SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------ ------
Commission File Number 1 - 3506
-------------------
GEORGIA-PACIFIC CORPORATION
(Exact Name of Registrant as Specified in its Charter)
GEORGIA 93-0432081
(State of Incorporation) (IRS Employer Id. Number)
133 PEACHTREE STREET, N.E., ATLANTA, GEORGIA 30303
(Address of Principal Executive Offices)
(404) 652 - 4000
(Telephone Number of Registrant)
-------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
------ ------
As of the close of business on May 11, 1998, Georgia-Pacific Corporation had
91,803,410 shares of Georgia-Pacific Group Common Stock outstanding and
92,121,723 shares of The Timber Company Common Stock outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
-------------------------------------------
<TABLE>
<CAPTION>
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
Three months
ended March 31,
-----------------
(In millions, except per share amounts) 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Net sales $3,221 $3,145
- -----------------------------------------------------------------------
Costs and expenses
Cost of sales, excluding depreciation and
cost of timber harvested shown below 2,494 2,476
Selling, general and
administrative 271 291
Depreciation and cost of
timber harvested 225 230
Interest 114 122
Other income - (128)
- -----------------------------------------------------------------------
Total costs and expenses 3,104 2,991
- -----------------------------------------------------------------------
Income before income taxes and
extraordinary item 117 154
Provision for income taxes 49 64
- -----------------------------------------------------------------------
Income before extraordinary item 68 90
Extraordinary item, net of taxes (14) -
- -----------------------------------------------------------------------
Net income $ 54 $ 90
=======================================================================
Georgia-Pacific Corporation
Basic and diluted per common share:
Net income $ .99
- -----------------------------------------------------------------------
Average number of shares outstanding:
Basic 91.0
Diluted 91.4
=======================================================================
Georgia-Pacific Group
Income before extraordinary item $ 16
Extraordinary item, net of taxes (12)
- -----------------------------------------------------------------------
Net income $ 4
- -----------------------------------------------------------------------
Basic and diluted per common share:
Income before extraordinary item $ .17
Extraordinary item, net of taxes (.13)
- -----------------------------------------------------------------------
Net income $ .04
- -----------------------------------------------------------------------
Average number of shares outstanding:
Basic 91.5
Diluted 92.5
=======================================================================
The Timber Company
Income before extraordinary item $ 52
Extraordinary item, net of taxes (2)
- -----------------------------------------------------------------------
Net income $ 50
- -----------------------------------------------------------------------
Basic and diluted per common share:
Income before extraordinary item $ .56
Extraordinary item, net of taxes (.02)
- -----------------------------------------------------------------------
Net income $ .54
- -----------------------------------------------------------------------
Average number of shares outstanding:
Basic 92.3
Diluted 93.0
=======================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 3
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
Three months
ended March 31,
------------------
(In millions) 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 54 $ 90
Adjustments to reconcile net income to cash
provided by operations:
Depreciation 186 194
Cost of timber harvested 39 36
Other income - (128)
Deferred income taxes 15 22
Amortization of goodwill 15 15
Stock compensation programs 5 (13)
Gain on sales of assets (9) (5)
Increase in receivables (1) (64)
Decrease in inventories 40 11
Change in other working capital (154) (111)
Increase in taxes payable 47 72
Change in other assets and other
long-term liabilities 10 (1)
- -----------------------------------------------------------------------
Cash provided by operations 247 118
- -----------------------------------------------------------------------
Cash flows from investing activities
Property, plant and equipment investments (118) (131)
Timber and timberland purchases (67) (36)
(Increase) decrease in cash restricted for capital
expenditures (26) 11
Proceeds from sales of assets 32 48
Other (1) (2)
- -----------------------------------------------------------------------
Cash used for investing activities (180) (110)
- -----------------------------------------------------------------------
Cash flows from financing activities
Repayments of long-term debt (601) (4)
Additions to long-term debt 117 -
Fees paid to issue debt (1) -
Increase (decrease) in bank overdrafts 17 (22)
Increase in commercial paper and
other short-term notes 531 93
Stock repurchases (65) -
Proceeds from option plan exercises 2 4
Cash dividends paid (46) (46)
- -----------------------------------------------------------------------
Cash (used for) provided by financing activities (46) 25
- -----------------------------------------------------------------------
Increase in cash 21 33
Balance at beginning of period 8 10
- -----------------------------------------------------------------------
Balance at end of period $ 29 $ 43
=======================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
Georgia-Pacific Corporation and Subsidiaries
March 31, December 31,
(In millions, except shares and per share amounts) 1998 1997
- ----------------------------------------------------------------------------
ASSETS (Unaudited)
Current assets
Cash $ 29 $ 8
Receivables, less allowances of $12 and $13,
respectively 1,372 1,371
Taxes receivable 14 61
Inventories 1,317 1,357
Deferred income tax assets 67 67
Other current assets 51 52
- ----------------------------------------------------------------------------
Total current assets 2,850 2,916
- ----------------------------------------------------------------------------
Timber and timberlands 1,218 1,193
- ----------------------------------------------------------------------------
Property, plant and equipment
Land, buildings, machinery and equipment, at cost 14,149 14,134
Accumulated depreciation (7,925) (7,837)
- ----------------------------------------------------------------------------
Property, plant and equipment, net 6,224 6,297
- ----------------------------------------------------------------------------
Goodwill 1,584 1,599
- ----------------------------------------------------------------------------
Other assets 970 945
- ----------------------------------------------------------------------------
Total assets $ 12,846 $12,950
============================================================================
<PAGE> 5
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Bank overdrafts, net $ 240 $ 223
Commercial paper and other short-term notes 1,432 901
Current portion of long-term debt 369 653
Accounts payable 516 642
Accrued compensation 183 207
Accrued interest 89 83
Other current liabilities 297 311
- ----------------------------------------------------------------------------
Total current liabilities 3,126 3,020
- ----------------------------------------------------------------------------
Long-term debt, excluding current portion 3,519 3,713
- ----------------------------------------------------------------------------
Other long-term liabilities 1,561 1,544
- ----------------------------------------------------------------------------
Deferred income tax liabilities 1,214 1,199
- ----------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity
Common stock 73 74
Georgia-Pacific Group, par value $.80; 400,000,000
shares authorized; 91,300,000 and 92,249,000
shares issued and outstanding
The Timber Company, par value $.80; 250,000,000
shares authorized; 92,637,000 and 92,607,000
shares issued and outstanding
Additional paid-in capital 1,294 1,349
Retained earnings 2,093 2,085
Long-term incentive plan deferred compensation (4) (5)
Other (30) (29)
- ----------------------------------------------------------------------------
Total shareholders' equity 3,426 3,474
- ----------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 12,846 $12,950
============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
GEORGIA-PACIFIC CORPORATION
MARCH 31, 1998
1. PRINCIPLES OF PRESENTATION. The consolidated financial statements
include the accounts of Georgia-Pacific Corporation and subsidiaries (the
"Corporation"). All significant intercompany balances and transactions
are eliminated in consolidation. The interim financial information
included herein is unaudited; however, such information reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the Corporation's financial position, results of
operations, and cash flows for the interim periods. All such adjustments
are of a normal, recurring nature except for the items discussed in Notes
3 and 4 below. Certain 1997 amounts have been reclassified to conform
with the 1998 presentation. The Timber Company's and the Georgia-Pacific
Group's combined financial statements should be read in conjunction with
the Corporation's consolidated financial statements.
2. EARNINGS PER SHARE. The Corporation's common stock was redesignated in
December 1997 to reflect separately the performance of the Corporation's
pulp, paper and building products businesses, which are now known as
Georgia-Pacific Group. A separate class of common stock was distributed
to reflect the performance of the Corporation's timber operating group,
which is now known as The Timber Company. Basic earnings per share is
computed based on net income and the weighted average number of common
shares outstanding. Diluted earnings per share reflect the annual
issuance of common shares under long-term incentive stock option and
stock purchase plans. The computation of diluted earnings per share does
not assume conversion or exercise of securities that would have an
antidilutive effect on earnings per share. Earnings per share for 1998
are computed for each class of common stock based on the separate
earnings attributed to each of the respective businesses.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128, `Earnings per
Share', ("SFAS 128") which specifies the computation, presentation and
disclosure requirements for earnings per share. The Corporation adopted
SFAS No. 128 in the 1997 fourth quarter. All prior period earnings per
share data were restated to conform with the provisions of SFAS No. 128.
The per share amounts reported under SFAS No. 128 are not materially
different from those calculated and presented under APB Opinion No. 15.
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------------
(In millions, except per share amounts)1998 1998 1997
---------------------------------------------------------------
Georgia-PacificThe TimberGeorgia-Pacific
Group CompanyCorporation
---------------------------------------------------------------
<S> <C> <C> <C>
Basic and diluted income available to
shareholders (numerator):
Income before extraordinary item $ 16 $ 52 $ 90
Extraordinary item, net of taxes (12) (2) -
---------------------------------------------------------------
Net income $ 4 $ 50 $ 90
================================================================
Shares (denominator):
Average shares outstanding 91.5 92.3 91.0
Dilutive securities:
Incentive plans and option plans .9 .7 .4
Employee stock purchase plans .1 - -
---------------------------------------------------------------
Total assuming conversion 92.5 93.0 91.4
================================================================
Basic and diluted per share amounts:
Income before extraordinary item $ .17 $ .56 $ .99
Extraordinary item, net of taxes (.13) (.02) -
---------------------------------------------------------------
Net income $ .04 $ .54 $ .99
================================================================
</TABLE>
3. OTHER INCOME. The 1997 first quarter sale of the company's Martell
operations, which included a sawmill, particleboard mill and timberlands,
generated a pretax gain of $128 million. This sale resulted in an after-
tax gain of $80 million.
4. EXTRAORDINARY ITEM. The Corporation redeemed approximately $400 million
of its outstanding debt during the first quarter of 1998. As a result,
the Corporation recognized an after-tax extraordinary loss of $14
million.
5. COMPREHENSIVE INCOME. 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. The
Corporation adopted SFAS No. 130 in the 1998 first quarter. Other
comprehensive income includes primarily currency translation adjustments.
For the three months ended March 31, 1998 and 1997, the Corporation's
total comprehensive income was $53 million and $88 million, respectively.
6. SUPPLEMENTAL DISCLOSURES - STATEMENTS OF CASH FLOWS. The cash impact of
interest and income taxes is reflected in the table below. The effect of
foreign currency exchange rate changes on cash was not material in either
period.
<TABLE>
<CAPTION>
Three months
ended March 31,
------------------------
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Total interest costs $ 115 $ 123
Interest capitalized (1) (1)
---------------------------------------------------------------
Interest expense $ 114 $ 122
================================================================
Interest paid $ 107 $ 112
================================================================
Income taxes (refunded) paid, net $ (23) $ (30)
================================================================
</TABLE>
In conjunction with the sale of the Corporation's Martell, California,
operations in March, 1997, the Corporation received notes receivable from
the purchaser in the amount of $270 million for the Martell timberlands.
In April 1997, the Corporation monetized these notes receivable through the
issuance of notes payable in a private placement. These proceeds were used
to reduce the Corporation's debt. 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 Corporation's balance
sheets.
<PAGE> 7
7. INVENTORY VALUATION. Inventories include costs of materials, labor, and
plant overhead. The Corporation uses the dollar value pool method for
computing LIFO inventories. The major components of inventories were as
follows:
<TABLE>
<CAPTION>
March 31, December 31,
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Raw materials $ 356 $ 396
Finished goods 875 878
Supplies 295 295
LIFO reserve (209) (212)
---------------------------------------------------------------
Total inventories $ 1,317 $1,357
============================================================
</TABLE>
8. PROVISION FOR INCOME TAXES. The effective tax rate was 42 percent for
the three months ended March 31, 1998, and 42 percent for the three
months ended March 31, 1997. The effective tax rate for the period was
different than the statutory rates primarily because of nondeductible
goodwill amortization expense.
9. COMMITMENTS AND CONTINGENCIES. The Corporation 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 Corporation 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 Corporation is involved in environmental remediation activities at
approximately 156 sites, both owned by the Corporation 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 Corporation estimates that approximately 47% are
being investigated, approximately 25% are being remediated and
approximately 28% are being monitored (an activity that occurs after either
site investigation or remediation has been completed). The ultimate costs
to the Corporation 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 Corporation's
share of multiparty cleanups or the extent to which contribution will be
available from other parties. The Corporation has established reserves for
environmental remediation costs for these sites in amounts that 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 Corporation 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 $59 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 Corporation 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 Corporation 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 Corporation 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 Corporation. In
many cases, the plaintiffs are unable to demonstrate that they have
suffered any compensable loss as a result of such exposure.
The Corporation 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 Corporation is currently defending claims of approximately
60,242 such plaintiffs and anticipates that additional suits will be filed
against it over the next several years. The Corporation has insurance
available in amounts that 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 Corporation 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 Corporation
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 Corporation has been defending an action in Alabama state court brought
to recover damages on behalf of a class of all persons currently owning
structures in the United States on which allegedly defective hardboard
siding manufactured by the Corporation after January 1, 1980 has been
installed. On January 9, 1998, the court approved a settlement pursuant to
which the Corporation will establish a procedure for resolving product
warranty claims on certain of the Corporation's hardboard siding products,
and will pay $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
Corporation. The Corporation 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, which under the settlement may be
filed through August 1998, could cause claims to exceed established
reserves.
In May 1997, the Corporation 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. Approximately
45 similar suits have been filed in federal courts in California, Florida,
Georgia and Wisconsin, and in the state courts of California, Wisconsin and
Tennessee. On October 15, 1997, the Federal Judicial Panel on Multi-
District Litigation consolidated all federal court cases in the federal
district court in Gainesville, Florida. The Corporation 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
Corporation.
<PAGE> 8
<TABLE>
<CAPTION>
CONSOLIDATED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
(Dollar amounts, except Second Quarter
per share, in millions) First --------------
Quarter Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C>
1998
NET SALES
Building products $1,777 55%
Pulp and paper 1,431 45
Other operations 13 -
- --------------------------------------------------------------------------------
Total net sales $3,221 100%
===============================================================================
OPERATING PROFITS
Building products $ 168 64%
Pulp and paper 91 34
Other operations 6 2
- --------------------------------------------------------------------------------
Total operating profits 265 100%
===
General corporate expense (34)
Interest expense (114)
Provision for income taxes (49)
- --------------------------------------------------------------------------------
Income before extraordinary
item 68
Extraordinary item, net of taxes (14)
- --------------------------------------------------------------------------------
Net income $ 54
===============================================================================
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
CONSOLIDATED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
(Dollar amounts, Third Quarter Fourth Quarter
except per share, ------------------------ ------------------------
in millions) Quarter Year-to-date Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
NET SALES
Building products
Pulp and paper
Other operations
- --------------------------------------------------------------------------------
Total net sales
===============================================================================
OPERATING PROFITS
Building products
Pulp and paper
Other operations
- --------------------------------------------------------------------------------
Total operating
profits
General corporate
expense
Interest expense
Provision for
income taxes
- --------------------------------------------------------------------------------
Net income
===============================================================================
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
CONSOLIDATED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
(Dollar amounts, except Second Quarter
per share, in millions) First --------------
Quarter Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1997
NET SALES
Building products $1,781 57% $1,943 59% $3,724 58%
Pulp and paper 1,351 43 1,371 41 2,722 42
Other operations 13 - 12 - 25 -
- --------------------------------------------------------------------------------
Total net sales $3,145 100% $3,326 100% $6,471 100%
===============================================================================
OPERATING PROFITS
Building products $ 289 92% $ 203 93% $ 492 93%
Pulp and paper 20 7 12 6 32 6
Other operations 4 1 3 1 7 1
- --------------------------------------------------------------------------------
Total operating profits 313 100% 218 100% 531 100%
=== === ===
General corporate expense (37) (48) (85)
Interest expense (122) (119) (241)
Provision for income taxes (64) (24) (88)
- --------------------------------------------------------------------------------
Income before accounting
change 90 27 117
Cumulative effect of an
accounting change, net
of taxes - - -
- --------------------------------------------------------------------------------
Net income $ 90 $ 27 $ 117
===============================================================================
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
CONSOLIDATED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
(Dollar amounts, Third Quarter Fourth Quarter
except per share, ------------------------ ------------------------
in millions) Quarter Year-to-date Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
NET SALES
Building products $ 1,946 58% $ 5,670 58% $ 1,816 56% $ 7,486 57%
Pulp and paper 1,414 42 4,136 42 1,420 44 5,556 43
Other operations 13 - 38 - 14 - 52 -
- --------------------------------------------------------------------------------
Total net sales $ 3,373 100% $ 9,844 100% $ 3,250 100% $13,094 100%
===============================================================================
OPERATING PROFITS
Building products $ 221 70% $ 713 84% $ (36)(171)% $ 677 78%
Pulp and paper 93 29 125 15 49 233 174 20
Other operations 3 1 10 1 8 38 18 2
- --------------------------------------------------------------------------------
Total operating
profits 317 100% 848 100% 21 100% 869 100%
=== === === ===
General corporate
expense (54) (139) (30) (169)
Interest expense (114) (355) (110) (465)
(Provision) benefit for
income taxes (63) (151) 45 (106)
- --------------------------------------------------------------------------------
Income (loss) before accounting
change 86 203 (74) 129
Cumulative effect of an
accounting change, net
of taxes - - (60) (60)
- --------------------------------------------------------------------------------
Net income (loss) $ 86 $ 203 $ (134) $ 69
===============================================================================
</TABLE>
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH 1997
The Corporation reported consolidated net sales of approximately $3.2 billion
for the three months ended March 31, 1998 and $3.1 billion for the same period
in 1997. Net income for the 1998 first quarter was $54 million compared with
$90 million in 1997.
The remaining discussion refers to the ``Sales and Operating Profits by
Industry Segment' table (included in PART I - ITEM 1. hereto).
The Corporation's building products segment reported net sales of $1.8 billion
for both the first three months of 1998 and 1997. Operating profits were $168
million in 1998 compared with $289 million in 1997. Return on sales was 9.5
percent and 16.2 percent for the three months ended March 31, 1998 and 1997,
respectively. Profits for this segment include a $128 million pretax gain from
the sale of the Corporation's Martell operations in 1997, discussed in Note 3
above. Excluding the pretax gain from the sale of the Martell operations,
operating profit in the building products segment would have been $161 million
and the return on sales would have been 9.0 percent.
The improved year-over-year operating profit (excluding the gain on the sale of
the Martell operations) resulted principally from approximately 15 percent
higher Southern sawtimber prices in The Timber Company and a 5 percent increase
in demand for gypsum products that were offset somewhat by 7 percent lower
average prices for lumber and particleboard and higher log costs.
Operating losses for the Corporation's building products distribution division
were $20 million in the first quarter, compared with a loss of $33 million in
the first quarter of 1997. The distribution division restructuring plan,
finalized in December 1997, is proceeding on schedule. The plan included
disposing of the division's millwork fabrication facilities nationwide as well
as several distribution centers located in the Western United States.
