatically be accelerated so that such Awards may be
immediately exercised and shall be vested in full as of the date of
such Change of Control; and all Performance Goals applicable to any
Award shall be deemed automatically satisfied with respect to the
maximum compensation attainable pursuant to such Performance Awards so
that all of such compensation shall be immediately vested as of the
date of such Change of Control, provided, however, that such
acceleration in any case will occur only with specific authorization of
the Committee if, in the opinion of the Company's accountants, such
acceleration could preclude the use of pooling-of-interest accounting
treatment for a Change of Control transaction that would otherwise
qualify for such accounting treatment and is contingent upon qualifying
for such accounting treatment;
(ii) Election of Cash or Stock Distribution
Upon exercise of an Option during the 60-day period from and after
the date of a Change of Control, the Participant exercising the Option
may, in lieu of the receipt of Common Stock upon the exercise of the
Option, elect by written notice to the Company to receive an amount in
cash equal to the excess of the aggregate Value (as defined below) of
the shares of Common Stock covered by the Option or portion thereof
surrendered determined on the date the Option is exercised, over the
aggregate exercise price of the Option, provided, however, that such a
right to receive a cash distribution will be effective only with
specific authorization of the Committee if, in the opinion of the
Company's accountants, the availability of such a right could preclude
the use of pooling-of-interest accounting treatment for a Change of
Control transaction that would otherwise qualify for such accounting
treatment and is contingent upon qualifying for such accounting
treatment. As used in this Section 11(a)(ii) the term "Value" means the
higher of (i) the highest Fair Market Value during the 60-day period
from and after the date of a Change of Control and (ii) if the Change
of Control is the result of a transaction or series of transactions
described in paragraphs (i) or (iii) of Section 11(b), the highest
price per share of the Common Stock paid in such transaction or series
of transactions (which, in the case of paragraph (i), shall be the
highest price per share of the Common Stock as reflected in a Schedule
13D filed by the person having made the acquisition);
(iii) Extended Exercise Period
Following a Change of Control, if a Participant's employment
terminates for any reason other than retirement or death, any Options
held by such Participant may be exercised by such Participant until
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the earlier of ninety (90) days after the termination of employment or
the expiration date of such Options, provided, however, that this
provision shall not reduce the exercise period otherwise authorized
under the applicable Award Agreement; and
(iv) Awards Non-Cancellable
All Awards shall become non-cancellable.
(b) Definition of "Change of Control"
A "Change of Control" of the Company shall be deemed to have occurred
upon the happening of any of the following events:
(i) Acquisition of Stock
The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this Section 11(b)(i), the following acquisitions shall not
constitute a Change of Control: (A) any acquisition by a Person who on
the Effective Date is the beneficial owner of 20% or more of the
Outstanding Company Voting Securities; (B) any acquisition directly
from the Company, including without limitation, a public offering of
securities, (C) any acquisition by the Company, (D) any acquisition by
any employee benefit plan (or related trust) sponsored or maintained by
the Company or any of its Subsidiaries or (E) any acquisition by any
corporation pursuant to a transaction which complies with subparagraphs
(A), (B) and (C) of Section 11(c)(iii);
(ii) Change in Board Membership
Individuals who constitute the Board as of the Effective Date hereof
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any individual becoming a director
subsequent to the Effective Date whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election or removal of the
directors of the Company or other actual or threatened solicitation of
proxies of consents by or on behalf of a Person other than the Board;
(iii) Shareholder-Approved Reorganization, Merger or Consolidation
Consummation of a reorganization, merger or consolidation to which
the Company is a party or a sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination"), in each case unless, following such Business
Combination: (A) all or substantially all of the individuals and
entities who were the beneficial owners of Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of the combined voting power
of the outstanding voting securities entitled to vote generally in the
election of directors of the corporation resulting from the Business
Combination (including, without limitation, a corporation which as a
result of such transaction owns the Company or all or substantially all
of the Company's assets either directly or through one or more
subsidiaries) (the "Successor Entity") in substantially the same
proportions as their ownership immediately prior to such Business
Combination of the Outstanding Company Voting Securities; and (B) no
Person (excluding any Successor Entity or any employee benefit plan, or
related trust, of the Company or such Successor Entity) beneficially
owns, directly or indirectly, 20% or more of the combined voting power
of the then outstanding voting securities of the Successor Entity,
except to the extent that such ownership existed prior to the Business
Combination; and (C) at least a majority of the members of the board of
directors of the Successor Entity were members of the Incumbent Board
(including
VIII-12
<PAGE>
persons deemed to be members of the Incumbent Board by reason of the
proviso to paragraph (ii) of this Section 11(b)) at the time of the
execution of the initial agreement or of the action of the Board
providing for such Business Combination; or
(iv) Liquidation or Dissolution
Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
12. GOVERNING LAW
To the extent that federal laws do not otherwise control, this Plan shall be
construed in accordance with and governed by the law of the State of Georgia.
13. CAPTIONS
Captions are provided herein for convenience of reference only, and shall
not serve as a basis for interpretation or construction of this Plan.
14. RESERVATION OF SHARES
The Company, during the term of the Plan, will at all times reserve and keep
available such number of shares of Common Stock as shall be sufficient to
satisfy the requirements of the Plan. The final and unappealable inability of
the Company to obtain the necessary approvals from any regulatory body having
jurisdiction or approval deemed necessary by the Company's counsel to the
lawful issuance and sale of any shares of Common Stock under the Plan shall
relieve the Company of any liability in respect of the nonissuance or sale of
such shares of Common Stock as to which such requisite authority shall not
have been obtained.
15. SAVINGS CLAUSE
This Plan is intended to comply in all aspects with applicable law and
regulations. In case any one or more of the provisions of this Plan shall be
held invalid, illegal or unenforceable in any respect under applicable law and
regulation, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby and the
invalid, illegal or unenforceable provision shall be deemed null and void;
however, to the extent permitted by law, any provision which could be deemed
null and void shall first be construed, interpreted or revised retroactively
to permit this Plan to be construed in compliance with all applicable laws so
as to foster the intent of this Plan.
16. EFFECTIVE DATE AND TERM
The effective date (the "Effective Date") of this Plan shall be the later of
the date of its approval by the Company's shareholders or the implementation
date of the Letter Stock Proposal (as defined in the draft SEC Form S-4
approved by the Board on September 17, 1997). If shareholder approval is not
obtained on or before September 17, 1998, this Plan shall terminate on such
date. No new Awards shall be granted under this Plan after the fifth
anniversary of the Effective Date. Unless otherwise expressly provided in the
Plan or in an applicable Award Agreement, any Award granted hereunder may, and
the authority of the Board or the Committee to amend, alter, adjust, suspend,
discontinue, or terminate any such Award or to waive any conditions or rights
under any such Award shall, continue after the authority for grant of new
Awards hereunder has been exhausted.
VIII-13
<PAGE>
ANNEX IX
MANAGEMENT COMPENSATION AND AMENDMENTS TO EXISTING PLANS
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the compensation of
the Company's Chief Executive Officer and each of the other four most highly
compensated executive officers of the Company at the end of 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-
TERM COMPENSATION
---------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------- ------------ --------
SECURITIES
OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND BONUS COMPENSATION OPTIONS/SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) ($)(1) ($)(2) (#)(3) ($)(4) ($)(5)
- ------------------ ---- ---------- ---------- ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alston D. Correll....... 1996 $1,050,000 $ -0- $ 209,153 113,500 $ -0- $ 6,000
Chairman, Chief 1995 962,000 1,300,000 205,120 83,000 -0- 6,000
Executive Officer 1994 925,000 600,000 2,161,232 -0- 465,750 6,000
and President
Davis K. Mortensen...... 1996 600,000 143,600 56,677 48,000 -0- 11,375
Executive Vice 1995 580,000 361,500 69,964 25,000 -0- 11,625
President--Building 1994 555,000 194,250 2,376,223 -0- -0- 11,625
Products
W. E. Babin............. 1996 536,000 143,600 37,049 48,000 -0- 9,775
Executive Vice 1995 490,000 490,000 56,126 25,000 -0- 11,625
President--Pulp 1994 460,000 161,000 47,320 -0- -0- 11,400
and Paper
John F. McGovern........ 1996 420,000 120,500 25,971 42,000 -0- 10,800
Executive Vice 1995 350,370 348,000 36,709 13,600 -0- 10,650
President--Finance and 1994 306,667 101,638 748,788 -0- -0- 10,275
Chief Financial Officer
Donald L. Glass......... 1996 347,000 108,600 30,271 23,400 -0- 8,972
Senior Vice President-- 1995 330,000 179,900 29,038 12,000 -0- 10,650
Building Products 1994 315,000 110,250 992,406 -0- -0- 10,575
Manufacturing and
Sales(6)
</TABLE>
- --------
(1) Reflects bonuses paid in 1996 and 1995 under the Economic Value Incentive
Plan, a bonus plan pursuant to which annual and long-term bonuses are paid
to executive officers based upon net after-tax operating profits in excess
of the Company's cost of capital as measured by a financial metric known
as Economic Value Added ("EVA(R)") and assessments of each business unit's
efforts during a given year to increase the EVA(R), respectively, and
under the 1994 Management Incentive Plan (the "MIP"). The MIP, the annual
cash incentive compensation plan in place in 1994, provided for team
bonuses based on achievement of the Corporation's specified cash flow
goals and individual bonuses based on the performance of the participants'
group or business unit.
(2) Other Annual Compensation is composed of annual compensation not properly
categorized as salary or bonus. It includes dividends paid during the
years reported with respect to shares of restricted Common
IX-1
<PAGE>
Stock which were previously awarded under the 1988 and 1990 Long-Term
Incentive Plans when the Corporation achieved specified stock price
appreciation performance goals. The dividends paid in 1996 on such shares
of restricted Common Stock were as follows: Mr. Correll, $84,000; Mr.
Mortensen, $40,000; Mr. Babin, $20,000; Mr. McGovern, $16,000; and Mr.
Glass, $23,200. Other Annual Compensation also includes the following
amount which exceeded 25% of the total personal benefits provided to Mr.
Correll in 1996: personal use of aircraft of $46,973.
(3) Granted pursuant to the SVIP as described under "--Adjustment to Existing
Plans--SVIP."
(4) Represents the value, on the date of award, of restricted shares of Common
Stock awarded pursuant to the 1990 Long-Term Incentive Plan ("LTIP"). The
LTIP terminated on March 9, 1995. At December 31, 1996, the number and
value of the aggregate shares of restricted Common Stock awarded to and
beneficially held by each of the persons named above pursuant to the LTIP
were as follows: Mr. Correll, 42,000 shares with a value of $3,024,000;
Mr. Mortensen, 20,000 shares with a value of $1,440,000; Mr. Babin, 10,000
shares with a value of $720,000; Mr. McGovern, 8,000 shares with a value
of $576,000; and Mr. Glass, 11,600 shares with a value of $835,200.
(5) Includes contributions by the Corporation to the Georgia-Pacific
Corporation Savings and Capital Growth Plan on behalf of the named
individuals in the following amounts for 1996: Mr. Correll, $3,000; Mr.
Mortensen, $8,375; Mr. Babin, $6,775; Mr. McGovern, $8,250; and Mr. Glass,
$6,872. Also includes premiums for term life insurance for the benefit of
the named individuals paid by the Corporation in the following amounts for
1996: Mr. Correll, $3,000; Mr. Mortensen, $3,000; Mr. Babin, $3,000; Mr.
McGovern $2,550; and Mr. Glass, $2,100.
(6) Mr. Glass was promoted to Executive Vice President-Building Products on
January 1, 1997, in anticipation of Mr. Mortensen's retirement as of March
1, 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
GRANT DATE
INDIVIDUAL GRANTS VALUE
---------------------------------------- ------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS/SARS EMPLOYEES IN OR BASE EXPIRATION PRESENT
NAME GRANTED (#)(2) FISCAL YEAR PRICE ($/SH) DATE VALUE ($)(3)
- ---- -------------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Alston D. Correll....... 113,500 5.28% $72.63 1/31/06 $2,193,955
Davis K. Mortensen...... 48,000 2.23 72.63 1/31/06 927,840
W. E. Babin............. 48,000 2.23 72.63 1/31/06 927,840
John F. McGovern........ 42,000 1.95 72.63 1/31/06 811,860
Donald L. Glass......... 23,400 1.09 72.63 1/31/06 452,322
</TABLE>
- --------
(1) There were no SAR grants in 1996.
(2) Options become exercisable six months prior to their expiration, but may
become exercisable earlier if certain performance goals based on Total
Shareholder Return are achieved. See "--Adjustment to Existing Plans--
SVIP." In addition, if an optionee retires, becomes disabled or dies and
performance-based vesting
is not achieved, between 50% and 100% of such person's options, determined
according to the number of years elapsed in the option term, will become
exercisable for no more than six months. In the event of a change in
control of the Corporation, options become exercisable for the remainder of
their term if the Corporation's Total Shareholder Return over the
immediately preceding three, four or five years exceeded the Total
Shareholder Return of the Standard & Poor's Paper and Forest Products Index
over the same period.
(3) Based on the Black-Scholes option valuation model. The actual value, if
any, an executive officer may realize ultimately depends on the market
value of the Common Stock at a future date. This valuation is provided
pursuant to Securities and Exchange Commission disclosure rules. There is
no assurance that the value realized will be at or near the value
estimated by the Black-Scholes model. Assumptions used to calculate this
value are as follows: (i) volatility factor of .3; (ii) risk-free rate of
5.72%; (iii) dividend yield of 2.0%; (iv) exercise on August 1, 2005; and
(v) an option forfeiture rate of 3.0%.
IX-2
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES*
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS/SARS AT FISCAL YEAR-
END (#)
---------------------------------
NAME EXERCISABLE UNEXERCISABLE**
---- ------------ ----------------
<S> <C> <C>
Alston D. Correll...................... -0- 196,500
Davis K. Mortensen..................... -0- 73,000
W. E. Babin............................ -0- 73,000
John F. McGovern....................... -0- 55,600
Donald L. Glass........................ -0- 35,400
</TABLE>
- --------
* There were no SAR or stock option exercises by any of the named individuals
in 1996, and no unexercised SARs were held by any of the named individuals
at December 31, 1996.
** Except in circumstances involving a change in control of the Corporation,
options granted under the SVIP in 1995 will be exercisable no earlier than
April 1, 1998, and options granted under the SVIP in 1996 will be
exercisable no earlier than February 1, 1999. The exercise price for SVIP
options granted in 1995 of $80.50, and for SVIP options granted in 1996 of
$72.63, both exceeded the closing price of the Common Stock at December 31,
1996.
OFFICERS' RETIREMENT PLAN ("RETIREMENT PLAN"). The Retirement Plan is
represented by separate but substantially similar agreements with each
officer. Subject to certain offsets, the Retirement Plan provides that
Georgia-Pacific will make post-retirement monthly payments to each officer for
life, based on an aggregate annual amount equal to 50% of the officer's
average annual compensation (including bonuses under management incentive
plans) during the officer's last four years of employment and, at the
officer's death, will continue to pay to the officer's surviving spouse, for
the remainder of such spouse's life, 50% of the amount that had been payable
to the officer. Full benefits are payable upon retirement after attaining age
55 with 15 years of service (commencing at age 62) or age 65. Benefits
generally are available to an officer who terminates employment with the
Corporation before age 65 with at least three years of service but are not
payable until age 62. Such termination benefits are reduced proportionately if
total service at termination of employment is less than 15 years. Disability
and death benefits are also provided.
Retirement Plan benefits are subject to offset. Such offsets include the
amounts which would become payable to the officer and to the officer's
surviving spouse under the Georgia-Pacific Salaried Employees Retirement Plan
("SERP") and the value of the Corporation's contributions to the Georgia-
Pacific Savings and Capital Growth Plan (the "Savings Plan"), in which
virtually all salaried employees of the Corporation or its participating
subsidiaries are eligible to participate. In the case of both the Savings Plan
and the SERP, the officer's interest is converted to an actuarially equivalent
joint and 50% survivor annuity for offset purposes. If an officer engages in
certain competitive activity after retirement, benefits under the Retirement
Plan terminate.
The table below sets forth certain information relating to benefits under
the Retirement Plan with respect to the named individuals (a) assuming
retirement as of January 1, 1997, and (b) assuming retirement at age 65, using
projected years of credited service at age 65 and final average compensation
as of December 31, 1996. The benefits disclosed in the table represent the
maximum estimated annual benefits under the Retirement Plan, without reduction
for offsets provided for in such Plan. Because such amounts exceed the total
of such offsetting payments, the amounts disclosed in the table below
represent the estimated maximum aggregate benefit payable to the named
executive officers under all pension and other defined benefit or actuarial
plans.
IX-3
<PAGE>
ANNUAL BENEFIT BASED ON 50% OF FINALAVERAGE COMPENSATION(1)
<TABLE>
<CAPTION>
RETIREMENT
RETIREMENT ON JANUARY 1, 1997 AT AGE 65
------------------------------------ ----------
ANNUAL YEARS OF ANNUAL
BENEFITS CREDITED SERVICE BENEFIT(2)
----------------- ------------------ ----------
<S> <C> <C> <C>
Mr. Correll.................. $ 413,578 8 $775,458
Mr. Mortensen................ 393,060 35 393,060
Mr. Babin.................... 143,894 6(3) 359,734
Mr. McGovern................. 248,229 15 248,229
Mr. Glass.................... 222,967 24 222,967
</TABLE>
- --------
(1) "Compensation" for these purposes means only base salary (including salary
deferred as before-tax contributions to the Savings Plan) and annual
incentive bonuses, if any, and excludes any other cash or non-cash
compensation items.
(2) Represents the formula benefit at the normal retirement age of 65 under
the Retirement Plan, based on average annual compensation during the
period 1993-1996.
(3) Given Mr. Babin's announced April 1, 1997 retirement from the Corporation
at age 62, for purposes of calculating his benefit he will, by agreement,
be credited with industry service prior to joining the Corporation.
However, the resulting additional benefits will be offset by retirement
benefits paid to Mr. Babin by prior employers with respect to such
additional period of service.
AMENDMENTS TO EXISTING BENEFIT PLANS
The Company has several employee benefit and incentive plans which utilize
Existing Common Stock in their operation. Because the Letter Stock Proposal
will result in the Existing Common Stock being redesignated, amendments will
be made to each of these plans to provide that they will utilize Georgia-
Pacific Group Stock or Timber Stock in the future. These plans, and a brief
description of the amendments to be made to each of them, follow:
1997 EMPLOYEE STOCK PURCHASE PLAN. Under this plan employees of the Company
may elect to purchase Existing Common Stock at a predetermined price by making
installment payments over a two-year period. The plan provides that during the
period from September 2 through November 14, 1997, employees can subscribe to
purchase shares under the plan at a price of $78.09 per share, representing
85% of the mean between the high and low price of the Existing Common Stock on
September 2, 1997 on the NYSE. If the Letter Stock Proposal is approved,
pursuant to the terms of this plan employees will subscribe to purchase a
"package" consisting of an equal number of shares of Georgia-Pacific Group
Stock and Timber Stock, rather than simply purchasing Existing Common Stock.
STOCK OPTION PLANS. The Company's 1993 Stock Option Plan and 1994 Stock
Option Plan have expired and no further grants will be made under them. There
are options outstanding under these Plans which have already vested. If the
Letter Stock Proposal is approved by shareholders, these option grants will be
converted from an option to purchase a specified number of shares of Existing
Common Stock ("Original Option") at a specified price ("Original Option
Price") into two separate options (each independently exercisable), one to
purchase shares of Georgia-Pacific Group Stock and the other to purchase
shares of Timber Stock, in each case for a number of shares equal to the
number of shares of Existing Common Stock specified in the Original Option.
The exercise price for an option of Georgia-Pacific Group Stock will be
calculated by multiplying the Original Option Price for the Original Option
from which it was converted by a fraction, the numerator of which is the
Georgia-Pacific Group Stock Price and the denominator of which is the sum of
the Georgia-Pacific Group Stock Price and the Timber Stock Price. The exercise
price for an option of Timber Stock will be calculated by multiplying the
Original Option Price for the Original Option from which it was converted by a
fraction, the numerator of which is the Timber Stock Price and the denominator
of which is the sum of the Georgia-Pacific Group Stock Price and the Timber
Stock Price.
IX-4
<PAGE>
401(K) PLANS. The Company has established several savings and investment
plans for employees which allow for tax-deferred accumulation of principal and
interest pursuant to Section 401(k) of the Code. Each of these 401(k) plans
includes an option to invest in Existing Common Stock. If the Letter Stock
Proposal is approved, the Existing Common Stock Fund under each plan will
become a Georgia-Pacific Group Common Stock Fund, and a second stock fund
investment option, the Timber Group Common Stock Fund, will be established.
The Georgia-Pacific Group Common Stock Fund will continue to hold shares of
Georgia-Pacific Group Stock into which Existing Common Stock will be
converted. The Timber Group Common Stock Fund will hold shares of Timber Stock
which will be issued to the 401(k) plans as a share dividend on shares of
Existing Common Stock held by these plans. As a result, participants in the
plans having an interest in the Existing Common Stock Fund will hold an
identical interest in each of the two successor funds, and each fund will
initially hold equal numbers of shares of Georgia-Pacific Group Stock and
Timber Stock. Thereafter, individuals will have the opportunity to invest in
either or both of these funds (or in other investment funds provided in the
401(k) plans) and to reallocate existing balances among investment funds by
means of elections made in accordance with the plans' administrative
provisions. During a transition period, current contribution elections with
respect to the Existing Common Stock Fund will be divided automatically
between the two successor funds, subject again to the election of individual
participants to change his or her contribution designation in accordance with
the plans' normal administrative procedures.
1990 LONG-TERM INCENTIVE PLAN. This plan expired on March 9, 1995, but there
are still outstanding awards subject to future vesting in the form of
restricted shares of Existing Common Stock held by the Company for the benefit
of participants. Upon implementation of the Letter Stock Proposal, all shares
of restricted stock currently held will be redesignated as Georgia-Pacific
Group Stock, and an equal number of restricted shares of Timber Stock will be
added to the outstanding award. All such shares will be distributed when the
award to which they relate vests under the terms of the plan. The tax gross-up
provided in the plan will be calculated based on the aggregate market value of
the two classes of stock distributed to an individual at the time of vesting.
COMPENSATION OF DIRECTORS
The Corporation's director compensation and benefits program has been
reorganized to focus more on stock-based compensation and further align the
interest of directors and shareholders. Effective May 6, 1997 the total annual
compensation payable to each non-employee director is $40,000 in cash and a
grant of restricted stock under the Outside Directors Stock Plan (the
"Directors Stock Plan") having a value of $40,000 on the date granted and the
attendance fees for both Board and Committee meetings have been eliminated.
The Board has been advised by its compensation consultant that total cash and
stock-based compensation of $80,000 per year is approximately equal to the
median compensation of directors of similarly-sized corporations. Each
Committee chairman receives an additional $5,000 annual fee. The Board
believes that this compensation package will allow the Corporation to continue
to attract and retain qualified directors, while evidencing the Board's
commitment to insure that a significant portion of director's compensation be
stock-based. Outside directors are permitted to defer receipt of the cash
portion of their retainer and other fees for a given year by making an
election in advance to defer payment until after he or she retires from the
Board. Directors electing to defer all or a part of their fees have the
further options of having (a) the return on such deferred fees determined as
if such funds had been invested (i) in Existing Common Stock of the
Corporation or (ii) at a floating interest rate equal to 3/4% over the six-
month Treasury Bill rate, and (b) the deferred fees (adjusted for investment
gains or losses) paid upon retirement in a single payment or in annual cash
payments.
Since 1991, any director who has never been an officer of the Corporation
and has served as a director of the Corporation for at least two years has
been entitled to certain benefits upon retirement under the Directors
Retirement Program. The annual retirement benefit has equaled 100% of the
annual retainer for active directors in effect at the date of retirement
(giving effect, as applicable and under certain conditions, to the additional
retainer for Committee chairmen), less 10% for each year less than ten years'
total service as a director. Accrual of additional retirement benefits under
the Directors Retirement Program terminated May 6, 1997. Accrued benefits
under the Program for former directors were preserved, while the accrued
benefits of each of the eleven
IX-5
<PAGE>
current non-employee directors who participated in the Program (the present
value of which totalled $1,303,889 in the aggregate as of May 6, 1997) were
converted into a grant of an equivalent number of shares of restricted stock
under the Directors Stock Plan effective May 15, 1997. The Corporation also
provides $50,000 of group term life insurance for each director who is not an
officer of the Corporation.
In 1995, the shareholders of the Corporation adopted the Directors Stock
Plan, which is designed to more closely align the interests of non-employee
directors with those of other shareholders. Under this plan, each outside
director received 200 restricted shares of Existing Common Stock in 1995, and
in subsequent years each outside director in office on May 15 was issued a
number of restricted shares of Existing Common Stock equal to $15,000 divided
by the mean between the high and low sales price of the Existing Common Stock
on such day. The mean between the high and low sales price of the Existing
Common Stock on May 15, 1996 was $77.63. Accordingly, 193 shares of restricted
stock were issued to each outside director pursuant to the Plan on May 15,
1996. Effective May 6, 1997, the Directors Stock Plan was amended to provide
for an annual grant to directors of restricted stock having a value of $40,000
on the date granted. All shares granted under the Directors Stock Plan are
"restricted" and may not be sold or otherwise transferred except upon the
director's death, six months after the director retires pursuant to the
Board's retirement policy, or in the event continued service is prohibited by
law or by the policies of a governmental, charitable or educational
institution with which the director accepts a position. If the director's
service on the Board terminates for any other reason, all shares issued to him
or her under the Plan will be forfeited. Directors who are full-time employees
of the Corporation receive no additional compensation for services as a
director.
Because both the Directors Stock Plan and Directors' Deferred Compensation
Agreements now involve Existing Common Stock, they will be modified as a
result of the Letter Stock Proposal as follows:
DIRECTORS STOCK PLAN. On and after May 15, 1998, grants of a substantially
equal number of restricted shares of Timber Stock and of Georgia-Pacific Group
Stock will be made under the Directors Stock Plan, which have an aggregate
market value of $40,000. Provisions of the plan providing for staged
distribution of restricted shares upon the removal of restrictions will be
modified to provide that shares of each class will be distributed over the
period of the staged distribution.