<TABLE>
<CAPTION>
SELECTED DISTRIBUTION DIVISION DATA
Three months ended March 31,
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Sales $ 963 $ 983
Operating loss (20) (33)
Capital expenditures 3 13
Depreciation 12 11
============================================================
</TABLE>
The Corporation's pulp and paper segment reported net sales of $1.4 billion
and operating profits of $91 million in the 1998 first
quarter. For the same period in 1997, the segment reported net sales of $1.4
billion and operating profits of $20 million. Return
on sales increased to 6.4 percent in 1998 from 1.5 percent in 1997, primarily
due to an increase in average prices for almost all of
the Corporation's pulp and paper products. Average containerboard prices for
the quarter were approximately 30 percent above prices
in the same 1997 period, while average communication paper prices for the
quarter were approximately 9 percent above year ago
levels. Prices for most of the Corporation's pulp and paper products
remained steady over the quarter, although there was some
softening of prices in communication papers in the latter part of the quarter
which is continuing into the second quarter. Demand
has slowly improved, yet remains below capacity. Compared with a year ago, the
Corporation has reduced inventories for most pulp
and paper products, incurring downtime in the first quarter when necessary.
During the first quarter of 1998, the Corporation
incurred market-related downtime at its pulp and paper mills and reduced pulp,
containerboard and communication papers production by
approximately 80,000 tons, 20,000 tons and 15,000 tons, respectively. During
the second quarter of 1998, the Corporation expects to
take market-related downtime at its pulp and paper mills to reduce pulp,
containerboard and communication papers production by
approximately 40,000 tons, 20,000 tons and 15,000 tons, respectively. Price
increases have been announced for the second quarter in
most pulp and paper products, except for communication papers.
Interest expense declined 7 percent to $114 million in the 1998 first quarter,
compared with $122 million in the 1997 first quarter.
This decline was due primarily to a lower level of debt resulting from the
application of the proceeds from the sale of Martell
timberlands in April, 1997 to pay down debt.
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Corporation generated cash from operations of $247
million for the three months ended March 31, 1998
compared with $118 million a year ago. The increase is primarily attributable
to higher average prices for many of the
Corporation's pulp and paper products and lower working capital levels.
INVESTING ACTIVITIES. Capital expenditures for the three months ended
March 31, 1998 were $185 million, which included $74 million
in the pulp and paper segment, $34 million in the building products segment,
$67 million for timber and timberlands and $10 million
of other and general corporate. The Corporation expects to make capital
expenditures of approximately $750 million in 1998,
excluding the cost of any acquisitions.
During the first quarter of 1998, the Corporation received $32 million of
proceeds from the sale of assets, principally real estate
development properties located in South Carolina and Florida. During the first
quarter of 1997, the Corporation received proceeds
of $48 million from the sale of assets relating primarily to the sale of its
Martell operations.
In 1998, the Corporation 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 payments.
The Corporation announced on March 30, 1998 that it has agreed to acquire
CeCorr Inc., the leading independent producer of
corrugated sheets in the United States. In the proposed transaction, the
Corporation will pay approximately $190 million, half in
cash and half in Georgia-Pacific Group stock, for all the outstanding shares
of CeCorr. The transaction also includes the
Corporation's assumption of CeCorr's $86 million debt. Closing, which is
contingent on negotiation and execution of a binding
purchase agreement, normal due diligence reviews and customary regulatory
approvals, is expected to be completed in the second
quarter of 1998. The acquisition includes 11 CeCorr sheet feeder plants,
which manufacture corrugated sheets that are sold to others
for final conversion into corrugated containers. Also included are a
corrugating medium paper mill, and several specialty operations
and support service groups.
FINANCING ACTIVITIES. The Corporation's total debt was $5.6 billion and $5.5
billion at March 31, 1998 and December 31, 1997,
respectively. At March 31, 1998 and December 31, 1997, $4.6 billion and $4.5
billion, respectively, of such total debt was Georgia-
Pacific Group's debt and $936 million and $971 million, respectively, was The
Timber Company's debt.
In conjunction with the sale of the Corporation's Martell, California,
operations in March, 1997, the Corporation received notes
receivable from the purchaser in the amount of $270 million for the Martell
timberlands. In April 1997, the Corporation monetized
these notes receivable through the issuance of notes payable in a private
placement. These proceeds were used to reduce the
Corporation's debt. 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 Corporation's balance sheets.
At March 31, 1998, the Corporation had outstanding borrowings of $693 million
under certain Industrial Revenue Bonds. Approximately
$57 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 sheets.
<PAGE> 14
The Corporation has a $1.5 billion unsecured revolving credit facility which is
used for direct borrowings and as support for
commercial paper and other short-term borrowings. As of March 31, 1998, $348
million of committed credit was available in excess of
all short-term borrowings outstanding under or supported by the facility.
The Corporation's senior management establishes parameters of the Corporation's
financial risk. Hedging interest-rate exposure
through the use of swaps and options, and hedging foreign exchange exposure
through the use of forward contracts, are specifically
contemplated to manage risk in keeping with management policy. Derivative
instruments such as swaps, forwards, option or futures,
which are based directly or indirectly upon interest rates, currencies,
equities and commodities, may be used by the Corporation to
manage and reduce the risk inherent in price, currency and interest rate
fluctuations. There have been no significant changes to
reported market risk since December 31, 1997.
The Corporation does not utilize derivatives for speculative purposes.
Derivatives are transaction-specific so that a specific debt
instrument, contract, invoice or transaction determines the amount, maturity
and other specifics of the hedge. Counterparty risk is
limited to institutions with long-term debt ratings of A or better.
At March 31, 1998, the Corporation's weighted average interest rate on its
total debt was 7.3% including the accounts receivable
sale program and outstanding interest rate exchange agreements. At March 31,
1998, these interest rate exchange agreements
effectively converted $456 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 9.0%. These agreements
have a weighted average maturity of approximately 1
year. As of March 31, 1998, the Corporation's total floating rate debt,
including the accounts receivable sale program, exceeded
related interest rate exchange agreements by $1.7 billion.
The Corporation also enters into foreign currency exchange agreements, the
amounts of which were not material to the consolidated
financial position of the Corporation at March 31, 1998.
As of March 31, 1998, the Corporation had registered for sale up to $500
million of debt securities under a shelf registration
statement filed with the Securities and Exchange Commission.
OTHER. In June,1997, the FASB issued Statement of Financial Accounting
Standards No. 130, `Reporting Comprehensive Income'
("SFAS 130") that establishes standards for reporting and display of
comprehensive income and its components in a full set of
general purpose financial statements. The Corporation adopted SFAS No. 130 in
the 1998 first quarter.
Also in June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosure about Segments of an Enterprise
and Related Information", ("SFAS 131"). 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 Corporation 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.
In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits", ("SFAS 132"). This statement requires
additional pension related disclosures. The objective of
the statement is to provide sufficient information to understand the changes in
benefit obligations or to analyze the quality of
earnings of the Corporation. SFAS No. 132 requires disclosure of additional
information about the changes in the benefit obligation
and the fair value of plan assets during the period, including unrecognized
gains and losses. The Corporation will be required to
present this additional information disclosure in the 1998 year end statements.
The Corporation expects to incur significant costs during the next two 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 on and beyond January 1,
2000. The Corporation currently believes that it will be able to modify or
replace its affected systems in time to minimize any
detrimental effects on operations. The incremental costs of the Year 2000
project are estimated to be between $55 million and $145
million. These costs will be expensed as incurred, unless new software is
purchased that will be capitalized in accordance with the
Corporation's policy. Such costs may be material to the Corporation'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 Corporation.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. The
statements under "Management's Discussion and Analysis" and other statements
contained herein that 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 elsewhere herein, factors that
could cause or contribute to actual results differing
materially from such forward-looking statements include the following: the
Corporation's production capacity continuing to exceed
demand for its pulp an paper products, necessitating market-related downtime;
the realization of projected savings from the
Corporation's investments in systems, operations and cost reduction programs,
including the ability of management to return the
Corporation's building products distribution division to profitability; the
Corporation's ability to timely and efficiently address
the Year 2000 problem; changes in the productive capacity of other building
products and pulp and paper producers; the effect on the
Corporation of changes in environmental and pollution control laws and
regulations; the general level of economic activity in U.S.
and export markets; variations in the level of housing starts; fluctuations in
interest rates and currency exchange rates; the
availability and cost of wood fiber; and other risks, uncertainties and
assumptions
discussed in the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997, the Corporation's
Registration Statement No. 333-35813 dated November 7, 1997
and the Corporation's Form 8-K dated October 17, 1996.
For a discussion of commitments and contingencies refer to Note 9 of the Notes
to Consolidated Financial Statements.
COMBINED STATEMENTS OF INCOME (Unaudited)
Georgia-Pacific Corporation--Georgia-Pacific Group
<TABLE>
<CAPTION>
Three months
ended March 31,
-----------------
(In millions, except per share amounts) 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Net sales $3,193 $3,120
- -----------------------------------------------------------------------
Costs and expenses
Cost of sales excluding depreciation and
cost of timber harvested shown below
The Timber Company 24 13
Third parties 2,475 2,442
- -----------------------------------------------------------------------
Total cost of sales 2,499 2,455
Selling, general and
administrative 262 281
Depreciation and cost of
timber harvested
The Timber Company 93 99
Third parties 211 216
- -----------------------------------------------------------------------
Total depreciation and cost of
timber harvested 304 315
Interest 96 97
Other income - (14)
- -----------------------------------------------------------------------
Total costs and expenses 3,161 3,134
- -----------------------------------------------------------------------
Income (loss) before income taxes
and extraordinary item 32 (14)
Provision (benefit) for income taxes 16 (1)
- -----------------------------------------------------------------------
Income (loss) before extraordinary item 16 (13)
Extraordinary item, net of taxes (12) -
- -----------------------------------------------------------------------
Net income (loss) $ 4 $ (13)
=======================================================================
Basic and diluted per common share:
Income before extraordinary item $ .17
Extraordinary item, net of taxes (.13)
- -----------------------------------------------------------------------
Net income $ .04
=======================================================================
Average number of shares outstanding:
Basic 91.5
Diluted 92.5
=======================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 15
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF CASH FLOWS (Unaudited)
Georgia-Pacific Corporation--Georgia-Pacific Group
Three months
ended March 31,
------------------
(In millions) 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 4 $ (13)
Adjustments to reconcile net income (loss) to cash
provided by operations:
Depreciation 185 193
Cost of timber harvested 119 122
Other income - (14)
Deferred income taxes 14 (6)
Amortization of goodwill 15 15
Stock compensation programs 5 (13)
Gain on sales of assets (1) (4)
(Increase) decrease in receivables 3 (64)
Decrease in inventories 40 12
Change in other working capital (159) (110)
Increase in taxes payable 47 72
Change in other assets and other
long-term liabilities 16 (5)
- -----------------------------------------------------------------------
Cash provided by operations 288 185
- -----------------------------------------------------------------------
Cash flows from investment activities
Property, plant and equipment investments (117) (131)
Timber and timberlands purchases (140) (126)
(Increase) decrease in cash restricted for capital
expenditures (26) 11
Proceeds from sales of assets 5 47
Other (1) (2)
- -----------------------------------------------------------------------
Cash used for investment activities (279) (201)
- -----------------------------------------------------------------------
Cash flows from financing activities
Additions to long-term debt 98 68
Common stock repurchased (65) -
Cash dividends paid (23) (23)
Other 2 4
- -----------------------------------------------------------------------
Cash provided by financing activities 12 49
- -----------------------------------------------------------------------
Increase in cash 21 33
Balance at beginning of period 8 10
- -----------------------------------------------------------------------
Balance at end of period $ 29 $ 43
=======================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 16
<TABLE>
<CAPTION>
COMBINED BALANCE SHEETS
Georgia-Pacific Corporation--Georgia-Pacific Group
March 31, December 31,
(In millions) 1998 1997
- ----------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash $ 29 $ 8
Receivables, less allowances of $12 and $13,
respectively 1,366 1,368
Taxes receivable 14 61
Inventories 1,316 1,355
Deferred income tax assets 67 67
Other current assets 46 52
- ----------------------------------------------------------------------------
Total current assets 2,838 2,911
- ----------------------------------------------------------------------------
Timber and timberlands 92 71
- ----------------------------------------------------------------------------
Property, plant and equipment
Land, buildings, machinery and equipment, at cost 14,086 14,072
Accumulated depreciation (7,881) (7,795)
- ----------------------------------------------------------------------------
Property, plant and equipment, net 6,205 6,277
- ----------------------------------------------------------------------------
Goodwill 1,584 1,599
- ----------------------------------------------------------------------------
Other assets 955 921
- ----------------------------------------------------------------------------
Total assets $ 11,674 $11,779
============================================================================
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Short-term debt $ 1,697 $ 1,462
Accounts payable 512 639
Accrued compensation 182 207
Accrued interest 89 83
Other current liabilities 287 307
- ----------------------------------------------------------------------------
Total current liabilities 2,767 2,698
- ----------------------------------------------------------------------------
Long-term debt, excluding current portion 2,927 3,057
- ----------------------------------------------------------------------------
Other long-term liabilities 1,559 1,542
- ----------------------------------------------------------------------------
Deferred income tax liabilities 973 959
- ----------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity 3,448 3,523
- ----------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 11,674 $11,779
============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)
Georgia-Pacific Corporation--Georgia-Pacific Group
MARCH 31, 1998
1. PRINCIPLES OF PRESENTATION. The combined financial statements include the
accounts of Georgia-Pacific Group and
subsidiaries. All significant intercompany balances and transactions are
eliminated in consolidation. The interim financial
information included herein is unaudited; however, such information
reflects all adjustments which are, in the opinion of
management, necessary for a fair presentation of the Georgia-Pacific
Group's financial position, results of operations, and
cash flows for the interim periods. All such adjustments are of a normal,
recurring nature except for the items discussed in
Notes 3 and 4 below. Certain 1997 amounts have been reclassified to
conform with the 1998 presentation. The Georgia-Pacific
Group's combined financial statements should be read in conjunction with
the Corporation's consolidated financial statements
and The Timber Company's combined financial statements.
2. EARNINGS PER SHARE. The Corporation's common stock was redesignated in
December 1997 to reflect separately the performance
of the Corporation's pulp, paper and building products businesses, which
are now known as Georgia-Pacific Group. A separate
class of common stock was distributed to reflect the performance of the
Corporation's timber operating group, which is now
known as The Timber Company. Basic earnings per share is computed based
on net income and the weighted average number of
common shares outstanding. Diluted earnings per share reflect the annual
issuance of common shares under long-term incentive
stock option and stock purchase plans. The computation of diluted
earnings per share does not assume conversion or exercise
of securities that would have an antidilutive effect on earnings per share.
In February 1997, the FASB issued SFAS No. 128, which specifies the
computation, presentation and disclosure requirements for
earnings per share. Georgia-Pacific Group adopted SFAS No. 128 in the
1997 fourth quarter.
<TABLE>
<CAPTION>
Three months
ended March 31,
---------------------
(In millions, except per share amounts)1998
---------------------------------------------------------------
<S> <C>
Basic and diluted income available to
shareholders (numerator):
Income before extraordinary item $ 16
Extraordinary item, net of taxes (12)
---------------------------------------------------------------
Net income $ 4
================================================================
Shares (denominator):
Average shares outstanding 91.5
Dilutive securities:
Incentive plans and option plans .9
Employee stock purchase plans .1
---------------------------------------------------------------
Total assuming conversion 92.5
================================================================
Basic and diluted per share amounts:
Income before extraordinary item $ .17
Extraordinary item, net of taxes (.13)
---------------------------------------------------------------
Net income $ .04
================================================================
</TABLE>
3. OTHER INCOME. The 1997 first quarter sale of the Corporation's Martell
operations, which included a sawmill, particleboard mill and timberlands,
generated a pretax gain of $128. Of this amount, a pretax gain of $14
million ($9 million after taxes) was recorded in Georgia-Pacific Group's
building products segment for the sale of the sawmill and particleboard
plant.
4. EXTRAORDINARY ITEM. Georgia-Pacific Corporation called approximately
$400 million of its outstanding debt during the 1998 first quarter. As a
result, an after-tax extraordinary charge of $12 million (13 cents per
share) was allocated to the Georgia-Pacific Group based on the ratio of
the Georgia-Pacific Group's debt to the Corporation's total debt.
5. COMPREHENSIVE INCOME. 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. The
Georgia-Pacific Group adopted SFAS No. 130 in the 1998 first quarter.
Other comprehensive income includes primarily currency translation
adjustments. For the three months ended March 31, 1998, the Georgia-
Pacific Group's total comprehensive income was $3 million, compared to a
loss of $15 million for the same period last year.
6. SUPPLEMENTAL DISCLOSURES - STATEMENTS OF CASH FLOWS. The cash impact of
interest and income taxes is reflected in the table below. The effect of
foreign currency exchange rate changes on cash was not material in either
period.
<TABLE>
<CAPTION>
Three months
ended March 31,
------------------------
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Total interest costs $ 115 $ 123
Interest capitalized (1) (1)
---------------------------------------------------------------
Interest expense $ 114 $ 122
================================================================
Interest paid by the Corporation $ 107 $ 112
================================================================
Income taxes (refunded) paid by the
Corporation, net $ (23) $ (30)
================================================================
Portion of interest paid charged
to the Georgia-Pacific Group $ 89 $ 87
================================================================
Portion of income taxes (refunded) paid
charged to the Georgia-Pacific Group $ (9) $ (7)
================================================================
</TABLE>
<PAGE> 19
7. INVENTORY VALUATION. Inventories include costs of materials, labor, and
plant overhead. The Georgia-Pacific Group uses the dollar value pool
method for computing LIFO inventories. The major components of
inventories were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Raw materials $ 356 $ 396
Finished goods 875 878
Supplies 294 293
LIFO reserve (209) (212)
---------------------------------------------------------------
Total inventories $ 1,316 $1,355
============================================================
</TABLE>
8. PROVISION FOR INCOME TAXES. The effective tax rates for the periods were
different than the statutory rates primarily because of nondeductible
goodwill amortization expense.
9. COMMITMENTS AND CONTINGENCIES. 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 Georgia-Pacific Group 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 Corporation is a
party. The holders of Georgia-Pacific Group stock are shareholders of the
Corporation and are subject to all of the risks associated with an
investment in the Corporation, including any legal proceedings and claims
involving The Timber Company.
The Corporation is involved in environmental remediation activities at
approximately 156 sites, both owned by the Corporation 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 Corporation estimates that approximately 47% are
being investigated, approximately 25% are being remediated and
approximately 28% are being monitored (an activity that occurs after either
site investigation or remediation has been completed). The ultimate costs
to the Corporation 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 Corporation's
share of multiparty cleanups or the extent to which contribution will be
available from other parties. The Corporation has established reserves for
environmental remediation costs for these sites in amounts that 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 Corporation 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 $59 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 Corporation 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 Corporation 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 Corporation 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 Corporation. In
many cases, the plaintiffs are unable to demonstrate that they have
suffered any compensable loss as a result of such exposure.