DIRECTORS DEFERRED COMPENSATION AGREEMENTS. All amounts elected to be
invested in Existing Common Stock are converted, based on then current market
value of the Existing Common Stock, into a theoretical number of share units
which are the basis for determining the return to the director during the
period of the deferral. With respect to existing elections made through the
end of 1997, the total number of share units of Existing Common Stock credited
to the account of each director will, upon approval of the Letter Stock
Proposal, be converted into an equal number of units of Georgia-Pacific Group
Stock and Timber Stock. With respect to deferrals for 1998 and future years,
the number of theoretical share units upon which the return to the director
during the period of deferral will be based will be determined in the same
manner as described in the case of the Directors Stock Plan above, using, in
place of $40,000, the amount of the deferred retainer and fees to determine
the theoretical number of share units of each of Georgia-Pacific Group Stock
and Timber Stock to be credited to the account of each director.
IX-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted under Georgia law, the Company's Restated Articles of
Incorporation provide that no director shall be personally liable to the
Company or its shareholders for monetary damages for breach of duty of care or
other duty as a director, except for liability (a) for any appropriation, in
violation of his duties, of any business opportunity of the Company; (b) for
acts or omissions not in good faith or that involve intentional misconduct or
a knowing violation of law; (c) for unlawful corporate distributions; or (d)
for any transaction from which the director received an improper personal
benefit. Article VI of the Company's Bylaws provides that the Company shall
indemnify a Director who has been successful in the defense of any proceeding
to which he or she was a party or in defense of any claim, issue or matter
therein because he or she is or was a Director of the Company, against
reasonable expenses incurred by him or her in connection with such defense.
The Company's Bylaws also provide that the Company shall indemnify any
director, officer, employee or agent made a party to a proceeding because he
is or was a director, officer, employee or agent against liability incurred in
the proceeding if he acted in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, in the case of any criminal
proceeding, he had no reasonable cause to believe his conduct was unlawful. In
connection with a proceeding by or in the right of the Company, the indemnitee
must have acted in good faith. In addition, any director seeking
indemnification must not have been adjudged liable on the basis that any
personal benefit was received by him. Determination concerning whether or not
the applicable standard of conduct has been met can be made by (a) a
disinterested majority of the Board; (b) independent legal counsel; or (c) an
affirmative vote of a majority of shares entitled to vote thereon. No
indemnification may be made to or on behalf of a director, officer, employee
or agent in connection with a proceeding by or in the right of the Company (i)
in which such person was adjudged liable to the Company unless the court shall
determine that, despite the adjudication of liability but in view of all of
the circumstances, such person is fairly and reasonably entitled to indemnity
for such expenses as the court shall deem proper, or (ii) for amounts paid, or
expenses incurred, in connection with the defense or settlement of such a
proceeding unless the Court has approved indemnification of such amounts or
expenses.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
NUMBERDESCRIPTION OF EXHIBIT
3.1 Articles of Incorporation, restated as of October 30, 1989 (Filed as
Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994, and incorporated herein by this reference
thereto.)
3.2 Form of Restated Articles of Incorporation.
3.3 Bylaws restated as of September 17, 1997.
4.1(i) Credit Agreement, dated as of December 23, 1996, among Georgia-Pacific
Corporation, as borrower, the lenders named therein, and Bank of
America National Trust and Savings Association, as agent (Filed as
Exhibit 4.1(i) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996, and incorporated herein by this
reference thereto).
4.2 In reliance upon Item 601(b)(4)(iii) of Regulation S-K, various
instruments defining the rights of holders of long-term debt of the
Company are not being filed herewith because the total of securities
authorized under each such instrument does not exceed 10% of the total
assets of the Company. The Company hereby agrees to furnish a copy of
any such instrument to the Commission upon request.
4.3(i) Rights Agreement, dated as of July 31, 1989, between Georgia-Pacific
Corporation and First Chicago Trust Company of New York, with Form of
Rights Certificate attached as Exhibit A (Filed as
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Exhibit 4.3 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994, and incorporated herein by the reference
thereto).
4.3(ii) Form of Restated Rights Agreement, dated as of , 1997, between
Georgia-Pacific Corporation and First Chicago Trust Company of New
York, with Form of Rights Certificate attached as Exhibit A.*
4.4(i) Indenture, dated as of March 1, 1983, between Georgia-Pacific
Corporation and The Chase Manhattan Bank (National Association),
Trustee (Filed as Exhibit 4.4(i) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, and incorporated
herein by this reference thereto).
4.4(ii) First Supplemental Indenture, dated as of July 27, 1988, among
Georgia-Pacific Corporation, The Chase Manhattan Bank (National
Association), Trustee, and Morgan Guaranty Trust Company of New York
(Filed as Exhibit 4.4(ii) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996, and incorporated herein by this
reference thereto).
4.4(iii) Agreement of Resignation, Appointment and Acceptance, dated as of
January 31, 1992 by and among Georgia-Pacific Corporation, Morgan
Guaranty Trust Company of New York and The Bank of New York, as
Successor Trustee (Filed as Exhibit 4.4(iii) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, and
incorporated herein by this reference thereto).
5 Opinion of Alston & Bird LLP.*
8 Opinion of Simpson, Thacher & Bartlett.
10.1 Directors Group Life Insurance Program (Filed as Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993, and incorporated herein by this reference thereto).
10.2(i) Executive Retirement Agreement (Officers Retirement Plan) (Filed as
Exhibit 10.2(i) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996, and incorporated herein by this
reference thereto).
10.2(ii) Amendment No. 1 to Executive Retirement Agreement (Officers Retirement
Plan) (Filed as Exhibit 10.2(ii) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, and incorporated
herein by this reference thereto).
10.2(iii) Executive Retirement Agreement (Officers Retirement Plan), as
amended, as in effect after January 1, 1992 (Filed as Exhibit
10.2(iii) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, and incorporated herein by this reference
thereto).
10.2(iv) Executive Retirement Agreement of James F. Kelley (entered into
December 6, 1993) (Filed as Exhibit 10.2(v) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994, and
incorporated herein by this reference thereto).
10.3(i) Key Salaried Employees Group Insurance Plan--Pre-1987 Group (As
Amended and Restated Effective January 1, 1987) (Filed as Exhibit
10.3(i) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by this reference thereto).
10.3(ii) Amendment No. 1 (Effective January 1, 1991) to the Key Salaried
Employees Group Insurance Plan--Pre-1987 Group (As Amended and
Restated Effective January 1, 1987) (Filed as Exhibit 10.3(ii) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1996, and incorporated herein by this reference thereto).
10.3(iii) Key Salaried Employees Group Insurance Plan--Post-1986 Group
(Effective January 1, 1987) (Filed as Exhibit 10.3(iii) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1996, and incorporated herein by this reference thereto).
10.3(iv) Amendment No. 1 (Effective January 1, 1991) to the Key Salaried
Employees Group Insurance Plan--Post-1986 Group (Effective January 1,
1987) (Filed as Exhibit 10.3(iv) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, and incorporated
herein by this reference thereto).
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10.3(v) Amendment No. 2 to the Key Salaried Employees Group Insurance Plan--
Post-1986 Group (effective January 1, 1987) (Filed as Exhibit 10.3(v)
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993, and incorporated herein by this reference
thereto).
10.3(vi) Amendment No. 3 to the Key Salaried Employees Group Insurance Plan--
Post-1986 Group (effective August 1, 1994) (Filed as Exhibit 10.3(vi)
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994, and incorporated herein by this reference thereto).
10.4 Directors Retirement Program (Filed as Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, and
incorporated herein by this reference thereto).
10.5(i) 1990 Long-Term Incentive Plan (Filed as Exhibit 10.5(i) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1996, and incorporated herein by this reference thereto).
10.5(ii) Amendment No. 1 to 1990 Long-Term Incentive Plan (Filed as Exhibit
10.5(ii) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, and incorporated herein by this reference
thereto).
10.5(iii) Amendment No. 2 to the 1990 Long-Term Incentive Plan (Filed as
Exhibit 10.8(iii) to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, and incorporated herein by this
reference thereto).
10.6 1994 Management Incentive Plan (Filed as Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993, and incorporated herein by this reference thereto).
10.7 1995 Economic Value Incentive Plan (Filed as Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994, and incorporated herein by this reference thereto).
10.8(i) 1995 Shareholder Value Incentive Plan (Filed as Exhibit 10.11(i) to
the Company's Annual Report on Form 10-K for the year ended December
31, 1994 and incorporated herein by this reference thereto).
10.8(ii) Amendment No. 1 to 1995 Shareholder Value Incentive Plan (Filed as
Exhibit 10.8(ii) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, and incorporated herein by this
reference thereto).
10.8(iii) Form of Shareholder Value Incentive Stock Option (Filed as Exhibit
10.11(ii) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994, and incorporated herein by this reference
thereto).
10.9(i) Outside Directors Stock Plan, adopted March 17, 1995 (Filed as Exhibit
10.12 to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995, and incorporated herein by this reference
thereto).
10.10(i) 1997 Georgia-Pacific Group Stock Incentive Plan (Included as Annex
VII to the Proxy Statement and Prospectus contained in Part I of this
Registration Statement).
10.10(ii) 1997 Timber Stock Incentive Plan (Included as Annex VIII to the
Proxy Statement and Prospectus contained in Part I of this
Registration Statement).
10.11(i) Receivables Purchase Agreement dated as of June 1, 1990, among
Georgia-Pacific Corporation, as the Seller, and Asset Securitization
Cooperative Corporation, Corporate Asset Funding Company, Inc.,
Falcon Asset Securitization Corporation and Matterhorn Capital
Corporation, as the Purchasers, and Canadian Imperial Bank of
Commerce, as the Administrative Agent, as Amended (Filed as Exhibit
10.9(ii) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, and incorporated herein by this reference
thereto).
10.11(ii) Receivables Purchase Agreement dated as of June 1, 1990, among
Georgia-Pacific Corporation, as the Seller, and Canadian Imperial
Bank of Commerce, Citibank, N.A. and The First National Bank of
Chicago, as the Secondary Purchasers, and Matterhorn Capital
Corporation and Canadian Imperial Bank of Commerce, as the
Administrative Agent (Filed as Exhibit 10.9(iii) to the Company's
Annual
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<PAGE>
Report on Form 10-K for the year ended December 31, 1996, and
incorporated herein by this reference thereto).
10.11(iii) Agreement, effective as of March 15, 1993, among Georgia-Pacific
Corporation, Hercules Incorporated, and Lee M. Thomas (Filed as
Exhibit 10.13 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994, and incorporated herein by this
reference thereto).
10.11(iv) First Addendum to Agreement, effective as of February 1, 1995, among
Georgia-Pacific Corporation, Hercules Incorporated, and Lee M.
Thomas (Filed as Exhibit 10.13(ii) to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1995, and incorporated
herein by this reference thereto).
11 Statements of Computation of Per Share Earnings (Filed as Exhibit 11
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and as Exhibit 11 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1997, and incorporated
herein by this reference thereto).
21 Subsidiaries (Filed as Exhibit 21 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, and incorporated
herein by this reference thereto).
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Alston & Bird LLP (included in their opinion set forth as
Exhibit 5).*
23.3 Consent of Simpson Thacher & Bartlett (included in their opinion set
forth as Exhibit 8).
24 Powers of Attorney (included herein on page II-6).
27 Financial Data Schedule (Filed as Exhibit 27 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 and as
Exhibit 27 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, and incorporated herein by this
reference thereto).
99.1 Form of Proxy to be distributed to holders of Existing Common Stock.
99.2 Form of Proxy to be distributed to participants in Employee Stock
Purchase Plan.
- -------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information in the registration
statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
Provided, however, that paragraphs (i) and (ii) do not apply if the
registration statement is on Form S-3, Form
S-8 or Form F-3, and the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission by the registrant pursuant to section 13
of section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof.
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<PAGE>
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(7) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the registration statement through the date of responding to the request.
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when it
became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
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<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ATLANTA, STATE OF
GEORGIA, ON SEPTEMBER 17, 1997.
Georgia-Pacific Corporation
/s/ A. D. Correll
By: _________________________________
A. D. CORRELL CHAIRMAN, CHIEF
EXECUTIVE OFFICER AND PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENCE, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY CONSTITUTES AND APPOINTS A.D. CORRELL, JOHN F. MCGOVERN, JAMES F.
KELLEY AND KENNETH F. KHOURY, OR ANY ONE OF THEM, THEIR TRUE AND LAWFUL
ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND RE-
SUBSTITUTION FOR THEM AND IN THEIR NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES TO SIGN ANY AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE
AMENDMENTS) TO THIS REGISTRATION STATEMENT OR A REGISTRATION STATEMENT FILED
PURSUANT TO RULE 462(B) OF THE SECURITIES ACT OF 1933, AND TO FILE THE SAME
WITH ALL EXHIBITS THERETO AND ANY OTHER DOCUMENTS IN CONNECTION THEREWITH,
WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-
FACT AND AGENTS FULL POWER AND AUTHORITY TO DO AND PERFORM AND EVERY ACT AND
THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE PREMISE, AS FULLY TO
ALL INTENTS AND PURPOSES AS THEY MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING
AND CONFIRMING ALL THE SAID ATTORNEYS-IN-FACT AND AGENTS, OR THEIR SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES ON THE DATES INDICATED.
SIGNATURE CAPACITY DATE
/s/ A. D. Correll Chairman of the September 17,
- ------------------------------------- Board, Chief 1997
A. D. CORRELL Executive Officer
and President
(Principal
Executive Officer)
and a Director
/s/ John F. McGovern Executive Vice September 17,
- ------------------------------------- President-- Finance 1997
JOHN F. MCGOVERN and Chief Financial
Officer (Principal
Financial Officer)
/s/ James E. Terrell Vice President and September 17,
- ------------------------------------- Controller 1997
JAMES E. TERRELL (Principal
Accounting Officer)
/s/ Robert Carswell Director September 17,
- ------------------------------------- 1997
ROBERT CARSWELL
/s/ Jane Evans Director September 17,
- ------------------------------------- 1997
JANE EVANS
/s/ Donald V. Fites Director September 17,
- ------------------------------------- 1997
DONALD V. FITES
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<PAGE>
SIGNATURE CAPACITY DATE
/s/ Harvey C. Fruehauf, Jr. Director September 17,
- ------------------------------------- 1997
HARVEY C. FRUEHAUF, JR.
/s/ Richard V. Giordano Director September 17,
- ------------------------------------- 1997
RICHARD V. GIORDANO
/s/ David R. Goode Director September 17,
- ------------------------------------- 1997
DAVID R. GOODE
/s/ T. Marshall Hahn, Jr. Director September 17,
- ------------------------------------- 1997
T. MARSHALL HAHN, JR.
/s/ M. Douglas Ivester Director September 17,
- ------------------------------------- 1997
M. DOUGLAS IVESTER
/s/ Francis Jungers Director September 17,
- ------------------------------------- 1997
FRANCIS JUNGERS
/s/ Louis W. Sullivan Director September 17,
- ------------------------------------- 1997
LOUIS W. SULLIVAN
/s/ James B. Williams Director September 17,
- ------------------------------------- 1997
JAMES B. WILLIAMS
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<PAGE>
EXHIBIT 3.2
RESTATED ARTICLES OF INCORPORATION
OF
GEORGIA-PACIFIC CORPORATION
PURSUANT TO SECTION 14-2-1007 OF THE
GEORGIA BUSINESS CORPORATION CODE
I.
The name of the Corporation is:
"GEORGIA-PACIFIC CORPORATION."
II.
These Restated Articles of Incorporation were approved by the Board of
Directors of the Corporation at a special meeting on , 1997. These
Restated Articles of Incorporation contain amendments requiring shareholder
approval, which amendments were duly approved at a special meeting of the
shareholders of the Corporation on , 1997 in accordance with the
provisions of Section 14-2-1003 of the Georgia Business Corporation Code.
These Restated Articles of Incorporation restate all the provisions of the
prior Restated Articles of Incorporation of the Corporation dated October 30,
1989 so that, as amended and restated, these Restated Articles of
Incorporation read as follows:
RESTATED ARTICLES OF INCORPORATION
OF
GEORGIA-PACIFIC CORPORATION
ARTICLE I.
The name of the Corporation is:
"GEORGIA-PACIFIC CORPORATION."
ARTICLE II.
The Corporation is organized pursuant to the provisions of the Georgia
Business Corporation Code.
ARTICLE III.
The aggregate number of shares of capital stock which the Corporation shall
have authority to issue is 685,000,000 shares of which 400,000,000 shares
shall be shares of a class of common stock designated as "Common Stock" having
a par value of $.80 per share (the "Existing Common Stock"), 250,000,000
shares shall be shares of a class of common stock designated as "Georgia-
Pacific Corporation--Timber Group Common Stock," having a par value of $.80
per share (the "Timber Stock"), 10,000,000 shares shall be shares of a class
of preferred stock, without par value per share (the "Preferred Stock"), and
25,000,000 shares shall be shares of a class of junior preferred stock,
without par value per share (the "Junior Preferred Stock"). As of the
effective date of the Articles, and without any further action on the part of
the Corporation or its shareholders,
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<PAGE>
each share of the Existing Common Stock then authorized shall automatically be
redesignated and changed into one fully paid and nonassessable share of
"Georgia-Pacific Corporation--Georgia-Pacific Group Common Stock", having a
par value of $.80 per share (the "Georgia-Pacific Group Stock", and together
with the Timber Stock, the "Common Stock"). Reference to the Articles or these
Articles of Incorporation shall refer to these Restated Articles of
Incorporation as the same may be amended from time to time. Certain
capitalized terms used in Articles IV and V shall have the meanings set forth
in Section F. of Article V.
The authorized but unissued shares of Preferred Stock, Junior Preferred
Stock and Common Stock shall be available for issue and sale at any time and
from time to time, either in whole or in part, and upon such terms and
conditions and, in the case of the Preferred Stock and Junior Preferred Stock,
for such consideration, not less than the par value thereof, if any, as may be
provided by the Board of Directors of the Corporation.
ARTICLE IV.
The following is a description of the terms, provisions, preferences,
rights, voting powers, restrictions and qualifications of the Preferred Stock:
A. Dividends on the Preferred Stock shall be cumulative.
B. At any time after full cumulative dividends for all previous dividend
periods shall have been paid on the Preferred Stock and each other class of
stock (if any) ranking prior to or on a parity with the Preferred Stock as
to dividends, and after declaring and setting aside a sum sufficient for
the payment in full of the quarterly dividends on the Preferred Stock and
each such other class of stock for the then current dividend period, then,
but not prior thereto, out of any funds of the Corporation lawfully
available therefor, dividends may be declared on the class or classes of
stock junior to the Preferred Stock as to dividends, subject to the
respective terms and provisions (if any) applying thereto. If at any time
the Corporation shall fail to pay full cumulative dividends on any shares
of the Preferred Stock, thereafter until such dividends shall have been
paid or declared and set apart for payment, the Corporation shall not
purchase, redeem or otherwise acquire for consideration any shares of any
class of stock then outstanding and ranking on a parity with or junior to
the Preferred Stock.
C. In the event of any voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Corporation, after payment or provision
for payment of the debts, preferred stock senior to the Preferred Stock and
other liabilities of the Corporation and before any distribution to the
holders of the Common Stock, the Junior Preferred Stock or any other
subordinate preferred stock, the holders of each series of the Preferred
Stock shall be entitled to receive out of the net assets of the Corporation
an amount in cash for each share equal to the amount fixed and determined
by the Board of Directors in the resolution providing for the issuance of
the particular series of Preferred Stock, plus all dividends accumulated
and unpaid on each such share of Preferred Stock up to the date fixed for
distribution, and no more. If the above-stated amount payable in such event
to the holders of the Preferred Stock cannot be paid in full, the holders
of the shares of Preferred Stock shall share ratably in any distribution of
assets in proportion to the sums which would have been paid to them upon
such distribution if all sums payable were paid and discharged in full.
Neither the merger or consolidation of the Corporation, nor the sale, lease
or conveyance of all or a part of its assets, shall be deemed to be a
liquidation, dissolution or winding up of the affairs of the Corporation.
D. The Preferred Stock shall rank prior to the Common Stock and the
Junior Preferred Stock both as to dividends and assets, and any class or
classes of stock shall be deemed to rank (i) prior to the Preferred Stock
either as to dividends or assets if the holders of such class or classes
shall be entitled to the receipt of dividends or of amounts distributable
upon liquidation, dissolution or winding up, as the case may be, in
preference or priority to the holders of the Preferred Stock; (ii) on a
parity with the Preferred Stock either as to dividends or assets, whether
or not the dividend rates, dividend payment dates or redemption or
liquidation prices per share thereof be different from those of the
Preferred Stock, if the holders of such class or classes of stock shall be
entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion
to their respective dividend rates or
I-2
<PAGE>
liquidation prices, without preference or priority one over the other with
respect to the holders of the Preferred Stock; and (iii) junior to the
Preferred Stock either as to dividends or assets, if the rights of the
holders of such class or classes shall be subject or subordinate to the
rights of the holders of the Preferred Stock in respect of the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be.
E. All shares of Preferred Stock shall be identical except that the Board
of Directors of the Corporation is hereby expressly authorized and
empowered to divide the class of Preferred Stock into one or more series,
and, prior to the issuance of any of such shares in any particular series,
to fix and determine, in the manner provided by law, the number of shares
to constitute such series as well as the provisions of such series
described in clauses (a) through (h) below, and, after a series has been
established hereunder by the Board of Directors and unless otherwise
specifically provided in the original resolution establishing such series,
to increase or decrease at any time and from time to time, in the manner
provided by law, the number of shares included in such series (but not
below the number of shares thereof then issued) by subsequent resolutions
adopted by the Board of Directors (provided, however, that the Board of
Directors shall not be authorized to increase or decrease the number of
shares included in the Series A Adjustable Rate Convertible Preferred
Stock, in the Series B Adjustable Rate Convertible Preferred Stock or in
the Series B Adjustable Rate Convertible Preferred Stock (2nd Issue)):
(a) The distinctive designation of such series;
(b) The rate of dividends, the times of payment and date from which
the dividends shall be accumulated;
(c) Whether shares can be redeemed and, if so, the redemption price
and terms and conditions of redemption;
(d) The amount payable upon shares in the event of voluntary or
involuntary liquidation;
(e) Purchase, retirement or sinking fund provisions, if any, for the
redemption or purchase of shares;
(f) The terms and conditions, if any, on which shares may be
converted;
(g) Whether or not shares have voting rights, and the extent of any
such voting rights (including, without limitation, the right to elect
directors); and
(h) Any other preferences, rights, restrictions and qualifications of
shares of such class or series permitted by law and these Articles of
Incorporation.
F. Each share of Preferred Stock within an individual series shall be
identical in all respects with the other shares of such series, except for
such changes in dates from which dividends shall first accrue and other
details which because of the passage of time are required to be made in
order for the substantive rights of the holders of the shares of such
series to be identical.
The following is a description of the terms, provisions, preferences,
rights, voting powers, restrictions and qualifications of the Junior Preferred
Stock:
A. Dividends on the Junior Preferred Stock shall be cumulative.
B. At any time after full cumulative dividends for all previous dividend
periods shall have been paid on the Junior Preferred Stock and each other
class of stock ranking prior to or on a parity with the Junior Preferred
Stock as to dividends, and after declaring and setting aside a sum
sufficient for the payment in full of the quarterly dividends on the Junior
Preferred Stock and each such other class of stock for the then current
dividend period, then, but not prior thereto, out of any funds of the
Corporation lawfully available therefor, dividends may be declared on the
class or classes of stock junior to the Junior Preferred Stock as to
dividends, subject to the respective terms and provisions (if any) applying
thereto. If at any time the Corporation shall fail to pay full cumulative
dividends on any shares of the Junior Preferred Stock, thereafter until
such dividends shall have been paid or declared and set apart for payment,
the Corporation shall not
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purchase, redeem or otherwise acquire for consideration any shares of any
class of stock then outstanding and ranking on a parity with or junior to
the Junior Preferred Stock.
C. In the event of any voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Corporation, after payment or provision
for payment of the debts, the Preferred Stock, any other preferred stock
senior to the Junior Preferred Stock and other liabilities of the
Corporation and before any distribution to the holders of the Common Stock
or any subordinate preferred stock, the holders of each series of the
Junior Preferred Stock shall be entitled to receive out of the net assets
of the Corporation an amount in cash for each share equal to the amount
fixed and determined by the Board of Directors in the resolution providing
for the issuance of the particular series of Junior Preferred Stock, plus
all dividends accumulated and unpaid on each such share of Junior Preferred
Stock up to the date fixed for distribution, and no more. If the above-
stated amount payable in such event to the holders of the Junior Preferred
Stock cannot be paid in full, the holders of the shares of Junior Preferred
Stock shall share ratably in any distribution of assets in proportion to
the sums which would have been paid to them upon such distribution if all
sums payable were paid and discharged in full. Neither the merger or
consolidation of the Corporation, nor the sale, lease or conveyance of all
or a part of its assets, shall be deemed to be a liquidation, dissolution
or winding up of the affairs of the Corporation.
D. The Junior Preferred Stock shall rank prior to the Common Stock both
as to dividends and assets, and any class or classes of stock shall be
deemed to rank (i) prior to the Junior Preferred Stock either as to
dividends or assets if the holders of such class or classes shall be
entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference
or priority to the holders of the Junior Preferred Stock; (ii) on a parity
with the Junior Preferred Stock either as to dividends or assets, whether
or not the dividend rates, dividend payment dates or redemption or
liquidation prices per share thereof be different from those of the Junior
Preferred Stock, if the holders of such class or classes of stock shall be
entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion
to their respective dividend rates or liquidation prices, without
preference or priority one over the other with respect to the holders of
the Junior Preferred Stock; and (iii) junior to the Junior Preferred Stock
either as to dividends or assets, if the rights of the holders of such
class or classes shall be subject or subordinate to the rights of the
holders of the Junior Preferred Stock in respect of the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be.
E. All shares of Junior Preferred Stock shall be identical except that
the Board of Directors of the Corporation is hereby expressly authorized
and empowered to divide the class of Junior Preferred Stock into one or
more series, and, prior to the issuance of any of such shares in any
particular series, to fix and determine, in the manner provided by law, the
number of shares to constitute such series as well as the provisions of
such series described in clauses (a) through (h) below, and, after a series
has been established hereunder by the Board of Directors and unless
otherwise specifically provided in the original resolution establishing
such series, to increase or decrease at any time and from time to time, in
the manner provided by law, the number of shares included in such series
(but not below the number of shares thereof then issued) by subsequent
resolutions adopted by the Board of Directors:
(a) The distinctive designation of such series;
(b) The rate of dividends, the times of payment and the date from
which the dividends shall be accumulated;
(c) Whether shares can be redeemed and, if so, the redemption price
and terms and conditions of redemption;
(d) The amount payable upon shares in the event of voluntary or
involuntary liquidation;
(e) Purchase, retirement or sinking fund provisions, if any, for the
redemption or purchase of shares;
(f) The terms and conditions, if any, on which shares may be
converted;
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(g) Whether or not shares have voting rights, and the extent of any
such voting rights (including, without limitation, the right to elect
directors); and
(h) Any other preferences, rights, restrictions and qualifications of
shares of such class or series, permitted by law and these Articles of
Incorporation.
F. Each share of the Junior Preferred Stock within an individual series
shall be identical in all respects with the other shares of such series,
except for such changes in dates from which dividends shall first accrue
and other details which because of the passage of time are required to be
made in order for the substantive rights of the holders of the shares of
such series to be identical.
G. The Board of Directors of the Corporation is hereby expressly
authorized and empowered to declare and pay dividends, in the manner
provided by law, in shares of Junior Preferred Stock in respect to any
class of stock of the Corporation, without the consent of any of the
holders of Junior Preferred Stock then outstanding.
The Corporation shall have the full power to purchase and otherwise acquire
and dispose of its own shares and securities granted by the laws of the State
of Georgia and shall have the right to purchase its shares out of its
unreserved and unrestricted capital surplus available therefor, out of its
unreserved and unrestricted earned surplus available therefor, as well as out
of any other funds legally available therefor. Any Preferred Stock and Junior
Preferred Stock reacquired by the Corporation shall automatically be cancelled
upon such reacquisition but shall remain as authorized Preferred Stock and
Junior Preferred Stock hereunder.
No holder of any stock of any class of the Corporation shall, as such
holder, have any preemptive or preferential right of subscription for any
stock of any class of the Corporation or for any obligations convertible into
stock or for any right of subscription for, or any warrant or option for, the
purchase of any thereof, other than such (if any) as the Board of Directors of
the Corporation in its discretion may determine from time to time.
The following are the voting powers, designation, preferences and relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions, in addition to those previously set forth in
this Article IV, of "Series A Junior Preferred Stock":
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Preferred Stock" and the number of shares
constituting such series shall be zero.
Section 2. Dividends and Distributions. (A) Subject to the prior and
superior rights of the holders of any shares of any other series of Junior
Preferred Stock or any other shares of preferred stock of the Corporation
ranking prior and superior to the shares of Series A Junior Preferred Stock
with respect to dividends, each holder of one one-hundredth ( 1/100) of a
share (a "Unit") of Series A Junior Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds
legally available for that purpose, (i) quarterly dividends payable in cash
on the first day of January, April, July and October in each year (each
such date being a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of such Unit
of Series A Junior Preferred Stock, in an amount per Unit (rounded to the
nearest cent) equal to the greater of (a) $0.35 or (b) subject to the
provision for adjustment hereinafter set forth, the aggregate per share
amount of all cash dividends declared on shares of the Common Stock since
the immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance of a
Unit of Series A Junior Preferred Stock, and (ii) subject to the provision
for adjustment hereinafter set forth, quarterly distributions (payable in
kind) on each Quarterly Dividend Payment Date in an amount per Unit equal
to the aggregate per share amount of all non-cash dividends or other
distributions (other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock, by reclassification
or otherwise) declared on shares of Common Stock since the immediately
preceding Quarterly Dividend Payment Date, or with respect to the first
Quarterly Dividend Payment Date, since the first issuance of a Unit of
Series A Junior Preferred Stock. In the event that the Corporation shall at
any time after July 31, 1989 (the "Rights Declaration Date") (i) declare
any dividend on outstanding shares of Common Stock
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payable in shares of Common Stock, (ii) subdivide outstanding shares of
Common Stock or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, then in each such case the amount to which the
holder of a Unit of Series A Junior Preferred Stock was entitled
immediately prior to such event pursuant to the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which
shall be the number of shares of Common Stock that are outstanding
immediately after such event and the denominator of which shall be the
number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or distribution on Units of
Series A Junior Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the shares of
Common Stock (other than a dividend payable in shares of Common Stock);
provided, however, that, in the event no dividend or distribution shall
have been declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $0.35 per Unit on the Series A Junior Preferred
Stock shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
(C) Dividends shall begin to accrue and shall be cumulative on each
outstanding Unit of Series A Junior Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issuance of such Unit of
Series A Junior Preferred Stock, unless the date of issuance of such Unit
is prior to the record date for the first Quarterly Dividend Payment Date,
in which case, dividends on such Unit shall begin to accrue from the date
of issuance of such Unit, or unless the date of issuance is a Quarterly
Dividend Payment Date or is a date after the record date for the
determination of holders of Units of Series A Junior Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued
but unpaid dividends shall not bear interest. Dividends paid on Units of
Series A Junior Preferred Stock in an amount less than the aggregate amount
of all such dividends at the time accrued and payable on such Units shall
be allocated pro rata on a unit-by-unit basis among all Units of Series A
Junior Preferred Stock at the time outstanding. The Board of Directors may
fix a record date for the determination of holders of Units of Series A
Junior Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than 30
days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of Units of Series A Junior
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each Unit of Series A Junior Preferred Stock shall entitle the holder
thereof to one vote on all matters submitted to a vote of the
shareholders of the Corporation. In the event the Corporation shall at
any time after the Rights Declaration Date (i) declare any dividend on
outstanding shares of Common Stock payable in shares of Common Stock,
(ii) subdivide outstanding shares of Common Stock or (iii) combine the
outstanding shares of Common Stock into a smaller number of shares,
then in each such case the number of votes per Unit to which holders of
Units of Series A Junior Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction the numerator of which shall be the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which shall be the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
Units of Series A Junior Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted
to a vote of shareholders of the Corporation.
(C) (i) If at any time dividends on any Units of Series A Junior
Preferred Stock shall be in arrears in an amount equal to six quarterly
dividends thereon, then during the period (a "default period") from the
occurrence of such event until such time as all accrued and unpaid
dividends for all previous quarterly dividend periods and for the
current quarterly dividend period on all Units of Series A Junior
Preferred Stock then outstanding shall have been declared and paid or
set apart for payment, all holders
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of Units of Series A Junior Preferred Stock, voting separately as a
class, shall have the right to elect two Directors.
(ii) During any default period, such voting rights of the holders of
Units of Series A Junior Preferred Stock may be exercised initially at
a special meeting called pursuant to subparagraph (iii) of this Section
3(C) or at any annual meeting of shareholders, and thereafter at annual
meetings of shareholders, provided that neither such voting rights nor
any right of the holders of Units of Series A Junior Preferred Stock to
increase, in certain cases, the authorized number of Directors may be
exercised at any meeting unless one-third of the outstanding Units of
Series A Junior Preferred Stock shall be present at such meeting in
person or by proxy. The absence of a quorum of the holders of Common
Stock shall not affect the exercise by the holders of Units of Series A
Junior Preferred Stock of such rights. At any meeting at which the
holders of Units of Series A Junior Preferred Stock shall exercise such
voting right initially during an existing default period, they shall
have the right, voting separately as a class, to elect Directors to
fill up to two vacancies in the Board of Directors, if any such
vacancies may then exist, or, if such right is exercised at an annual
meeting, to elect two Directors. If the number which may be so elected
at any special meeting does not amount to the required number, the
holders of the Series A Junior Preferred Stock shall have the right to
make such increase in the number of Directors as shall be necessary to
permit the election by them of the required number. After the holders
of Units of Series A Junior Preferred Stock shall have exercised their
right to elect Directors during any default period, the number of
Directors shall not be increased or decreased except as approved by a
vote of the holders of Units of Series A Junior Preferred Stock as
herein provided or pursuant to the rights of any equity securities
ranking senior to the Series A Junior Preferred Stock.
(iii) Unless the holders of Series A Junior Preferred Stock shall,
during an existing default period, have previously exercised their
right to elect Directors, the Board of Directors may order, or any
shareholder or shareholders owning in the aggregate not less than 25%
of the total number of Units of Series A Junior Preferred Stock
outstanding may request in writing, the calling of a special meeting of
the holders of Units of Series A Junior Preferred Stock, which meeting
shall thereupon be called by the Secretary of the Corporation. Notice
of such meeting and of any annual meeting at which holders of Units of
Series A Junior Preferred Stock are entitled to vote pursuant to this
paragraph (C)(iii) shall be given to each holder of record of Units of
Series A Junior Preferred Stock by mailing a copy of such notice to him
at his last address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not earlier than
10 days and not later than 60 days after such order or request or in
default of the calling of such meeting within 60 days after such order
or request, such meeting may be called on similar notice by any
shareholder or shareholders owning in the aggregate not less than 25%
of the total number of outstanding Units of Series A Junior Preferred
Stock.
(iv) During any default period, the holders of shares of Common Stock
and Units of Series A Junior Preferred Stock, and other classes or
series of stock of the Corporation, if applicable, shall continue to be
entitled to elect all the Directors until the holders of Units of
Series A Junior Preferred Stock shall have exercised their right to
elect two Directors voting as a separate class, after the exercise of
which right (x) the Directors so elected by the holders of Units of
Series A Junior Preferred Stock shall continue in office until their
successors shall have been elected by such holders or until the
expiration of the default period, and (y) any vacancy in the Board of
Directors may (except as provided in paragraph (C)(ii) of this Section
3) be filled by a vote of a majority of the remaining Directors
theretofore elected by the holders of the class of capital stock which
elected the Director whose office shall have become vacant. References
in this paragraph (C) to Directors elected by the holders of a
particular class of capital stock shall include Directors elected by
such Directors to fill vacancies as provided in clause (y) of the
foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Units of Series A Junior Preferred Stock as a
separate class to elect Directors shall cease, (y) the term of any
Directors elected by the holders of Units of Series A Junior Preferred
Stock as a separate class shall
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terminate, and (z) the number of Directors shall be such number as may
be provided for in the Articles or by-laws irrespective of any increase
made pursuant to the provisions of paragraph (C)(ii) of this Section 3
(such number being subject, however, to change thereafter in any manner
provided by law or in the Articles or by-laws). Any vacancies in the
Board of Directors effected by the provisions of clauses (y) and (z) in
the preceding sentence may be filled by a majority of the remaining
Directors.
(vi) The provisions of this paragraph (C) shall govern the election
of Directors by holders of Units of Series A Junior Preferred Stock
during any default period notwithstanding any provisions of the
Articles to the contrary.
(D) Except as set forth herein, holders of Units of Series A Junior
Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote
with holders of Shares of Common Stock as set forth herein) for taking
any corporate action.
Section 4. Certain Restrictions. (A) Whenever quarterly dividends or
other dividends or distributions payable on Units of Series A Junior
Preferred Stock as provided in Section 2 are in arrears, thereafter and
until all accrued and unpaid dividends and distributions, whether or not
declared, on outstanding Units of Series A Junior Preferred Stock shall
have been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
junior stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of parity stock, except dividends paid ratably on Units of
Series A Junior Preferred Stock and shares of all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of such Units and all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any parity stock, provided, however, that the Corporation may
at any time redeem, purchase or otherwise acquire shares of any such
parity stock in exchange for shares of any junior stock; or
(iv) purchase or otherwise acquire for consideration any Units of
Series A Junior Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such Units.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any Units of Series A Junior Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled automatically upon the
acquisition thereof. All such Units shall, upon their cancellation, become
authorized but unissued Units of Junior Preferred Stock and may be reissued
as part of a new series of Junior Preferred Stock to be created by
resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation,
no distribution shall be made (i) to the holders of shares of junior stock
unless the holders of Units of Series A Junior Preferred Stock shall have
received, subject to adjustment as hereinafter provided in paragraph (B),
the greater of either (a) $.01 per Unit plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not earned or
declared, to the date of such payment, or (b) the amount per Unit equal to
the aggregate per share amount to be distributed to holders of shares of
Common Stock, or (ii) to the holders of shares of parity stock, unless
simultaneously therewith distributions are made ratably on Units of Series
A Junior Preferred Stock and all other shares of such parity stock in
proportion to the total amounts to which the holders of Units of Series A
Junior Preferred Stock are entitled under clause (i)(a) of this sentence
and to which the holders of shares of such parity stock are entitled, in
each case upon such liquidation, dissolution or winding up.
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(B) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on outstanding shares of Common
Stock payable in shares of Common Stock, (ii) subdivide outstanding shares
of Common Stock, or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, then in each such case the aggregate amount to
which holders of Units of Series A Junior Preferred Stock were entitled
immediately prior to such event pursuant to clause (i)(b) of paragraph (A)
of this Section 6 shall be adjusted by multiplying such amount by a
fraction the numerator of which shall be the number of shares of Common
Stock that are outstanding immediately after such event and the denominator
of which shall be the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or converted into other
stock or securities, cash and/or any other property, then in any such case
Units of Series A Junior Preferred Stock shall at the same time be
similarly exchanged for or converted into an amount per Unit (subject to
the provision for adjustment hereinafter set forth) equal to the aggregate
amount of stock, securities, cash and/or any other property (payable in
kind), as the case may be, into which or for which each share of Common
Stock is converted or exchanged. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on
outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock, or (iii) combine outstanding
Common Stock into a smaller number of shares, then in each such case the
amount set forth in the immediately preceding sentence with respect to the
exchange or conversion of Units of Series A Junior Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which
shall be the number of shares of Common Stock that are outstanding
immediately after such event and the denominator of which shall be the
number of shares of Common Stock that were outstanding immediately prior to
such event.
Section 8. Redemption. The Units of Series A Junior Preferred Stock shall
not be redeemable.
Section 9. Ranking. The Units of Series A Junior Preferred Stock shall
rank junior to all other series of the Junior Preferred Stock and to any
other class of preferred stock that hereafter may be issued by the
Corporation as to the payment of dividends and the distribution of assets,
unless the terms of any such series or class shall provide otherwise.
Section 10. Amendment. The Articles, including, without limitation, this
resolution, shall not hereafter be amended, either directly or indirectly,
or through merger or consolidation with another corporation, in any manner
that would alter or change the powers, preferences or special rights of the
Series A Junior Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding
Units of Series A Junior Preferred Stock, voting separately as a class.
Section 11. Fractional Shares. The Series A Junior Preferred Stock may be
issued in Units or other fractions of a share, which Units or fractions
shall entitle the holder, in proportion to such holder's fractional shares,
to exercise voting rights, receive dividends, participate in distributions
and to have the benefit of all other rights of holders of Series A Junior
Preferred Stock.
Section 12. Certain Definitions. As used herein with respect to the
Series A Junior Preferred Stock, the following terms shall have the
following meanings:
(A) The term "Common Stock" shall mean the class of stock designated
as the common stock, par value $.80 per share, of the Corporation at
the date hereof or any other class of stock resulting from successive
changes or reclassification of the common stock.
(B) The term "junior stock" (i) as used in Section 4, shall mean the
Common Stock and any other class or series of capital stock of the
Corporation hereafter authorized or issued over which the Series A
Junior Preferred Stock has preference or priority as to the payment of
dividends and (ii) as used in Section 6, shall mean the Common Stock
and any other class or series of capital stock of the Corporation over
which the Series A Junior Preferred Stock has preference or priority in
the distribution of assets on any liquidation, dissolution or winding
up of the Corporation.
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(C) The term "parity stock" (i) as used in Section 4, shall mean any
class or series of stock of the Corporation hereafter authorized or
issued ranking pari passu with the Series A Junior Preferred Stock as
to dividends and (ii) as used in Section 6, shall mean any class or
series of capital stock ranking pari passu with the Series A Junior
Preferred Stock in the distribution of assets on any liquidation,
dissolution or winding up.
The following are the voting powers, designation, preferences and relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions, in addition to those previously set forth in
this Article IV, of "Series B Junior Preferred Stock":
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series B Junior Preferred Stock" and the number of shares
constituting such series shall be 5,000,000.
Section 2. Dividends and Distributions. (A) Subject to the prior and
superior rights of the holders of any shares of any other series of
Preferred Stock or Junior Preferred Stock or any other shares of capital
stock of the Corporation ranking prior and superior to the shares of Series
B Junior Preferred Stock with respect to dividends, each holder of one one-
hundredth ( 1/100) of a share (a "Unit") of Series B Junior Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for that purpose, (i) quarterly
dividends payable in cash on the first day of January, April, July and
October in each year (each such date being a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the
first issuance of such Unit of Series B Junior Preferred Stock, in an
amount per Unit (rounded to the nearest cent) equal to the greater of (a)
$0.35 or (b) subject to the provision for adjustment hereinafter set forth,
the aggregate per share amount of all cash dividends declared on shares of
the Georgia-Pacific Group Stock since the immediately preceding Quarterly
Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of a Unit of Series B Junior
Preferred Stock, and (ii) subject to the provision for adjustment
hereinafter set forth, quarterly distributions (payable in kind) on each
Quarterly Dividend Payment Date in an amount per Unit equal to the
aggregate per share amount of all non-cash dividends or other distributions
(other than a dividend payable in shares of Georgia-Pacific Group Stock or
a subdivision of the outstanding shares of Georgia-Pacific Group Stock, by
reclassification or otherwise) declared on shares of Georgia-Pacific Group
Stock since the immediately preceding Quarterly Dividend Payment Date, or
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of a Unit of Series B Junior Preferred Stock. In the event that
the Corporation shall at any time after the initial issuance of Georgia-
Pacific Group Stock and Timber Stock (i) declare any dividend on
outstanding shares of Georgia-Pacific Group Stock payable in shares of
Georgia-Pacific Group Stock, (ii) subdivide outstanding shares of Georgia-
Pacific Group Stock into a greater number of shares or (iii) combine
outstanding shares of Georgia-Pacific Group Stock into a smaller number of
shares, then in each such case the amount to which the holder of a Unit of
Series B Junior Preferred Stock was entitled immediately prior to such
event pursuant to the preceding sentence shall be adjusted by multiplying
such amount by a fraction the numerator of which shall be the number of
shares of Georgia-Pacific Group Stock that are outstanding immediately
after such event and the denominator of which shall be the number of shares
of Georgia-Pacific Group Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or distribution on Units of
Series B Junior Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the shares of
Georgia-Pacific Group Stock (other than a dividend payable in shares of
Georgia-Pacific Group Stock); provided, however, that, in the event no
dividend or distribution shall have been declared on the Georgia-Pacific
Group Stock during the period between any Quarterly Dividend Payment Date
and the next subsequent Quarterly Dividend Payment Date, a dividend of
$0.35 per Unit on the Series B Junior Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and shall be cumulative on each
outstanding Unit of Series B Junior Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issuance of such Unit of
Series B Junior Preferred Stock, unless the date of issuance of such Unit
is prior to the record
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date for the first Quarterly Dividend Payment Date, in which case,
dividends on such Unit shall begin to accrue from the date of issuance of
such Unit, or unless the date of issuance is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of holders of
Units of Series B Junior Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from
such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on Units of Series B Junior Preferred
Stock in an amount less than the aggregate amount of all such dividends at
the time accrued and payable on such Units shall be allocated pro rata on a
unit-by-unit basis among all Units of Series B Junior Preferred Stock at
the time outstanding. The Board of Directors may fix a record date for the
determination of holders of Units of Series B Junior Preferred Stock
entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be no more than 30 days prior to the date fixed for
the payment thereof.
Section 3. Voting Rights. The holders of Units of Series B Junior
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each Unit of Series B Junior Preferred Stock shall entitle the holder
thereof to one vote on all matters submitted to a vote of the
shareholders of the Corporation. In the event the Corporation shall at
any time after the initial issuance of Georgia-Pacific Group Stock and
Timber Stock (i) declare any dividend on outstanding shares of Georgia-
Pacific Group Stock payable in shares of Georgia-Pacific Group Stock,
(ii) subdivide outstanding shares of Georgia-Pacific Group Stock into a
greater number of shares or (iii) combine the outstanding shares of
Georgia-Pacific Group Stock into a smaller number of shares, then in
each such case the number of votes per Unit to which holders of Units
of Series B Junior Preferred Stock were entitled immediately prior to
such event shall be adjusted by multiplying such number by a fraction
the numerator of which shall be the number of shares of Georgia-Pacific
Group Stock outstanding immediately after such event and the
denominator of which shall be the number of shares of Georgia-Pacific
Group Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
Units of Series A Junior Preferred Stock, Series B Junior Preferred
Stock and Series C Junior Preferred Stock and the holders of shares of
Georgia-Pacific Group Stock and Timber Stock shall vote together as one
voting group on all matters submitted to a vote of shareholders of the
Corporation.
(C)(i) If at any time dividends on any Units of Series B Junior
Preferred Stock shall be in arrears in an amount equal to six quarterly
dividends thereon, then during the period (a "default period") from the
occurrence of such event until such time as all accrued and unpaid
dividends for all previous quarterly dividend periods and for the
current quarterly dividend period on all Units of Series B Junior
Preferred Stock then outstanding shall have been declared and paid or
set apart for payment, all holders of Units of Series B Junior
Preferred Stock, voting separately as a voting group, shall have the
right to elect two Directors.
(ii) During any default period, such voting rights of the holders of
Units of Series B Junior Preferred Stock may be exercised initially at
a special meeting called pursuant to subparagraph (iii) of this Section
3(C) or at any annual meeting of shareholders, and thereafter at annual
meetings of shareholders, provided that neither such voting rights nor
any right of the holders of Units of Series B Junior Preferred Stock to
increase, in certain cases, the authorized number of Directors may be
exercised at any meeting unless one-third of the outstanding Units of
Series B Junior Preferred Stock shall be present at such meeting in
person or by proxy. The absence of a quorum of the holders of Common
Stock shall not affect the exercise by the holders of Units of Series B
Junior Preferred Stock of such rights. At any meeting at which the
holders of Units of Series B Junior Preferred Stock shall exercise such
voting rights initially during an existing default period, they shall
have the right, voting separately as a voting group, to elect Directors
to fill up to two vacancies in the Board of Directors, if any such
vacancies may then exist, or, if such right is exercised at an annual
meeting, to elect two
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Directors. If the number which may be so elected at any special meeting
does not amount to the required number, the holders of the Series B
Junior Preferred Stock shall have the right to make such increase in
the number of Directors as shall be necessary to permit the election by
them of the required number. After the holders of Units of Series B
Junior Preferred Stock shall have exercised their right to elect
Directors during any default period, the number of Directors shall not
be increased or decreased except as approved by a vote of the holders
of Units of Series B Junior Preferred Stock as herein provided or
pursuant to the rights of the Series A Junior Preferred Stock or Series
C Junior Preferred Stock or pursuant to the rights of any equity
securities ranking senior to the Series B Junior Preferred Stock.
(iii) Unless the holders of Series B Junior Preferred Stock shall,
during an existing default period, have previously exercised their
right to elect Directors, the Board of Directors may order, or any
shareholder or shareholders owning in the aggregate not less than 25%
of the total number of Units of Series B Junior Preferred Stock
outstanding may request in writing, the calling of a special meeting of
the holders of Units of Series B Junior Preferred Stock, which meeting
shall thereupon be called by the Secretary of the Corporation. Notice
of such meeting and of any annual meeting at which holders of Units of
Series B Junior Preferred Stock are entitled to vote pursuant to this
paragraph (C)(iii) shall be given to each holder of record of Units of
Series B Junior Preferred Stock by mailing a copy of such notice to him
at his last address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not earlier than
10 days and not later than 60 days after such order or request or in
default of the calling of such meeting within 60 days after such order
or request, such meeting may be called on similar notice by any
shareholder or shareholders owning in the aggregate not less than 25%
of the total number of outstanding Units of Series B Junior Preferred
Stock.
(iv) During any default period, the holders of shares of Georgia-
Pacific Group Stock, Timber Stock and Units of Series B Junior
Preferred Stock, and other classes or series of stock of the
Corporation, if applicable, shall continue to be entitled to elect all
the Directors until the holders of Units of Series B Junior Preferred
Stock shall have exercised their right to elect two Directors voting as
a separate voting group, after the exercise of which right (x) the
Directors so elected by the holders of Units of Series B Junior
Preferred Stock shall continue in office until their successors shall
have been elected by such holders or until the expiration of the
default period, and (y) any vacancy in the Board of Directors may
(except as provided in paragraph (C)(ii) of this Section 3) be filled
by a vote of a majority of the remaining Directors theretofore elected
by the holders of the class or series of capital stock which elected
the Director whose office shall have become vacant. References in this
paragraph (C) to Directors elected by the holders of a particular class
or series of capital stock shall include Directors elected by such
Directors to fill vacancies as provided in clause (y) of the foregoing
sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Units of Series B Junior Preferred Stock as a
separate voting group to elect Directors shall cease, (y) the term of
any Directors elected by the holders of Units of Series B Junior
Preferred Stock as a separate voting group shall terminate, and (z) the
number of Directors shall be such number as may be provided for in the
Articles or By-laws irrespective of any increase made pursuant to the
provisions of paragraph (C)(ii) of this Section 3 (such number being
subject, however, to change thereafter in any manner provided by law or
in the Articles or By-laws). Any vacancies in the Board of Directors
effected by the provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining Directors.
(vi) The provisions of this paragraph (C) shall govern the election
of Directors by holders of Units of Series B Junior Preferred Stock
during any default period notwithstanding any provisions of the
Articles to the contrary.
(D) Except as set forth herein, holders of Units of Series B Junior
Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to
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vote with holders of shares of Georgia-Pacific Group Stock or Timber
Stock or any other class or series of capital stock of the Corporation,
as applicable) for taking any corporate action.
Section 4. Certain Restrictions. (A) Whenever quarterly dividends or
other dividends or distributions payable on Units of Series B Junior
Preferred Stock as provided in Section 2 are in arrears, thereafter and
until all accrued and unpaid dividends and distributions, whether or not
declared, on outstanding Units of Series B Junior Preferred Stock shall
have been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
junior stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of parity stock, except dividends paid ratably on Units of
Series B Junior Preferred Stock and shares of all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of such Units and all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any parity stock, provided, however, that the Corporation may
at any time redeem, purchase or otherwise acquire shares of any such
parity stock in exchange for shares of any junior stock; or
(iv) purchase or otherwise acquire for consideration any Units of
Series B Junior Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such Units.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any Units of Series B Junior Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled automatically upon the
acquisition thereof. All such Units shall, upon their cancellation, become
authorized but unissued Units of Junior Preferred Stock and may be reissued
as part of a new series of Junior Preferred Stock to be created by
resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation,
no distribution shall be made (i) to the holders of shares of junior stock
unless the holders of Units of Series B Junior Preferred Stock shall have
received, subject to adjustment as hereinafter provided in paragraph (B),
the greater of either (a) $.01 per Unit plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not earned or
declared, to the date of such payment, or (b) the amount per Unit equal to
the aggregate per share amount to be distributed to holders of shares of
Georgia-Pacific Group Stock, or (ii) to the holders of shares of parity
stock, unless simultaneously therewith distributions are made ratably on
Units of Series B Junior Preferred Stock and all other shares of such
parity stock in proportion to the total amounts to which the holders of
Units of Series B Junior Preferred Stock are entitled under clause (i)(a)
of this sentence and to which the holders of shares of such parity stock
are entitled, in each case upon such liquidation, dissolution or winding
up.