The Corporation 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 Corporation is currently defending claims of approximately
60,242 such plaintiffs and anticipates that additional suits will be filed
against it over the next several years. The Corporation has insurance
available in amounts that 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 Corporation 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 Corporation
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 Corporation has been defending an action in Alabama state court brought
to recover damages on behalf of a class of all persons currently owning
structures in the United States on which allegedly defective hardboard
siding manufactured by the Corporation after January 1, 1980 has been
installed. On January 9, 1998, the court approved a settlement pursuant to
which the Corporation will establish a procedure for resolving product
warranty claims on certain of the Corporation's hardboard siding products,
and will pay $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
Corporation. The Corporation 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, which under the settlement may be
filed through August 1998, could cause claims to exceed established
reserves.
In May 1997, the Corporation 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. Approximately
45 similar suits have been filed in federal courts in California, Florida,
Georgia and Wisconsin, and in the state courts of California, Wisconsin and
Tennessee. On October 15, 1997, the Federal Judicial Panel on Multi-
District Litigation consolidated all federal court cases in the federal
district court in Gainesville, Florida. The Corporation 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
Corporation.
<PAGE> 20
<TABLE>
<CAPTION>
COMBINED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation--Georgia-Pacific Group
(Dollar amounts, except Second Quarter
per share, in millions) First --------------
Quarter Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C>
1998
NET SALES
Building products $1,753 55%
Pulp and paper 1,431 45
Other operations 9 -
- --------------------------------------------------------------------------------
Total net sales $3,193 100%
===============================================================================
OPERATING PROFITS
Building products $ 66 41%
Pulp and paper 91 56
Other operations 5 3
- --------------------------------------------------------------------------------
Total operating profits 162 100%
===
General corporate expense (34)
Interest expense (96)
Provision for income taxes (16)
- --------------------------------------------------------------------------------
Income before extraordinary item 16
Extraordinary item, net of taxes (12)
- --------------------------------------------------------------------------------
Net income $ 4
===============================================================================
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
COMBINED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation--Georgia-Pacific Group
(Dollar amounts, Third Quarter Fourth Quarter
except per share, ------------------------ ------------------------
in millions) Quarter Year-to-date Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
NET SALES
Building products
Pulp and paper
Other operations
- --------------------------------------------------------------------------------
Total net sales
===============================================================================
OPERATING PROFITS
Building products
Pulp and paper
Other operations
- --------------------------------------------------------------------------------
Total operating
profits
General corporate
expense
Interest expense
Provision for
income taxes
- --------------------------------------------------------------------------------
Net income
===============================================================================
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
COMBINED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation--Georgia-Pacific Group
(Dollar amounts, except Second Quarter
per share, in millions) First --------------
Quarter Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1997
NET SALES
Building products $1,760 57% $1,918 58% $3,678 57%
Pulp and paper 1,351 43 1,371 42 2,722 43
Other operations 9 - 8 - 17 -
- --------------------------------------------------------------------------------
Total net sales $3,120 100% $3,297 100% $6,417 100%
===============================================================================
OPERATING PROFITS
Building products $ 95 80% $ 122 90% $ 217 85%
Pulp and paper 20 17 12 9 32 13
Other operations 4 3 1 1 5 2
- --------------------------------------------------------------------------------
Total operating profits 119 100% 135 100% 254 100%
=== === ===
General corporate expense (36) (46) (82)
Interest expense (97) (99) (196)
Benefit for income taxes 1 - 1
- --------------------------------------------------------------------------------
Net loss $ (13) $ (10) $ (23)
===============================================================================
</TABLE>
<PAGE> 23
<TABLE>
<CAPTION>
COMBINED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation--Georgia-Pacific Group
(Dollar amounts, Third Quarter Fourth Quarter
except per share, ------------------------ ------------------------
in millions) Quarter Year-to-date Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
NET SALES
Building products $ 1,906 57% $ 5,584 57% $ 1,791 56% $ 7,375 57%
Pulp and paper 1,414 43 4,136 43 1,420 44 5,556 43
Other operations 10 - 27 - 10 - 37 -
- --------------------------------------------------------------------------------
Total net sales $ 3,330 100% $ 9,747 100% $ 3,221 100% $12,968 100%
===============================================================================
OPERATING PROFITS
Building products $ 127 57% $ 344 72% $ (106) 212% $ 238 56%
Pulp and paper 93 42 125 26 49 (98) 174 41
Other operations 3 1 8 2 7 (14) 15 3
- --------------------------------------------------------------------------------
Total operating
profits 223 100% 477 100% (50) 100% 427 100%
=== === === ===
General corporate
expense (54) (136) (28) (164)
Interest expense (95) (291) (90) (381)
(Provision) benefit for
income taxes (33) (32) 64 32
- --------------------------------------------------------------------------------
Income (loss) before accounting
change 41 18 (104) (86)
Cumulative effect of an
accounting change, net
of taxes - - (60) (60)
- --------------------------------------------------------------------------------
Net income (loss) $ 41 $ 18 $ (164) $ (146)
===============================================================================
</TABLE>
<PAGE> 24
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH 1997
Georgia-Pacific Group reported net sales of approximately $3.2 billion for the
three months ended March 31, 1998 and $3.1 billion for the same period in 1997.
Net income for the 1998 first quarter was $4 million compared with a net loss of
$13 million in 1997.
The remaining discussion refers to the ``Sales and Operating Profits by
Industry Segment' table (included in PART I - ITEM 1. hereto).
Georgia-Pacific Group's building products segment reported net sales of $1.8
billion for both the first three months of 1998 and 1997. Operating profits
decreased in 1998 to $66 million compared with $95 million in 1997. Return on
sales was 3.8 percent and 5.4 percent for the three months ended March 31, 1998
and 1997, respectively. Profits for this segment include a $14 million pretax
gain from the sale of the Georgia-Pacific Group's Martell operations in 1997,
discussed in Note 3 above. Excluding the pretax gain from the sale of the
Martell operations, first quarter 1997 operating profit in the building products
segment would have been $81 million and the return on sales would have been 4.6
percent.
The decrease in year-over-year operating profit for the building products
segment was primarily due to higher log costs and approximately 7 percent lower
average prices for lumber and particleboard, offset somewhat by a 5 percent
increase in demand for gypsum products.
Operating losses for the Georgia-Pacific Group's building products distribution
division were $20 million in the first quarter, compared with a loss of $33
million in the first quarter of 1997. The distribution division restructuring
plan, finalized in December 1997, is proceeding on schedule. The plan included
disposing of the division's millwork fabrication facilities nationwide as well
as several distribution centers located in the Western United States.
<PAGE> 25
<TABLE>
<CAPTION>
SELECTED DISTRIBUTION DIVISION DATA
Three months ended March 31,
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Sales $ 963 $ 983
Operating loss (20) (33)
Capital expenditures 3 13
Depreciation 12 11
============================================================
</TABLE>
The Georgia-Pacific Group's pulp and paper segment reported net sales of $1.4
billion and operating profits of $91 million in the
1998 first quarter. For the same period in 1997, the segment reported net
sales of $1.4 billion and operating profits of $20
million. Return on sales increased to 6.4 percent in 1998 from 1.5 percent in
1997, primarily due to an increase in average prices
for almost all of the Georgia-Pacific Group's pulp and paper products. Average
containerboard prices for the quarter were
approximately 30 percent above prices in the same 1997 period, while average
communication paper prices for the quarter were
approximately 9 percent above year ago levels. Prices for most of the
Georgia-Pacific Group's pulp and paper products remained
steady over the quarter, although there was some softening of prices in
communication papers in the latter part of the quarter which
is continuing into the second quarter. Demand has slowly improved, yet remains
below capacity. Compared with a year ago, the
Georgia-Pacific Group has reduced inventories for most pulp and paper products,
incurring downtime in the first quarter when
necessary. During the first quarter of 1998, the Georgia-Pacific Group
incurred market-related downtime at its pulp and paper mills
and reduced pulp, containerboard and communication papers production by
approximately 80,000 tons, 20,000 tons and 15,000 tons,
respectively. During the second quarter of 1998, the Georgia-Pacific Group
expects to take market-related downtime at its pulp and
paper mills to reduce pulp, containerboard and communication papers production
by approximately 40,000 tons, 20,000 tons and 15,000
tons, respectively. Price increases have been announced for the second
quarter in most pulp and paper products, except for
communication papers.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Georgia-Pacific Group generated cash from operations
of $288 million for the three months ended March 31,
1998 compared with $185 million a year ago. The increase is primarily
attributable to higher average prices for many of the
Georgia-Pacific Group's pulp and paper products and lower working capital
levels.
INVESTING ACTIVITIES. Capital expenditures for the three months ended
March 31, 1998 were $257 million, which included $74 million
in the pulp and paper segment, $33 million in the building products segment,
$140 million for timber and timberlands and $10 million
of other and general corporate. The Georgia-Pacific Group expects to make
capital expenditures of approximately $750 million in
1998, excluding the cost of any acquisitions.
During the first quarter of 1998, the Georgia-Pacific Group received $5 million
of proceeds from the sales of assets. During the
first quarter of 1997, the Georgia-Pacific Group received proceeds from the
sale of assets of $47 million relating principally to
the sale of its Martell operations.
In 1998, the Corporation 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 payments.
The Corporation announced on March 30, 1998 that it has agreed to acquire
CeCorr Inc., the leading independent producer of
corrugated sheets in the United States. In the proposed transaction, the
Corporation will pay approximately $190 million, half in
cash and half in Georgia-Pacific Group stock, for all the outstanding shares of
CeCorr. The transaction also includes the
Corporation's assumption of CeCorr's $86 million debt. Closing, which is
contingent on negotiation and execution of a binding
purchase agreement, normal due diligence reviews and customary regulatory
approvals, is expected to be completed in the second
quarter of 1998. The acquisition includes 11 CeCorr sheet feeder plants, which
manufacture corrugated sheets that are sold to others
for final conversion into corrugated containers. Also included are a
corrugating medium paper mill, and several specialty operations
and support service groups.
FINANCING ACTIVITIES. The Corporation's total debt was $5.6 billion and $5.5
billion at March 31, 1998 and December 31, 1997,
respectively. At March 31, 1998 and December 31, 1997, $4.6 billion and $4.5
billion, respectively, of such total debt was Georgia-
Pacific Group's debt and $936 million and $971 million, respectively, was The
Timber Company's debt.
At March 31, 1998, the Corporation had outstanding borrowings of $693 million
under certain Industrial Revenue Bonds. Approximately
$57 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 sheets.
<PAGE> 26
The Corporation has a $1.5 billion unsecured revolving credit facility which is
used for direct borrowings and as support for
commercial paper and other short-term borrowings. As of March 31, 1998, $34
million of committed credit was available in excess of
all short-term borrowings outstanding under or supported by the facility.
The Corporation's senior management establishes parameters of the Corporation's
financial risk. Hedging interest-rate exposure
through the use of swaps and options, and hedging foreign exchange exposure
through the use of forward contracts, are specifically
contemplated to manage risk in keeping with management policy. Derivative
instruments such as swaps, forwards, option or
futures, which are based directly or indirectly upon interest rates,
currencies, equities and commodities, may be used by the Corporation to
manage and reduce the risk inherent in price, currency and interest rate
fluctuations. There have been no significant changes to
reported market risk since December 31, 1997.
The Corporation does not utilize derivatives for speculative purposes.
Derivatives are transaction-specific so that a specific debt
instrument, contract, invoice or transaction determines the amount, maturity
and other specifics of the hedge. Counterparty risk is
limited to institutions with long-term debt ratings of A or better.
At March 31, 1998, the Corporation's weighted average interest rate on its
total debt was 7.3% including the accounts receivable
sale program and outstanding interest rate exchange agreements. At March 31,
1998, these interest rate exchange agreements
effectively converted $456 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 9.0%. These agreements
have a weighted average maturity of approximately 1
year. As of March 31, 1998, the Corporation's total floating rate debt,
including the accounts receivable sale program, exceeded
related interest rate exchange agreements by $1.7 billion.
The Corporation also enters into foreign currency exchange agreements, the
amounts of which were not material to the consolidated
financial position of the Corporation at March 31, 1998.
As of March 31, 1998, the Corporation had registered for sale up to $500
million of debt securities under a shelf registration
statement filed with the Securities and Exchange Commission.
OTHER. In June 1997, the FASB issued SFAS No. 130 that establishes standards
for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements. The
Corporation adopted SFAS No. 130 in the 1998 first quarter.
Also in June 1997, the FASB issued SFAS No. 131 which 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 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 Corporation 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.
In February 1998, the FASB issued SFAS No. 132 which requires additional
pension related disclosures. The objective of the
statement is to provide sufficient information to understand the changes in
benefit obligations or to analyze the quality of
earnings of the Corporation. SFAS No. 132 requires disclosure of additional
information about the changes in the benefit obligation
and the fair value of plan assets during the period, including unrecognized
gains and losses. The Corporation will be required to
present this additional disclosure in the 1998 year end statements.
Georgia-Pacific Group expects to incur significant costs during the next two
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 on and beyond January 1,
2000. The Georgia-Pacific Group currently believes that it will be able to
modify or replace its affected systems in time to
minimize any detrimental effects on operations. The incremental costs of the
Year 2000 project are estimated to be between $55
million and $145 million. These costs will be expensed as incurred, unless new
software is purchased that will be capitalized in
accordance with the Georgia-Pacific Group's policy. Such costs may be material
to the 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 Georgia-Pacific Group.
REFER TO THE "CAUTIONARY STATEMENT FOR PURPOSES OF THE `SAFE HARBOR'
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995" ON PAGE 14 OF THIS FORM 10-Q.
For a discussion of commitments and contingencies refer to Note 9 of the Notes
to Combined Financial Statements.
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF INCOME (Unaudited)
Georgia-Pacific Corporation--The Timber Company
Three months
ended March 31,
-----------------
(In millions, except per share amounts) 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Net sales
Timber-Georgia-Pacific Group $ 117 $ 112
Timber-third parties
Delivered 7 17
Stumpage 17 4
Other 4 4
- -----------------------------------------------------------------------
Total net sales 145 137
- -----------------------------------------------------------------------
Costs and expenses
Cost of sales, excluding depreciation and
cost of timber harvested shown below 19 34
Selling, general and
administrative 9 10
Depreciation and cost of
timber harvested 14 14
Interest 18 25
Other income - (114)
- -----------------------------------------------------------------------
Total costs and expenses 60 (31)
- -----------------------------------------------------------------------
Income before income taxes and
extraordinary item 85 168
Provision for income taxes 33 65
- -----------------------------------------------------------------------
Income before extraordinary item 52 103
Extraordinary item, net of taxes (2) -
- -----------------------------------------------------------------------
Net income $ 50 $ 103
=======================================================================
Basic and diluted per share:
Income before extraordinary item $ .56
Extraordinary item, net of taxes (.02)
- -----------------------------------------------------------------------
Net income $ .54
=======================================================================
Average number of shares outstanding:
Basic 92.3
Diluted 93.0
=======================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 27
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF CASH FLOWS (Unaudited)
Georgia-Pacific Corporation--The Timber Company
Three months
ended March 31,
------------------
(In millions) 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Cash flows from operations
Net income $ 50 $ 103
Adjustments to reconcile net income to cash
provided by operations:
Depreciation 1 1
Cost of timber harvested 13 13
Other income - (114)
Deferred income taxes 1 28
Gain on sales of assets (8) (1)
Change in other assets and other
long-term liabilities (5) 2
- -----------------------------------------------------------------------
Cash provided by operations 52 32
- -----------------------------------------------------------------------
Cash flows from investment activities
Property, plant and equipment investments (1) -
Timber and timberlands purchases (20) (9)
Proceeds from sales of assets 27 1
Other - -
- -----------------------------------------------------------------------
Cash provided by (used for) investment activities 6 (8)
- -----------------------------------------------------------------------
Cash flows from financing activities
Repayments of long-term debt (35) (1)
Cash dividends paid (23) (23)
- -----------------------------------------------------------------------
Cash used for financing activities (58) (24)
- -----------------------------------------------------------------------
Increase in cash - -
Balance at beginning of period - -
- -----------------------------------------------------------------------
Balance at end of period $ - $ -
=======================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 28
<TABLE>
<CAPTION>
COMBINED BALANCE SHEETS
Georgia-Pacific Corporation--The Timber Company
March 31, December 31,
(In millions) 1998 1997
- ----------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Timber and timberlands
Timberlands $ 302 $ 302
Fee timber 603 608
Reforestation 189 182
Other 32 30
- ----------------------------------------------------------------------------
Total timber and timberlands 1,126 1,122
- ----------------------------------------------------------------------------
Machinery and equipment, less accumulated
depreciation of $44 and $42, respectively 19 20
- ----------------------------------------------------------------------------
Investment in real estate held for
development and sale 13 22
- ----------------------------------------------------------------------------
Other assets 14 7
- ----------------------------------------------------------------------------
Total assets $ 1,172 $ 1,171
============================================================================
</TABLE>
<PAGE> 29
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Debt $ 936 $ 971
- ----------------------------------------------------------------------------
Other liabilities 17 9
- ----------------------------------------------------------------------------
Deferred income tax liabilities 241 240
- ----------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity (22) (49)
- ----------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,172 $ 1,171
============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 30
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)
GEORGIA-PACIFIC CORPORATION--THE TIMBER COMPANY
MARCH 31, 1998
1. PRINCIPLES OF PRESENTATION. The combined financial statements include
the accounts of The Timber Company and subsidiaries.
All significant intercompany balances and transactions are eliminated in
consolidation. The interim financial information
included herein is unaudited; however, such information reflects all
adjustments which are, in the opinion of management,
necessary for a fair presentation of The Timber Company's financial
position, results of operations, and cash flows for the
interim periods. All such adjustments are of a normal, recurring nature
except for the items discussed in Notes 3 and 4
below. The Timber Company's combined financial statements should be read
in conjunction with the Corporation's consolidated
financial statements and Georgia-Pacific Group's combined financial
statements.
2. EARNINGS PER SHARE. The Corporation's common stock was redesignated in
December 1997 to reflect separately the performance
of the Corporation's pulp, paper and building products businesses, which
are now known as Georgia-Pacific Group. A separate
class of common stock was distributed to reflect the performance of the
Corporation's timber operating group, which is now
known as The Timber Company. Basic earnings per share is computed based
on net income and the weighted average number of
common shares outstanding. Diluted earnings per share reflect the annual
issuance of common shares under long-term incentive
stock option and stock purchase plans. The computation of diluted
earnings per share does not assume conversion or exercise
of securities that would have an antidilutive effect on earnings per share.
In February 1997, the FASB issued SFAS No. 128, which specifies the
computation, presentation and disclosure requirements for
earnings per share. The Timber Company adopted SFAS No. 128 in the 1997
fourth quarter.
<TABLE>
<CAPTION>
Three months
ended March 31,
---------------------
(In millions, except per share amounts) 1998
---------------------------------------------------------------
<S> <C>
Basic and diluted income available to
shareholders (numerator):
Income before extraordinary item $ 52
Extraordinary item, net of taxes (2)
---------------------------------------------------------------
Net income $ 50
================================================================
Shares (denominator):
Average shares outstanding 92.3
Dilutive securities:
Incentive plans and option plans .7
Employee stock purchase plans -
---------------------------------------------------------------
Total assuming conversion 93.0
================================================================
Basic and diluted per share amounts:
Income before extraordinary item $ .56
Extraordinary item, net of taxes (.02)
---------------------------------------------------------------
Net income $ .54
================================================================
</TABLE>
3. OTHER INCOME. The 1997 first quarter sale of the Corporation's
timberlands located near Martell, California, generated a pretax gain of
$114 million ($71 million after-tax) for The Timber Company.
4. EXTRAORDINARY ITEM. Georgia-Pacific Corporation called approximately
$400 million of its outstanding debt during the 1998 first quarter. As a
result, an after-tax extraordinary charge of $2 million (two cents per
share) was allocated to The Timber Company based on the ratio of The
Timber Company's debt to the Corporation's total debt.
<PAGE> 31
5. COMPREHENSIVE INCOME. 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. The
Timber Company adopted SFAS No. 130 in the 1998 first quarter. For the
three months ended March 31, 1998 and 1997, the Corporation's total
comprehensive income was $50 million and $103 million, respectively.
6. SUPPLEMENTAL DISCLOSURES - STATEMENTS OF CASH FLOWS. In conjunction with
the sale of the Corporation's Martell, California, operations in March,
1997, the Corporation received notes receivable from the purchaser in the
amount of $270 million for the timberlands of The Timber Company. In April
1997, the Corporation monetized these notes receivable through the issuance
of notes payable in a private placement. These proceeds were used to
reduce The Timber Company's debt. 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 Corporation's balance
sheets.
7. PROVISION FOR INCOME TAXES. The effective tax rate was 39 percent for
both the three months ended March 31, 1998 and 1997.
8. COMMITMENTS AND CONTINGENCIES. The Corporation is a party to various legal
proceedings incidental to the businesses of the Georgia-Pacific Group and
The Timber Company 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
Corporation 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 management of The Timber Company believes that
the Corporation has established adequate reserves for probable losses with
respect to such environmental matters and legal proceedings. However,
holders of The Timber Company stock are shareholders of the Corporation and
are subject to all of the risks associated with an investment in the
Corporation, including the environmental matters and legal proceedings
involving the Georgia-Pacific Group discussed below.
COMMITMENTS AND CONTINGENCIES WITH RESPECT TO THE TIMBER COMPANY. The
Timber Company 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 Corporation
believes that the final outcome of such matters and legal proceedings could
be material to the operating results of The Timber Company 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 Timber
Company.
COMMITMENTS AND CONTINGENCIES WITH RESPECT TO GEORGIA-PACIFIC GROUP. The
following sets forth legal proceedings to which the Corporation is a party
and claims related to the operations of the Georgia-Pacific Group.
The Corporation is involved in environmental remediation activities at
approximately 156 sites, both owned by the Corporation 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 Corporation estimates that approximately 47% are
being investigated, approximately 25% are being remediated and
approximately 28% are being monitored (an activity that occurs after either
site investigation or remediation has been completed). The ultimate costs
to the Corporation 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 Corporation's
share of multiparty cleanups or the extent to which contribution will be
available from other parties. The Corporation has established reserves for
environmental remediation costs for these sites in amounts that 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 Corporation 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 $59 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 Corporation 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 Corporation 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 Corporation 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 Corporation. In
many cases, the plaintiffs are unable to demonstrate that they have
suffered any compensable loss as a result of such exposure.
The Corporation 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 Corporation is currently defending claims of approximately
60,242 such plaintiffs and anticipates that additional suits will be filed
against it over the next several years. The Corporation has insurance
available in amounts that 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 Corporation 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 Corporation
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 Corporation has been defending an action in Alabama state court brought
to recover damages on behalf of a class of all persons currently owning
structures in the United States on which allegedly defective hardboard
siding manufactured by the Corporation after January 1, 1980 has been
installed. On January 9, 1998, the court approved a settlement pursuant to
which the Corporation will establish a procedure for resolving product
warranty claims on certain of the Corporation's hardboard siding products,
and will pay $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
Corporation. The Corporation 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, which under the settlement may be
filed through August 1998, could cause claims to exceed established
reserves.
In May 1997, the Corporation 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. Approximately
45 similar suits have been filed in federal courts in California, Florida,
Georgia and Wisconsin, and in the state courts of California, Wisconsin and
Tennessee. On October 15, 1997, the Federal Judicial Panel on Multi-
District Litigation consolidated all federal court cases in the federal
district court in Gainesville, Florida. The Corporation 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
Corporation.
<PAGE> 32
<TABLE>
<CAPTION>
SELECTED COMBINED SALES DATA (Unaudited)
Georgia-Pacific Corporation--The Timber Company
1998 1997
-------------- --------------
First Quarter First Quarter
- --------------------------------------------------------------------------------
<S> <C>
1998
NET SALES (in millions)
Southern softwood sawtimber $ 94 $ 78
Western softwood sawtimber 22 22
Softwood pulpwood 17 21
Hardwood sawtimber 2 5
Hardwood pulpwood 6 7
Other 4 4
- --------------------------------------------------------------------------------
Total net sales $ 145 $ 137
===============================================================================
VOLUME (in thousand tons)
Southern softwood sawtimber 1,815 1,722
Western softwood sawtimber 301 299
Softwood pulpwood 1,135 1,314
Hardwood sawtimber 67 113
Hardwood pulpwood 482 672
- --------------------------------------------------------------------------------
Total volume 3,800 4,120
===============================================================================
SELLING PRICES (per ton)
Southern softwood sawtimber $ 52 $ 45
Western softwood sawtimber 71 75
Softwood pulpwood 15 16
Hardwood sawtimber 36 46
Hardwood pulpwood 12 11
- --------------------------------------------------------------------------------
Weighted average price $ 37 $ 32
===============================================================================
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH 1997
The Timber Company reported net sales of approximately $145 million for the
three months ended March 31, 1998 and $137 million for the same period in 1997.
Net income for the 1998 first quarter was $50 million compared with $103 million
in 1997. The 1998 results include an net after-tax extraordinary charge of $2
million for the early retirement of debt. The 1997 results included a net
after-tax gain of $71 million from the sale of 127,000 acres of timberlands
located near Martell, California.
Excluding the gain on the Martell sale, earnings before interest and taxes
increased $24 million to $103 million in the first quarter of 1998, compared
with $79 million in the first quarter of 1997. The increase is primarily the
result of higher spot prices in the open market due to wet weather, accelerated
outside sales of sawtimber and a year-over-year increase of approximately 15
percent in Southern sawtimber prices. Additionally, though total harvest
volumes were down approximately 7 percent in the first quarter of 1998 over
first quarter last year, Southern softwood sawtimber harvests were approximately
5 percent higher. Western volumes remained essentially unchanged from last
year's first quarter and Douglas fir prices were down 5 percent.
Interest expense declined 28 percent to $18 million in the 1997 first quarter,
compared with $25 million in the 1998 first quarter. This decline was due
primarily to a lower level of debt resulting from the application of the
proceeds from the sale of Martell timberlands in April, 1997 to pay down debt.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Timber Company generated cash from operations of $52
million for the three months ended March 31, 1998 compared with $32 million a
year ago.
INVESTING ACTIVITIES. Capital expenditures for the three months ended March 31,
1998 were $21 million, which included $20 million for timber and timberlands and
$1 million for machinery and equipment. The Timber Company expects to invest
approximately $50 million in 1998 without considering the cost of any
acquisitions.
During the first quarter of 1998, The Timber Company received $27 million in
proceeds from the sale of assets, principally real estate development properties
located in South Carolina and Florida. These proceeds were used to repay
outstanding debt.
In 1998, The Timber 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
payments.
On March 31, 1997, the Corporation completed the sale of its Martell,
California, timberlands to Sierra Pacific Industries for $270 million. The
proceeds were used to repay outstanding debt. (See further discussion in
Financing Activities below.)
FINANCING ACTIVITIES. After the payment of dividends of $23 million in the first
quarter of 1998, the remaining cash flow of $35 million in the first quarter of
1998 was applied to reduce The Timber Company's debt.
The Corporation's total debt was $5.6 billion and $5.5 billion at March 31, 1998
and December 31, 1997, respectively. At March 31, 1998 and December 31, 1997,
$4.6 billion and $4.5 billion, respectively, of such total debt was Georgia-
Pacific Group's debt and $936 million and $971 million, respectively, was The
Timber Company's debt.
In conjunction with the sale of the Corporation's Martell, California,
operations in March, 1997, the Corporation received notes receivable from the
purchaser in the amount of $270 million for the timberlands of The Timber
Company. In April 1997, the Corporation monetized these notes receivable
through the issuance of notes payable in a private placement. These proceeds
were used to reduce The Timber Company's debt. 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 Corporation's balance
sheets.
At March 31, 1998, the Corporation had outstanding borrowings of $693 million
under certain Industrial Revenue Bonds. Approximately $57 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 sheets.
<PAGE> 33
The Corporation has a $1.5 billion unsecured revolving credit facility which is
used for direct borrowings and as support for commercial paper and other short-
term borrowings. As of March 31, 1998, $348 million of committed credit was
available in excess of all short-term borrowings outstanding under or supported
by the facility.
The Corporation's senior management establishes parameters of the Corporation's
financial risk. Hedging interest-rate exposure through the use of swaps and
options, and hedging foreign exchange exposure through the use of forward
contracts, are specifically contemplated to manage risk in keeping with
management policy. Derivative instruments such as swaps, forwards, option or
futures, which are based directly or indirectly upon interest rates, currencies,
equities and commodities, may be used by the Corporation to manage and reduce
the risk inherent in price, currency and interest rate fluctuations. There have
been no significant changes to reported market risk since December 31, 1997.
The Corporation does not utilize derivatives for speculative purposes.
Derivatives are transaction-specific so that a specific debt instrument,
contract, invoice or transaction determines the amount, maturity and other
specifics of the hedge. Counterparty risk is limited to institutions with long-
term debt ratings of A or better.
At March 31, 1998, the Corporation's weighted average interest rate on its total
debt was 7.3% including the accounts receivable sale program and outstanding
interest rate exchange agreements. At March 31, 1998, these interest rate
exchange agreements effectively converted $456 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 9.0%. These agreements
have a weighted average maturity of approximately 1 year. As of March 31, 1998,
the Corporation's total floating rate debt, including the accounts receivable
sale program, exceeded related interest rate exchange agreements by $1.7
billion.
The Corporation also enters into foreign currency exchange agreements, the
amounts of which were not material to the consolidated financial position of the
Corporation at March 31, 1998.
As of March 31, 1998, the Corporation had registered for sale up to $500 million
of debt securities under a shelf registration statement filed with the
Securities and Exchange Commission.
OTHER. In June 1997, the FASB issued SFAS No. 130 that establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The Timber Company adopted SFAS No. 130
in 1998.
Also in June 1997, the FASB issued SFAS No. 131 which requires companies to
determine reporting segments based on the manner in which management makes
decisions about allocating resources to segments and measuring their
performance. The Timber Company will be required to adopt SFAS No. 131 in 1998,
but is not expected to be impacted significantly as The Timber Company is not
expected to have any reportable segments under SFAS No. 131.
In February 1998, the FASB issued SFAS No. 132 which requires additional pension
related disclosures. The objective of the statement is to provide sufficient
information to understand the changes in benefit obligations or to analyze the
quality of earnings of the Corporation. SFAS No. 132 requires disclosure of
additional information about the changes in the benefit obligation and the fair
value of plan assets during the period, including unrecognized gains and losses.
The Corporation will be required to present this additional information
disclosure in the 1998 year end statements.
The Timber Company does not expect to incur significant costs during the next
two 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 on and
beyond January 1, 2000.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. The statements under this
"Management's Discussion and Analysis" and other statements contained herein
that are not historical facts, including statements regarding The Timber
Company's projections concerning harvest plans and timber prices, and its
expectations regarding future demand for timber, levels of environmental
regulation and the effects thereof on future timber supplies and prices, are
forward-looking statements (as such term is defined under the Private Securities
Litigation Reform Act of 1995) based on current expectations. In addition to the
risks, uncertainties and assumptions discussed elsewhere herein, factors that
could cause or contribute to actual results differing materially from such
forward-looking statements include the following: acquisitions or divestitures
of material timberland acreage by The Timber Company; management's ability to
realize present expectations for future timber growth and product yield
responses to various forestry practices; the effect on The Timber Company of
government, legislative and environmental restrictions; catastrophic losses from
fires, floods, windstorms, earthquakes, volcanic eruptions, insect infestations
or diseases; material variations in regional market demand for timber products;
fluctuations in interest rates; and other risks, uncertainties and assumptions
discussed in the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1997, the Corporation's Registration Statement No. 333-35813 dated
November 7, 1997 and the Corporation's current report on Form 8-K dated October
17, 1996.
For a discussion of commitments and contingencies refer to Note 8 of the Notes
to Combined Financial Statements.
<PAGE> 34
PART II - OTHER INFORMATION
---------------------------
GEORGIA-PACIFIC CORPORATION
March 31, 1998
Item 1. Legal Proceedings
The information contained in Note 9 "Commitments and Contingencies"
of the Notes to Consolidated Financial Statements--Georgia-Pacific
Corporation, Note 9 "Commitments and Contingencies" of the Notes to
Combined Financial Statements--Georgia-Pacific Group and Note 8
"Commitments and Contingencies" of the Notes to Consolidated
Financial Statements--The Timber Company filed as part of this
Quarterly Report on Form 10-Q is incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Form of Revised Georgia-Pacific Corporation/Georgia-
Pacific Group 1997 Long-Term Incentive Plan Option.
Exhibit 10.2 Form of Revised Special Georgia-Pacific
Corporation/Georgia-Pacific Group 1997 Long-Term
Incentive Plan Option.
Exhibit 10.3 Form of Revised Georgia-Pacific Corporation/Timber
Group 1997 Long-Term Incentive Plan Option.
Exhibit 27. Financial Data Schedule.
(b) The Corporation filed a Current Report on Form 8-K dated March
31, 1998, in which it reported under Item 5 - "Other Events."
<PAGE> 35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 11, 1998 GEORGIA-PACIFIC CORPORATION
(Registrant)
by /s/John F. McGovern
----------------------------
John F. McGovern,
Executive Vice President -
Finance and Chief
Financial Officer
by /s/James E. Terrell
----------------------------
James E. Terrell,
Vice President and Controller
(Chief Accounting Officer)
<PAGE> 36
GEORGIA-PACIFIC CORPORATION
---------------------------
INDEX TO EXHIBITS
FILED WITH THE QUARTERLY REPORT
ON FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 1998
Number Description
- ------ -----------
10.1 Form of Revised Georgia-Pacific Corporation/Georgia-Pacific Group 1997
Long-Term Incentive Plan Option. (1)
10.2 Form of Revised Special Georgia-Pacific Corporation/Georgia-Pacific
Group 1997 Long-Term Incentive Plan Option. (1)
10.3 Form of Revised Georgia-Pacific Corporation/Timber Group 1997 Long-
Term Incentive Plan Option. (1)
27. Financial Data Schedule. (1)
- -------------------------------
(1) Filed via EDGAR transmission.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
"THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GEORGIA-PACIFIC CORPORATION FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS."
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 29
<SECURITIES> 0
<RECEIVABLES> 1,384
<ALLOWANCES> 12
<INVENTORY> 1,317
<CURRENT-ASSETS> 2,850
<PP&E> 14,149
<DEPRECIATION> 7,925
<TOTAL-ASSETS> 12,846
<CURRENT-LIABILITIES> 3,126
<BONDS> 3,519
0
0
<COMMON> 73
<OTHER-SE> 3,353
<TOTAL-LIABILITY-AND-EQUITY> 12,846
<SALES> 3,221
<TOTAL-REVENUES> 3,221
<CGS> 2,494
<TOTAL-COSTS> 2,494
<OTHER-EXPENSES> 225
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114
<INCOME-PRETAX> 117
<INCOME-TAX> 49
<INCOME-CONTINUING> 68
<DISCONTINUED> 0
<EXTRAORDINARY> (14)
<CHANGES> 0
<NET-INCOME> 54
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Georgia-Pacific Group EPS - Primary .04
The Timber Company EPS - Primary .54
<F2>Georgia-Pacific Group EPS - Diluted .04
The Timber Company EPS - Diluted .54
</FN>
</TABLE>
GEORGIA-PACIFIC CORPORATION/GEORGIA-PACIFIC GROUP
1997 LONG-TERM INCENTIVE PLAN
EMPLOYEE STOCK OPTION AGREEMENT
Optionee: [First Middle Last]
Total Shares Under [ ] shares
Option:
Option Price: [$ ] per share
Grant Date: [Month Day Year]
THIS AGREEMENT, dated as of the Grant Date stated above, by and between Georgia-
Pacific Corporation and the Optionee;
W I T N E S S E T H:
WHEREAS, Georgia-Pacific Corporation wishes to give the Optionee an
opportunity to acquire or enlarge the Optionee's equity ownership in Georgia-
Pacific Corporation for purposes of augmenting the Optionee's proprietary
interest in the success of Georgia-Pacific Corporation and, in particular, its
Georgia-Pacific Group;
WHEREAS, the options described in this Agreement have been granted pursuant
to, and are governed by, the Plan;
NOW, THEREFORE, Georgia-Pacific Corporation and the Optionee hereby agree
as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms shall be
defined as follows:
(a) AGENT means First Chicago Trust Company of New York or any other
entity designated by the Plan Administrator to act as its administrative service
provider.
(b) BOARD OF DIRECTORS means the Board of Directors of Georgia-Pacific
Corporation.
(c) CAUSE means any of the actions or omissions specified in Section 2(d)
of the Plan.
(d) CHANGE OF CONTROL has the meanings specified in Section 11(b) of the
Plan.
(e) CODE means the Internal Revenue Code of 1986, as amended from time to
time, or any statute which is a successor or replacement for such statute, and
the regulations promulgated thereunder.
(f) CORPORATION means Georgia-Pacific Corporation, its successors and
assigns, and any other corporation in an unbroken chain of corporations
beginning with Georgia-Pacific Corporation if each of the corporations other
than the last corporation in the unbroken chain owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
(g) COMMITTEE means the Compensation Committee of the Board of Directors,
or a subcommittee of such Committee, as the same may be constituted from time to
time.
(h) DISABILITY means "total disability" as defined under the long-term
disability program of the Georgia-Pacific Corporation Salaried Employees
Contributory Welfare Benefits Plan (whether or not the Optionee is covered under
such program).
(i) DISABILITY RETIREMENT DATE means the later of (i) the day the
Optionee's employment with the Corporation ends after the maximum period during
which salary continuation benefits from the Corporation because of illness or
injury are authorized in accordance with its then-current medical leave policy,
but only if the Optionee's Disability continues through that date, or (ii) the
day the Optionee's employment with the Corporation ends after the last day of a
personal leave of absence immediately following such period of salary
continuation, provided, that the Optionee has a Disability on such date. If the
Optionee is involuntarily terminated because of job elimination or facility
closure (or other reason approved by the Plan Administrator) while on a paid
medical leave based on a Disability or during a personal leave of absence
immediately following such medical leave, the Optionee will have a Disability
Retirement Date on the last day of the maximum period during which salary
continuation benefits from the Corporation because of illness or injury would
have been authorized in accordance with its then-current medical leave policy if
he had not been terminated (in the case of termination during a medical leave)
or on the date of termination (in the case of termination during the personal
leave of absence), provided that he still has a Disability on such date.