(B) In the event the Corporation shall at any time after the initial
issuance of Georgia-Pacific Group Stock and Timber Stock (i) declare any
dividend on outstanding shares of Georgia-Pacific Group Stock payable in
shares of Georgia-Pacific Group Stock, (ii) subdivide outstanding shares of
Georgia-Pacific Group Stock into a greater number of shares, or (iii)
combine outstanding shares of Georgia-Pacific Group Stock into a smaller
number of shares, then in each such case the aggregate amount to which
holders of Units of Series B Junior Preferred Stock were entitled
immediately prior to such event pursuant to clause (i)(b) of paragraph (A)
of this Section 6 shall be adjusted by multiplying such amount by a
fraction the numerator of which shall be the number of shares of Georgia-
Pacific Group Stock that are outstanding immediately after such event and
the denominator of which shall be the number of shares of Georgia-Pacific
Group Stock that were outstanding immediately prior to such event.
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<PAGE>
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in
which the shares of Georgia-Pacific Group Stock are exchanged for or
converted into other stock or securities, cash and/or any other property,
then in any such case Units of Series B Junior Preferred Stock shall at the
same time be similarly exchanged for or converted into an amount per Unit
(subject to the provision for adjustment hereinafter set forth) equal to
the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share
of Georgia-Pacific Group Stock is converted or exchanged. In the event the
Corporation shall at any time after the initial issuance of Georgia-Pacific
Group Stock and Timber Stock (i) declare any dividend on outstanding shares
of Georgia-Pacific Group Stock payable in shares of Georgia-Pacific Group
Stock, (ii) subdivide outstanding shares of Georgia-Pacific Group Stock
into a greater number of shares, or (iii) combine outstanding Georgia-
Pacific Group Stock into a smaller number of shares, then in each such case
the amount set forth in the immediately preceding sentence with respect to
the exchange or conversion of Units of Series B Junior Preferred Stock
shall be adjusted by multiplying such amount by a fraction the numerator of
which shall be the number of shares of Georgia-Pacific Group Stock that are
outstanding immediately after such event and the denominator of which shall
be the number of shares of Georgia-Pacific Group Stock that were
outstanding immediately prior to such event.
Section 8. Redemption. The Units of Series B Junior Preferred Stock shall
not be redeemable. Notwithstanding the foregoing, the Corporation may
acquire shares of Series B Junior Preferred Stock in any other manner
permitted by applicable law or these Articles.
Section 9. Ranking. The Units of Series B Junior Preferred Stock shall
rank senior to the Georgia-Pacific Group Stock and the Timber Stock, on a
parity with the Series A Junior Preferred Stock and Series C Junior
Preferred Stock and junior to all other series of the Junior Preferred
Stock and to any other series or class of Preferred Stock that hereafter
may be issued by the Corporation as to the payment of distributions and
dividends and the distribution of assets upon liquidation, unless the terms
of any such series or class shall provide otherwise.
Section 10. Amendment. The Articles shall not hereafter be amended,
either directly or indirectly, or through merger or consolidation with
another corporation, in any manner that would alter or change the powers,
preferences or special rights of the Series B Junior Preferred Stock so as
to affect them adversely without the affirmative vote of the holders of a
majority or more of the outstanding Units of Series B Junior Preferred
Stock, voting separately as a voting group.
Section 11. Fractional Shares. The Series B Junior Preferred Stock may be
issued in Units or other fractions of a share, which Units or fractions
shall entitle the holder, in proportion to such holder's fractional shares,
to exercise voting rights, receive dividends, participate in distributions
and to have the benefit of all other rights of holders of Series B Junior
Preferred Stock.
Section 12. Certain Definitions. As used herein with respect to the
Series B Junior Preferred Stock, the following terms shall have the
following meanings:
(A) The term "junior stock" (i) as used in Section 4, shall mean the
Georgia-Pacific Group Stock and the Timber Stock and any other class or
series of capital stock of the Corporation hereafter authorized or
issued over which the Series B Junior Preferred Stock has preference or
priority as to the payment of dividends and (ii) as used in Section 6,
shall mean the Georgia-Pacific Group Stock and the Timber Stock and any
other class or series of capital stock of the Corporation over which
the Series B Junior Preferred Stock has preference or priority in the
distribution of assets on any liquidation, dissolution or winding up of
the Corporation.
(B) The term "parity stock" (i) as used in Section 4, shall mean any
class or series of stock of the Corporation hereafter authorized or
issued ranking pari passu with the Series B Junior Preferred Stock as
to dividends and (ii) as used in Section 6, shall mean any class or
series of capital stock ranking pari passu with the Series B Junior
Preferred Stock in the distribution of assets on any liquidation,
dissolution or winding up.
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<PAGE>
The following are the voting powers, designation, preferences and relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions, in addition to those previously set forth in
this Article IV, of "Series C Junior Preferred Stock":
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series C Junior Preferred Stock" and the number of shares
constituting such series shall be 5,000,000.
Section 2. Dividends and Distributions. (A) Subject to the prior and
superior rights of the holders of any shares of any other series of
Preferred Stock or Junior Preferred Stock or any other shares of capital
stock of the Corporation ranking prior and superior to the shares of Series
C Junior Preferred Stock with respect to dividends, each holder of one one-
hundredth ( 1/100th) of a share (a "Unit") of Series C Junior Preferred
Stock shall be entitled to receive, when, as and if declared by the Board
of Directors out of funds legally available for that purpose, (i) quarterly
dividends payable in cash on the first day of January, April, July and
October in each year (each such date being a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the
first issuance of such Unit of Series C Junior Preferred Stock, in an
amount per Unit (rounded to the nearest cent) equal to the greater of (a)
$0.35 or (b) subject to the provision for adjustment hereinafter set forth,
the aggregate per share amount of all cash dividends declared on shares of
the Timber Stock since the immediately preceding Quarterly Dividend Payment
Date or, with respect to the first Quarterly Dividend Payment Date, since
the first issuance of a Unit of Series C Junior Preferred Stock, and (ii)
subject to the provision for adjustment hereinafter set forth, quarterly
distributions (payable in kind) on each Quarterly Distribution Payment Date
in an amount per Unit equal to the aggregate per share amount of all non-
cash dividends or other distributions (other than a dividend payable in
shares of Timber Stock or a subdivision of the outstanding shares of Timber
Stock, by reclassification or otherwise) declared on shares of Timber Stock
since the immediately preceding Quarterly Dividend Payment Date, or with
respect to the first Quarterly Dividend Payment Date, since the first
issuance of a Unit of Series C Junior Preferred Stock. In the event that
the Corporation shall at any time after the initial issuance of Georgia-
Pacific Group Stock and Timber Stock (i) declare any dividend on
outstanding shares of Timber Stock payable in shares of Timber Stock, (ii)
subdivide outstanding shares of Timber Stock into a greater number of
shares or (iii) combine outstanding shares of Timber Stock into a smaller
number of shares, then in each such case the amount to which the holder of
a Unit of Series C Junior Preferred Stock was entitled immediately prior to
such event pursuant to the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which shall be the
number of shares of Timber Stock that are outstanding immediately after
such event and the denominator of which shall be the number of shares of
Timber Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on Units of
Series C Junior Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the shares of
Timber Stock (other than a dividend payable in shares of Timber Stock);
provided, however, that, in the event no dividend or distribution shall
have been declared on the Timber Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $0.35 per Unit on the Series C Junior Preferred
Stock shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
(C) Dividends shall begin to accrue and shall be cumulative on each
outstanding Unit of Series C Junior Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issuance of such Unit of
Series C Junior Preferred Stock, unless the date of issuance of such Unit
is prior to the record date for the first Quarterly Dividend Payment Date,
in which case, dividends on such Unit shall begin to accrue from the date
of issuance of such Unit, or unless the date of issuance is a Quarterly
Dividend Payment Date or is a date after the record date for the
determination of holders of Units of Series C Junior Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued
but unpaid dividends shall not bear interest. Dividends paid on Units of
Series C Junior Preferred Stock in an amount less than the aggregate amount
of all such dividends at the time accrued and payable on such Units shall
be allocated pro rata on a unit-by-unit basis among all Units
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<PAGE>
of Series C Junior Preferred Stock at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of Units
of Series C Junior Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no
more than 30 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of Units of Series C Junior
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each Unit of Series C Junior Preferred Stock shall entitle the holder
thereof to the number of votes per share which the holders of Timber
Stock then have with respect to matters submitted to a vote of the
shareholders of the Corporation. In the event the Corporation shall at
any time after the initial issuance of Georgia-Pacific Group Stock and
Timber Stock (i) declare any dividend on outstanding shares of Timber
Stock payable in shares of Timber Stock, (ii) subdivide outstanding
shares of Timber Stock into a greater number of shares or (iii) combine
the outstanding shares of Timber Stock into a smaller number of shares,
then in each such case the number of votes per Unit to which holders of
Units of Series C Junior Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction the numerator of which shall be the number of shares of Timber
Stock outstanding immediately after such event and the denominator of
which shall be the number of shares of Timber Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by applicable law, the
holders of Units of Series A Junior Preferred Stock, Series B Junior
Preferred Stock and Series C Junior Preferred Stock and the holders of
shares of Timber Stock and Georgia-Pacific Group Stock shall vote
together as one voting group on all matters submitted to a vote of
shareholders of the Corporation.
(C)(i) If at any time dividends on any Units of Series C Junior
Preferred Stock shall be in arrears in an amount equal to six quarterly
dividends thereon, then during the period (a "default period") from the
occurrence of such event until such time as all accrued and unpaid
dividends for all previous quarterly dividend periods and for the
current quarterly dividend period on all Units of Series C Junior
Preferred Stock then outstanding shall have been declared and paid or
set apart for payment, all holders of Units of Series C Junior
Preferred Stock, voting separately as a class, shall have the right to
elect two Directors.
(ii) During any default period, such voting rights of the holders of
Units of Series C Junior Preferred Stock may be exercised initially at
a special meeting called pursuant to subparagraph (iii) of this Section
3(C) or at any annual meeting of shareholders, and thereafter at annual
meetings of shareholders, provided that neither such voting rights nor
any right of the holders of Units of Series C Junior Preferred Stock to
increase, in certain cases, the authorized number of Directors may be
exercised at any meeting unless one-third of the outstanding Units of
Series C Junior Preferred Stock shall be present at such meeting in
person or by proxy. The absence of a quorum of the holders of Common
Stock shall not affect the exercise by the holders of Units of Series C
Junior Preferred Stock of such rights. At any meeting at which the
holders of Units of Series C Junior Preferred Stock shall exercise such
voting rights initially during an existing default period, they shall
have the right, voting separately as a voting group, to elect Directors
to fill up to two vacancies in the Board of Directors, if any such
vacancies may then exist, or, if such right is exercised at an annual
meeting, to elect two Directors. If the number which may be so elected
at any special meeting does not amount to the required number, the
holders of the Series C Junior Preferred Stock shall have the right to
make such increase in the number of Directors as shall be necessary to
permit the election by them of the required number. After the holders
of Units of Series C Junior Preferred Stock shall have exercised their
right to elect Directors during any default period, the number of
Directors shall not be increased or decreased except as approved by a
vote of the holders of Units of Series C Junior Preferred Stock as
herein provided or pursuant to the rights of the Series A Junior
Preferred Stock or Series B Junior Preferred Stock or pursuant to the
rights of any equity securities ranking senior to the Series C Junior
Preferred Stock.
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<PAGE>
(iii) Unless the holders of Series C Junior Preferred Stock shall,
during an existing default period, have previously exercised their
right to elect Directors, the Board of Directors may order, or any
shareholder or shareholders owning in the aggregate not less than 25%
of the total number of Units of Series C Junior Preferred Stock
outstanding may request in writing, the calling of a special meeting of
the holders of Units of Series C Junior Preferred Stock, which meeting
shall thereupon be called by the Secretary of the Corporation. Notice
of such meeting and of any annual meeting at which holders of Units of
Series C Junior Preferred Stock are entitled to vote pursuant to this
paragraph (C)(iii) shall be given to each holder of record of Units of
Series C Junior Preferred Stock by mailing a copy of such notice to him
at his last address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not earlier than
10 days and not later than 60 days after such order or request or in
default of the calling of such meeting within 60 days after such order
or request, such meeting may be called on similar notice by any
shareholder or shareholders owning in the aggregate not less than 25%
of the total number of outstanding Units of Series C Junior Preferred
Stock.
(iv) During any default period, the holders of shares of Georgia-
Pacific Group Stock, Timber Stock and Units of Series C Junior
Preferred Stock, and other classes or series of stock of the
Corporation, if applicable, shall continue to be entitled to elect all
the Directors until the holders of Units of Series C Junior Preferred
Stock shall have exercised their right to elect two Directors voting as
a separate voting group, after the exercise of which right (x) the
Directors so elected by the holders of Units of Series C Junior
Preferred Stock shall continue in office until their successors shall
have been elected by such holders or until the expiration of the
default period, and (y) any vacancy in the Board of Directors may
(except as provided in paragraph (C)(ii) of this Section 3) be filled
by a vote of a majority of the remaining Directors theretofore elected
by the holders of the class or series of capital stock which elected
the Director whose office shall have become vacant. References in this
paragraph (C) to Directors elected by the holders of a particular class
or series of capital stock shall include Directors elected by such
Directors to fill vacancies as provided in clause (y) of the foregoing
sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Units of Series C Junior Preferred Stock as a
separate voting group to elect Directors shall cease, (y) the term of
any Directors elected by the holders of Units of Series C Junior
Preferred Stock as a separate voting group shall terminate, and (z) the
number of Directors shall be such number as may be provided for in the
Articles or By-laws irrespective of any increase made pursuant to the
provisions of paragraph (C)(ii) of this Section 3 (such number being
subject, however, to change thereafter in any manner provided by law or
in the Articles or By-laws). Any vacancies in the Board of Directors
effected by the provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining Directors.
(vi) The provisions of this paragraph (C) shall govern the election
of Directors by holders of Units of Series C Junior Preferred Stock
during any default period notwithstanding any provisions of the
Articles to the contrary.
(D) Except as set forth herein, holders of Units of Series C Junior
Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote
with holders of shares of Georgia-Pacific Group Stock or Timber Stock
or any other class or series of capital stock of the Corporation, as
applicable) for taking any corporate action.
Section 4. Certain Restrictions. (A) Whenever quarterly dividends or
other dividends or distributions payable on Units of Series C Junior
Preferred Stock as provided in Section 2 are in arrears, thereafter and
until all accrued and unpaid dividends and distributions, whether or not
declared, on outstanding Units of Series C Junior Preferred Stock shall
have been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
junior stock;
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<PAGE>
(ii) declare or pay dividends on or make any other distributions on
any shares of parity stock, except dividends paid ratably on Units of
Series C Junior Preferred Stock and shares of all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of such Units and all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any parity stock, provided, however, that the Corporation may
at any time redeem, purchase or otherwise acquire shares of any such
parity stock in exchange for shares of any junior stock; or
(iv) purchase or otherwise acquire for consideration any Units of
Series C Junior Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such Units.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any Units of Series C Junior Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled automatically upon the
acquisition thereof. All such Units shall, upon their cancellation, become
authorized but unissued Units of Junior Preferred Stock and may be reissued
as part of a new series of Junior Preferred Stock to be created by
resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation,
no distribution shall be made (i) to the holders of shares of junior stock
unless the holders of Units of Series C Junior Preferred Stock shall have
received, subject to adjustment as hereinafter provided in paragraph (B),
the greater of (a) $.01 per Unit plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not earned or declared, to
the date of such payment, or (b) the amount per Unit equal to the aggregate
per share amount to be distributed to holders of shares of Timber Stock, or
(ii) to the holders of shares of parity stock, unless simultaneously
therewith distributions are made ratably on Units of Series C Junior
Preferred Stock and all other shares of such parity stock in proportion to
the total amounts to which the holders of Units of Series C Junior
Preferred Stock are entitled under clause (i)(a) of this sentence and to
which the holders of shares of such parity stock are entitled, in each case
upon such liquidation, dissolution or winding up.
(B) In the event the Corporation shall at any time after the initial
issuance of Georgia-Pacific Group Stock and Timber Stock (i) declare any
dividend on outstanding shares of Timber Stock payable in shares of Timber
Stock, (ii) subdivide outstanding shares of Timber Stock into a greater
number of shares, or (iii) combine outstanding shares of Timber Stock into
a smaller number of shares, then in each such case the aggregate amount to
which holders of Units of Series C Junior Preferred Stock were entitled
immediately prior to such event pursuant to clause (i)(b) of paragraph (A)
of this Section 6 shall be adjusted by multiplying such amount by a
fraction the numerator of which shall be the number of shares of Timber
Stock that are outstanding immediately after such event and the denominator
of which shall be the number of shares of Timber Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in
which the shares of Timber Stock are exchanged for or converted into other
stock or securities, cash and/or any other property, then in any such case
Units of Series C Junior Preferred Stock shall at the same time be
similarly exchanged for or converted into an amount per Unit (subject to
the provision for adjustment hereinafter set forth) equal to the aggregate
amount of stock, securities, cash and/or any other property (payable in
kind), as the case may be, into which or for which each share of Timber
Stock is converted or exchanged. In the event the Corporation shall at any
time after the initial issuance of Georgia-Pacific Group Stock and Timber
Stock (i) declare any dividend on outstanding shares of Timber Stock
payable in shares of Timber Stock, (ii) subdivide outstanding shares of
Timber Stock into a greater number of shares, or (iii) combine outstanding
Timber Stock into a smaller
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number of shares, then in each such case the amount set forth in the
immediately preceding sentence with respect to the exchange or conversion
of Units of Series C Junior Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which shall be the
number of shares of Timber Stock that are outstanding immediately after
such event and the denominator of which shall be the number of shares of
Timber Stock that were outstanding immediately prior to such event.
Section 8. Redemption. The Units of Series C Junior Preferred Stock shall
not be redeemable. Notwithstanding the foregoing, the Corporation may
acquire shares of Series C Junior Preferred Stock in any other manner
permitted by applicable law or the Articles.
Section 9. Ranking. The Units of Series C Junior Preferred Stock shall
rank senior to the Timber Stock and the Georgia-Pacific Group Stock, on a
parity with the Series A Junior Preferred Stock and Series B Junior
Preferred Stock and junior to all other series of the Junior Preferred
Stock and to any other series or class of Preferred Stock that hereafter
may be issued by the Corporation as to the payment of dividends and the
distribution of assets, unless the terms of any such series or class shall
provide otherwise.
Section 10. Amendment. The Articles shall not hereafter be amended,
either directly or indirectly, or through merger or consolidation with
another corporation, in any manner that would alter or change the powers,
preferences or special rights of the Series C Junior Preferred Stock so as
to affect them adversely without the affirmative vote of the holders of a
majority or more of the outstanding Units of Series C Junior Preferred
Stock, voting separately as a voting group.
Section 11. Fractional Shares. The Series C Junior Preferred Stock may be
issued in Units or other fractions of a share, which Units or fractions
shall entitle the holder, in proportion to such holder's fractional shares,
to exercise voting rights, receive dividends, participate in distributions
and to have the benefit of all other rights of holders of Series C Junior
Preferred Stock.
Section 12. Certain Definitions. As used herein with respect to the
Series C Junior Preferred Stock, the following terms shall have the
following meanings:
(A) The term "junior stock" (i) as used in Section 4, shall mean the
Georgia-Pacific Group Stock and the Timber Stock and any other class or
series of capital stock of the Corporation hereafter authorized or
issued over which the Series C Junior Preferred Stock has preference or
priority as to the payment of dividends and (ii) as used in Section 6,
shall mean the Georgia-Pacific Group Stock and the Timber Stock and any
other class or series of capital stock of the Corporation over which
the Series C Junior Preferred Stock has preference or priority in the
distribution of assets on any liquidation, dissolution or winding up of
the Corporation.
(B) The term "parity stock" (i) as used in Section 4, shall mean any
class or series of stock of the Corporation hereafter authorized or
issued ranking pari passu with the Series C Junior Preferred Stock as
to dividends and (ii) as used in Section 6, shall mean any class or
series of capital stock ranking pari passu with the Series C Junior
Preferred Stock in the distribution of assets on any liquidation,
dissolution or winding up.
ARTICLE V.
The following is a description of the terms, provisions, preferences,
rights, voting powers, restrictions and qualifications of the Common Stock.
A. Distributions. Subject to any preferences, limitations and relative
rights of any outstanding series of the Preferred Stock or the Junior
Preferred Stock and any qualifications or restrictions on the Common Stock
created thereby, distributions may be authorized and made upon the Georgia-
Pacific Group Stock and the Timber Stock, upon the terms with respect to each
such class, and subject to the limitations provided for below in this Section
A., as the Board of Directors may determine.
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(a) Distributions on Georgia-Pacific Group Stock. Distributions on
Georgia-Pacific Group Stock may be authorized and made only out of the
lesser of (i) the assets of the Corporation legally available therefor and
(ii) the Georgia-Pacific Group Available Distribution Amount.
(b) Distributions on Timber Stock. Distributions on Timber Stock may be
authorized and made only out of the lesser of (i) the assets of the
Corporation legally available therefor and (ii) the Timber Group Available
Distribution Amount.
(c) Discrimination in Distributions Between Classes of Common Stock. The
Board of Directors, subject to the provisions of paragraphs A.(a) and
A.(b), may at any time authorize and make distributions exclusively on
Georgia-Pacific Group Stock, exclusively on Timber Stock or on both such
classes, in equal or unequal amounts, notwithstanding the amount of
distributions previously authorized on each class, the respective voting or
liquidation rights of each class or any other factor.
(d) Share Dividends. Except as permitted by paragraph D.(a), the Board of
Directors may declare and pay dividends of shares of the Common Stock (or
Convertible Securities convertible into or exchangeable or exercisable for
shares of the Common Stock) on shares of the Common Stock or shares of the
Preferred Stock or the Junior Preferred Stock only as follows:
(i) dividends of shares of Georgia-Pacific Group Stock (or
Convertible Securities convertible into or exchangeable or exercisable
for shares of Georgia-Pacific Group Stock) on shares of Georgia-Pacific
Group Stock or shares of the Preferred Stock or the Junior Preferred
Stock attributed to the Georgia-Pacific Group; and
(ii) dividends of shares of Timber Stock (or Convertible Securities
convertible into or exchangeable or exercisable for shares of Timber
Stock) on shares of Timber Stock or shares of the Preferred Stock or
the Junior Preferred Stock attributed to the Timber Group.
For purposes of this paragraph A.(d), any outstanding Convertible Securities
that are convertible into or exchangeable or exercisable for any other
Convertible Securities which are themselves convertible into or exchangeable
or exercisable for Georgia-Pacific Group Stock or Timber Stock (or other
Convertible Securities that are so convertible, exchangeable or exercisable)
shall be deemed to have been converted, exchanged or exercised in full for
such Convertible Securities.
B. Voting Rights.
(a) General. Except as otherwise provided by law, by the terms of any
outstanding series of Preferred Stock or Junior Preferred Stock or any
provision of the Articles restricting the power to vote on a specified
matter to other shareholders, the entire voting power of the shareholders
of the Corporation shall be vested in the holders of the Common Stock, who
shall be entitled to vote on any matter on which the holders of stock of
the Corporation shall, by law or by the provisions of the Articles or the
Bylaws of the Corporation, be entitled to vote, and both classes of Common
Stock shall vote thereon together as a single voting group.
(b) Number of Votes for Each Class of Common Stock. On each matter to be
voted on by the holders of both classes of the Common Stock voting together
as a single voting group, the number of votes per share of each class shall
be as follows:
(i) each outstanding share of Georgia-Pacific Group Stock shall have
one vote; and
(ii) each outstanding share of Timber Stock shall have a number of
votes (including a fraction of one vote) equal to the number of votes
determined by the ratio of the weighted average during the 20 Trading
Days ending on the tenth Trading Day prior to the record date for
determining the shareholders entitled to vote of the Market Value of a
share of the Timber Stock to the weighted average over the same 20
Trading Days of the Market Value of the Georgia-Pacific Group Stock,
expressed as a decimal fraction rounded to the nearest three decimal
places, determined as follows: (A) the numerator of such fraction shall
be the sum of (1) four times the average Market Value of one share of
Timber Stock over the period of five Trading Days ending on such tenth
Trading Day prior to such record date,
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(2) three times the average Market Value of one share of Timber Stock
over the period of five Trading Days ending on the 15th Trading Day
prior to such record date, (3) two times the average Market Value of
one share of Timber Stock over the period of five Trading Days ending
on the 20th Trading Day prior to such record date and (4) the average
Market Value of one share of Timber Stock over the period of five
Trading Days ending on the 25th Trading Day prior to such record date
and (B) the denominator of such fraction shall be the sum of (1) four
times the average Market Value of one share of Georgia-Pacific Group
Stock over the period of five Trading Days ending on such tenth Trading
Day prior to such record date, (2) three times the average Market Value
of one share of Georgia-Pacific Group Stock over the period of five
Trading Days ending on the 15th Trading Day prior to such record date,
(3) two times the average Market Value of one share of Georgia-Pacific
Group Stock over the period of five Trading Days ending on the 20th
Trading Day prior to such record date and (4) the average Market Value
of one share of Georgia-Pacific Group Stock over the period of five
Trading Days ending on the 25th Trading Day prior to such record date.
Notwithstanding the foregoing provisions of this paragraph B., if shares of
only one class of the Common Stock are outstanding on the record date for
determining the common shareholders entitled to vote on any matter, then each
share of that class shall be entitled to one vote and, if either class of the
Common Stock is entitled to vote as a separate voting group with respect to
any matter, each share of that class shall, for purpose of such vote, be
entitled to one vote on such matter.
In addition to any provision of law or any provision of the Articles
entitling the holders of outstanding shares of Georgia-Pacific Group Stock or
Timber Stock to vote as a separate voting group, the Board of Directors may
condition the approval of any matter submitted to shareholders on receipt of a
separate vote of the holders of outstanding shares of Georgia-Pacific Group
Stock or Timber Stock.
C. Liquidation Rights. In the event of any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, after payment or
provision for payment of the debts and other liabilities of the Corporation
and the full preferential amounts (including any accumulated and unpaid
dividends) to which the holders of any outstanding shares of the Preferred
Stock or the Junior Preferred Stock are entitled (regardless of the Group to
which such shares of the Preferred Stock or the Junior Preferred Stock were
attributed), the holders of the Georgia-Pacific Group Stock and Timber Stock
shall be entitled to receive the assets, if any, of the Corporation remaining
for distribution to holders of the Common Stock on a per share basis in
proportion to the respective liquidation units per share of such class. Each
share of Georgia-Pacific Group Stock shall have one liquidation unit and each
share of Timber Stock shall have a number of liquidation units (including a
fraction of one liquidation unit) equal to the number of liquidation units
determined by the ratio of the weighted average during the 20 Trading Days
ending on the 40th Trading Day immediately succeeding the date of the
effectiveness of these Articles of Incorporation of the Market Value of a
share of the Timber Stock to the weighted average over the same 20 Trading
Days of the Market Value of the Georgia-Pacific Group Stock, expressed as a
decimal fraction rounded to the nearest three decimal places, determined as
follows: (A) the numerator of such fraction shall be the sum of (1) four times
the average Market Value of one share of Timber Stock over the period of five
Trading Days ending on such date, (2) three times the average Market Value of
one share of Timber Stock over the period of five Trading Days ending on the
5th Trading Day prior to such date, (3) two times the average Market Value of
one share of Timber Stock over the period of five Trading Days ending on the
10th Trading Day prior to such date and (4) the average Market Value of one
share of Timber Stock over the period of five Trading Days ending on the 15th
Trading Day prior to such date and (B) the denominator of such fraction shall
be the sum of (1) four times the average Market Value of one share of Georgia-
Pacific Group Stock over the period of five Trading Days ending on such date,
(2) three times the average Market Value of one share of Georgia-Pacific Group
Stock over the period of five Trading Days ending on the 5th Trading Day prior
to such date, (3) two times the average Market Value of one share of Georgia-
Pacific Group Stock over the period of five Trading Days ending on the 10th
Trading Day prior to such date and (4) the average Market Value of one share
of Georgia-Pacific Group Stock over the period of five Trading Days ending on
the 15th Trading Day prior to such date. Neither a merger nor share exchange
of the Corporation into or with any other company, nor a
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merger or share exchange of any other company into or with the Corporation,
nor a sale, lease, exchange or other disposition of all or any part of the
assets of the Corporation, shall, alone, be deemed a liquidation of the
Corporation, or cause the dissolution of the Corporation, for purposes of this
Section C.
If the Corporation shall in any manner subdivide (by stock split,
reclassification or otherwise) or combine (by reverse stock split,
reclassification or otherwise) the outstanding shares of Georgia-Pacific Group
Stock or Timber Stock, or declare a dividend in shares of either class to
holders of such class, the per share liquidation units of either class of the
Common Stock specified in the preceding paragraph of this paragraph C., as
adjusted from time to time, shall be appropriately adjusted, as determined by
the Board of Directors, so as to avoid dilution in the aggregate, relative
liquidation rights of the shares of any class of the Common Stock.
D. Conversion or Redemption of the Common Stock. The Georgia-Pacific Group
Stock is subject to conversion or redemption and the Timber Stock is subject
to conversion or redemption upon the terms provided below in this Section D.;
provided, however, that neither class of the Common Stock may be converted or
redeemed if the other class of Common Stock has been converted or redeemed in
its entirety or notice thereof shall have been given as required by this
Section D.
(a) Mandatory and Optional Conversion and Redemption of Common Stock
Other than for Subsidiary Stock.
(i) In the event of the Disposition, in one transaction or a series
of related transactions, by the Corporation and/or its subsidiaries of
all or substantially all of the properties and assets attributed to
either Group to one or more persons or entities (other than (w) the
Disposition by the Corporation of all or substantially all its
properties and assets in one transaction or a series of related
transactions in connection with the dissolution, liquidation or winding
up of the Corporation and the distribution of assets to shareholders as
referred to in Section C., (x) the Disposition of the properties and
assets attributed to either Group as contemplated by paragraph D.(b) or
otherwise to all holders of shares of such Group divided among such
holders on a pro rata basis in accordance with the number of shares of
stock issued in respect of such Group outstanding, (y) to any person or
entity controlled (as determined by the Board of Directors) by the
Corporation or (z) in connection with a Related Business Transaction),
the Corporation shall, on or prior to the 85th Trading Day after the
date of consummation of such Disposition (the "Disposition Date"), make
a distribution on the class of the Common Stock relating to the Group
subject to such Disposition or redeem some or all of such Common Stock
or convert such Common Stock into Common Stock relating to the other
Group (or another class or series of common stock of the Corporation),
all as provided by the following paragraphs D.(a)(i)(1) and D.(a)(i)(2)
and, to the extent applicable, by paragraph D.(c), as the Board of
Directors shall have selected among such alternatives:
(1) provided that there are assets of the Corporation legally
available therefor:
(A) make or pay to the holders of the shares of the class of
the Common Stock relating to the Group subject to such
disposition a distribution or dividend, as the Board of
Directors shall have authorized and declared subject to
compliance with Section A., in cash and/or in securities (other
than a dividend of the Common Stock) or other property having a
Fair Value as of the Disposition Date equal to the Fair Value as
of the Disposition Date of the Net Proceeds of such Disposition;
or
(B)(I) subject to the last sentence of this paragraph
D.(a)(i), if such Disposition involves all (not merely
substantially all) of the properties and assets attributed to
such Group, redeem as of the Redemption Date determined as
provided by paragraph D.(d)(iii), all outstanding shares of the
Common Stock relating to the Group subject to such Disposition
in exchange for cash and/or securities (other than the Common
Stock) or other property having a Fair Value as of the
Disposition Date equal to the Fair Value as of the Disposition
Date of the Net Proceeds of such Disposition; or
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(II) subject to the last sentence of this paragraph D.(a)(i),
if such Disposition involves substantially all (but not all) of
the properties and assets attributed to such Group, redeem as of
the Redemption Date determined as provided by paragraph
D.(d)(iv) such number of whole shares of the class of the Common
Stock relating to the Group subject to such Disposition (which
may be all, but not more than all, of such shares outstanding)
as have in the aggregate an average Market Value during the
period of ten consecutive Trading Days beginning on the 16th
Trading Day immediately succeeding the Disposition Date closest
to the Fair Value as of the Disposition Date of the Net Proceeds
of such Disposition in exchange for cash and/or securities
(other than the Common Stock) or other property having a Fair
Value as of the Disposition Date in the aggregate equal to such
Fair Value of the Net Proceeds; or
(2) declare that each outstanding share of the class of the Common
Stock relating to the Group subject to such Disposition shall be
converted as of the Conversion Date determined as provided by
paragraph D.(d)(v) into a number of fully paid and nonassessable
shares of the class of the Common Stock relating to the other Group
(or, if the class of the Common Stock relating to the other Group is
not Publicly Traded at such time and shares of another class or
series of the Common Stock of the Corporation (other than the class
of the Common Stock relating to the Group subject to such
Disposition) are then Publicly Traded, of such other class or series
of the common stock as has the largest Market Capitalization as of
the close of business on the Trading Day immediately preceding the
date of the notice of such conversion required by paragraph
D.(d)(v)) equal to 110% of the ratio, expressed as a decimal
fraction rounded to the nearest five decimal places, of the average
Market Value of one share of the Common Stock relating to the Group
subject to such Disposition over the period of 10 consecutive
Trading Days beginning on the 16th Trading Day immediately
succeeding the Disposition Date to the average Market Value of one
share of the Common Stock relating to the other Group (or such other
class or series of common stock) over the same 10 Trading Day
period.
Notwithstanding the foregoing provisions of this paragraph
D.(a)(i), the Corporation shall redeem shares of a class of the
Common Stock as provided by paragraphs D.(a)(i)(1)(B)(I) or (II)
only if the amount to be paid in redemption of such stock is less
than or equal to the Available Distribution Amount with respect to
the Group subject to such Disposition as of the Redemption Date.
(ii) For purposes of this paragraph D.(a):
(1) as of any date, "substantially all of the properties and
assets" attributed to either Group shall mean a portion of such
properties and assets (x) that represents at least 80% of the Fair
Value of the properties and assets attributed to such Group as of
such date or (y) from which were derived at least 80% of the
aggregate revenues for the immediately preceding twelve fiscal
quarterly periods of the Corporation (calculated on a pro forma
basis to include revenues derived from any of such properties and
assets acquired during such period) derived from the properties and
assets of such Group as of such date;
(2) in the case of a Disposition of the properties and assets
attributed to either Group in a series of related transactions, such
Disposition shall not be deemed to have been consummated until the
consummation of the last of such transactions; and
(3) the Board of Directors may make or pay any distribution or
dividend or redemption price referred to in paragraph D.(a)(i) in
cash, securities (other than the Common Stock) or other property,
regardless of the form or nature of the proceeds of the Disposition.
(iii) After the payment of the distribution or the redemption price
with respect to the class of the Common Stock relating to the Group
subject to a Disposition as provided for by paragraph D.(a)(i)(1), the
Board of Directors may declare that each share of such class of the
Common Stock remaining outstanding shall be converted, but only as of a
Conversion Date (determined as provided by
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paragraph D.(d)(v)) prior to the first anniversary of the payment of
such distribution or redemption price, into a number of fully paid and
nonassessable shares of the class of the Common Stock relating to the
other Group (or, if the class of the Common Stock relating to the other
Group is not Publicly Traded at such time and shares of any other class
or series of common stock of the Corporation (other than the class of
the Common Stock relating to the Group subject to such Disposition) are
then Publicly Traded, of such other class or series of common stock of
the Corporation as has the largest Market Capitalization as of the
close of business on the Trading Day immediately preceding the date of
the notice of such conversion required by paragraph D.(d)(v)) equal to
110% of the Market Value Ratio of the Converted Stock to the
Consideration Stock as of the fifth Trading Day prior to the date of
the notice of such conversion required by paragraph D.(d)(v).
(iv) The Board of Directors may at any time declare that each
outstanding share of either Georgia-Pacific Group Stock or Timber Stock
shall be converted, as of a Conversion Date determined as provided by
paragraph D.(d)(v), into the number of fully paid and nonassessable
shares of Timber Stock or Georgia-Pacific Group Stock, respectively
(or, if such latter class of Common Stock of the Corporation is not
Publicly Traded at such time and shares of any other class or series of
common stock of the Corporation (other than the class of the Common
Stock subject to such conversion) are then Publicly Traded, of such
other class or series of common stock of the Corporation as has the
largest Market Capitalization as of the close of business on the
Trading Day immediately preceding the date of the notice of conversion
required by paragraph D.(d)(v)) equal to 115% of the Market Value Ratio
of the Converted Stock to the Consideration Stock as of the fifth
Trading Day prior to the date of the notice of such conversion required
by paragraph D.(d)(v).
(b) Redemption of Common Stock for Subsidiary Stock.
(i) At any time at which all of the assets and liabilities attributed
to the Timber Group (and no other assets or liabilities of the
Corporation or any subsidiary thereof) are held directly or indirectly
by one or more wholly-owned subsidiaries of the Corporation (each, a
"Timber Group Subsidiary"), the Board of Directors may, provided that
there are assets of the Corporation legally available therefor, redeem
all of the outstanding shares of Timber Stock, on a Redemption Date of
which notice is delivered in accordance with paragraph D.(d)(vi), in
exchange for all of the shares of common stock of each Timber Group
Subsidiary as will be outstanding immediately following such exchange
of shares, such Timber Group Subsidiary shares to be delivered to the
holders of shares of Timber Stock on the Redemption Date either
directly or indirectly through another Timber Group Subsidiary (as a
wholly-owned subsidiary thereof) and to be divided among the holders of
Timber Stock pro rata in accordance with the number of shares of Timber
Stock held by each on such Redemption Date, each of which shares of
common stock of such Timber Group Subsidiary shall be, upon such
delivery, fully paid and nonassessable.
(ii) At any time at which all of the assets and liabilities
attributed to the Georgia-Pacific Group (and no other assets or
liabilities of the Corporation or any subsidiary thereof) are held
directly or indirectly by one or more wholly-owned subsidiaries of the
Corporation (each, a "Georgia-Pacific Group Subsidiary"), the Board of
Directors may, provided that there are assets of the Corporation
legally available therefor, redeem all of the outstanding shares of
Georgia-Pacific Group Stock, on a Redemption Date of which notice is
delivered in accordance with paragraph D.(d)(vi) of this Article, in
exchange for all of the shares of common stock of each Georgia-Pacific
Group Subsidiary as will be outstanding immediately following such
exchange of shares, such shares of common stock of each Georgia-Pacific
Group Subsidiary to be delivered to the holders of shares of Georgia-
Pacific Group Stock on the Redemption Date either directly or
indirectly through another Georgia-Pacific Group Subsidiary (as a
wholly-owned subsidiary thereof) and to be divided among the holders of
Georgia-Pacific Group Stock pro rata in accordance with the number of
shares of Georgia-Pacific Group Stock held by each on such Redemption
Date, each of which shares of common stock of such Georgia-Pacific
Group Subsidiary shall be, upon such delivery, fully paid and
nonassessable.
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(c) Treatment of Convertible Securities. After any Conversion Date or
Redemption Date on which all outstanding shares of either class of the
Common Stock are converted or redeemed, any share of such class of the
Common Stock that is to be issued on conversion, exchange or exercise of
any Convertible Securities shall, immediately upon such conversion,
exchange or exercise and without any notice from or to, or any other action
on the part of, the Corporation or its Board of Directors or the holder of
such Convertible Security:
(i) in the event the shares of such class of the Common Stock
outstanding on such Conversion Date were converted into shares of the
other class of the Common Stock (or another class or series of common
stock of the Corporation) pursuant to paragraph D.(a)(i)(2) or
paragraph D.(a)(iii), be converted into the amount of cash and/or the
number of shares of the kind of capital stock and/or other securities
or property of the Corporation that the number of shares of such class
of the Common Stock that were to be issued upon such conversion,
exchange or exercise would have received had such shares been
outstanding on such Conversion Date; or
(ii) in the event the shares of such class of the Common Stock
outstanding on such Redemption Date were redeemed pursuant to paragraph
D.(a)(i)(1)(B) or paragraph D.(b), be redeemed, to the extent of funds
of the Corporation legally available therefor, for $.01 per share in
cash for each share of such class of the Common Stock that otherwise
would be issued upon such conversion, exchange or exercise.
The provisions of the immediately preceding sentence shall not apply
to the extent that other adjustments in respect of such conversion,
exchange or redemption of a class of the Common Stock are otherwise
made pursuant to the provisions of such Convertible Securities.
(d) Notice and Other Provisions.
(i) Not later than the tenth Trading Day following the consummation
of a Disposition referred to in paragraph D.(a)(i), the Corporation
shall announce publicly by press release (1) the Net Proceeds of such
Disposition, (2) the number of shares outstanding of the class of the
Common Stock relating to the Group subject to such Disposition and (3)
the number of shares of such class of Common Stock into or for which
Convertible Securities are then convertible, exchangeable or
exercisable and the conversion, exchange or exercise price thereof. Not
earlier than the 26th Trading Day and not later than the 30th Trading
Day following the consummation of such Disposition, the Corporation
shall announce publicly by press release which of the actions specified
in paragraph D.(a)(i), it has irrevocably determined to take in respect
of such Disposition.
(ii) If the Corporation determines to make or pay a distribution or
dividend pursuant to paragraph D.(a)(i)(1)(A), the Corporation shall,
not later than the 30th Trading Day following the consummation of the
Disposition referred to in such paragraph, cause notice to be given to
each holder of shares of the class of the Common Stock relating to the
Group subject to such Disposition and to each holder of Convertible
Securities that are convertible into or exchangeable or exercisable for
shares of such class of Common Stock (unless alternate provision for
such notice to the holders of such Convertible Securities is made
pursuant to the terms of such Convertible Securities), setting forth
(1) the record date for determining holders entitled to receive such
distribution or dividend, which shall be not earlier than the 40th
Trading Day and not later than the 50th Trading Day following the
consummation of such Disposition, (2) the anticipated payment date of
such distribution or dividend (which shall not be more than 85 Trading
Days following the consummation of such Disposition), (3) the type of
property to be paid as such distribution or dividend in respect of the
outstanding shares of such class of Common Stock, (4) the Net Proceeds
of such Disposition, (5) the number of outstanding shares of such class
of Common Stock and the number of shares of such class of Common Stock
into or for which outstanding Convertible Securities are then
convertible, exchangeable or exercisable and the conversion, exchange
or exercise price thereof and (6) in the case of notice to be given to
holders of Convertible Securities, a statement to the effect that a
holder of such Convertible Securities shall be entitled to receive such
distribution or dividend only if such holder properly converts,
exchanges or exercises such Convertible
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Securities on or prior to the record date referred to in clause (1) of
this sentence. Such notice shall be sent by first-class mail, postage
prepaid, to each such holder at such holder's address as the same
appears on the transfer books of the Corporation.
(iii) If the Corporation determines to undertake a redemption
pursuant to paragraph D.(a)(i)(1)(B)(I), the Corporation shall, not
less than 35 Trading Days and not more than 45 Trading Days prior to
the Redemption Date, cause notice to be given to each holder of shares
of the class of the Common Stock relating to the Group subject to the
Disposition referred to in such paragraph and to each holder of
Convertible Securities convertible into or exchangeable or exercisable
for shares of such class of Common Stock (unless alternate provision
for such notice to the holders of such Convertible Securities is made
pursuant to the terms of such Convertible Securities), setting forth
(1) a statement that all shares of such class of Common Stock
outstanding on the Redemption Date shall be redeemed, (2) the
Redemption Date (which shall not be more than 85 Trading Days following
the consummation of such Disposition), (3) the type of property in
which the redemption price for the shares of such class of Common Stock
to be redeemed is to be paid, (4) the Net Proceeds of such Disposition,
(5) the place or places where certificates for shares of such class of
Common Stock, properly endorsed or assigned for transfer (unless the
Corporation waives such requirement), are to be surrendered for
delivery of cash and/or securities or other property, (6) the number of
outstanding shares of such class of Common Stock and the number of
shares of such class of the Common Stock into or for which such
outstanding Convertible Securities are then convertible, exchangeable
or exercisable and the conversion, exchange or exercise price thereof,
(7) in the case of notice to be given to holders of Convertible
Securities, a statement to the effect that a holder of such Convertible
Securities shall be entitled to participate in such redemption only if
such holder properly converts, exchanges or exercises such Convertible
Securities on or prior to the Redemption Date referred to in clause (2)
of this sentence and a statement as to what, if anything, such holder
will be entitled to receive pursuant to the terms of such Convertible
Securities or, if applicable, this Section D. if such holder thereafter
converts, exchanges or exercises such Convertible Securities and (8) a
statement to the effect that, except as otherwise provided by paragraph
D.(d)(ix), distributions and dividends on such shares of the Common
Stock shall cease to be paid as of such Redemption Date. Such notice
shall be sent by first-class mail, postage prepaid, to each such holder
at such holder's address as the same appears on the transfer books of
the Corporation.
(iv) If the Corporation determines to undertake a redemption pursuant
to paragraph D.(a)(i)(1)(B)(II), the Corporation shall, not later than
the 30th Trading Day following the consummation of the Disposition
referred to in such paragraph, cause notice to be given to each holder
of shares of the class of the Common Stock relating to the Group
subject to such Disposition and to each holder of Convertible
Securities that are convertible into or exchangeable or exercisable for
shares of such class of Common Stock (unless alternate provision for
such notice to the holders of such Convertible Securities is made
pursuant to the terms of such Convertible Securities) setting forth (1)
a date not earlier than the 40th Trading Day and not later than the
50th Trading Day following the consummation of the Disposition in
respect of which such redemption is to be made on which shares of such
class of the Common Stock shall be selected for redemption, (2) the
anticipated Redemption Date (which shall not be more than 85 Trading
Days following the consummation of such Disposition), (3) the type of
property in which the redemption price for the shares to be redeemed is
to be paid, (4) the Net Proceeds of such Disposition, (5) the number of
shares of such class of Common Stock outstanding and the number of
shares of such class of Common Stock into or for which outstanding
Convertible Securities are then convertible, exchangeable or
exercisable and the conversion, exchange or exercise price thereof, (6)
in the case of notice to be given to holders of Convertible Securities,
a statement to the effect that a holder of such Convertible Securities
shall be eligible to participate in such selection for redemption only
if such holder properly converts, exchanges or exercises such
Convertible Securities on or prior to the record date referred to in
clause (1) of this sentence, and a statement as to what, if anything,
such holder will be entitled to receive pursuant to the terms of such
Convertible Securities or, if applicable, this Section D. if such
holder thereafter converts, exchanges or
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exercises such Convertible Securities and (7) a statement that the
Corporation will not be required to register a transfer of any shares
of such class of the Common Stock for a period of 15 Trading Days next
preceding the date referred to in clause (1) of this sentence. Promptly
following the date referred to in clause (1) of the preceding sentence,
but not earlier than 40 Trading Days nor later than 50 Trading Days
following the consummation of such Disposition, the Corporation shall
cause a notice to be given to each holder of record of shares of such
class of Common Stock to be redeemed setting forth (1) the number of
shares of such class of Common Stock held by such holder to be
redeemed, (2) a statement that such shares of such class of Common
Stock shall be redeemed, (3) the Redemption Date, (4) the kind and per
share amount of cash and/or securities or other property to be received
by such holder with respect to each share of such class of Common Stock
to be redeemed, including details as to the calculation thereof, (5)
the place or places where certificates for shares of such class of
Common Stock, properly endorsed or assigned for transfer (unless the
Corporation shall waive such requirement), are to be surrendered for
delivery of such cash and/or securities or other property, (6) if
applicable, a statement to the effect that the shares being redeemed
may no longer be transferred on the transfer books of the Corporation
after the Redemption Date and (7) a statement to the effect that,
subject to paragraph D.(d)(ix), distributions and dividends on such
shares of such class of Common Stock shall cease to be paid as of the
Redemption Date. Such notices shall be sent by first-class mail,
postage prepaid, to each such holder at such holder's address as the
same appears on the transfer books of the Corporation.
(v) If the Corporation determines to convert either class of the
Common Stock into the other class (or another class or series of common
stock of the Corporation) pursuant to paragraph D.(a)(i)(2), D.(a)(iii)
or D.(a)(iv), the Corporation shall, not less than 35 Trading Days and
not more than 45 Trading Days prior to the Conversion Date, cause
notice to be given to each holder of shares of the class of the Common
Stock to be so converted and to each holder of Convertible Securities
that are convertible into or exchangeable or exercisable for shares of
such class of Common Stock (unless alternate provision for such notice
to the holders of such Convertible Securities is made pursuant to the
terms of such Convertible Securities) setting forth (1) a statement
that all outstanding shares of such class of Common Stock shall be
converted, (2) the Conversion Date (which, in the case of a conversion
after a Disposition, shall not be more than 85 Trading Days following
the consummation of such Disposition), (3) the per share number of
shares of Common Stock (or another class or series of common stock of
the Corporation), as the case may be, to be received with respect to
each share of such class of Common Stock, including details as to the
calculation thereof, (4) the place or places where certificates for
shares of such class of Common Stock, properly endorsed or assigned for
transfer (unless the Corporation shall waive such requirement), are to
be surrendered for delivery of certificates for shares of such class of
Common Stock, (5) the number of outstanding shares of such class of
Common Stock and the number of shares of such class of Common Stock
into or for which outstanding Convertible Securities are then
convertible, exchangeable or exercisable and the conversion, exchange
or exercise price thereof, (6) a statement to the effect that, subject
to paragraph D.(d)(ix), distributions and dividends on such shares of
Common Stock shall cease to be made as of such Conversion Date and (7)
in the case of notice to holders of such Convertible Securities, a
statement to the effect that a holder of such Convertible Securities
shall be entitled to receive shares of such class of Common Stock upon
such conversion only if such holder properly converts, exchanges or
exercises such Convertible Securities on or prior to such Conversion
Date and a statement as to what, if anything, such holder will be
entitled to receive pursuant to the terms of such Convertible
Securities or, if applicable, this Section D. if such holder thereafter
converts, exchanges or exercises such Convertible Securities. Such
notice shall be sent by first-class mail, postage prepaid, to each such
holder at such holder's address as the same appears on the transfer
books of the Corporation.
(vi) If the Corporation determines to redeem shares of either class
of the Common Stock pursuant to paragraph D.(b), the Corporation shall
cause notice to be given to each holder of shares of such class of the
Common Stock to be redeemed and to each holder of Convertible
Securities that are convertible into or exchangeable or exercisable for
shares of such class of the Common Stock (unless
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alternate provision for such notice to the holders of such Convertible
Securities is made pursuant to the terms of such Convertible
Securities), setting forth (1) a statement that all shares of such
class of the Common Stock outstanding on the Redemption Date shall be
redeemed in exchange for shares of common stock of each Timber Group
Subsidiary (if such redemption is pursuant to paragraph D.(b)(i)) or
shares of common stock of each Georgia-Pacific Group Subsidiary (if
such redemption is pursuant to paragraph D.(b)(ii)), (2) the Redemption
Date, (3) the place or places where certificates for shares of the
class of the Common Stock to be redeemed, properly endorsed or assigned
for transfer (unless the Corporation shall waive such requirement), are
to be surrendered for delivery of certificates for shares of the common
stock of each Timber Group Subsidiary or Georgia-Pacific Group
Subsidiary, as applicable, (4) a statement to the effect that, subject
to paragraph D.(d)(ix), distributions and dividends on such shares of
the Common Stock shall cease to be paid as of such Redemption Date, (5)
the number of shares of such class of the Common Stock outstanding and
the number of shares of such class of Common Stock into or for which
outstanding Convertible Securities are then convertible, exchangeable
or exercisable and the conversion, exchange or exercise price thereof
and (6) in the case of notice to holders of Convertible Securities, a
statement to the effect that a holder of Convertible Securities shall
be entitled to receive shares of common stock of each Timber Group
Subsidiary or Georgia-Pacific Group Subsidiary, as applicable, upon
redemption only if such holder properly converts, exchanges or
exercises such Convertible Securities on or prior to the Redemption
Date and a statement as to what, if anything, such holder will be
entitled to receive pursuant to the terms of such Convertible
Securities or, if applicable, this Section D., if such holder
thereafter converts, exchanges or exercises such Convertible
Securities. Such notice shall be sent by first-class mail, postage
prepaid, not less than 30 Trading Days nor more than 45 Trading Days
prior to the Redemption Date to each such holder at such holder's
address as the same appears on the transfer books of the Corporation.