(j) EARLY RETIREMENT DATE means the Optionee's last day of active
employment by the Corporation after having attained at least age 55 (but not age
62) and having accrued at least 10 years of service for vesting purposes as
determined in accordance with the provisions of the Georgia-Pacific Corporation
Savings and Capital Growth Plan (or any successor tax-qualified retirement plan
maintained for salaried employees of the Corporation).
(k) EXERCISE AMOUNT means the sum of (a) the Option Price multiplied by
the number of vested options being exercised plus (b) an amount sufficient to
pay all applicable FICA and withholding taxes on the difference between the Fair
Market Value of Georgia-Pacific Group Stock for which the vested options are
being exercised (determined as of the exercise date) and their Option Price, as
calculated by the Plan Administrator or the Agent, if any.
(l) EXPIRATION DATE means the tenth anniversary of the Grant Date, unless
an earlier Expiration Date is established by operation of Section 5 of this
Agreement.
(m) FAIR MARKET VALUE is the mean between the high and low sales prices of
a share of Georgia-Pacific Group Stock on a particular 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 Plan Administrator 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
Georgia-Pacific Group Stock on the next preceding trading date. The Fair Market
Value of Georgia-Pacific Group Stock shall be rounded to the nearest whole cent
(with 0.5 cent being rounded to the next higher whole cent).
(n) GEORGIA-PACIFIC GROUP STOCK means the class of the Corporation's
common stock, par value $0.80 per share, which has been designated by the
Corporation as the Georgia-Pacific Corporation--Georgia-Pacific Group Common
Stock.
(o) GRANT DATE means the date set forth on the first page of this
Agreement, upon which the options described in this Agreement were granted to
the Optionee.
(p) NORMAL RETIREMENT DATE means the Optionee's last day of active
employment by the Corporation after having attained (i) at least age 62 (but not
age 65) and at least 10 years of service for vesting purposes as determined in
accordance with the provisions of the Georgia-Pacific Corporation Savings and
Capital Growth Plan (or any successor tax-qualified retirement plan maintained
for salaried employees of the Corporation) or (ii) at least age 65.
(q) OPTION PRICE means the price per share set forth on the first page of
this Agreement.
(r) OPTIONEE means the employee of the Corporation named on the first page
of this Agreement.
(s) PLAN means the Georgia-Pacific Corporation/Georgia-Pacific Group 1997
Long-Term Incentive Plan, as adopted by the Board of Directors on September 17,
1997, and approved by the Corporation's shareholders on December 16, 1997, and
as amended from time to time.
(t) PLAN ADMINISTRATOR means the Committee, provided, however, that to the
extent permitted by the Plan and authorized by the Committee, the Chief
Executive Officer of the Georgia-Pacific Corporation may act on behalf of the
Committee in executing the duties and responsibilities of the Plan
Administrator.
(u) REPRESENTATIVE means, in the event of the Optionee's Disability, his
duly authorized legal guardian or representative; or, in the event of the
Optionee's death, his estate, personal representative, or beneficiary as
designated pursuant to Section 6(e).
(v) TOTAL SHARES UNDER OPTION means the number of options granted to the
Optionee as set forth on the first page of this Agreement.
(w) VESTING DATE means any one of the dates upon which options granted to
the Optionee under this Agreement become exercisable in accordance with this
Agreement.
2. OPTION GRANT. Subject to the terms and conditions of this Agreement, the
Corporation hereby grants an option to the Optionee to purchase from the
Corporation, at the Option Price, the number of shares of Georgia-Pacific Group
Stock equal to the Total Shares Under Option.
3. VESTING.
(a) REGULAR VESTING. Except as stated in Sections 3(b) and 3(c) of this
Agreement, the Optionee shall become vested in a percentage of the Total Shares
Under Option in accordance with the following schedule:
VESTING DATE PERCENTAGE OF
TOTAL SHARES UNDER
OPTION
First anniversary of Grant 34%
Date
Second anniversary of Grant 33%
Date
Third anniversary of Grant 33%
Date
The number of options granted to the Optionee under this Agreement which become
vested on a Vesting Date in accordance with the above schedule will be
determined by multiplying the Total Shares Under Option by the percentage
specified in the above schedule, and then rounding the resulting number up to
the nearest whole number, provided that the aggregate number of the Optionee's
vested options under this Agreement shall not exceed the Total Shares Under
Option.
(b) ACCELERATED VESTING. Notwithstanding the vesting schedule specified
in Section 3(a) of this Agreement, the Total Shares Under Option shall become
100% vested upon the earliest to occur of the following Vesting Dates:
(i) the Optionee's Normal Retirement Date;
(ii) the Optionee's Disability Retirement Date;
(iii) the date of the Optionee's death prior to his termination of
employment from the Corporation;
(iv) the date of a Change of Control; or
(v) subject to the approval of the Plan Administrator, the Optionee's
Early Retirement Date or the date of the Optionee's involuntary
termination of employment from the Corporation, in either case
due to (A) job elimination, (B) plant closure, or (C) such other
reason as may be specifically approved by the Plan Administrator.
If more than one of the accelerated vesting rules specified in this Section 3(b)
can apply to the Optionee, the Optionee may elect in writing which vesting rule
will apply. The vesting rule elected by the Optionee will determine the
Expiration Date for the options affected by such accelerated vesting. If the
Optionee fails to make such an election within 30 days after being notified by
the Plan Administrator, the Optionee will be deemed to have elected the
available accelerated vesting rule which, first, vests the most options in the
Optionee or, second (if each accelerated vesting rule vests the same number of
options), provides the longest exercise period. Notwithstanding anything in
this Agreement to the contrary, except as otherwise provided in this Agreement
in the case of a Disability Retirement Date which occurs after Optionee's
termination of employment with the Company, no Vesting Date will occur - and no
options may vest - following termination of employment with the Company.
(c) TERMINATION FOR CAUSE. Notwithstanding anything in this Agreement
to the contrary, if the Corporation terminates the Optionee's employment for
Cause prior to a Change of Control, this Agreement shall be terminated and all
options granted to the Optionee under this Agreement shall be forfeited,
regardless of whether a Vesting Date has occurred on or before such
termination date, unless and to the extent that the Plan Administrator
determines that such forfeiture would violate applicable law.
4. EXERCISE OF OPTIONS.
(a) GENERAL. Except as otherwise specified by the Plan Administrator in
accordance with Sections 4(d) and 4(e), the Optionee (or his Representative, as
the case may be) may exercise the options granted under the Agreement, in whole
or in part, at any time on or after the Vesting Date for such options and prior
to their Expiration Date, by complying with the procedures described in this
Section 4. The Optionee shall forfeit all rights to any option under this
Agreement, whether or not then vested, which is not exercised prior to its
Expiration Date.
(b) EXERCISE PROCEDURE. The Optionee or his Representative (if
applicable) may exercise all or a portion of his vested options under this
Agreement by delivering notice to the Agent, or by complying with any
alternative procedure which may be authorized by the Plan Administrator from
time to time. The notice to the Agent shall specify the number of shares of
Georgia-Pacific Group Stock that the Optionee desires to purchase by exercise of
his vested options, and shall include payment for the Exercise Amount of such
shares in one of the following ways:
(i) The Optionee may tender payment of the Exercise Amount on the
date of exercise in the form of cash, certified check, bank
draft, or postal or express money order made payable to the order
of the Corporation and denominated in U.S. dollars; or
(ii) The Optionee may tender payment of the Exercise Amount on the
date of exercise in the form of shares of Georgia-Pacific Group
Stock having a Fair Market Value on the date of exercise equal to
the Exercise Amount, if such shares were acquired upon exercise
of an option, they must have been held by the Optionee for at
least six months at the time of tender; or
(iii) The Optionee may tender payment of the Exercise Amount on
the date of exercise in a combination of (A) shares of Georgia-
Pacific Group Stock (subject to the holding period described in
paragraph (ii) above); and (B) cash, certified check, bank draft,
or postal or express money order made payable to the order of the
Corporation and denominated in U.S. dollars, equal to the
difference between the Exercise Amount and the Fair Market Value
of the tendered shares of Georgia-Pacific Group Stock on the date
of exercise; or
(iv) The Optionee may initiate a cashless exercise in accordance with
procedures promulgated by the Plan Administrator or the Agent, if
any.
(v) The Optionee may tender payment of the Exercise Amount on the
date of exercise in accordance with such other method as the Plan
Administrator shall authorize.
Within 30 days after the date of such exercise, the Agent shall make available
to the Optionee a certificate registered in the Optionee's name or a book entry
in a depository institution for the Optionee's account, representing the
aggregate number of shares of Georgia-Pacific Group Stock purchased by the
Optionee as a result of such exercise.
(c) EXERCISE OF OPTIONS FOLLOWING OPTIONEE'S DISABILITY OR DEATH.
(i) Optionee's Disability. If the Optionee's Disability occurs
during a period in which he may exercise options under this Agreement, the
Optionee or, if applicable, the Optionee's Representative may exercise the
options before their Expiration Date with respect to any or all of the Total
Shares Under Option which are available for purchase under this Agreement by the
Optionee on his Disability Retirement Date (taking into account the accelerated
vesting provisions of Section 3(b)) and which had not been purchased by him
prior to such date.
(ii) Optionee's Death. If the Optionee's death occurs during a period
in which he may exercise options under this Agreement, the Optionee's
Representative may exercise the options before their Expiration Date with
respect to any or all of the Total Shares Under Option which are available for
purchase under this Agreement by the Optionee on the date of his death (taking
into account the accelerated vesting provisions of Section 3(b)) and which had
not been purchased by him prior to his death.
(d) EXERCISE OF OPTIONS DURING LEAVE OF ABSENCE. Notwithstanding any
provision of this Agreement to the contrary, if the Optionee is on a leave of
absence or is absent on military or government service at any time on or after
the Grant Date and prior to the Expiration Date, the Optionee may not exercise
any part of the Total Shares Under Option prior to the date the Optionee returns
to active employment with the Corporation, and vesting of any options under this
Agreement which would normally vest on a date during the absence shall be
postponed until the Optionee returns to active work at the end of the absence
(in which case, the date of return to active employment shall be a Vesting
Date). The provisions of this subsection (d) shall not affect any of Optionee's
rights in the event of his death, Disability, Early Retirement or Normal
Retirement or in the event of a Change of Control occurring during such an
absence.
(e) DEFERRAL OF EXERCISE OR DELIVERY OF SHARES. Notwithstanding any
provision in this Agreement to the contrary, if any law or regulation of any
governmental authority having jurisdiction in the matter requires the
Corporation, Plan Administrator, Agent, Optionee, or Representative to take any
action or refrain from action in connection with the exercise of any option
under this Agreement or the delivery of shares of Georgia-Pacific Group Stock to
the Optionee, or to delay such exercise or delivery, then the exercise or
delivery of such shares shall be deferred until such action has been taken or
such restriction on action has been removed.
5. SPECIAL RULES GOVERNING THE EXPIRATION DATE. The Expiration Date for
options granted to the Optionee under this Agreement shall be subject to the
following special rules:
(a) TERMINATION OF EMPLOYMENT. If the Optionee voluntarily or
involuntarily terminates employment with the Corporation (for reasons other than
death, Change of Control or having reached his Normal Retirement Date, Early
Retirement Date or Disability Retirement Date), the Expiration Date for
exercising any options under this Agreement which were vested as of his date of
termination shall be the 90th day after the date of such termination; provided
that if the Optionee has a Disability or dies, or a Change of Control occurs,
prior to such 90th day, the Expiration Date for the Optionee's options under
this Agreement which were vested as of his date of termination shall be the
Expiration Date applicable to such Disability (subject to the rules stated in
Section 5(d)), death, or Change of Control, whichever is applicable.
(b) NORMAL RETIREMENT. If the Optionee terminates employment with the
Corporation on his Normal Retirement Date, the Expiration Date for exercising
his vested options under this Agreement shall be the last day of the 60th month
after the end of the month in which the Optionee's Normal Retirement Date
occurs.
(c) EARLY RETIREMENT. If the Optionee terminates employment with the
Corporation on his Early Retirement Date, the Expiration Date for exercising his
vested options under this Agreement shall be the last day of the 60th month
after the end of the month in which the Optionee's Early Retirement Date occurs.
(d) DISABILITY OR DISABILITY RETIREMENT. If the Optionee terminates
employment with the Corporation on his Disability Retirement Date, the
Expiration Date for exercising his vested options under this Agreement shall be
the last day of the 36th month after the end of the month in which the
Optionee's Disability Retirement Date occurs. If the Optionee has a Disability
before the 90th day after terminating employment with the Corporation (for
reasons other than having reached his Normal Retirement Date, Early Retirement
Date, or Disability Retirement Date) and such Disability continues through the
end of the initial 90-day period, the Expiration Date for exercising his vested
options under this Agreement shall be the last day of the 36th month after the
end of the month in which the Optionee's Disability occurs.
(e) OPTIONEE'S DEATH. If the Optionee dies while actively employed by the
Corporation or prior to the 90th day after the Optionee's termination of
employment with the Corporation (for reasons other than having reached his
Normal Retirement Date, Early Retirement Date, or Disability Retirement Date),
the Expiration Date for exercising his vested options under this Agreement shall
be the last day of the 36th month after the end of the month in which the
Optionee's death occurs.
(f) CHANGE OF CONTROL. The Expiration Date for all of the Optionee's
vested options shall be the tenth anniversary of the Grant Date if a Change of
Control takes place (i) while the Optionee is actively employed by the
Corporation; (ii) prior to the 90th day after the Optionee terminates employment
with the Corporation; or (iii) prior to the 90th day after the Optionee
terminates his employment with the Corporation on his Normal Retirement Date,
Early Retirement Date, Disability Retirement Date or date of death.
(g) MAXIMUM EXPIRATION DATE. Notwithstanding any provision in Section 5
of the Agreement to the contrary, no Expiration Date may extend beyond the tenth
anniversary of the Grant Date.
(h) TERMINATION DATE. The Optionee's date of termination of employment
from the Corporation shall be deemed for purposes of this Agreement to be the
later of (i) his last day of active work for the Corporation or (ii) his last
day on the active employee payroll of the Corporation, provided, however, that
for all purposes of this Agreement, the Optionee shall be deemed actively at
work during any period the Optionee is on approved paid medical leave.
6. GENERAL PROVISIONS. The Optionee acknowledges that he has read,
understands and agrees with all of the provisions in this Agreement and the
Plan, including (but not limited to) the following:
(a) AUTHORITY OF PLAN ADMINISTRATOR. The Plan Administrator shall have
the authority to administer the Agreement and the Plan; to make all
determinations with respect to the construction and application of the
Agreement, the Plan, and the resolutions of the Board of Directors establishing
the Plan; to adopt and revise rules relating to the Agreement and the Plan; to
hire the Agent with respect to its administrative responsibilities under the
Agreement and the Plan; and to make other determinations which it believes are
necessary or advisable for the administration of the Agreement and the Plan.
Any dispute or disagreement which arises under this Agreement or the Plan shall
be resolved by the Plan Administrator in its absolute discretion. Any such
determination, interpretation, resolution, or other action by the Plan
Administrator shall be final, binding and conclusive with respect to the
Optionee and all other persons affected thereby.
(b) NOTICES. Any notice which is required or permitted under this
Agreement shall be in writing (unless otherwise specified in the Agreement or in
a writing from the Corporation or the Agent to the Optionee), and delivered
personally or by mail, postage prepaid, addressed as follows: (i) if to the
Corporation or the Agent, at l33 Peachtree Street, N.E., Atlanta, Georgia 30303,
Attention: Compensation Department, or at such other address as the Corporation
or the Agent by notice to the Optionee may have designated from time to time;
(ii) if to the Optionee, at the address indicated in the Optionee's then-current
personnel records, or at such other address as the Optionee by notice to the
Corporation may have designated from time to time. Such notice shall be deemed
given upon receipt.
(c) TAXATION. The Optionee shall be responsible for all applicable
withholding taxes and the employee share of FICA taxes with respect to
compensation income generated upon the exercise or surrender of his vested
options under this Agreement.
(d) NONTRANSFERABILITY. This Agreement and the options granted to the
Optionee hereto shall be nontransferable and shall not be sold, hypothecated or
otherwise assigned or conveyed by the Optionee to any other person, except as
specifically permitted in this Agreement. No assignment or transfer of this
Agreement or the rights represented thereby, whether voluntary or involuntary,
or by operation of law or otherwise, shall vest in the assignee or transferee
any interest or right whatsoever, except as specifically permitted in this
Agreement. The Agreement shall terminate, and be of no force or effect,
immediately upon any attempt to assign or transfer the Agreement or any of the
options to which the Agreement applies.
(e) DESIGNATION OF BENEFICIARY. The Optionee may designate a person or
persons to receive, in the event of his death, any rights to which he would be
entitled under this Agreement. Such a designation shall be filed with the Agent
in accordance with uniform procedures specified by the Plan Administrator. The
Optionee may change or revoke a beneficiary designation at any time by filing a
written statement of such change or revocation with the Agent in accordance with
uniform procedures specified by the Plan Administrator. No beneficiary
designation or change of beneficiary designation will be effective until notice
thereof is received. If an Optionee fails to designate a beneficiary or if the
beneficiary predeceases the Optionee, the Optionee shall be deemed not to have a
beneficiary for purposes of this Agreement.
(f) NO SHAREHOLDER RIGHTS. The Optionee shall have no rights as a
shareholder of the Corporation, and shall not be deemed to be a shareholder of
the Corporation for any purpose, as a result of the options granted to the
Optionee under this Agreement, until the earliest of the following dates: (i)
the date that the Corporation receives payment in full of the Exercise Price for
shares of Georgia-Pacific Group Stock because an option has been exercised in
accordance with this Agreement; or (ii) the date that shares of Georgia-Pacific
Group Stock have been issued or transferred to the Optionee following the
exercise of an option in accordance with this Agreement. The Optionee shall not
be entitled to any dividends or other rights for which the record date is prior
to the date of such issuance, transfer, or receipt.
(g) NOT AN EMPLOYMENT CONTRACT. This Agreement shall not be deemed to
limit or restrict the right of the Corporation to terminate the Optionee's
employment at any time, for any reason, with or without Cause, or to limit or
restrict the right of the Optionee to terminate his employment with the
Corporation at any time.
(h) CORPORATE RESTRUCTURING/CAPITAL READJUSTMENTS. Nothing in this
Agreement shall abridge the rights or powers of the Corporation or its
stockholders reserved to them in Section 9(a) of the Plan, and in the event of
any extraordinary transaction with respect to or affecting Georgia-Pacific Group
Stock, adjustments to the number of options granted in this Agreement may be
made in accordance with the provisions of Section 9(b) of the Plan.
(i) AMENDMENT OR TERMINATION. This Agreement may be amended or terminated
at any time by the mutual agreement and written consent of the Optionee and the
Plan Administrator, but only to the extent permitted under the Plan.
(j) NOT CONSIDERED INCENTIVE STOCK OPTIONS. The options granted under
this Agreement do not constitute and shall not be construed to constitute
`incentive stock options'' with the meaning of section 422 of the Code.
(k) GOVERNING INSTRUMENT. This Agreement is subject to all terms and
conditions of the Plan and shall at all times be interpreted in a manner that
is consistent with the intent, purposes, and specific language of the Plan.
(l) SEVERABILITY. If any provision of this Agreement should be held
illegal or invalid for any reason by the Plan Administrator or court of
applicable jurisdiction, such determination shall not affect the other
provisions of this Agreement, and it shall be construed as if such provision
had never been included herein.
(m) HEADINGS/GENDER. Headings in this Agreement are for convenience
only and shall not be construed to be part of this Agreement. Any reference
to the masculine, feminine or neuter gender shall be a reference to other
genders as appropriate.
(n) GOVERNING LAW. This Agreement shall be construed, and its
provisions enforced and administered, in accordance with the laws of the State
of Georgia and, where applicable, federal law.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officers under its corporate seal, and the
Optionee has executed this Agreement, as of the day and year first above
written.
GEORGIA-PACIFIC CORPORATION
By:
A. D. Correll
Chairman, Chief Executive Officer
and President
ATTEST:
W. Edwin Frazier, III
Assistant Secretary
OPTIONEE
Name:
NOTE: PLEASE COMPLETE THE ATTACHED ACKNOWLEDGMENT OF RECEIPT AND BENEFICIARY
DESIGNATION FORM AND RETURN THEM TO:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
GEORGIA-PACIFIC STOCK OPTION PLAN
``PERSONAL AND CONFIDENTIAL''
SUITE 4717
525 WASHINGTON BLVD.
JERSEY CITY, NJ 07310
ACKNOWLEDGMENT OF RECEIPT AND BENEFICIARY DESIGNATION FORM
Under the terms of the Georgia-Pacific Corporation/Georgia-Pacific Group
1997 Long-Term Incentive Plan (`1997 Georgia-Pacific Group LTIP''), you have
the right to designate a beneficiary to exercise certain rights that may arise
under those grants in the event of your death. IF YOU DO NOT DESIGNATE A
BENEFICIARY IN WRITING, THESE RIGHTS WILL PASS TO YOUR ESTATE UPON YOUR DEATH.
In order to allow you to decide affirmatively which outcome you desire and, in
the event you prefer to designate a beneficiary or beneficiaries other than your
estate, to name that beneficiary or those beneficiaries, the Corporation has
provided this form, which you may use to designate in writing the
beneficiary(ies) you desire. Of course, you may revoke and change your
beneficiary designations at any time by notifying First Chicago Trust Company in
writing at the address indicated below.
PLEASE TAKE TIME TO FILL OUT THIS FORM AND RETURN IT TO FIRST CHICAGO TRUST
COMPANY AT THE FOLLOWING ADDRESS: FIRST CHICAGO TRUST COMPANY OF NEW YORK,
GEORGIA-PACIFIC STOCK OPTION PLAN, `PERSONAL AND CONFIDENTIAL'', SUITE 4717,
525 WASHINGTON BLVD., JERSEY CITY, NJ 07310. BENEFICIARY DESIGNATIONS OR
MODIFICATIONS OF BENEFICIARY DESIGNATIONS SENT TO ANY OTHER ADDRESS WILL NOT BE
EFFECTIVE UNTIL ACTUALLY RECEIVED BY FIRST CHICAGO TRUST COMPANY. THE
CORPORATION HAS NO RESPONSIBILITY FOR BENEFICIARY DESIGNATION FORMS WHICH ARE
NOT SUBMITTED AS INDICATED ABOVE.
NOTE: You may designate multiple beneficiaries, in which case those living at
the time of your death will equally share the rights accorded to a beneficiary
for the particular grant(s) in question.
/ / I designate my estate as my beneficiary under my 1998 grants under the 1997
--
Georgia-Pacific Group LTIP.
/ / I designate the following person(s) as my beneficiary(ies) under my 1998
--
grants under the 1997 Georgia-Pacific Group LTIP:
NAME ADDRESS RELATIONSHIP TO SOCIAL SECURITY
YOU NUMBER (IF
KNOWN)
I ACKNOWLEDGE RECEIPT OF THE EXECUTED OPTION AGREEMENT EVIDENCING MY JANUARY 29,
1998, STOCK OPTION GRANT UNDER THE GEORGIA-PACIFIC CORPORATION/GEORGIA-PACIFIC
GROUP 1997 LONG-TERM INCENTIVE PLAN AND CONFIRM THAT THE BENEFICIARY(IES)
DESIGNATED ABOVE HAVE BEEN SELECTED BY ME IN FREE EXERCISE OF MY OWN DISCRETION.
Signature: Printed Name:
---------------------------- ------------------------
GEORGIA-PACIFIC CORPORATION/GEORGIA-PACIFIC GROUP
1997 LONG-TERM INCENTIVE PLAN
SPECIAL EMPLOYEE STOCK OPTION AGREEMENT
Optionee: [First Middle Last]
Total Shares Under [ ] shares
Option:
Option Price: [$ ] per share
Grant Date: [Month Day Year]
THIS AGREEMENT, dated as of the Grant Date stated above, by and between Georgia-
Pacific Corporation and the Optionee;
W I T N E S S E T H:
WHEREAS, Georgia-Pacific Corporation wishes to give the Optionee an
opportunity to acquire or enlarge the Optionee's equity ownership in Georgia-
Pacific Corporation for purposes of augmenting the Optionee's proprietary
interest in the success of Georgia-Pacific Corporation and, in particular, its
Georgia-Pacific Group;
WHEREAS, the options described in this Agreement have been granted pursuant
to, and are governed by, the Plan;
NOW, THEREFORE, Georgia-Pacific Corporation and the Optionee hereby agree
as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms shall be
defined as follows:
(a) AGENT means First Chicago Trust Company of New York or any other
entity designated by the Plan Administrator to act as its administrative service
provider.
(b) BOARD OF DIRECTORS means the Board of Directors of Georgia-Pacific
Corporation.
(c) CAUSE means any of the actions or omissions specified in Section 2(d)
of the Plan.
(d) CHANGE OF CONTROL has the meanings specified in Section 11(b) of the
Plan.
(e) CODE means the Internal Revenue Code of 1986, as amended from time to
time, or any statute which is a successor or replacement for such statute, and
the regulations promulgated thereunder.
(f) CORPORATION means Georgia-Pacific Corporation, its successors and
assigns, and any other corporation in an unbroken chain of corporations
beginning with Georgia-Pacific Corporation if each of the corporations other
than the last corporation in the unbroken chain owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
(g) COMMITTEE means the Compensation Committee of the Board of Directors,
or a subcommittee of such Committee, as the same may be constituted from time to
time.
(h) DISABILITY means "total disability" as defined under the long-term
disability program of the Georgia-Pacific Corporation Salaried Employees
Contributory Welfare Benefits Plan (whether or not the Optionee is covered under
such program).
(i) DISABILITY RETIREMENT DATE means the later of (i) the day the
Optionee's employment with the Corporation ends after the maximum period during
which salary continuation benefits from the Corporation because of illness or
injury are authorized in accordance with its then-current medical leave policy,
but only if the Optionee's Disability continues through that date, or (ii) the
day the Optionee's employment with the Corporation ends after the last day of a
personal leave of absence immediately following such period of salary
continuation, provided, that the Optionee has a Disability on such date. If the
Optionee is involuntarily terminated because of job elimination or facility
closure (or other reason approved by the Plan Administrator) while on a paid
medical leave based on a Disability or during a personal leave of absence
immediately following such medical leave, the Optionee will have a Disability
Retirement Date on the last day of the maximum period during which salary
continuation benefits from the Corporation because of illness or injury would
have been authorized in accordance with its then-current medical leave policy if
he had not been terminated (in the case of termination during a medical leave)
or on the date of termination (in the case of termination during the personal
leave of absence), provided that he still has a Disability on such date.
(j) EARLY RETIREMENT DATE means the Optionee's last day of active
employment by the Corporation after having attained at least age 55 (but not age
62) and having accrued at least 10 years of service for vesting purposes as
determined in accordance with the provisions of the Georgia-Pacific Corporation
Savings and Capital Growth Plan (or any successor tax-qualified retirement plan
maintained for salaried employees of the Corporation).
(k) EXERCISE AMOUNT means the sum of (a) the Option Price multiplied by
the number of vested options being exercised plus (b) an amount sufficient to
pay all applicable FICA and withholding taxes on the difference between the Fair
Market Value of Georgia-Pacific Group Stock for which the vested options are
being exercised (determined as of the exercise date) and their Option Price, as
calculated by the Plan Administrator or the Agent, if any.
(l) EXPIRATION DATE means the fifth anniversary of the Grant Date, unless
an earlier Expiration Date is established by operation of Section 5 of this
Agreement.
(m) FAIR MARKET VALUE is the mean between the high and low sales prices of
a share of Georgia-Pacific Group Stock on a particular 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 Plan Administrator 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
Georgia-Pacific Group Stock on the next preceding trading date. The Fair Market
Value of Georgia-Pacific Group Stock shall be rounded to the nearest whole cent
(with 0.5 cent being rounded to the next higher whole cent).
(n) GEORGIA-PACIFIC GROUP STOCK means the class of the Corporation's
common stock, par value $0.80 per share, which has been designated by the
Corporation as the Georgia-Pacific Corporation--Georgia-Pacific Group Common
Stock.
(o) GRANT DATE means the date set forth on the first page of this
Agreement, upon which the options described in this Agreement were granted to
the Optionee.
(p) NORMAL RETIREMENT DATE means the Optionee's last day of active
employment by the Corporation after having attained (i) at least age 62 (but not
age 65) and at least 10 years of service for vesting purposes as determined in
accordance with the provisions of the Georgia-Pacific Corporation Savings and
Capital Growth Plan (or any successor tax-qualified retirement plan maintained
for salaried employees of the Corporation) or (ii) at least age 65.
(q) OPTION PRICE means the price per share set forth on the first page of
this Agreement.
(r) OPTIONEE means the employee of the Corporation named on the first page
of this Agreement.
(s) PLAN means the Georgia-Pacific Corporation/Georgia-Pacific Group 1997
Long-Term Incentive Plan, as adopted by the Board of Directors on September 17,
1997, and approved by the Corporation's shareholders on December 16, 1997, and
as amended from time to time.
(t) PLAN ADMINISTRATOR means the Committee, provided, however, that to the
extent permitted by the Plan and authorized by the Committee, the Chief
Executive Officer of the Georgia-Pacific Corporation may act on behalf of the
Committee in executing the duties and responsibilities of the Plan
Administrator.
(u) REPRESENTATIVE means, in the event of the Optionee's Disability, his
duly authorized legal guardian or representative; or, in the event of the
Optionee's death, his estate, personal representative, or beneficiary as
designated pursuant to Section 6(e).
(v) TOTAL SHARES UNDER OPTION means the number of options granted to the
Optionee as set forth on the first page of this Agreement.
(w) VESTING DATE means any one of the dates upon which options granted to
the Optionee under this Agreement become exercisable in accordance with this
Agreement.
2. OPTION GRANT. Subject to the terms and conditions of this Agreement, the
Corporation hereby grants an option to the Optionee to purchase from the
Corporation, at the Option Price, the number of shares of Georgia-Pacific Group
Stock equal to the Total Shares Under Option.
3. VESTING.
(a) REGULAR VESTING. Except as stated in Sections 3(b) and 3(c) of this
Agreement, the Optionee shall become vested in a percentage of the Total Shares
Under Option in accordance with the following schedule:
VESTING DATE PERCENTAGE OF
TOTAL SHARES UNDER
OPTION
First anniversary of Grant 34%
Date
Second anniversary of Grant 33%
Date
Third anniversary of Grant 33%
Date
The number of options granted to the Optionee under this Agreement which become
vested on a Vesting Date in accordance with the above schedule will be
determined by multiplying the Total Shares Under Option by the percentage
specified in the above schedule, and then rounding the resulting number up to
the nearest whole number, provided that the aggregate number of the Optionee's
vested options under this Agreement shall not exceed the Total Shares Under
Option.
(b) ACCELERATED VESTING. Notwithstanding the vesting schedule specified
in Section 3(a) of this Agreement, the Total Shares Under Option shall become
100% vested upon the earliest to occur of the following Vesting Dates:
(i) the Optionee's Normal Retirement Date;
(ii) the Optionee's Disability Retirement Date;
(iii) the date of the Optionee's death prior to his termination of
employment from the Corporation;
(iv) the date of a Change of Control; or
(v) subject to the approval of the Plan Administrator, the Optionee's
Early Retirement Date or the date of the Optionee's involuntary
termination of employment from the Corporation, in either case
due to (A) job elimination, (B) plant closure, or (C) such other
reason as may be specifically approved by the Plan Administrator.
If more than one of the accelerated vesting rules specified in this Section 3(b)
can apply to the Optionee, the Optionee may elect in writing which vesting rule
will apply. The vesting rule elected by the Optionee will determine the
Expiration Date for the options affected by such accelerated vesting. If the
Optionee fails to make such an election within 30 days after being notified by
the Plan Administrator, the Optionee will be deemed to have elected the
available accelerated vesting rule which, first, vests the most options in the
Optionee or, second (if each accelerated vesting rule vests the same number of
options), provides the longest exercise period. Notwithstanding anything in
this Agreement to the contrary, except as otherwise provided in this Agreement
in the case of a Disability Retirement Date which occurs after Optionee's
termination of employment with the Company, no Vesting Date will occur - and no
options may vest - following termination of employment with the Company.
(c) TERMINATION FOR CAUSE. Notwithstanding anything in this Agreement
to the contrary, if the Corporation terminates the Optionee's employment for
Cause prior to a Change of Control, this Agreement shall be terminated and all
options granted to the Optionee under this Agreement shall be forfeited,
regardless of whether a Vesting Date has occurred on or before such
termination date, unless and to the extent that the Plan Administrator
determines that such forfeiture would violate applicable law.
4. EXERCISE OF OPTIONS.
(a) GENERAL. Except as otherwise specified by the Plan Administrator in
accordance with Sections 4(d) and 4(e), the Optionee (or his Representative, as
the case may be) may exercise the options granted under the Agreement, in whole
or in part, at any time on or after the Vesting Date for such options and prior
to their Expiration Date, by complying with the procedures described in this
Section 4. The Optionee shall forfeit all rights to any option under this
Agreement, whether or not then vested, which is not exercised prior to its
Expiration Date.
(b) EXERCISE PROCEDURE. The Optionee or his Representative (if
applicable) may exercise all or a portion of his vested options under this
Agreement by delivering notice to the Agent, or by complying with any
alternative procedure which may be authorized by the Plan Administrator from
time to time. The notice to the Agent shall specify the number of shares of
Georgia-Pacific Group Stock that the Optionee desires to purchase by exercise of
his vested options, and shall include payment for the Exercise Amount of such
shares in one of the following ways:
(i) The Optionee may tender payment of the Exercise Amount on the
date of exercise in the form of cash, certified check, bank
draft, or postal or express money order made payable to the order
of the Corporation and denominated in U.S. dollars; or
(ii) The Optionee may tender payment of the Exercise Amount on the
date of exercise in the form of shares of Georgia-Pacific Group
Stock having a Fair Market Value on the date of exercise equal to
the Exercise Amount, if such shares were acquired upon exercise
of an option, they must have been held by the Optionee for at
least six months at the time of tender; or
(iii) The Optionee may tender payment of the Exercise Amount on
the date of exercise in a combination of (A) shares of Georgia-
Pacific Group Stock (subject to the holding period described in
paragraph (ii) above); and (B) cash, certified check, bank draft,
or postal or express money order made payable to the order of the
Corporation and denominated in U.S. dollars, equal to the
difference between the Exercise Amount and the Fair Market Value
of the tendered shares of Georgia-Pacific Group Stock on the date
of exercise; or
(iv) The Optionee may initiate a cashless exercise in accordance with
procedures promulgated by the Plan Administrator or the Agent, if
any.
(v) The Optionee may tender payment of the Exercise Amount on the
date of exercise in accordance with such other method as the Plan
Administrator shall authorize.
Within 30 days after the date of such exercise, the Agent shall make available
to the Optionee a certificate registered in the Optionee's name or a book entry
in a depository institution for the Optionee's account, representing the
aggregate number of shares of Georgia-Pacific Group Stock purchased by the
Optionee as a result of such exercise.
(c) EXERCISE OF OPTIONS FOLLOWING OPTIONEE'S DISABILITY OR DEATH.
(i) Optionee's Disability. If the Optionee's Disability occurs
during a period in which he may exercise options under this Agreement, the
Optionee or, if applicable, the Optionee's Representative may exercise the
options before their Expiration Date with respect to any or all of the Total
Shares Under Option which are available for purchase under this Agreement by the
Optionee on his Disability Retirement Date (taking into account the accelerated
vesting provisions of Section 3(b)) and which had not been purchased by him
prior to such date.
(ii) Optionee's Death. If the Optionee's death occurs during a period
in which he may exercise options under this Agreement, the Optionee's
Representative may exercise the options before their Expiration Date with
respect to any or all of the Total Shares Under Option which are available for
purchase under this Agreement by the Optionee on the date of his death (taking
into account the accelerated vesting provisions of Section 3(b)) and which had
not been purchased by him prior to his death.
(d) EXERCISE OF OPTIONS DURING LEAVE OF ABSENCE. Notwithstanding any
provision of this Agreement to the contrary, if the Optionee is on a leave of
absence or is absent on military or government service at any time on or after
the Grant Date and prior to the Expiration Date, the Optionee may not exercise
any part of the Total Shares Under Option prior to the date the Optionee returns
to active employment with the Corporation, and vesting of any options under this
Agreement which would normally vest on a date during the absence shall be
postponed until the Optionee returns to active work at the end of the absence
(in which case, the date of return to active employment shall be a Vesting
Date). The provisions of this subsection (d) shall not affect any of Optionee's
rights in the event of his death, Disability, Early Retirement or Normal
Retirement or in the event of a Change of Control occurring during such an
absence.
(e) DEFERRAL OF EXERCISE OR DELIVERY OF SHARES. Notwithstanding any
provision in this Agreement to the contrary, if any law or regulation of any
governmental authority having jurisdiction in the matter requires the
Corporation, Plan Administrator, Agent, Optionee, or Representative to take any
action or refrain from action in connection with the exercise of any option
under this Agreement or the delivery of shares of Georgia-Pacific Group Stock to
the Optionee, or to delay such exercise or delivery, then the exercise or
delivery of such shares shall be deferred until such action has been taken or
such restriction on action has been removed.
5. SPECIAL RULES GOVERNING THE EXPIRATION DATE. The Expiration Date for
options granted to the Optionee under this Agreement shall be subject to the
following special rules:
(a) TERMINATION OF EMPLOYMENT. If the Optionee voluntarily or
involuntarily terminates employment with the Corporation (for reasons other than
death, Change of Control or having reached his Normal Retirement Date, Early
Retirement Date or Disability Retirement Date), the Expiration Date for
exercising any options under this Agreement which were vested as of his date of
termination shall be the 90th day after the date of such termination; provided
that if the Optionee has a Disability or dies, or a Change of Control occurs,
prior to such 90th day, the Expiration Date for the Optionee's options under
this Agreement which were vested as of his date of termination shall be the
Expiration Date applicable to such Disability (subject to the rules stated in
Section 5(d)), death, or Change of Control, whichever is applicable.
(b) NORMAL RETIREMENT. If the Optionee terminates employment with the
Corporation on his Normal Retirement Date, the Expiration Date for exercising
his vested options under this Agreement shall be the fifth anniversary of the
Grant Date.
(c) EARLY RETIREMENT. If the Optionee terminates employment with the
Corporation on his Early Retirement Date, the Expiration Date for exercising his
vested options under this Agreement shall be the fifth anniversary of the Grant
Date.
(d) DISABILITY OR DISABILITY RETIREMENT. If the Optionee terminates
employment with the Corporation on his Disability Retirement Date, the
Expiration Date for exercising his vested options under this Agreement shall be
the last day of the 36th month after the end of the month in which the
Optionee's Disability Retirement Date occurs. If the Optionee has a Disability
before the 90th day after terminating employment with the Corporation (for
reasons other than having reached his Normal Retirement Date, Early Retirement
Date, or Disability Retirement Date) and such Disability continues through the
end of the initial 90-day period, the Expiration Date for exercising his vested
options under this Agreement shall be the last day of the 36th month after the
end of the month in which the Optionee's Disability occurs.
(e) OPTIONEE'S DEATH. If the Optionee dies while actively employed by the
Corporation or prior to the 90th day after the Optionee's termination of
employment with the Corporation (for reasons other than having reached his
Normal Retirement Date, Early Retirement Date, or Disability Retirement Date),
the Expiration Date for exercising his vested options under this Agreement shall
be the last day of the 36th month after the end of the month in which the
Optionee's death occurs.
(f) CHANGE OF CONTROL. The Expiration Date for all of the Optionee's
vested options shall be the fifth anniversary of the Grant Date if a Change of
Control takes place (i) while the Optionee is actively employed by the
Corporation; (ii) prior to the 90th day after the Optionee terminates employment
with the Corporation; or (iii) prior to the 90th day after the Optionee
terminates his employment with the Corporation on his Normal Retirement Date,
Early Retirement Date, Disability Retirement Date or date of death.
(g) MAXIMUM EXPIRATION DATE. Notwithstanding any provision in Section 5
of the Agreement to the contrary, no Expiration Date may extend beyond the fifth
anniversary of the Grant Date.
(h) TERMINATION DATE. The Optionee's date of termination of employment
from the Corporation shall be deemed for purposes of this Agreement to be the
later of (i) his last day of active work for the Corporation or (ii) his last
day on the active employee payroll of the Corporation, provided, however, that
for all purposes of this Agreement, the Optionee shall be deemed actively at
work during any period the Optionee is on approved paid medical leave.
6. GENERAL PROVISIONS. The Optionee acknowledges that he has read,
understands and agrees with all of the provisions in this Agreement and the
Plan, including (but not limited to) the following:
(a) AUTHORITY OF PLAN ADMINISTRATOR. The Plan Administrator shall have
the authority to administer the Agreement and the Plan; to make all
determinations with respect to the construction and application of the
Agreement, the Plan, and the resolutions of the Board of Directors establishing
the Plan; to adopt and revise rules relating to the Agreement and the Plan; to
hire the Agent with respect to its administrative responsibilities under the
Agreement and the Plan; and to make other determinations which it believes are
necessary or advisable for the administration of the Agreement and the Plan.
Any dispute or disagreement which arises under this Agreement or the Plan shall
be resolved by the Plan Administrator in its absolute discretion. Any such
determination, interpretation, resolution, or other action by the Plan
Administrator shall be final, binding and conclusive with respect to the
Optionee and all other persons affected thereby.
(b) NOTICES. Any notice which is required or permitted under this
Agreement shall be in writing (unless otherwise specified in the Agreement or in
a writing from the Corporation or the Agent to the Optionee), and delivered
personally or by mail, postage prepaid, addressed as follows: (i) if to the
Corporation or the Agent, at l33 Peachtree Street, N.E., Atlanta, Georgia 30303,
Attention: Compensation Department, or at such other address as the Corporation
or the Agent by notice to the Optionee may have designated from time to time;
(ii) if to the Optionee, at the address indicated in the Optionee's then-current
personnel records, or at such other address as the Optionee by notice to the
Corporation may have designated from time to time. Such notice shall be deemed
given upon receipt.
(c) TAXATION. The Optionee shall be responsible for all applicable
withholding taxes and the employee share of FICA taxes with respect to
compensation income generated upon the exercise or surrender of his vested
options under this Agreement.
(d) NONTRANSFERABILITY. This Agreement and the options granted to the
Optionee hereto shall be nontransferable and shall not be sold, hypothecated or
otherwise assigned or conveyed by the Optionee to any other person, except as
specifically permitted in this Agreement. No assignment or transfer of this
Agreement or the rights represented thereby, whether voluntary or involuntary,
or by operation of law or otherwise, shall vest in the assignee or transferee
any interest or right whatsoever, except as specifically permitted in this
Agreement. The Agreement shall terminate, and be of no force or effect,
immediately upon any attempt to assign or transfer the Agreement or any of the
options to which the Agreement applies.
(e) DESIGNATION OF BENEFICIARY. The Optionee may designate a person or
persons to receive, in the event of his death, any rights to which he would be
entitled under this Agreement. Such a designation shall be filed with the Agent
in accordance with uniform procedures specified by the Plan Administrator. The
Optionee may change or revoke a beneficiary designation at any time by filing a
written statement of such change or revocation with the Agent in accordance with
uniform procedures specified by the Plan Administrator. No beneficiary
designation or change of beneficiary designation will be effective until notice
thereof is received. If an Optionee fails to designate a beneficiary or if the
beneficiary predeceases the Optionee, the Optionee shall be deemed not to have a
beneficiary for purposes of this Agreement.
(f) NO SHAREHOLDER RIGHTS. The Optionee shall have no rights as a
shareholder of the Corporation, and shall not be deemed to be a shareholder of
the Corporation for any purpose, as a result of the options granted to the
Optionee under this Agreement, until the earliest of the following dates: (i)
the date that the Corporation receives payment in full of the Exercise Price for
shares of Georgia-Pacific Group Stock because an option has been exercised in
accordance with this Agreement; or (ii) the date that shares of Georgia-Pacific
Group Stock have been issued or transferred to the Optionee following the
exercise of an option in accordance with this Agreement. The Optionee shall not
be entitled to any dividends or other rights for which the record date is prior
to the date of such issuance, transfer, or receipt.
(g) NOT AN EMPLOYMENT CONTRACT. This Agreement shall not be deemed to
limit or restrict the right of the Corporation to terminate the Optionee's
employment at any time, for any reason, with or without Cause, or to limit or
restrict the right of the Optionee to terminate his employment with the
Corporation at any time.
(h) CORPORATE RESTRUCTURING/CAPITAL READJUSTMENTS. Nothing in this
Agreement shall abridge the rights or powers of the Corporation or its
stockholders reserved to them in Section 9(a) of the Plan, and in the event of
any extraordinary transaction with respect to or affecting Georgia-Pacific Group
Stock, adjustments to the number of options granted in this Agreement may be
made in accordance with the provisions of Section 9(b) of the Plan.
(i) AMENDMENT OR TERMINATION. This Agreement may be amended or terminated
at any time by the mutual agreement and written consent of the Optionee and the
Plan Administrator, but only to the extent permitted under the Plan.
(j) NOT CONSIDERED INCENTIVE STOCK OPTIONS. The options granted under
this Agreement do not constitute and shall not be construed to constitute
"incentive stock options" with the meaning of section 422 of the Code.
(k)) GOVERNING INSTRUMENT. This Agreement is subject to all terms and
conditions of the Plan and shall at all times be interpreted in a manner that
is consistent with the intent, purposes, and specific language of the Plan.
(l) SEVERABILITY. If any provision of this Agreement should be held
illegal or invalid for any reason by the Plan Administrator or court of
applicable jurisdiction, such determination shall not affect the other
provisions of this Agreement, and it shall be construed as if such provision
had never been included herein.
(m) HEADINGS/GENDER. Headings in this Agreement are for convenience
only and shall not be construed to be part of this Agreement. Any reference
to the masculine, feminine or neuter gender shall be a reference to other
genders as appropriate.
(n) GOVERNING LAW. This Agreement shall be construed, and its
provisions enforced and administered, in accordance with the laws of the State
of Georgia and, where applicable, federal law.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officers under its corporate seal, and the
Optionee has executed this Agreement, as of the day and year first above
written.
GEORGIA-PACIFIC CORPORATION
By:
A. D. Correll
Chairman, Chief Executive Officer
and President
ATTEST:
W. Edwin Frazier, III
Assistant Secretary
OPTIONEE
Name:
NOTE: PLEASE COMPLETE THE ATTACHED ACKNOWLEDGMENT OF RECEIPT AND BENEFICIARY
DESIGNATION FORM AND RETURN THEM TO:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
GEORGIA-PACIFIC STOCK OPTION PLAN
``PERSONAL AND CONFIDENTIAL''
SUITE 4717
525 WASHINGTON BLVD.
JERSEY CITY, NJ 07310
ACKNOWLEDGMENT OF RECEIPT AND BENEFICIARY DESIGNATION FORM
Under the terms of the Georgia-Pacific Corporation/Georgia-Pacific Group
1997 Long-Term Incentive Plan (`1997 Georgia-Pacific Group LTIP''), you have
the right to designate a beneficiary to exercise certain rights that may arise
under your option grants in the event of your death. IF YOU DO NOT DESIGNATE A
BENEFICIARY IN WRITING, THESE RIGHTS WILL PASS TO YOUR ESTATE UPON YOUR DEATH.
In order to allow you to decide affirmatively which outcome you desire and, in
the event you prefer to designate a beneficiary or beneficiaries other than your
estate, to name that beneficiary or those beneficiaries, the Corporation has
provided this form, which you may use to designate in writing the
beneficiary(ies) you desire. Of course, you may revoke and change your
beneficiary designations at any time by notifying the First Chicago Trust
Company in writing at the address indicated below.
PLEASE TAKE TIME TO FILL OUT THIS FORM AND RETURN IT TO THE FIRST CHICAGO
TRUST COMPANY AT THE FOLLOWING ADDRESS: FIRST CHICAGO TRUST COMPANY OF NEW
YORK, GEORGIA-PACIFIC STOCK OPTION PLAN, `PERSONAL AND CONFIDENTIAL'', SUITE
4717, 525 WASHINGTON BLVD., JERSEY CITY, NJ 07310. BENEFICIARY DESIGNATIONS OR
MODIFICATIONS OF BENEFICIARY DESIGNATIONS SENT TO ANY OTHER ADDRESS WILL NOT BE
EFFECTIVE UNTIL ACTUALLY RECEIVED BY FIRST CHICAGO TRUST COMPANY. THE
CORPORATION HAS NO RESPONSIBILITY FOR BENEFICIARY DESIGNATION FORMS WHICH ARE
NOT SUBMITTED AS INDICATED ABOVE.
NOTE: You may designate multiple beneficiaries, in which case those living at
the time of your death will equally share the rights accorded to a beneficiary
for the particular grant(s) in question.
/ / I designate my estate as my beneficiary under my 1998 special grant under
--
the 1997 Georgia-Pacific Group LTIP.
/ / I designate the following person(s) as my beneficiary(ies) under my 1998
--
special grant under the 1997 Georgia-Pacific Group LTIP:
NAME ADDRESS RELATIONSHIP TO SOCIAL SECURITY
YOU NUMBER (IF
KNOWN)
I ACKNOWLEDGE RECEIPT OF THE EXECUTED OPTION AGREEMENT EVIDENCING MY JANUARY 29,
1998 SPECIAL OPTION GRANT UNDER THE GEORGIA-PACIFIC CORPORATION/GEORGIA-PACIFIC
GROUP 1997 LONG-TERM INCENTIVE PLAN AND CONFIRM THAT THE BENEFICIARY(IES)
DESIGNATED ABOVE HAVE BEEN SELECTED BY ME IN FREE EXERCISE OF MY OWN DISCRETION.
Signature: Printed Name:
---------------------- ----------------------
GEORGIA-PACIFIC CORPORATION/TIMBER GROUP
1997 LONG-TERM INCENTIVE PLAN
EMPLOYEE STOCK OPTION AGREEMENT
Optionee: [First Middle Last]
Total Shares Under [ ] shares
Option:
Option Price: [$ ] per share
Grant Date: [Month Day Year]
THIS AGREEMENT, dated as of the Grant Date stated above, by and between Georgia-
Pacific Corporation and the Optionee;
W I T N E S S E T H:
WHEREAS, Georgia-Pacific Corporation wishes to give the Optionee an
opportunity to acquire or enlarge the Optionee's equity ownership in Georgia-
Pacific Corporation for purposes of augmenting the Optionee's proprietary
interest in the success of Georgia-Pacific Corporation and, in particular, its
business unit known as The Timber Company;
WHEREAS, the options described in this Agreement have been granted pursuant
to, and are governed by, the Plan;
NOW, THEREFORE, Georgia-Pacific Corporation and the Optionee hereby agree
as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms shall be
defined as follows:
(a) AGENT means First Chicago Trust Company of New York or any other
entity designated by the Plan Administrator to act as its administrative service
provider.
(b) BOARD OF DIRECTORS means the Board of Directors of Georgia-Pacific
Corporation.
(c) CAUSE means any of the actions or omissions specified in Section 2(d)
of the Plan.
(d) CHANGE OF CONTROL has the meanings specified in Section 11(b) of the
Plan.
(e) CODE means the Internal Revenue Code of 1986, as amended from time to
time, or any statute which is a successor or replacement for such statute, and
the regulations promulgated thereunder.
(f) CORPORATION means Georgia-Pacific Corporation, its successors and
assigns, and any other corporation in an unbroken chain of corporations
beginning with Georgia-Pacific Corporation if each of the corporations other
than the last corporation in the unbroken chain owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
(g) COMMITTEE means the Compensation Committee of the Board of Directors,
or a subcommittee of such Committee, as the same may be constituted from time to
time.
(h) DISABILITY means `total disability'' as defined under the long-term
disability program of the Georgia-Pacific Corporation Salaried Employees
Contributory Welfare Benefits Plan (whether or not the Optionee is covered under
such program).
(i) DISABILITY RETIREMENT DATE means the later of (i) the day the
Optionee's employment with the Corporation ends after the maximum period during
which salary continuation benefits from the Corporation because of illness or
injury are authorized in accordance with its then-current medical leave policy,
but only if the Optionee's Disability continues through that date, or (ii) the
day the Optionee's employment with the Corporation ends after the last day of a
personal leave of absence immediately following such period of salary
continuation, provided, that the Optionee has a Disability on such date. If the
Optionee is involuntarily terminated because of job elimination or facility
closure (or other reason approved by the Plan Administrator) while on a paid
medical leave based on a Disability or during a personal leave of absence
immediately following such medical leave, the Optionee will have a Disability
Retirement Date on the last day of the maximum period during which salary
continuation benefits from the Corporation because of illness or injury would
have been authorized in accordance with its then-current medical leave policy if
he had not been terminated (in the case of termination during a medical leave)
or on the date of termination (in the case of termination during the personal
leave of absence), provided that he still has a Disability on such date.
(j) EARLY RETIREMENT DATE means the Optionee's last day of active
employment by the Corporation after having attained at least age 55 (but not age
62) and having accrued at least 10 years of service for vesting purposes as
determined in accordance with the provisions of the Georgia-Pacific Corporation
Savings and Capital Growth Plan (or any successor tax-qualified retirement plan
maintained for salaried employees of the Corporation).
(k) EXERCISE AMOUNT means the sum of (a) the Option Price multiplied by
the number of vested options being exercised plus (b) an amount sufficient to
pay all applicable FICA and withholding taxes on the difference between the Fair
Market Value of Timber Group Stock for which the vested options are being
exercised (determined as of the exercise date) and their Option Price, as
calculated by the Plan Administrator or the Agent, if any.
(l) EXPIRATION DATE means the tenth anniversary of the Grant Date, unless
an earlier Expiration Date is established by operation of Section 5 of this
Agreement.
(m) FAIR MARKET VALUE is the mean between the high and low sales prices of
a share of Timber Group Stock on a particular 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
Plan Administrator 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 Timber Group Stock
on the next preceding trading date. The Fair Market Value of Timber Group Stock
shall be rounded to the nearest whole cent (with 0.5 cent being rounded to the
next higher whole cent).
(n) GRANT DATE means the date set forth on the first page of this
Agreement, upon which the options described in this Agreement were granted to
the Optionee.
(o) NORMAL RETIREMENT DATE means the Optionee's last day of active
employment by the Corporation after having attained (i) at least age 62 (but not
age 65) and at least 10 years of service for vesting purposes as determined in
accordance with the provisions of the Georgia-Pacific Corporation Savings and
Capital Growth Plan (or any successor tax-qualified retirement plan maintained
for salaried employees of the Corporation) or (ii) at least age 65.
(p) OPTION PRICE means the price per share set forth on the first page of
this Agreement.
(q) OPTIONEE means the employee of the Corporation named on the first page
of this Agreement.
(r) PLAN means the Georgia-Pacific Corporation/Timber Group 1997 Long-Term
Incentive Plan, as adopted by the Board of Directors on September 17, 1997, and
approved by the Corporation's shareholders on December 16, 1997, and as amended
from time to time.
(s) PLAN ADMINISTRATOR means the Committee, provided, however, that to the
extent permitted by the Plan and authorized by the Committee, the Chief
Executive Officer of the Georgia-Pacific Corporation may act on behalf of the
Committee in executing the duties and responsibilities of the Plan
Administrator.
(t) REPRESENTATIVE means, in the event of the Optionee's Disability, his
duly authorized legal guardian or representative; or, in the event of the
Optionee's death, his estate, personal representative, or beneficiary as
designated pursuant to Section 6(e).
(u) TIMBER GROUP STOCK means the class of the Corporation's common stock,
par value $0.80 per share, which has been designated by the Corporation as the
Georgia-Pacific Corporation--Timber Group Common Stock.
(v) TOTAL SHARES UNDER OPTION means the number of options granted to the
Optionee as set forth on the first page of this Agreement.
(w) VESTING DATE means any one of the dates upon which options granted to
the Optionee under this Agreement become exercisable in accordance with this
Agreement.
2. OPTION GRANT. Subject to the terms and conditions of this Agreement, the
Corporation hereby grants an option to the Optionee to purchase from the
Corporation, at the Option Price, the number of shares of Timber Group Stock
equal to the Total Shares Under Option.
3. VESTING.
(a) REGULAR VESTING. Except as stated in Sections 3(b) and 3(c) of this
Agreement, the Optionee shall become vested in a percentage of the Total Shares
Under Option in accordance with the following schedule:
VESTING DATE PERCENTAGE OF
TOTAL SHARES UNDER
OPTION
First anniversary of Grant 25%
Date
Second anniversary of Grant 25%
Date
Third anniversary of Grant 25%
Date
Fourth anniversary of Grant 25%
Date
The number of options granted to the Optionee under this Agreement which become
vested on a Vesting Date in accordance with the above schedule will be
determined by multiplying the Total Shares Under Option by the percentage
specified in the above schedule, and then rounding the resulting number up to
the nearest whole number, provided that the aggregate number of the Optionee's
vested options under this Agreement shall not exceed the Total Shares Under
Option.