(vii) If less than all of the outstanding shares of the Common Stock
of a class are to be redeemed pursuant to paragraph D.(a)(i)(1)(B)(II),
the shares to be redeemed by the Corporation shall be selected from
among the holders of shares of such class of the Common Stock
outstanding at the close of business on the record date for such
redemption on a pro rata basis among all such holders or by lot or by
such other method as may be determined by the Board of Directors of the
Corporation to be equitable.
(viii) The Corporation shall not be required to issue or deliver
fractional shares of any capital stock or of any other securities to
any holder of either class of the Common Stock upon any conversion,
redemption, dividend or other distribution pursuant to this Section D.
If more than one share of either class of the Common Stock shall be
held at the same time by the same holder, the Corporation may aggregate
the number of shares of any capital stock that shall be issuable or any
other securities or property that shall be distributable to such holder
upon any conversion, redemption, dividend or other distribution
(including any fractional shares). If there are fractional shares of
any capital stock or of any other securities remaining to be issued or
distributed to the holders of either class of the Common Stock, the
Corporation shall, if such fractional shares are not issued or
distributed to the holder, pay cash in respect of such fractional
shares in an amount equal to the Fair Value thereof on the fifth
Trading Day prior to the date such payment is to be made (without
interest).
(ix) No adjustments in respect of distributions or dividends shall be
made upon the conversion or redemption of any shares of either class of
the Common Stock; provided, however, that if the Conversion Date or
Redemption Date, as the case may be, with respect to any shares of
either class of the Common Stock shall be subsequent to the record date
for the payment of a distribution or dividend thereon or with respect
thereto, the holders of such class of the Common Stock at the close of
business on such record date shall be entitled to receive the
distribution or dividend payable on or with respect to such shares on
the date set for payment of such distribution or dividend, in each case
without interest, notwithstanding the subsequent conversion or
redemption of such shares.
(x) Before any holder of shares of either class of the Common Stock
shall be entitled to receive any cash payment and/or certificates or
instruments representing shares of any capital stock and/or
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<PAGE>
other securities or property to be distributed to such holder with
respect to such class of the Common Stock pursuant to this Section D.,
such holder shall surrender at such place as the Corporation shall
specify certificates for such shares of the Common Stock, properly
endorsed or assigned for transfer (unless the Corporation shall waive
such requirement). The Corporation shall as soon as practicable after
receipt of certificates representing such shares of the Common Stock
deliver to the person for whose account such shares of the Common Stock
were so surrendered, or to such person's nominee or nominees, the cash
and/or the certificates or instruments representing the number of whole
shares of the kind of capital stock and/or other securities or property
to which such person shall be entitled as aforesaid, together with any
payment in respect of fractional shares contemplated by paragraph
D.(d)(viii), in each case without interest. If less than all of the
shares of either class of the Common Stock represented by any one
certificate are to be redeemed, the Corporation shall issue and deliver
a new certificate for the shares of such class of Common Stock not
redeemed.
(xi) From and after any applicable Conversion Date or Redemption
Date, as the case may be, all rights of a holder of shares of either
class of the Common Stock that were converted or redeemed shall cease
except for the right, upon surrender of the certificates representing
such shares of the Common Stock as required by paragraph D.(d)(x), to
receive the cash and/or the certificates or instruments representing
shares of the kind and amount of capital stock and/or other securities
or property for which such shares were converted or redeemed, together
with any payment in respect of fractional shares contemplated by
paragraph D.(d)(viii) (which shall be held by the Corporation for the
holder of shares of the Common Stock that were redeemed until the
receipt of certificates representing such shares of the Common Stock as
provided in paragraph D.(d)(x))and rights to distributions or dividends
as provided in paragraph D.(d)(ix), in each case without interest. No
holder of a certificate that immediately prior to the applicable
Conversion Date or Redemption Date represented shares of a class of the
Common Stock shall be entitled to receive any distribution or dividend
or interest payment with respect to shares of any kind of capital stock
or other security or instrument for which such class of the Common
Stock was converted or redeemed until the surrender as required by this
Section D. of such certificate in exchange for a certificate or
certificates or instrument or instruments representing such capital
stock or other security. Subject to applicable escheat and similar
laws, upon such surrender, there shall be paid to the holder the amount
of any distributions or dividends (without interest) which theretofore
became payable on any class or series of capital stock of the
Corporation as of a record date after the Conversion Date or Redemption
Date, but that were not paid by reason of the foregoing, with respect
to the number of whole shares of the kind of capital stock represented
by the certificate or certificates issued upon such surrender. From and
after a Conversion Date or Redemption Date, the Corporation shall,
however, be entitled to treat the certificates for a class of the
Common Stock that have not yet been surrendered for conversion or
redemption as evidencing the ownership of the number of whole shares of
the kind or kinds of capital stock of the Corporation for which the
shares of such class of the Common Stock represented by such
certificates shall have been converted or redeemed, notwithstanding the
failure to surrender such certificates.
(xii) The Corporation shall pay any and all documentary, stamp or
similar issue or transfer taxes that may be payable in respect of the
issuance or delivery of any shares of capital stock and/or other
securities upon conversion or redemption of shares of either class of
the Common Stock pursuant to this Section D. The Corporation shall not,
however, be required to pay any tax that may be payable in respect of
any transfer involved in the issuance or delivery of any shares of
capital stock and/or other securities in a name other than that in
which the shares of such class of the Common Stock so converted or
redeemed were registered, and no such issuance or delivery shall be
made unless and until the person requesting such issuance or delivery
has paid to the Corporation the amount of any such tax or has
established to the satisfaction of the Corporation that such tax has
been paid.
(xiii) Neither the failure to mail any notice required by this
paragraph D.(d) to any particular holder of the Common Stock or of
Convertible Securities nor any defect therein shall affect the
sufficiency thereof with respect to any other holder of outstanding
shares of the Common Stock or of Convertible Securities or the validity
of any such conversion or redemption.
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<PAGE>
(xiv) The Board of Directors may establish such rules and
requirements to facilitate the effectuation of the transactions
contemplated by this Section D. as the Board of Directors shall
determine to be appropriate.
E. Application of the Provisions of this Certificate of Designations.
(a) Certain Determinations by the Board of Directors. The Board of
Directors shall make such determinations with respect to the assets and
liabilities to be attributed to the Groups, the application of the
provisions of this Article VII to transactions to be engaged in by the
Corporation and the preferences, limitations and relative rights of the
holders of either class of the Common Stock, and the qualifications and
restrictions thereon, provided by the Articles as may be or become
necessary or appropriate to the exercise of such preferences, limitations
and relative rights, including, without limiting the foregoing, the
determinations referred to in the following paragraphs E.(a)(i), (ii) and
(iii). A record of any such determination shall be filed with the records
of the actions of the Board of Directors.
(i) Upon any acquisition by the Corporation or its subsidiaries of
any assets or business, or any assumption of liabilities, outside of
the ordinary course of business of the Georgia-Pacific Group or the
Timber Group, as the case may be, the Board of Directors shall
determine whether such assets, business and liabilities (or an interest
therein) shall be for the benefit of the Georgia-Pacific Group or the
Timber Group or that an interest therein shall be partly for the
benefit of the Georgia-Pacific Group and partly for the benefit of the
Timber Group and, accordingly, shall be attributed to the Georgia-
Pacific Group or the Timber Group, or partly to each, in accordance
with paragraph F.(g) or (q), as the case may be.
(ii) Upon any issuance of any shares of the Preferred Stock or the
Junior Preferred Stock of any series, the Board of Directors shall
attribute, based on the use of proceeds of such issuance of shares of
the Preferred Stock or the Junior Preferred Stock in the business of
the Georgia-Pacific Group or the Timber Group and any other relevant
factors, the shares so issued entirely to the Georgia-Pacific Group or
entirely to the Timber Group or partly to the Georgia-Pacific Group and
partly to the Timber Group in such proportion as the Board of Directors
shall determine.
(iii) Upon any redemption or repurchase by the Corporation or any
subsidiary thereof of shares of the Preferred Stock or the Junior
Preferred Stock of any class or series or of other securities or debt
obligations of the Corporation, the Board of Directors shall determine,
based on the property used to redeem or purchase such shares, other
securities or debt obligations, which, if any, of such shares, other
securities or debt obligations redeemed or repurchased shall be
attributed to the Georgia-Pacific Group and which, if any, of such
shares, other securities or debt obligations shall be attributed to the
Timber Group and, accordingly, how many of the shares of such series of
the Preferred Stock or the Junior Preferred Stock or of such other
securities, or how much of such debt obligations, that remain
outstanding, if any, are thereafter attributed to the Georgia-Pacific
Group or to the Timber Group.
(b) Certain Determinations Not Required. Notwithstanding the foregoing
provisions of this Section E., the provisions of paragraphs F.(g) or (q) or
any other provision, at any time when there are not outstanding both (i)
one or more shares of Georgia-Pacific Group Stock or Convertible Securities
convertible into or exchangeable or exercisable for Georgia-Pacific Group
Stock and (ii) one or more shares of Timber Stock or Convertible Securities
convertible into or exchangeable or exercisable for Timber Stock, the
Corporation need not (A) attribute any of the assets or liabilities of the
Corporation or any of its subsidiaries to the Georgia-Pacific Group or the
Timber Group or (B) make any determination required in connection
therewith, nor shall the Board of Directors be required to make any of the
determinations otherwise required by this Article, and in such
circumstances the holders of the shares of Georgia-Pacific Group Stock or
Timber Stock outstanding, as the case may be, shall (unless otherwise
specifically provided by the Articles) be entitled to all the preferences
or other relative rights of both classes of the Common Stock without
differentiation between the Georgia-Pacific Group Stock and the Timber
Stock.
(c) Board Determinations Binding. Subject to applicable law, any
determinations made in good faith by the Board of Directors of the
Corporation under any provision of this Section E. or otherwise in
furtherance of the application of this Article shall be final and binding
on all shareholders.
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F. Certain Definitions. As used in this Article, the following terms shall
have the following meanings (with terms defined in the singular having
comparable meaning when used in the plural and vice versa), unless the context
otherwise requires. As used in this Section F., a "contribution" or "transfer"
of assets or properties from one Group to another shall refer to the
reattribution of such assets or properties from the contributing or
transferring Group to the other Group and correlative phrases shall have
correlative meanings.
(a) "Available Distribution Amount" shall mean, as the context requires,
a reference to the Georgia-Pacific Group Available Distribution Amount or
the Timber Group Available Distribution Amount.
(b) "Common Stock" shall mean the collective reference to the Georgia-
Pacific Group Stock and the Timber Stock, and either may sometimes be
called a class of Common Stock.
(c) "Conversion Date" shall mean the date fixed by the Board of Directors
as the effective date for the conversion of shares of Georgia-Pacific Group
Stock or Timber Stock, as the case may be, into shares of Timber Stock or
Georgia-Pacific Group Stock, respectively (or another class or series of
common stock of the Corporation, as the case may be) as shall be set forth
in the notice to holders of shares of the class of Common Stock subject to
such conversion and to holders of any Convertible Securities that are
convertible into or exchangeable or exercisable for shares of the class of
Common Stock subject to such conversion required pursuant to paragraph
D.(d)(v).
(d) "Convertible Securities" shall mean at any time any securities of the
Corporation or of any subsidiary thereof (other than shares of the Common
Stock), including warrants and options, outstanding at such time that by
their terms are convertible into or exchangeable or exercisable for or
evidence the right to acquire any shares of either class of the Common
Stock, whether convertible, exchangeable or exercisable at such time or a
later time or only upon the occurrence of certain events, but in respect of
antidilution provisions of such securities only upon the effectiveness
thereof.
(e) "Disposition" shall mean a sale, transfer, assignment or other
disposition (whether by merger, consolidation, sale or contribution of
assets or stock or otherwise) of properties or assets (including stock,
other securities and goodwill).
(f) "Fair Value" shall mean, (i) in the case of equity securities or debt
securities of a class or series that has previously been Publicly Traded
for a period of at least 15 months, the Market Value thereof (if such
Market Value, as so defined, can be determined); (ii) in the case of an
equity security or debt security that has not been Publicly Traded for at
least 15 months or the Market Value of which cannot be determined, the fair
value per share of stock or per other unit of such security, on a fully
distributed basis, as determined by an independent investment banking firm
experienced in the valuation of securities selected in good faith by the
Board of Directors, or, if no such investment banking firm is, as
determined in the good faith judgment of the Board of Directors, available
to make such determination, in good faith by the Board of Directors; (iii)
in the case of cash denominated in U.S. dollars, the face amount thereof
and in the case of cash denominated in other than U.S. dollars, the face
amount thereof converted into U.S. dollars at the rate published in The
Wall Street Journal on the date for the determination of Fair Value or, if
not so published, at such rate as shall be determined in good faith by the
Board of Directors based upon such information as the Board of Directors
shall in good faith determine to be appropriate in accordance with good
business practice; and (iv) in the case of property other than securities
or cash, the "Fair Value" thereof shall be determined in good faith by the
Board of Directors based upon such appraisals or valuation reports of such
independent experts as the Board of Directors shall in good faith determine
to be appropriate in accordance with good business practice. Any such
determination of Fair Value shall be described in a statement filed with
the records of the actions of the Board of Directors.
(g) "Georgia-Pacific Group" shall mean, as of any date:
(i) the interest of the Corporation or any of its subsidiaries on
such date in all of the assets, liabilities and businesses of the
Corporation or any of its subsidiaries (and any successor companies),
other than any assets, liabilities and businesses attributed in
accordance with this Article to the Timber Group;
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(ii) all properties and assets transferred to the Georgia-Pacific
Group from the Timber Group pursuant to transactions in the ordinary
course of business of both the Georgia-Pacific Group and the Timber
Group or otherwise as the Board of Directors may have directed as
permitted by this Article; and
(iii) the interest of the Corporation or any of its subsidiaries in
any business or asset acquired and any liabilities assumed by the
Corporation or any of its subsidiaries outside the ordinary course of
business and attributed to the Georgia-Pacific Group, as determined by
the Board of Directors as contemplated by paragraph E.(a)(i);
provided that from and after any transfer of any assets or properties from
the Georgia-Pacific Group to the Timber Group, the Georgia-Pacific Group
shall no longer include such assets or properties so contributed or
transferred.
(h) "Georgia-Pacific Group Available Distribution Amount," on any date,
shall mean any amount in excess of the minimum amount necessary for the
Georgia-Pacific Group to be able to pay its debts as they become due in the
usual course of business.
(i) "Group" shall mean, as of any date, the Georgia-Pacific Group or the
Timber Group, as the case may be.
(j) "Market Capitalization" of any class or series of common stock on any
date shall mean the product of (i) the Market Value of one share of such
class or series of capital stock on such date and (ii) the number of shares
of such class or series of capital stock outstanding on such date.
(k) "Market Value" of a share of any class or series of capital stock of
the Corporation on any day shall mean the average of the high and low
reported sales prices regular way of a share of such class or series on
such Trading Day or, in case no such reported sale takes place on such
Trading Day, the average of the reported closing bid and asked prices
regular way of a share of such class or series on such Trading Day, in
either case as reported on the New York Stock Exchange Composite Tape or,
if the shares of such class or series are not listed or admitted to trading
on such Exchange on such Trading Day, on the principal national securities
exchange in the United States on which the shares of such class or series
are listed or admitted to trading or, if not listed or admitted to trading
on any national securities exchange on such Trading Day, on The Nasdaq
National Market or, if the shares of such class or series are not listed or
admitted to trading on any national securities exchange or quoted on The
Nasdaq National Market on such Trading Day, the average of the closing bid
and ask prices of a share of such class or series in the over-the-counter
market on such Trading Day as furnished by any New York Stock Exchange
member firm selected from time to time by the Corporation or, if such
closing bid and asked prices are not made available by any such New York
Stock Exchange member firm on such Trading Day, the Fair Value of a share
of such class or series as set forth in clause (ii) of the definition of
Fair Value; provided that, for purposes of determining the Market Value of
a share of any class or series of capital stock for any period, (i) the
"Market Value" of a share of capital stock on any day prior to any "ex-
dividend" date or any similar date occurring during such period for any
dividend or distribution (other than any dividend or distribution
contemplated by clause (ii)(B) of this sentence) paid or to be paid with
respect to such capital stock shall be reduced by the Fair Value of the per
share amount of such dividend or distribution and (ii) the "Market Value"
of any share of capital stock on any day prior to (A) the effective date of
any subdivision (by stock split or otherwise) or combination (by reverse
stock split or otherwise) of outstanding shares of such class or series of
capital stock occurring during such period or (B) any "ex-dividend" date or
any similar date occurring during such period for any dividend or
distribution with respect to such capital stock to be made in shares of
such class or series of capital stock or Convertible Securities that are
convertible, exchangeable or exercisable for such class or series of
capital stock shall be appropriately adjusted, as determined by the Board
of Directors, to reflect such subdivision, combination, dividend or
distribution.
(l) "Market Value Ratio of the Converted Stock to the Consideration
Stock" as of any date shall mean the fraction (which may be greater or less
than 1/1), expressed as a decimal (rounded to the nearest five decimal
places), of a share of a class of Common Stock (or another class or series
of common stock of the
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Corporation, if so provided by paragraph D.(a) because such class of Common
Stock is not then Publicly Traded) to be received by holders of shares of
another class of Common Stock upon the conversion of all or a portion of
such class of shares into such other class or series of shares (such class
of Common Stock or another class or series of common stock to be received,
the "Consideration Stock" and such class of Common Stock to be converted,
the "Converted Stock") in accordance with paragraph D.(a), based on the
ratio of the Market Value of a share of Converted Stock to the Market Value
of a share of Consideration Stock as of such date, determined by the
fraction the numerator of which shall be the sum of (A) four times the
average Market Value of one share of Converted Stock over the period of
five consecutive Trading Days ending on such date, (B) three times the
average Market Value of one share of Converted Stock over the period of
five consecutive Trading Days ending on the fifth Trading Day prior to such
date, (C) two times the average Market Value of one share of Converted
Stock over the period of five consecutive Trading Days ending on the 10th
Trading Day prior to such date and (D) the average Market Value of one
share of Converted Stock over the period of five consecutive Trading Days
ending on the 15th Trading Day prior to such date, and the denominator of
which shall be the sum of (A) four times the average Market Value of one
share of Consideration Stock (or such other common stock) over the period
of five consecutive Trading Days ending on such date, (B) three times the
average Market Value of one share of Consideration Stock (or such other
common stock) over the period of five consecutive Trading Days ending on
the fifth Trading Day prior to such date, (C) two times the average Market
Value of one share of Consideration Stock (or such other common stock) over
the period of five consecutive Trading Days ending on the 10th Trading Day
prior to such date and (D) the average Market Value of one share of
Consideration Stock (or such other common stock) over the period of five
consecutive Trading Days ending on the 15th Trading Day prior to such date.
(m) "Net Proceeds" shall mean, as of any date with respect to any
Disposition of any of the properties and assets attributed to the Georgia-
Pacific Group or the Timber Group, as the case may be, an amount, if any,
equal to what remains of the gross proceeds of such Disposition after
payment of, or reasonable provision is made as determined by the Board of
Directors for, (A) any taxes payable by the Corporation (or which would
have been payable but for the utilization of tax benefits attributable to
the other Group) in respect of such Disposition or in respect of any
resulting dividend or redemption pursuant to paragraphs D.(a)(i)(1)(A) or
(B), (B) any transaction costs, including, without limitation, any legal,
investment banking and accounting fees and expenses and (C) any liabilities
(contingent or otherwise) of or attributed to such Group, including,
without limitation, any liabilities for deferred taxes or any indemnity or
guarantee obligations of the Corporation incurred in connection with the
Disposition or otherwise, and any liabilities for future purchase price
adjustments and any preferential amounts plus any accumulated and unpaid
distributions in respect of the Preferred Stock or the Junior Preferred
Stock attributed to such Group. For purposes of this definition, any
properties and assets attributed to the Group, the properties and assets of
which are subject to such Disposition, remaining after such Disposition
shall constitute "reasonable provision" for such amount of taxes, costs and
liabilities (contingent or otherwise) as the Board of Directors determines
can be expected to be supported by such properties and assets.
(n) "Publicly Traded" with respect to any security shall mean that such
security is (i) registered under Section 12 of the Securities Exchange Act
of 1934, as amended (or any successor provision of law), and (ii) listed
for trading on the New York Stock Exchange or the American Stock Exchange
(or any national securities exchange registered under Section 7 of the
Securities Exchange Act of 1934, as amended (or any successor provision of
law), that is the successor to either such exchange) or listed on The
Nasdaq Stock Market (or any successor market system).
(o) "Redemption Date" shall mean the date fixed by the Board of Directors
as the effective date for a redemption of shares of either class of the
Common Stock, as set forth in a notice to holders thereof required pursuant
to paragraphs D.(d)(iii), (iv) or (vi).
(p) "Related Business Transaction" means any Disposition of all or
substantially all the properties and assets attributed to the Georgia-
Pacific Group or the Timber Group, as the case may be, in a transaction or
series of related transactions that result in the Corporation receiving in
consideration of such properties and assets primarily equity securities
(including, without limitation, capital stock, debt securities convertible
I-33
<PAGE>
into or exchangeable for equity securities or interests in a general or
limited partnership or limited liability company, without regard to the
voting power or other management or governance rights associated therewith)
of any entity which (i) acquires such properties or assets or succeeds (by
merger, formation of a joint venture or otherwise) to the business
conducted with such properties or assets or controls such acquiror or
successor and (ii) is primarily engaged or proposes to engage primarily in
one or more businesses similar or complementary to the businesses conducted
by such Group prior to such Disposition, as determined by the Board of
Directors.
(q) "Timber Group" shall mean, as of any date:
(i) all assets and liabilities of the Corporation and its
subsidiaries attributed by the Board of Directors to the Timber Group,
whether or not such assets or liabilities are or were also assets and
liabilities of any of the Timber Group Companies;
(ii) all properties and assets transferred to the Timber Group from
the Georgia-Pacific Group pursuant to transactions in the ordinary
course of business of the Georgia-Pacific Group and the Timber Group or
otherwise as the Board of Directors may have directed as permitted by
this Article; and
(iii) the interest of the Corporation or any of its subsidiaries in
any business or asset acquired and any liabilities assumed by the
Corporation or any of its subsidiaries outside of the ordinary course
of business and attributed to the Timber Group, as determined by the
Board of Directors as contemplated by paragraph E.(a)(i);
provided that from and after any transfer of any assets or properties from
the Timber Group to the Georgia-Pacific Group, the Timber Group shall no
longer include such assets or properties so contributed or transferred.
(r) "Timber Group Available Distribution Amount," on any date, shall mean
any amount in excess of the minimum amount necessary for the Timber Group
to be able to pay its debts as they become due in the usual course of
business.
(s) "Trading Day" shall mean each weekday other than any day on which the
relevant class of common stock of the Corporation is not traded on any
national securities exchange or quoted on The Nasdaq National Market or in
the over-the-counter market.
G. Inconsistencies. In the event of an inconsistency between the provisions
of this Article V and the provisions of Article IV relating to the Junior
Preferred Stock, the provisions of Article IV shall control.
ARTICLE VI.
A. Notwithstanding any provision of the Bylaws of the Corporation (and
notwithstanding that some lesser percentage may be permissible in law), the
following provisions of the Bylaws of the Corporation, as in effect on March
3, 1984, shall not be amended, modified or repealed by the shareholders of the
Corporation, nor shall any provision of the Bylaws of the Corporation
inconsistent with such provisions be adopted by the shareholders of the
Corporation, except pursuant to the affirmative vote of at least seventy-five
percent (75%) of the voting power of the outstanding capital stock of the
Corporation entitled to vote generally in the election of directors, voting as
a class: Article I, Section 2; Article II, Section 1(A); Article II, Section
1(D); Article II, Section 8; and Article II, Section 9.
B. Notwithstanding that some lesser percentage may be permissible in law, no
provision of Article IV of these Articles of Incorporation regarding Junior
Preferred Stock of the Corporation and no provision of this Article VI shall
be amended, modified or repealed by the shareholders of the Corporation, nor
shall any provision of these Articles of Incorporation inconsistent with any
such provision be adopted by the shareholders of the Corporation, except
pursuant to the affirmative vote of at least seventy-five percent (75%) of the
voting power of the outstanding capital stock of the Corporation entitled to
vote generally in the election of directors, voting as a class.
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<PAGE>
ARTICLE VII.
A. A director of the Corporation shall not be liable to the Corporation or
its shareholders for monetary damages for any action taken, or any failure to
take any action, as a director, except for liability (i) for any
appropriation, in violation of his or her duties, of any business opportunity
of the Corporation, (ii) for acts or omissions that involve intentional
misconduct or a knowing violation of law, (iii) of the types set forth in
Section 14-2-832 of the Georgia Business Corporation Code, or (iv) for any
transaction from which the director received an improper personal benefit.
B. Any repeal or modification of the provisions of this Article VII by the
shareholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the liability of a director of the
Corporation with respect to any act or omission occurring prior to the
effective date of such repeal or modification.
C. If the Georgia Business Corporation Code is hereafter amended to
authorize the further elimination or limitation of the liability of directors,
then the liability of a director of the Corporation, in addition to the
limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by the amended Georgia Business Corporation Code.
D. In the event that any of the provisions of this Article VII (including
any provision within a single sentence) is held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, the remaining
provisions are severable and shall remain enforceable to the fullest extent
permitted by law.
ARTICLE VIII.
In discharging the duties of their respective positions and in determining
what is believed to be in the best interests of the Corporation, the Board of
Directors, committees of the Board of Directors and individual directors, in
addition to considering the effects of any action on the Corporation and its
shareholders, may consider the interests of the employees, customers,
suppliers and creditors of the Corporation and its subsidiaries, the
communities in which offices or other establishments of the Corporation and
its subsidiaries are located, and all other factors such directors consider
pertinent; provided, however that no constituency shall be deemed to have been
given any right to consideration hereby.
IN WITNESS WHEREOF, GEORGIA-PACIFIC CORPORATION has caused these Restated
Articles of Incorporation to be executed and its corporate seal to be affixed
and has caused its seal and the execution hereof to be attested, all by its
duly authorized officers, this [ ] day of [ ], 1997.
GEORGIA-PACIFIC CORPORATION
By: _________________________________
James F. Kelley
Senior Vice President-Law and
General Counsel
[CORPORATE SEAL]
Attest:
_____________________________________
Kenneth F. Khoury
Vice President and Secretary
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<PAGE>
EXHIBIT 3.3
BYLAWS
OF
GEORGIA-PACIFIC CORPORATION
ARTICLE I
SHAREHOLDERS' MEETINGS
SECTION 1. Annual Meeting. The annual meeting of the shareholders for the
--------------
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held at such place, either within or
without the State of Georgia, on such date and at such time as the Board of
Directors may by resolution provide, or, if the Board of Directors fails to
provide, then such meeting shall be held at the principal executive office of
the Corporation at 11:00 A.M. on the first Tuesday in the month of May in each
year, or, if such date is a legal holiday, on the next following business day.
If an annual meeting of shareholders is not held as provided in this Section 1
of this Article I, any business, including the election of directors, that might
properly have been acted upon at such annual meeting may be acted upon at a
special meeting in lieu of the annual meeting held pursuant to these Bylaws or
held pursuant to a court order.
SECTION 2. Special Meetings. Special meetings of the shareholders may be
----------------
called at any time by the Chairman, any Vice Chairman, the President, the Chief
Executive Officer or the Board of Directors. In addition, special meetings of
shareholders shall be called by the Corporation as set forth in the
Corporation's Articles of Incorporation or upon written demand of the holders of
at least seventy-five percent (75%) of the voting power of the outstanding
capital stock of the Corporation entitled to vote on any issue proposed to be
considered at the proposed special meeting, voting as a separate voting group,
or upon the written demand of shareholders as provided in Section 1 (C) of
Article II hereof, any such written demand to be made in accordance with the
requirements of applicable law. Each special meeting shall be held at such
place, either within or without the State of Georgia, as the Board of Directors
may by resolution provide, or, if the Board of Directors fails to provide, then
such meeting shall be held at the principal executive office of the Corporation,
on such date and at such time as shall be fixed by the party calling the
meeting.
SECTION 3. Notice of Meeting. Except as may otherwise be required or
-----------------
prohibited by law, written notice stating the place, day and hour of the meeting
of shareholders and, in case of a special meeting of shareholders, the purpose
or purposes for which the meeting is called, shall be delivered in the case of
an annual or special meeting of shareholders, not less than ten (10) nor more
than sixty (60) days before the date of the meeting either personally or by
mail, by the Corporation by or at the direction of the Chairman, any Vice
Chairman, the President, the Chief Executive Officer, the Secretary or the
officer or persons calling the meeting, to each shareholder of record entitled
to vote at such meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, addressed to the shareholder at his or
its address as it appears on the stock transfer books of the Corporation, with
first class postage thereon prepaid, or, if the Corporation has more than 500
shareholders of record entitled to vote at the meeting and the notice is mailed
not less than thirty (30) days before the date of the meeting, with postage
thereon prepaid for any other class of United States mail.
<PAGE>
SECTION 4. Waivers. Notwithstanding anything herein to the contrary,
-------
notice of a meeting of shareholders need not be given to any shareholder who
waives notice of such meeting in accordance with the Georgia Business
Corporation Code.
SECTION 5. Voting Group. Voting group means all shares of one or more
------------
classes or series that are entitled to vote and be counted together collectively
on a matter at a meeting of shareholders. All shares entitled to vote generally
on the matter are for that purpose a separate voting group.
SECTION 6. Quorum. With respect to shares entitled to vote as a separate
------
voting group on a matter at a meeting of shareholders, the presence, in person
or by proxy, of a majority of the votes entitled to be cast on the matter by the
voting group shall constitute a quorum of that voting group for action on that
matter unless the Articles of Incorporation, any designation of a class or
series of capital stock of the Corporation, or the Georgia Business Corporation
Code provides otherwise. Once a share is represented for any purpose at a
meeting, other than solely to object to holding the meeting or to transacting
business at the meeting, it is deemed present for quorum purposes for the
remainder of the meeting and for any adjournment of the meeting unless a new
record date is or must be set for the adjourned meeting.
SECTION 7. Vote Required for Action. If a quorum exists, action on a
------------------------
matter (other than the election of directors) by a voting group is approved if
the votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless the Articles of Incorporation, provisions of these
Bylaws validly adopted by the shareholders, or the Georgia Business Corporation
Code requires a greater number of affirmative votes. Unless otherwise provided
in the Articles of Incorporation, directors shall be elected by a plurality of
the votes cast by the shares entitled to vote in the election of directors at a
meeting at which a quorum is present. If the Articles of Incorporation or the
Georgia Business Corporation Code provide for voting by two or more voting
groups on a matter, action on that matter is taken only when voted upon by each
of those voting groups counted separately. Action may be taken by one voting
group on a matter even though no action is taken by another voting group
entitled to vote on the matter.
SECTION 8. Voting of Shares. Unless the Articles of Incorporation, any
----------------
designation of a class or series of capital stock of the Corporation, or the
Georgia Business Corporation Code provides otherwise, each outstanding share
having voting rights shall be entitled to one vote on each matter submitted to a
vote at a meeting of shareholders. Voting on all matters shall be by voice vote
or by show of hands unless any qualified voter, prior to the voting on any
matter, demands vote by ballot, in which case each ballot shall state the name
of the shareholder voting and the number of shares voted by him, and if the
ballot be cast by proxy, it shall also state the name of the proxy.
SECTION 9. Proxies. A shareholder entitled to vote may vote in person or
-------
by proxy pursuant to an appointment of proxy executed in writing by the
shareholder or by his or its attorney in fact. An appointment of proxy shall be
valid for only one meeting to be specified therein, and any adjournments of such
meeting, but shall not be valid for more than eleven (11) months unless
expressly provided therein. Appointments of proxy shall be dated and filed with
the records of the meeting to which they relate. If the validity of any
appointment of proxy is questioned, it must be submitted to the secretary of the
meeting of shareholders for examination or to a proxy officer or committee
appointed by the person presiding at the meeting. The secretary of the meeting
or, if appointed, the proxy officer or committee shall determine the validity or
invalidity of any appointment of proxy submitted, and reference by the secretary
in the minutes of the meeting to the regularity of an appointment of proxy shall
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<PAGE>
be received as prima facie evidence of the facts stated for the purpose of
establishing the presence of a quorum at the meeting and for all other purposes.
SECTION 11. Presiding Officer. The Chief Executive Officer shall serve as
-----------------
the chairman of every meeting of shareholders unless another person is elected
by shareholders to serve as chairman at the meeting. The chairman shall appoint
any persons he deems necessary to assist with the meeting.
SECTION 12. Adjournments. Whether or not a quorum is present to organize
------------
a meeting, any meeting of shareholders (including an adjourned meeting) may be
adjourned by the holders of a majority of the voting power represented at the
meeting to reconvene at a specific time and place, but no later than 120 days
after the date fixed for the original meeting unless the requirements of the
Georgia Business Corporation Code concerning the selection of a new record date
have been met. At any reconvened meeting within that time period, any business
may be transacted that could have been transacted at the meeting that was
adjourned. If notice of the adjourned meeting was properly given, it shall not
be necessary to give any notice of the reconvened meeting or of the business to
be transacted, if the date, time and place of the reconvened meeting are
announced at the meeting that was adjourned and before adjournment; provided,
however, that if a new record date is or must be fixed, notice of the reconvened
meeting must be given to persons who are shareholders as of the new record date.
SECTION 13. Fixing of Record Date with Regard to Shareholder Action. For
-------------------------------------------------------
the purpose of determining shareholders entitled to notice of a shareholders'
meeting, to demand a special meeting, to vote, or to take any other action, the
Board of Directors may fix a future date as the record date, which date shall be
not more than seventy (70) days and, in case of a meeting of shareholders, not
less than ten (10) days prior to the date on which the particular action,
requiring a determination of shareholders, is to be taken. A determination of
shareholders entitled to notice of or to vote at a shareholders' meeting is
effective for any adjournment of the meeting unless the Board of Directors fixes
a new record date, which it must do if the meeting is adjourned to a date more
than 120 days after the date fixed for the original meeting. If no record date
is fixed by the Board of Directors, the record date shall be determined in
accordance with the provisions of the Georgia Business Corporation Code.
SECTION 14. Shareholder Proposals. No proposal for a shareholder vote
---------------------
(other than director nominations, to which Section 1(D) of Article II applies)
shall be submitted by a shareholder (a "Shareholder Proposal") to the
Corporation's shareholders unless the shareholder submitting such proposal (the
"Proponent") shall have filed a written notice setting forth with particularity
(i) the names and business addresses of the Proponent and all natural persons,
corporations, partnerships, trusts or any other type of legal entity or
recognized ownership vehicle (collectively, a "Person") acting in concert with
the Proponent; (ii) the name and address of the Proponent and the Persons
identified in clause (i), as they appear on the Corporation's books (if they so
appear); (iii) the class and number of shares of the Corporation beneficially
owned by the Proponent and the Persons identified in clause (i); (iv) a
description of the Shareholder Proposal containing all material information
relating thereto; and (v) such other information as the Board of Directors
reasonably determines is necessary or appropriate to enable the Board of
Directors and shareholders of the Corporation to consider the Shareholder
Proposal. Shareholder Proposals shall be delivered to the Secretary of the
Corporation at the principal executive office of the Corporation within the time
period specified in Securities and Exchange Commission Rule 14a-8(a)(3)(i), or
any successor rule. The presiding officer at any shareholders' meeting may
determine that any Shareholder Proposal was not made in accordance with the
procedures prescribed in these Bylaws or is otherwise not in accordance with
law, and if it is so determined, such officer shall so declare at the meeting
and the Shareholder Proposal shall be disregarded.
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<PAGE>
ARTICLE II
DIRECTORS
SECTION 1. Number, Election and Term of Office.
-----------------------------------
(A) Number of Directors. The business and affairs of the Corporation shall
-------------------
be managed and controlled by or under the authority of its Board of Directors.
In addition to the powers and authority expressly conferred upon it by these
Bylaws and the Articles of Incorporation, the Board of Directions may exercise
all such lawful acts and things as are not by law, by the Articles of
Incorporation or by these Bylaws directed or required to be exercised or done by
the shareholders. The number of directors shall be twelve (12), but the number
may be increased or diminished by amendment of these Bylaws either by the Board
of Directors or by the affirmative vote of at least seventy-five percent (75%)
of the voting power of the outstanding capital stock of the Corporation entitled
to vote generally in the election of directors, voting as a separate voting
group. The directors shall be divided into three (3) classes, each composed, as
early as possible, of one-third of the total number of directors. In the event
that the number of directors shall not be evenly divisible by three (3), the
Board of Directors shall determine in which class or classes the remaining
director or directors, as the case may be, shall be included. The term of
office of each director shall be three (3) years; provided, that, of those
directors initially elected in classes, the term of office of directors of the
first class shall expire at the first annual meeting of the shareholders after
their election, that of the second class shall expire at the second annual
meeting after their election, and that of the third class shall expire at the
third annual meeting after their election. At each annual meeting of
shareholders subsequent to the initial election of directors in classes,
directors shall be elected for a full term of three (3) years to succeed those
whose terms expire. When the number of directors is increased and any newly
created directorships are filled by the Board of Directors, there shall be no
classification of the additional directors until the next election of directors
by the shareholders.
(B) Special Voting Rights. Anything in this Section 1 of this Article II
---------------------
to the contrary notwithstanding, if and whenever any class or series of capital
stock of the Corporation shall have the exclusive right, voting as a separate
voting group, to elect one or more directors of the Corporation, the term of
office of all directors in office when such voting rights shall vest in such
class or series (other than directors who were elected by vote of another class
or series of capital stock) shall terminate upon the election of any new
directors at any meeting of shareholders called for the purpose of electing
directors; and, while such voting rights are vested in any class or series of
capital stock, the directors shall not be divided into classes, and the term of
office of each director elected shall extend only until the next succeeding
annual meeting of shareholders.
(C) Election of Directors Following Termination of Special Voting Rights.
--------------------------------------------------------------------
Upon the termination of the exclusive right of one or more classes and series of
capital stock, voting as a separate voting group, to vote for directors, the
term of office of all such directors then in office shall terminate upon the
election of any new directors at a meeting of the shareholders then entitled to
vote for directors, which meeting may be held at any time after the termination
of such exclusive right and which meeting, if not previously called, shall be
called by the Secretary of the Corporation upon written request of the holders
of record of ten percent (10%) of the aggregate voting power of the outstanding
capital stock of the Corporation then entitled to vote generally in the election
of directors. At such election and thereafter, unless and until a class or
series of capital stock shall again have the exclusive right, voting as a
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<PAGE>
separate voting group, to vote for directors, the directors shall again be
divided into three (3) classes, as hereinabove provided, the term of office of
each to be three (3) years; provided, that the terms of office of those
initially elected in classes shall be as hereinabove provided.
(D) Nominations for Election of Directors.
-------------------------------------
(a) Subject to the rights of holders of any class or series of capital
stock of the Corporation then outstanding, nominations for the election of
directors may be made by the affirmative vote of a majority of the entire Board
of Directors or by any shareholder of record entitled to vote generally in the
election of directors. However, any shareholder of record entitled to vote
generally in the election of directors may nominate one or more persons for
election as directors at a meeting only if written notice of such shareholder's
intent to make such nomination or nominations has been given, either by personal
delivery or by first class United States mail, postage prepaid, to the Secretary
of the Corporation not less than 60 days nor more than 75 days prior to the
meeting; provided, that in the event that less than 70 days' notice or prior
-------- ----
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of meeting was mailed or such public disclosure was made, whichever first
occurs.
(b) Each notice to the Secretary under subsection (a) shall set forth: (i)
the name and address of record of the shareholder who intends to make the
nomination; (ii) a representation that the shareholder is a holder of record of
shares of the Corporation's capital stock entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; (iii) the class and number of shares of common
stock held of record, owned beneficially, and represented by proxy, by the
shareholder, and each proposed nominee, as of the date of the notice; (iv) the
name, age, business and residence addresses, and principal occupation or
employment of each proposed nominee; (v) a description of all arrangements or
understandings between the shareholder and each proposed nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder; (vi) such other
information regarding each proposed nominee as would be required to be included
in a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission; and (vii) the written consent of each proposed nominee to
serve as a director of the Corporation if so elected. The Corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such proposed
nominee to serve as a director of the Corporation.
(c) The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
SECTION 2. Term. Subject to the provisions of the Articles of
----
Incorporation and of Section 1 of this Article II, each director shall hold
office until the election and qualification of his successor or until his death
or until he shall resign or be removed from office as hereinafter provided.
SECTION 3. Resignations. Any director of the Corporation may resign at
------------
any time by giving written notice thereof to the Board of Directors, the
Chairman or the Corporation. Such resignation shall take effect at the time the
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<PAGE>
notice is delivered unless the notice specifies a later effective date; and,
unless otherwise specified with respect thereto, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 4. Removal of Directors. At any shareholders' meeting with
--------------------
respect to which notice of such purpose has been given, the entire Board of
Directors or any individual director may be removed, with or without cause, by
the affirmative vote of the holders of seventy-five percent (75%) of the voting
power of the outstanding capital stock of the Corporation entitled to vote
generally in the election of directors, voting as a separate voting group.
Whenever the holders of the shares of any class or series of capital stock are
entitled to elect one or more directors by the provisions of the Articles of
Incorporation, the provisions of this Section 4 of this Article II shall apply,
in respect of the removal of a director or directors so elected, to the vote of
the holders of the outstanding shares of that class or series and not to the
vote of the outstanding shares as a whole. Removal action may be taken at any
shareholders' meeting with respect to which notice of such purpose has been
given.
SECTION 5. Vacancies.
----------
(A) Director Elected by All Shareholders. Except as provided in Subsection
------------------------------------
5(B) below, any vacancy occurring in the Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors, or by the sole remaining director, as the case
may be, or, if the vacancy is not so filled, or if no director remains, by the
holders of the shares of capital stock who are entitled to vote for the director
with respect to which the vacancy is being filled.
(B) Director Elected by Particular Class or Series. If a vacancy occurs
----------------------------------------------
with respect to a director elected by a particular class or series of shares
voting as a separate voting group, the vacancy may be filled by the remaining
director or directors elected by that class or series, or, if the vacancy is not
filled by such remaining director or directors, or if no such director remains,
by the holders of that class or series of shares.
(C) Term of New Director. A director elected to fill a vacancy shall be
--------------------
elected for the unexpired term of his predecessor in office. Any directorship
to be filled by reason of an increase in the number of directors may be filled
by the Board of Directors, but only for a term of office continuing until the
next election of directors by the shareholders and the election and
qualification of his successor.
SECTION 6. Place of Meeting. Meetings of the Board of Directors or of any
----------------
committee thereof may be held either within or without the State of Georgia.
SECTION 7. Regular Meetings. The Board of Directors may, by resolution
----------------
adopted by vote of a majority of the whole Board, from time to time, appoint the
time and place for holding regular meetings of the Board, if deemed advisable by
the Board; and such regular meetings shall, thereupon, be held at the time and
place so appointed, without the giving of any notice with regard thereto. In
case the day appointed for the regular meeting shall fall on a legal holiday,
such meeting shall be held on the next following business day, at the regular
appointed hour.
SECTION 8. Special Meetings. Special meetings of the Board of Directors
----------------
shall be held whenever called by the Chairman, by any Vice Chairman, by the
President, by the Chief Executive Officer, by the Chief Operating Officer, or by
any two directors. Notice of any such meeting shall be mailed to each director,
addressed to him at his residence or usual place of business, not later than
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<PAGE>
three (3) days before the day on which the meeting is to be held, or shall be
sent to him at such place by telegram, telex, facsimile or cablegram, or be
delivered personally, or by telephone, not later than the day before the day on
which the meeting is to be held. Notice of a meeting of the Board of Directors
need not be given to any director who signs a waiver of notice either before or
after the meeting (in addition to any other form of waiver, such waiver may be
evidenced by a telegram, telex, facsimile or cablegram from a director).
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and waiver of any and all objections to the place of the meeting,
the time of the meeting or the manner in which it has been called or convened,
except when a director states, at the beginning of the meeting (or promptly upon
his arrival), any such objection or objections to the transaction of business
and does not thereafter vote for or assent to action taken at the meeting.
Neither the business to be transacted at, nor the purpose of, any special
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting. Except as is otherwise indicated in the notice thereof,
any and all business may be transacted at any special meeting of the Board of
Directors.
SECTION 9. Quorum and Manner of Acting. Except as herein otherwise
---------------------------
provided, two-fifths of the whole Board of Directors at a meeting duly assembled
shall constitute a quorum for the transaction of business, except that, if the
Chairman or the President is not present at any such meeting, a majority of the
whole Board of Directors shall be necessary to constitute a quorum; and, except
as otherwise required by statute or by the Bylaws, the act of a majority of the
directors present at any such meeting at which a quorum is present shall be the
act of the Board of Directors. In the absence of a quorum, a majority of the
directors present may adjourn the meeting from time to time, until a quorum is
present. No notice of any adjourned meeting need be given.
SECTION 10. Participation by Conference Telephone. Any or all directors
-------------------------------------
may participate in a meeting of the Board of Directors or of a committee of the
Board of Directors through the use of any means of communication by which all
directors participating may simultaneously hear each other during the meeting.
A director participating in a meeting by this means is deemed to be present in
person at the meeting.
SECTION 11. Action by Directors Without a Meeting. Unless the Articles of
-------------------------------------
Incorporation or these Bylaws provide otherwise, any action required or
permitted to be taken at any meeting of the Board of Directors or any action
that may be taken at a meeting of a committee of Board of Directors may be taken
without a meeting if the action is taken by all the members of the Board of
Directors (or of the committee as the case may be). The action must be evidenced
by one or more written consents describing the action taken, signed by each
director (or each director serving on the committee, as the case may be), and
delivered to the Corporation for inclusion in the minutes or filing with the
corporate records.
SECTION 12. Directors' Fees. In consideration of a director serving in
---------------
such capacity, each director of the Corporation, other than directors who are
officers of the Corporation or any of its subsidiary companies, shall be
entitled to receive such compensation as the Board of Directors, by vote of a
majority of the whole Board, may from time to time determine. The Board of
Directors shall also have the authority to determine, from time to time, the
amount of compensation, if any, which shall be paid to its members for
attendance at any meeting of the Board or any committee thereof. A director may
also serve the Corporation in a capacity other than that of director and receive
compensation, as determined by the Board of Directors, for services rendered in
such other capacity.
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ARTICLE III
EXECUTIVE COMMITTEE
SECTION 1. Constitution and Powers. The Board of Directors may, by
-----------------------
resolution adopted by vote of a majority of the whole Board, designate from
among its members an Executive Committee, to consist of the Chairman, the Chief
Executive Officer (provided he is also a director), and one or more other
directors, which Executive Committee shall have and may exercise all the powers
of the Board of Directors in the management of the business, affairs and
property of the Corporation and the exercise of its corporate powers, including
the power to authorize the seal of the Corporation to be affixed to all papers
which may require it. So far as practicable, members of the Executive Committee
shall be designated at the organization meeting of the Board, in each year, and,
unless sooner discharged by vote of a majority of the whole Board of Directors,
shall hold office until the organization meeting of the Board in the next
subsequent year and until their respective successors are appointed. The Board
shall designate one member of the Committee as Chairman of the Executive
Committee, but such designee shall not be considered to be an officer of the
Corporation by reason of such designation. Anything herein to the contrary
notwithstanding, the Executive Committee shall not exercise the authority of the
Board of Directors in reference to: (1) approving or proposing to shareholders
any action required by applicable law to be approved by the shareholders of the
Corporation; (2) the filling of vacancies on the Board of Directors or any of
its committees; (3) amending the Articles of Incorporation of the Corporation;
(4) the adoption, amendment or repeal of any Bylaws of the Corporation; or (5)
the approval of a plan of merger or consolidation, the sale, lease, exchange or
other disposition of all or substantially all the property and assets of the
Corporation, or a voluntary dissolution of the Corporation or a revocation
thereof.
SECTION 2. Meetings. Regular meetings of the Executive Committee, of
--------
which no notice shall be necessary, shall be held on such days and at such
places as shall be fixed, from time to time, by resolution adopted by vote of a
majority of the Committee and communicated to all the members thereof. Special
meetings of the Executive Committee may be called by the Chairman of the
Committee at any time. Notice of each special meeting of the Committee shall be
sent to each member of the Committee by mail to his residence or usual place of
business not later than three (3) days before the day on which the meeting is to
be held, or shall be sent to him at such place by telegram, telex, facsimile or
cablegram, or be delivered personally, or by telephone, to each member of the
Committee not later than the day before the day on which the meeting is to be
held. Notice of any such meeting need not be given to any member who signs a
waiver of notice either before or after the meeting (in addition to any other
form of waiver, such waiver may be evidenced by a telegram, telex, facsimile or
cablegram from a member). Attendance of a member at a meeting shall constitute
a waiver of notice of such meeting and waiver of any and all objections to the
place of the meeting, the time of the meeting or the manner in which it has been
called or convened, except when a member states, at the beginning of the meeting
(or promptly upon his arrival), any such objection or objections to the
transaction of business. Neither the business to be transacted at, nor the
purpose of, any meeting of the Committee need be specified in the notice or
waiver of notice of such meeting. A majority of the Executive Committee shall
constitute a quorum for the transaction of business, and the act of a majority
of those present at a meeting, at which a quorum is present, shall be the act of
the Executive Committee. The members of the Executive Committee shall act only
as a committee, and the individual members shall have no power as such.
SECTION 3. Records. The Executive Committee shall keep a record of its
-------
acts and proceedings and shall report the same promptly to the Board of
Directors. Such acts and proceedings shall be subject to review by the Board of
Directors, but no rights of third parties shall be affected by such review. The
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Secretary of the Corporation, or, in his absence, an Assistant Secretary, shall
act as secretary to the Executive Committee; or the Committee may, in its
discretion, appoint its own secretary.
SECTION 4. Vacancies. Any vacancy in the Executive Committee shall be
---------
filled by vote of a majority of the whole Board of Directors.
ARTICLE IV
OTHER COMMITTEES
The Board of Directors, by resolution adopted by a majority of the whole
Board, may designate from among its members other committees in addition to the
Executive Committee, each consisting of two (2) or more directors and each of
which, to the extent provided in such resolution, shall have and may exercise
all the authority of the Board of Directors, provided that no such committee
shall have the authority of the Board of Directors in reference to: (1)
approving or proposing to shareholders any action required by applicable law to
be approved by the shareholders of the Corporation; (2) the filling of vacancies
on the Board of Directors or any of its committees; (3) amending the Articles of
Incorporation of the Corporation; (4) the adoption, amendment or repeal of any
Bylaws of the Corporation; or (5) the approval of a plan of merger or
consolidation, the sale, lease, exchange or other disposition of all or
substantially all of the property and assets of the Corporation, or a voluntary
dissolution of the Corporation or a revocation thereof. The provisions of
Section 2 of Article III as to the Executive Committee and its deliberations
shall be applicable to any such other committee of the Board of Directors.
ARTICLE V
OFFICERS AND AGENTS; POWERS AND DUTIES
SECTION 1. Officers. The Board of Directors shall elect a Chairman (who
--------
shall be a director), a President, a Secretary and a Treasurer. The Board of
Directors may also elect one or more Vice Chairmen, one or more Vice Presidents
(one or more of whom may be designated an Executive Vice President and one or
more of whom may be designated a Senior Vice President and one or more of whom
may be designated a Group Vice President), a Controller and such other officers
and agents of the Corporation as from time to time may appear to be necessary or
advisable in the conduct of the affairs of the Corporation. The Board shall
designate from among such elected officers a Chief Executive Officer and may
designate from among such elected officers a Chief Operating Officer. Any two
or more offices may be held by the same, person, except that the office of
President and the office of Secretary shall be held by separate persons.
SECTION 2. Term of Office. So far as practicable, all officers shall be
--------------
elected at the organization meeting of the Board of Directors in each year, and,
subject to the provisions of Section 3 of this Article V, each officer shall
hold office until the organization meeting of the Board of Directors in the next
subsequent year and until his successor has been elected and has qualified, or
until his earlier resignation, removal from office, or death.
SECTION 3. Removal of Officers. Any officer elected by the Board of
-------------------
Directors may be removed at any time, either with or without cause, by the Board
at any meeting.
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SECTION 4. Vacancies. If any vacancy occurs in any office, the Board of
---------
Directors may elect a successor to fill such vacancy for the remainder of the
term.
SECTION 5. Chief Executive Officer. The Chief Executive Officer shall,
-----------------------
under the direction of the Board of Directors, have general direction of the
Corporation's business, policies and affairs. He shall preside, when present,
at all meetings of the shareholders and, in the absence of the Chairman of the
Executive Committee, at all meetings of the Executive Committee. He, the Vice
Chairmen, the President and the Chief Operating Officer shall each have general
power to execute bonds, deeds and contracts in the name of the Corporation and
to affix the corporate seal; to sign stock certificates; and to remove or
suspend such employees or agents as shall not have been appointed by the Board
of Directors. In the absence or disability of the Chief Executive Officer, his
duties shall be performed and his powers may be exercised by the Chief Operating
Officer or by such other officer as shall be designated by the Board of
Directors.