(b) ACCELERATED VESTING. Notwithstanding the vesting schedule specified
in Section 3(a) of this Agreement, the Total Shares Under Option shall become
100% vested upon the earliest to occur of the following Vesting Dates:
(i) the Optionee's Normal Retirement Date;
(ii) the Optionee's Disability Retirement Date;
(iii) the date of the Optionee's death prior to his termination of
employment from the Corporation;
(iv) the date of a Change of Control; or
(v) subject to the approval of the Plan Administrator, the Optionee's
Early Retirement Date or the date of the Optionee's involuntary
termination of employment from the Corporation, in either case
due to (A) job elimination, (B) plant closure, or (C) such other
reason as may be specifically approved by the Plan Administrator.
If more than one of the accelerated vesting rules specified in this Section 3(b)
can apply to the Optionee, the Optionee may elect in writing which vesting rule
will apply. The vesting rule elected by the Optionee will determine the
Expiration Date for the options affected by such accelerated vesting. If the
Optionee fails to make such an election within 30 days after being notified by
the Plan Administrator, the Optionee will be deemed to have elected the
available accelerated vesting rule which, first, vests the most options in the
Optionee or, second (if each accelerated vesting rule vests the same number of
options), provides the longest exercise period. Notwithstanding anything in
this Agreement to the contrary, except as otherwise provided in this Agreement
in the case of a Disability Retirement Date which occurs after Optionee's
termination of employment with the Company, no Vesting Date will occur - and no
options may vest - following termination of employment with the Company.
(c) TERMINATION FOR CAUSE. Notwithstanding anything in this Agreement to
the contrary, if the Corporation terminates the Optionee's employment for Cause
prior to a Change of Control, this Agreement shall be terminated and all options
granted to the Optionee under this Agreement shall be forfeited, regardless of
whether a Vesting Date has occurred on or before such termination date, unless
and to the extent that the Plan Administrator determines that such forfeiture
would violate applicable law.
4. EXERCISE OF OPTIONS.
(a) GENERAL. Except as otherwise specified by the Plan Administrator in
accordance with Sections 4(d) and 4(e), the Optionee (or his Representative, as
the case may be) may exercise the options granted under the Agreement, in whole
or in part, at any time on or after the Vesting Date for such options and prior
to their Expiration Date, by complying with the procedures described in this
Section 4. The Optionee shall forfeit all rights to any option under this
Agreement, whether or not then vested, which is not exercised prior to its
Expiration Date.
(b) EXERCISE PROCEDURE. The Optionee or his Representative (if
applicable) may exercise all or a portion of his vested options under this
Agreement by delivering notice to the Agent, or by complying with any
alternative procedure which may be authorized by the Plan Administrator from
time to time. The notice to the Agent shall specify the number of shares of
Timber Group Stock that the Optionee desires to purchase by exercise of his
vested options, and shall include payment for the Exercise Amount of such shares
in one of the following ways:
(i) The Optionee may tender payment of the Exercise Amount on the
date of exercise in the form of cash, certified check, bank
draft, or postal or express money order made payable to the order
of the Corporation and denominated in U.S. dollars; or
(ii) The Optionee may tender payment of the Exercise Amount on the
date of exercise in the form of shares of Timber Group Stock
having a Fair Market Value on the date of exercise equal to the
Exercise Amount, if such shares were acquired upon exercise of an
option, they must have been held by the Optionee for at least six
months at the time of tender; or
(iii) The Optionee may tender payment of the Exercise Amount on
the date of exercise in a combination of (A) shares of Timber
Group Stock (subject to the holding period described in paragraph
(ii) above); and (B) cash, certified check, bank draft, or postal
or express money order made payable to the order of the
Corporation and denominated in U.S. dollars, equal to the
difference between the Exercise Amount and the Fair Market Value
of the tendered shares of Timber Group Stock on the date of
exercise; or
(iv) The Optionee may initiate a cashless exercise in accordance with
procedures promulgated by the Plan Administrator or the Agent, if
any.
(v) The Optionee may tender payment of the Exercise Amount on the
date of exercise in accordance with such other method as the Plan
Administrator shall authorize.
Within 30 days after the date of such exercise, the Agent shall make available
to the Optionee a certificate registered in the Optionee's name or a book entry
in a depository institution for the Optionee's account, representing the
aggregate number of shares of Timber Group Stock purchased by the Optionee as a
result of such exercise.
(c) EXERCISE OF OPTIONS FOLLOWING OPTIONEE'S DISABILITY OR DEATH.
(i) Optionee's Disability. If the Optionee's Disability occurs
during a period in which he may exercise options under this Agreement, the
Optionee or, if applicable, the Optionee's Representative may exercise the
options before their Expiration Date with respect to any or all of the Total
Shares Under Option which are available for purchase under this Agreement by the
Optionee on his Disability Retirement Date (taking into account the accelerated
vesting provisions of Section 3(b)) and which had not been purchased by him
prior to such date.
(ii) Optionee's Death. If the Optionee's death occurs during a period
in which he may exercise options under this Agreement, the Optionee's
Representative may exercise the options before their Expiration Date with
respect to any or all of the Total Shares Under Option which are available for
purchase under this Agreement by the Optionee on the date of his death (taking
into account the accelerated vesting provisions of Section 3(b)) and which had
not been purchased by him prior to his death.
(d) EXERCISE OF OPTIONS DURING LEAVE OF ABSENCE. Notwithstanding any
provision of this Agreement to the contrary, if the Optionee is on a leave of
absence or is absent on military or government service at any time on or after
the Grant Date and prior to the Expiration Date, the Optionee may not exercise
any part of the Total Shares Under Option prior to the date the Optionee returns
to active employment with the Corporation, and vesting of any options under this
Agreement which would normally vest on a date during the absence shall be
postponed until the Optionee returns to active work at the end of the absence
(in which case, the date of return to active employment shall be a Vesting
Date). The provisions of this subsection (d) shall not affect any of Optionee's
rights in the event of his death, Disability, Early Retirement or Normal
Retirement or in the event of a Change of Control occurring during such an
absence.
(e) DEFERRAL OF EXERCISE OR DELIVERY OF SHARES. Notwithstanding any
provision in this Agreement to the contrary, if any law or regulation of any
governmental authority having jurisdiction in the matter requires the
Corporation, Plan Administrator, Agent, Optionee, or Representative to take any
action or refrain from action in connection with the exercise of any option
under this Agreement or the delivery of shares of Timber Group Stock to the
Optionee, or to delay such exercise or delivery, then the exercise or delivery
of such shares shall be deferred until such action has been taken or such
restriction on action has been removed.
5. SPECIAL RULES GOVERNING THE EXPIRATION DATE. The Expiration Date for
options granted to the Optionee under this Agreement shall be subject to the
following special rules:
(a) TERMINATION OF EMPLOYMENT. If the Optionee voluntarily or
involuntarily terminates employment with the Corporation (for reasons other than
death, Change of Control or having reached his Normal Retirement Date, Early
Retirement Date or Disability Retirement Date), the Expiration Date for
exercising any options under this Agreement which were vested as of his date of
termination shall be the 90th day after the date of such termination; provided
that if the Optionee has a Disability or dies, or a Change of Control occurs,
prior to such 90th day, the Expiration Date for the Optionee's options under
this Agreement which were vested as of his date of termination shall be the
Expiration Date applicable to such Disability (subject to the rules stated in
Section 5(d)), death, or Change of Control, whichever is applicable.
(b) NORMAL RETIREMENT. If the Optionee terminates employment with the
Corporation on his Normal Retirement Date, the Expiration Date for exercising
his vested options under this Agreement shall be the last day of the 60th month
after the end of the month in which the Optionee's Normal Retirement Date
occurs.
(c) EARLY RETIREMENT. If the Optionee terminates employment with the
Corporation on his Early Retirement Date, the Expiration Date for exercising his
vested options under this Agreement shall be the last day of the 60th month
after the end of the month in which the Optionee's Early Retirement Date occurs.
(d) DISABILITY OR DISABILITY RETIREMENT. If the Optionee terminates
employment with the Corporation on his Disability Retirement Date, the
Expiration Date for exercising his vested options under this Agreement shall be
the last day of the 36th month after the end of the month in which the
Optionee's Disability Retirement Date occurs. If the Optionee has a Disability
before the 90th day after terminating employment with the Corporation (for
reasons other than having reached his Normal Retirement Date, Early Retirement
Date, or Disability Retirement Date) and such Disability continues through the
end of the initial 90-day period, the Expiration Date for exercising his vested
options under this Agreement shall be the last day of the 36th month after the
end of the month in which the Optionee's Disability occurs.
(e) OPTIONEE'S DEATH. If the Optionee dies while actively employed by the
Corporation or prior to the 90th day after the Optionee's termination of
employment with the Corporation (for reasons other than having reached his
Normal Retirement Date, Early Retirement Date, or Disability Retirement Date),
the Expiration Date for exercising his vested options under this Agreement shall
be the last day of the 36th month after the end of the month in which the
Optionee's death occurs.
(f) CHANGE OF CONTROL. The Expiration Date for all of the Optionee's
vested options shall be the tenth anniversary of the Grant Date if a Change of
Control takes place (i) while the Optionee is actively employed by the
Corporation; (ii) prior to the 90th day after the Optionee terminates employment
with the Corporation; or (iii) prior to the 90th day after the Optionee
terminates his employment with the Corporation on his Normal Retirement Date,
Early Retirement Date, Disability Retirement Date or date of death.
(g) MAXIMUM EXPIRATION DATE. Notwithstanding any provision in Section 5
of the Agreement to the contrary, no Expiration Date may extend beyond the tenth
anniversary of the Grant Date.
(h) TERMINATION DATE. The Optionee's date of termination of employment
from the Corporation shall be deemed for purposes of this Agreement to be the
later of (i) his last day of active work for the Corporation or (ii) his last
day on the active employee payroll of the Corporation, provided, however, that
for all purposes of this Agreement, the Optionee shall be deemed actively at
work during any period the Optionee is on approved paid medical leave.
6. GENERAL PROVISIONS. The Optionee acknowledges that he has read,
understands and agrees with all of the provisions in this Agreement and the
Plan, including (but not limited to) the following:
(a) AUTHORITY OF PLAN ADMINISTRATOR. The Plan Administrator shall have
the authority to administer the Agreement and the Plan; to make all
determinations with respect to the construction and application of the
Agreement, the Plan, and the resolutions of the Board of Directors establishing
the Plan; to adopt and revise rules relating to the Agreement and the Plan; to
hire the Agent with respect to its administrative responsibilities under the
Agreement and the Plan; and to make other determinations which it believes are
necessary or advisable for the administration of the Agreement and the Plan.
Any dispute or disagreement which arises under this Agreement or the Plan shall
be resolved by the Plan Administrator in its absolute discretion. Any such
determination, interpretation, resolution, or other action by the Plan
Administrator shall be final, binding and conclusive with respect to the
Optionee and all other persons affected thereby.
(b) NOTICES. Any notice which is required or permitted under this
Agreement shall be in writing (unless otherwise specified in the Agreement or in
a writing from the Corporation or the Agent to the Optionee), and delivered
personally or by mail, postage prepaid, addressed as follows: (i) if to the
Corporation or the Agent, at l33 Peachtree Street, N.E., Atlanta, Georgia 30303,
Attention: Compensation Department, or at such other address as the Corporation
or the Agent by notice to the Optionee may have designated from time to time;
(ii) if to the Optionee, at the address indicated in the Optionee's then-current
personnel records, or at such other address as the Optionee by notice to the
Corporation may have designated from time to time. Such notice shall be deemed
given upon receipt.
(c) TAXATION. The Optionee shall be responsible for all applicable
withholding taxes and the employee share of FICA taxes with respect to
compensation income generated upon the exercise or surrender of his vested
options under this Agreement.
(d) NONTRANSFERABILITY. This Agreement and the options granted to the
Optionee hereto shall be nontransferable and shall not be sold, hypothecated or
otherwise assigned or conveyed by the Optionee to any other person, except as
specifically permitted in this Agreement. No assignment or transfer of this
Agreement or the rights represented thereby, whether voluntary or involuntary,
or by operation of law or otherwise, shall vest in the assignee or transferee
any interest or right whatsoever, except as specifically permitted in this
Agreement. The Agreement shall terminate, and be of no force or effect,
immediately upon any attempt to assign or transfer the Agreement or any of the
options to which the Agreement applies.
(e) DESIGNATION OF BENEFICIARY. The Optionee may designate a person or
persons to receive, in the event of his death, any rights to which he would be
entitled under this Agreement. Such a designation shall be filed with the Agent
in accordance with uniform procedures specified by the Plan Administrator. The
Optionee may change or revoke a beneficiary designation at any time by filing a
written statement of such change or revocation with the Agent in accordance with
uniform procedures specified by the Plan Administrator. No beneficiary
designation or change of beneficiary designation will be effective until notice
thereof is received. If an Optionee fails to designate a beneficiary or if the
beneficiary predeceases the Optionee, the Optionee shall be deemed not to have a
beneficiary for purposes of this Agreement.
(f) NO SHAREHOLDER RIGHTS. The Optionee shall have no rights as a
shareholder of the Corporation, and shall not be deemed to be a shareholder of
the Corporation for any purpose, as a result of the options granted to the
Optionee under this Agreement, until the earliest of the following dates: (i)
the date that the Corporation receives payment in full of the Exercise Price for
shares of Timber Group Stock because an option has been exercised in accordance
with this Agreement; or (ii) the date that shares of Timber Group Stock have
been issued or transferred to the Optionee following the exercise of an option
in accordance with this Agreement. The Optionee shall not be entitled to any
dividends or other rights for which the record date is prior to the date of such
issuance, transfer, or receipt.
(g) NOT AN EMPLOYMENT CONTRACT. This Agreement shall not be deemed to
limit or restrict the right of the Corporation to terminate the Optionee's
employment at any time, for any reason, with or without Cause, or to limit or
restrict the right of the Optionee to terminate his employment with the
Corporation at any time.
(h) CORPORATE RESTRUCTURING/CAPITAL READJUSTMENTS. Nothing in this
Agreement shall abridge the rights or powers of the Corporation or its
stockholders reserved to them in Section 9(a) of the Plan, and in the event of
any extraordinary transaction with respect to or affecting Timber Group Stock,
adjustments to the number of options granted in this Agreement may be made in
accordance with the provisions of Section 9(b) of the Plan.
(i) AMENDMENT OR TERMINATION. This Agreement may be amended or terminated
at any time by the mutual agreement and written consent of the Optionee and the
Plan Administrator, but only to the extent permitted under the Plan.
(j) NOT CONSIDERED INCENTIVE STOCK OPTIONS. The options granted under
this Agreement do not constitute and shall not be construed to constitute
`incentive stock options'' with the meaning of section 422 of the Code.
(k) GOVERNING INSTRUMENT. This Agreement is subject to all terms and
conditions of the Plan and shall at all times be interpreted in a manner that is
consistent with the intent, purposes, and specific language of the Plan.
(l) SEVERABILITY. If any provision of this Agreement should be held
illegal or invalid for any reason by the Plan Administrator or court of
applicable jurisdiction, such determination shall not affect the other
provisions of this Agreement, and it shall be construed as if such provision had
never been included herein.
(m) HEADINGS/GENDER. Headings in this Agreement are for convenience only
and shall not be construed to be part of this Agreement. Any reference to the
masculine, feminine or neuter gender shall be a reference to other genders as
appropriate.
(n) GOVERNING LAW. This Agreement shall be construed, and its provisions
enforced and administered, in accordance with the laws of the State of Georgia
and, where applicable, federal law.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officers under its corporate seal, and the
Optionee has executed this Agreement, as of the day and year first above
written.
GEORGIA-PACIFIC CORPORATION
By:
A. D. Correll
Chairman, Chief Executive Officer
and President
ATTEST:
W. Edwin Frazier, III
Assistant Secretary
OPTIONEE
Name:
NOTE: PLEASE COMPLETE THE ATTACHED ACKNOWLEDGMENT OF RECEIPT AND BENEFICIARY
DESIGNATION FORM AND RETURN THEM TO:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
GEORGIA-PACIFIC STOCK OPTION PLAN
``PERSONAL AND CONFIDENTIAL''
SUITE 4717
525 WASHINGTON BLVD.
JERSEY CITY, NJ 07310
ACKNOWLEDGMENT OF RECEIPT AND BENEFICIARY DESIGNATION FORM
Under the terms of the Georgia-Pacific Corporation/Timber Group 1997 Long-
Term Incentive Plan (`1997 Timber Group LTIP''), you have the right to
designate a beneficiary to exercise certain rights that may arise under those
grants in the event of your death. IF YOU DO NOT DESIGNATE A BENEFICIARY IN
WRITING, THESE RIGHTS WILL PASS TO YOUR ESTATE UPON YOUR DEATH. In order to
allow you to decide affirmatively which outcome you desire and, in the event you
prefer to designate a beneficiary or beneficiaries other than your estate, to
name that beneficiary or those beneficiaries, the Corporation has provided this
form, which you may use to designate in writing the beneficiary(ies) you desire.
Of course, you may revoke and change your beneficiary designations at any time
by notifying First Chicago Trust Company in writing at the address indicated
below.
PLEASE TAKE TIME TO FILL OUT THIS FORM AND RETURN IT TO FIRST CHICAGO TRUST
COMPANY AT THE FOLLOWING ADDRESS: FIRST CHICAGO TRUST COMPANY OF NEW YORK,
GEORGIA-PACIFIC STOCK OPTION PLAN, `PERSONAL AND CONFIDENTIAL'', SUITE 4717,
525 WASHINGTON BLVD., JERSEY CITY, NJ 07310. BENEFICIARY DESIGNATIONS OR
MODIFICATIONS OF BENEFICIARY DESIGNATIONS SENT TO ANY OTHER ADDRESS WILL NOT BE
EFFECTIVE UNTIL ACTUALLY RECEIVED BY FIRST CHICAGO TRUST COMPANY. THE
CORPORATION HAS NO RESPONSIBILITY FOR BENEFICIARY DESIGNATION FORMS WHICH ARE
NOT SUBMITTED AS INDICATED ABOVE.
NOTE: You may designate multiple beneficiaries, in which case those living at
the time of your death will equally share the rights accorded to a beneficiary
for the particular grant(s) in question.
/ / I designate my estate as my beneficiary under my 1997 grants under the 1997
--
Timber Group LTIP.
/ / I designate the following person(s) as my beneficiary(ies) under my 1997
--
grants under the 1997 Timber Group LTIP:
NAME ADDRESS RELATIONSHIP TO SOCIAL SECURITY
YOU NUMBER (IF
KNOWN)
I ACKNOWLEDGE RECEIPT OF THE EXECUTED OPTION AGREEMENT EVIDENCING MY DECEMBER
17,1997, STOCK OPTION GRANT UNDER THE GEORGIA-PACIFIC CORPORATION/TIMBER GROUP
1997 LONG-TERM INCENTIVE PLAN AND CONFIRM THAT THE BENEFICIARY(IES) DESIGNATED
ABOVE HAVE BEEN SELECTED BY ME IN FREE EXERCISE OF MY OWN DISCRETION.
Signature: Printed Name:
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