SECTION 6. Chief Operating Officer. The Chief Operating Officer shall,
-----------------------
under the direction of the Chief Executive Officer, have direct superintendence
of the Corporation's business, policies, properties and affairs. He shall have
such further powers and duties as from time to time may be conferred upon, or
assigned to, him by the Board of Directors or the Chief Executive Officer. In
the absence or disability of the Chief Executive Officer, the Chief Operating
Officer shall perform his duties and may exercise his powers.
SECTION 7. Chairman. The Chairman shall preside, when present, at all
--------
meetings of the Board of Directors and shall have such other powers and duties
as from time to time may be conferred upon or assigned to him by the Board of
Directors or the Chief Executive Officer (if the Chairman is not the Chief
Executive Officer).
SECTION 8. Vice Chairmen. Each of the several Vice Chairmen shall have
-------------
such powers and duties as from time to time may be conferred upon or assigned to
him by the Board of Directors or the Chief Executive Officer (if such Vice
Chairman is not the Chief Executive Officer).
SECTION 9. President. The President shall have such powers and duties as
---------
from time to time may be conferred upon or assigned to him by the Board of
Directors or the Chief Executive Officer (if the President is not the Chief
Executive Officer).
SECTION 10. Vice Presidents. The several Vice Presidents shall have such
---------------
powers and duties as shall be assigned to or required of them, from time to
time, by the Board of Directors, the Chief Executive Officer or the Chief
Operating Officer.
SECTION 11. Secretary. The Secretary shall attend to the giving of notice
---------
of all meetings of shareholders and of the Board of Directors and shall keep and
attest true records of all proceedings thereat. He shall have the
responsibility of authenticating records of the Corporation. He shall have
charge of the corporate seal and have authority to attest any and all
instruments or writings to which the same may be affixed. He shall keep and
account for all books, documents, papers and records of the Corporation, except
those which are hereinafter directed to be in the charge of the Treasurer or the
Controller. He shall have authority to sign stock certificates and shall
generally perform all the duties usually appertaining to the office of secretary
of a corporation. In the absence of the Secretary, an Assistant Secretary or
Secretary pro tempore shall perform his duties.
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<PAGE>
SECTION 12. Treasurer. The Treasurer shall have the care and custody of
---------
all moneys, funds and securities of the Corporation and shall deposit or cause
to be deposited all funds of the Corporation in and with such depositories as
shall, from time to time, be designated by the Board of Directors or by such
officers of the Corporation as may be authorized by the Board of Directors to
make such designation. He shall have power to sign stock certificates; to
endorse for deposit or collection, or otherwise, all checks, drafts, notes,
bills of exchange or other commercial paper payable to the Corporation; and to
give proper receipts or discharges therefor.
SECTION 13. Controller. The Controller shall keep complete and accurate
----------
books of account relating to the business of the Corporation, including records
of all assets, liabilities, commitments, receipts, disbursements and other
financial transactions of the Corporation, and its divisions and subsidiaries.
He shall render a statement of the Corporation's financial condition whenever
required to do so by the Board of Directors, the Chief Executive Officer, the
Chief Operating Officer or the Executive Vice President - Finance.
SECTION 14. Attorneys. The Board of Directors may, from time to time,
---------
appoint one or more attorneys-in-fact to act for and in representation of the
Corporation, either generally or specially, judicially or extra-judicially, and
may delegate to any such attorney or attorneys-in-fact all or any powers which,
in the judgment of the Board of Directors, may be necessary, advisable,
convenient or suitable for exercise in any country or jurisdiction in the
administration or management of the business of the Corporation, or the defense
or enforcement of its rights, even though such powers be herein provided or
directed to be exercised by a designated officer of the Corporation, or by the
Board of Directors. The act of the Board of Directors in conferring any such
powers upon, or delegating the same to, any attorney-in-fact shall be conclusive
evidence in favor of any third person of the right of the Board of Directors so
to confer or delegate such powers; and the exercise by any attorney-in-fact of
any powers so conferred or delegated shall in all respects be binding upon the
Corporation.
SECTION 15. Additional Powers and Duties. In addition to the foregoing
----------------------------
especially enumerated duties and powers, the several officers of the Corporation
shall perform such other duties and exercise such further powers as may be
provided by these Bylaws or as the Board of Directors may, from time to time,
determine, or as may be assigned to them by any competent superior officer.
SECTION 16. Compensation. The compensation of all officers of the
------------
Corporation shall be fixed, from time to time, by the Board of Directors.
SECTION 17. Appointed Officers. The Board of Directors, the Chief
------------------
Executive Officer or the Chief Operating Officer may, from time to time, appoint
individuals ("appointed officers") to serve in such designated capacities for
the Corporation and to hold such nominal titles (such as a designated officer of
a group, division or of another area of the business affairs of the Corporation)
as the Board of Directors, the Chief Executive Officer or the Chief Operating
Officer may deem appropriate. No appointed officer shall, by reason of such
appointment, become an officer of the Corporation. Each appointed officer shall
perform such duties and shall have such authority as shall be delegated to him
from time to time by the officer of the Corporation then responsible for the
particular area in which such appointed officer is working. Any title granted
to any appointed officer pursuant to this Section 17 of this Article V may be
withdrawn, with or without cause, at any time by the Board of Directors, the
Chief Executive Officer or the Chief Operating Officer, and any duty or
authority delegated to any appointed officer pursuant to this Section 17 of this
Article V may be withdrawn, with or without cause, at any time by the Board of
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Directors, the Chief Executive Officer, the Chief Operating Officer or the
officer who delegated such duty or authority to the appointed officer.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. Indemnified Parties. Every person (and the heirs and personal
-------------------
representatives of such person) who is or was a director, officer, employee or
agent of the Corporation, or of any other corporation, partnership, joint
venture, trust or other enterprise in which he served as such at the request of
the Corporation, shall be indemnified by the Corporation in accordance with the
provisions of this Article VI against any and all liability and expense
(including, without limitation, counsel fees and disbursements, and amounts of
judgments, fines or penalties against, or amounts paid in settlement by, a
director, officer, employee or agent) actually and reasonably incurred by him in
connection with or resulting from any threatened, pending or completed claim,
action, suit or proceeding, whether civil, criminal, administrative, or
investigative or in connection with any appeal relating thereto, in which he may
become involved, as a party or otherwise, or with which he may be threatened, by
reason of his being or having been a director, officer, employee or agent of the
Corporation or such other corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action taken or omitted by him in his
capacity as such director, officer, employee or agent whether or not he
continues to be such at the time such liability or expense shall have been
incurred.
SECTION 2. Indemnification As of Right. Every person (and the heirs and
---------------------------
personal representatives of such person) referred to in Section I of this
Article VI, to the extent that such person has been successful on the merits or
otherwise with respect to any claim, action, matter, suit or proceeding of the
character described in Section 1, shall be entitled to indemnification as of
right for expenses (including attorneys' fees) actually and reasonably incurred
by him in connection therewith.
SECTION 3. Indemnification Based on Review. Except as provided in Section
-------------------------------
2 of this Article VI, upon receipt of a claim for indemnification hereunder, the
Corporation shall proceed as follows, or as otherwise permitted by applicable
law: If the claim is made by a director or officer of the Corporation, the Board
of Directors, by a majority vote of a quorum consisting of directors who were
not parties to the applicable action, suit or proceeding, shall determine
whether the claimant met the applicable standard of conduct as set forth in
Subsections (A) and (B) below. If such quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs, such determination
shall be made by independent legal counsel (who may be the regular inside or
outside counsel of the Corporation) in a written opinion. If such determination
has not been made within 90 days after the claim is asserted, the claimant shall
have the right to require that the determination be submitted to the
shareholders at the next regular meeting of shareholders by vote of a majority
of the shares entitled to vote thereon. If a claim is made by a person who is
not a director or officer of the Corporation, the Chief Executive Officer and
the general counsel of the Corporation shall determine, subject to applicable
law, the manner in which there shall be made the determination as to whether the
claimant met the applicable standard of conduct as set forth in Subsections (A)
and (B) below. In the case of each claim for indemnification, the Corporation
shall pay the claim to the extent the determination is favorable to the person
making the claim.
(A) In the case of a claim, action, suit or proceeding other than by or in
the right of the Corporation to procure a judgment in its favor, the director,
officer, employee or agent must have acted in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, in addition,
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in any criminal action or proceeding, had no reasonable cause to believe that
his conduct was unlawful. In addition, any director seeking indemnification
must not have been adjudged liable on the basis that any personal benefit was
received by him. For the purpose of this Subsection (A), the termination of any
claim, action, suit or proceeding, civil, criminal or administrative, by
judgment, order, settlement (either with or without court approval) or
conviction, or upon a plea of guilty or nolo contenders or its equivalent, shall
not create a presumption that a director, officer, employee or agent did not
meet the standards of conduct set forth in this Subsection.
(B) In the case of a claim, action, suit or proceeding by or in the right
of the Corporation to procure a judgment in its favor, the director, officer,
employee or agent must have acted in good faith in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation;
provided, however, that no indemnification under this Subsection (B) shall be
made (1) with regard to any claim, issue or matter as to which such director,
officer, employee or agent shall have been adjudged to be liable to the
Corporation unless and only to the extent that the court in which such action or
suit was brought shall determine that, despite the adjudication of liability but
in view of all the circumstances of the case, such director, officer, employee
or agent is fairly and reasonably entitled to indemnity for such expenses which
the court shall deem proper, or (2) for amounts paid, or expenses incurred, in
connection with the defense or settlement of any such claim, action, suit or
proceeding, unless a court of competent jurisdiction has approved
indemnification with regard to such amounts or expenses.
SECTION 4. Advances. Expenses incurred with respect to any claim, action,
--------
suit or proceeding of the character described in Section I of this Article VI
shall be advanced by the Corporation prior to the final disposition thereof upon
receipt of an undertaking by or on behalf of the recipient to repay such amount
if it shall be ultimately determined that he is not entitled to indemnification
under this Article VI.
SECTION 5. General. The rights of indemnification and advancement of
-------
expenses provided in this Article VI shall be in addition to any rights to which
any such director, officer, employee or other person may otherwise be entitled
by contract or as a matter of law. Each person who shall act as a director,
officer, employee or agent of the Corporation or of any other corporation
referred to in Section I of this Article VI, shall be deemed to be doing so in
reliance upon the right of indemnification provided for in this Article VI, and
this Article VI constitutes a contract between the Corporation and each of the
persons from time to time entitled to indemnification hereunder, and the rights
of each such person hereunder may not be modified without the consent of such
person.
ARTICLE VII
STOCK AND TRANSFER OF STOCK
SECTION 1. Direct Registration of Shares. The Corporation may, with the
-----------------------------
Board of Directors' approval, participate in a direct registration system
approved by the Securities and Exchange Commission and by the New York Stock
Exchange or any securities exchange on which the stock of the Corporation may
from time to time be traded, whereby shares of capital stock of the Corporation
may be registered in the holder's name in uncertificated, book-entry form on the
books of the Corporation.
SECTION 2. Stock Certificates. Except in the case of shares represented
------------------
in book-entry form under a direct registration system contemplated in Section 1
of this Article VII, every shareholder shall be entitled to a certificate signed
by the Chairman, the President or a Vice President and the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer, certifying the
number of shares owned by him in the Corporation and that those shares are fully
paid and non-assessable. Where any such certificate is countersigned by either
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a Transfer Agent or a Registrar (other than the Corporation or one of its
employees) designated by the Corporation for that purpose, any other signature
on such certificate may be a facsimile, engraved, stamped or printed. In case
any person who served as any such officer shall have signed any such certificate
or whose facsimile signature shall have been placed thereon shall have ceased to
hold such office prior to the issue of such certificate, such certificate may be
issued at the direction of the Corporation with the same effect as if such
person held such office at the date of the issue of such certificate.
SECTION 3. Transfer Agents and Registrars. The Board of Directors may, in
------------------------------
its discretion, appoint responsible banks or trust companies in such city or
cities as the Board may deem advisable, from time to time, to act as Transfer
Agents and Registrars of the stock of the Corporation; and, upon such
appointments being made, no stock certificate shall be valid until countersigned
by one of such Transfer Agents and registered by one of such Registrars.
SECTION 4. Transfer of Stock. Except in the case of shares represented in
-----------------
book-entry form under a direct registration system contemplated in Section 1 of
this Article VII, shares of stock may be transferred by delivery of the
certificates therefor, accompanied either by an assignment, in writing on the
back of the certificates or by written power of attorney to sell, assign and
transfer the same, signed by the record holder thereof; but no transfer shall
affect the right of the Corporation to pay any dividend upon the stock to the
holder of record thereof, or to treat the holder of record as the holder in fact
thereof for all purposes, and no transfer shall be valid, except between the
parties thereto, until such transfer shall have been made upon the books of the
Corporation.
SECTION 5. Lost Certificates. In case any certificate of stock shall be
-----------------
lost, stolen or destroyed, the Board of Directors or the Executive Committee, in
its discretion, may authorize the issue of a substitute certificate in place of
the certificate so lost, stolen or destroyed, and may cause such substitute
certificate to be countersigned by the appropriate Transfer Agent and registered
by the appropriate Registrar; provided, that, in each such case, the applicant
for a substitute certificate shall furnish to the Corporation, or to its
Transfer Agents and Registrars, satisfactory evidence of the loss, theft or
destruction of such certificate and of the ownership thereof, and also such
security or indemnity as may be required by any of such parties.
ARTICLE VIII
MISCELLANEOUS
SECTION 1. Inspection of Books and Records. The Board of Directors shall
-------------------------------
have power to determine which accounts, books and records of the Corporation
shall be opened to the inspection of shareholders, except those as may by law
specifically be made open to inspection, and shall have power to fix reasonable
rules and regulations not in conflict with the applicable law for the inspection
of accounts, books and records which by law or by determination of the Board of
Directors shall be open to inspection. Without the prior approval of the Board
of Directors in its discretion, the right of inspection set forth in Section 14-
2-1602(c) of the Georgia Business Corporation Code shall not be available to any
shareholder owning two percent or less of the shares outstanding.
SECTION 2. Fiscal Year. The fiscal year of the Corporation shall be the
-----------
calendar year.
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SECTION 3. Surety Bonds. Such officers or agents of the Corporation as
------------
the Board of Directors may direct, from time to time, shall be bonded for the
faithful performance of their duties, in such amounts and by such surety
companies as the Board of Directors may determine. The premiums on such bonds
shall be paid by the Corporation, and the bonds so furnished shall be in the
custody of the Secretary.
SECTION 4. Signature of Negotiable Instruments. All bills, notes, checks
-----------------------------------
or other instruments for the payment of money shall be signed or countersigned
by such officers and in such manner as, from time to time, may be prescribed by
resolution (whether general or special) of the Board of Directors.
SECTION 5. Conflict with Articles of Incorporation. In the event that any
---------------------------------------
provision of these Bylaws conflicts with any provision of the Articles of
Incorporation, the Articles of Incorporation shall govern.
SECTION 6. Election of Certain Provisions of Georgia Business Corporation
--------------------------------------------------------------
Code. All requirements and provisions of Parts 2 and 3 of Article 11 of the
- ----
Georgia Business Corporation Code, as may be in effect from time to time,
including any successor statutes, shall be applicable to any "business
combination" (as respectively defined in Parts 2 and 3 of such Article 11) of
the Corporation.
ARTICLE IX
AMENDMENTS
Subject to the provisions of the Georgia Business Corporation Code, the
Board of Directors shall have the power to alter, amend or repeal these Bylaws
or to adopt new bylaws, but any bylaws adopted by the Board of Directors may be
altered, amended or repealed, and new bylaws adopted, by the shareholders. The
shareholders may prescribe that any bylaw or bylaws adopted by them shall not be
altered, amended or repealed by the Board of Directors. Action by the directors
with respect to the Bylaws shall be taken by an affirmative vote of a majority
of all of the directors then in office. Except as provided in the Articles of
Incorporation, action by the shareholders with respect to the Bylaws shall be
taken by an affirmative vote of the holders of a majority of the voting power of
the outstanding capital stock of the Corporation entitled to vote generally in
the election of directors, voting as a separate voting group.
The undersigned Secretary of Georgia-Pacific Corporation, a Georgia
corporation, hereby certifies that the foregoing is a true and complete copy of
the Bylaws of the said Corporation, as at present in full force and effect.
Witness the hand of the undersigned and the seal of the said Corporation
this _____ day of _____________, 1997.
_____________________________
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EXHIBIT 8
September [ ], 1997
Georgia-Pacific Corporation
133 Peachtree Street, N.E.
Atlanta, Georgia 30303
Ladies and Gentlemen:
We have acted as special counsel to Georgia-Pacific Corporation (the
"Company") in connection with the redesignation and conversion of each share of
the existing common stock of the Company into one share of Georgia-Pacific
Corporation -- Georgia-Pacific Group Common Stock (the "Georgia-Pacific Stock")
and the creation of a new class of common stock of the Company which will be
designated the Georgia-Pacific Corporation -- Timber Group Common Stock (the
"Timber Stock") and which will be distributed to the holders of Georgia-Pacific
Stock as a share dividend of one share of Timber Stock for each share of
Georgia-Pacific Stock outstanding on the dividend payment date.
We have examined the Registration Statement on Form S-4 (the
"Registration Statement"), including the preliminary prospectus dated September
17, 1997, that forms a part thereof, relating to the above-described
transaction. In addition, we have examined such other documents, and have made
such other and further investigations, as we have deemed relevant and necessary
as a basis for the opinion hereinafter set forth. In such examination, we have
assumed the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as drafts or
as certified, conformed, photostatic or facsimile copies, and the authenticity
of the originals of such latter documents.
Based upon the foregoing, we hereby confirm (i) our opinions set forth
in the Registration Statement under the caption "Certain United States Federal
Income Tax Considerations" and (ii) that, subject to the qualifications and
limitations stated herein, the statements set forth in the Registration
Statement under such caption, insofar as they purport to constitute summaries of
matters of United States federal tax law and regulations or legal conclusions
with respect thereto, constitute accurate summaries of the matters described
therein in all material respects.
We are members of the Bar of the State of New York, and we do not
express any opinion herein concerning any law other than the federal law of the
United States.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the
reference to our firm under the headings "Certain United States Federal Income
Tax Considerations" and "Legal Opinions" in the prospectus that forms a part of
the Registration Statement.
Very truly yours,
Simpson Thacher & Bartlett
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
on the consolidated financial statements of Georgia-Pacific Corporation and
subsidiaries dated February 7, 1997 included in Annex III, on the combined
financial statements of the Georgia-Pacific Group dated September 17, 1997
included in Annex IV, and on the combined financial statements of the Timber
Group dated September 17, 1997 included in Annex V, and to all references to our
Firm included in or made a part of this Proxy Statement.
As independent public accountants, we hereby consent to the incorporation by
reference in this Proxy Statement of our reports dated February 7, 1997 included
in Georgia-Pacific Corporation's Annual Report on Form 10-K for the year ended
December 31, 1996, as amended by Georgia-Pacific on Form 10-K/A filed on March
17, 1997 and its Annual Report on Form 10-K/A-1 filed on March 25, 1997, and to
all references to our Firm included in this Proxy Statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
September 17, 1997
<PAGE>
EXHIBIT 99.1
GEORGIA-PACIFIC CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR SPECIAL MEETING TO BE HELD ON , 1997
The undersigned hereby appoints A.D. Correll, James F. Kelley and Kenneth F.
Khoury, jointly and severally, proxies with full power of substitution, to vote
all shares of Common Stock of GEORGIA-PACIFIC CORPORATION owned of record by
the undersigned on all matters on which the undersigned is entitled to vote
which may come before the Special Meeting of Shareholders to be held at the
, New York, New York, on , 1997 at 11:00 a.m., local time,
and any adjournments and postponements thereof, unless otherwise specified
herein.
P R O X Y
(Change of Address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(If you have written in the above space, please mark the corresponding box on
the reverse side of this card)
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES,
SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOX IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT
VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
SEE REVERSE
SIDE
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
[LOGO OF GEORGIA-PACIFIC APPEARS HERE]
ADMISSION TICKET
SPECIAL MEETING OF SHAREHOLDERS
If you plan to attend the Special Meeting of Shareholders, please mark the
appropriate box on the reverse of the attached Proxy Card. The meeting will be
held on , 1997, at the , New York, New York. The meeting
will begin promptly at 11:00 a.m., local time.
- -------------------------------------------------------------------------------
TO AVOID DELAY AT THE ENTRANCE, PLEASE PRESENT THIS TICKET
AGENDA
APPROVAL OF LETTER STOCK PROPOSAL
APPROVE THE COMPANY'S RESTATED 1995 SHAREHOLDER VALUE INCENTIVE PLAN
APPROVE GEORGIA-PACIFIC CORPORATION/GEORGIA-PACIFIC GROUP 1997
LONG-TERM INCENTIVE PLAN
APPROVE GEORGIA-PACIFIC CORPORATION/TIMBER GROUP 1997
LONG-TERM INCENTIVE PLAN
APPROVE AMENDMENTS TO CERTAIN PROVISIONS OF THE GEORGIA-PACIFIC
CORPORATION ARTICLES OF INCORPORATION
--------------
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THIS MEETING, WHETHER OR
NOT YOU ATTEND THE MEETING IN PERSON. TO MAKE SURE YOUR SHARES ARE REPRESENTED,
WE URGE YOU TO COMPLETE AND MAIL THE PROXY CARD ABOVE.
<PAGE>
7654
[X] Please mark your votes as in this example.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2,
3, 4 AND 5.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3, 4 AND 5.
FOR AGAINST ABSTAIN
1. Approve Letter Stock Proposal [ ] [ ] [ ]
2. Approve the Company's Restated 1995 Shareholder
Value Incentive Plan [ ] [ ] [ ]
3. Approve Georgia-Pacific Corporation/Georgia-Pacific
Group 1997 Long-Term Incentive Plan [ ] [ ] [ ]
4. Approve Georgia-Pacific Corporation/Timber Group
1997 Long-Term Incentive Plan [ ] [ ] [ ]
5. Approve Amendments to Certain Provisions of the
Georgia-Pacific Corporation Articles of
Incorporation [ ] [ ] [ ]
I PLAN TO ATTEND THE SPECIAL MEETING [ ]
CHANGE OF ADDRESS ON REVERSE SIDE [ ]
SIGNATURE(S) ___________________________________DATE __________________________
NOTE: Please sign exactly as name appears hereon. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
EXHIBIT 99.2
CONFIDENTIAL VOTING INSTRUCTIONS
GEORGIA-PACIFIC CORPORATION
SPECIAL MEETING TO BE HELD ON , 1997
The undersigned hereby directs Vanguard Fiduciary Trust Company, as Trustee
under the Georgia-Pacific Corporation Savings and Capital Growth Plan and the
Georgia-Pacific Corporation Hourly 401(k) Savings Plan (the "Plans"), to vote
in person or by proxy all shares of Common Stock of Georgia-Pacific Corporation
allocated to any accounts of the undersigned under the Plans in the manner
indicated on the reverse hereof with respect to Proposals 1, 2, 3, 4 and 5, as
described in the Georgia-Pacific Corporation Notice of Special Meeting of
Shareholders and Proxy Statement, in connection with the Georgia-Pacific
Corporation Special Meeting of Shareholders to be held on , 1997.
P R O X Y
SEE REVERSE
SIDE
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
6358
[X] Please mark your votes as in this example.
WHEN THIS CARD IS PROPERLY EXECUTED, YOUR INTEREST WILL BE VOTED IN THE
MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE BY MARKING THE APPROPRIATE
BOXES BELOW, THE TRUSTEE WILL VOTE YOUR INTERESTS FOR PROPOSALS 1, 2, 3, 4
AND 5.
FOR AGAINST ABSTAIN
1. Approve Letter Stock Proposal [ ] [ ] [ ]
2. Approve the Company's Restated 1995 Shareholder
Value Incentive Plan [ ] [ ] [ ]
3. Approve Georgia-Pacific Corporation/Georgia-Pacific
Group 1997 Long-Term Incentive Plan [ ] [ ] [ ]
4. Approve Georgia-Pacific Corporation/Timber Group
1997 Long-Term Incentive Plan [ ] [ ] [ ]
5. Approve Amendments to Certain Provisions of the
Georgia-Pacific Corporation Articles of
Incorporation [ ] [ ] [ ]
SIGNATURE(S) ___________________________________DATE __________________________
NOTE: Please sign exactly as name appears hereon. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
[LETTERHEAD OF GEORGIA-PACIFIC CORPORATION APPEARS HERE]
, 1997
To Participants in the Georgia-Pacific Stock Fund of the Georgia-Pacific
Corporation Savings and Capital Growth Plan and the Georgia-Pacific Hourly
401(k) Savings Plan (the "Plans"):
In connection with the Georgia-Pacific Corporation Special Meeting of
Shareholders (the "Special Meeting") to be held on , 1997, enclosed are
proxy materials relative to shares allocated to you with respect to your
interest in the Georgia-Pacific Stock Fund of one or both of the Plans
mentioned above.
We wish to call your attention to the fact that, pursuant to the provisions
of both Plans, Vanguard Fiduciary Trust Company, the Trustee under the Plans,
cannot vote your allocable shares of Georgia-Pacific Common Stock on the
matters to be acted on at the Special Meeting without your specific voting
instructions.
Accordingly, in order for your allocable shares to be voted at the Special
Meeting, please give your voting instructions over your signature on the
enclosed card and return it to First Chicago Trust Company of New York, who
will tabulate the votes for the Trustee, promptly in the enclosed, self-
addressed, postage-paid envelope. It is understood that if you sign without
otherwise marking the card, you wish the Trustee to vote your shares FOR the
Letter Stock Proposal, FOR the Company's Restated 1995 Shareholder Value
Incentive Plan, FOR the Georgia-Pacific Corporation/Georgia-Pacific Group 1997
Long-Term Incentive Plan, FOR the Georgia-Pacific Corporation/Timber Group 1997
Long-Term Incentive Plan and FOR the Amendments to Certain Provisions of the
Georgia-Pacific Corporation Articles of Incorporation, as recommended by the
Board of Directors of Georgia-Pacific Corporation.
We urge you to send in the enclosed card promptly so that the Trustee may
vote the shares allocable to you under the Plans in accordance with your
wishes.
Very truly yours,
/s/ Kenneth F. Khoury
-------------------------------------------
Kenneth F. Khoury
Vice President and Secretary
