International Paper
Performance Share Plan - Administrative Guidelines
Effective as of January 1, 2001
Pursuant to the International Paper Company
Long-Term Incentive Compensation Plan
I. Purpose of the Program
The purpose of the Performance Share Program (the "Program") is to
provide incentive to select employees of International Paper Company
("International Paper") and its subsidiaries (together with
International Paper, the "Company") to improve the performance of the
Company.
II. Program Description
This Program provides Performance Shares to participants upon the
successful achievement of return on investment ("ROI") and total
shareholder return ("TSR") targets in accordance with Section IV.
Actual awards may be adjusted up or down based on the performance of
the Company with respect to these measures and shall be based on the
recommendation of the Chairman and Chief Executive Officer of
International Paper, subject to final review and approval by the
Management Development and Compensation Committee of the Board of
Directors of International Paper (the "Committee").
III. Participation
Participation in this Program is by nomination by the Chairman and
Chief Executive Officer and is limited to (1) those employees of the
Company who's positions are PL 25 and higher and (2) those additional
employees of the Company whose positions are PL 23 or 24 and whose
positions contribute to the strategic success of the Company.
Participation in this Program, or receipt of an award under this
Program, does not give any participant any right, implied or otherwise,
to continued employment.
IV. Awards
A. Award Amount
Awards are expressed as performance shares and will be earned
in full or in part, based upon the Company's achievement of
its ROI and TSR targets. The target number of performance
shares for each position level is established by the Committee
upon approval of this Program; provided, however, that, from
time to time, the Committee shall review the target number of
performance shares. The total award for any position level
shall not exceed 250% of the target excluding dividend
equivalent shares for such position level.
B. Performance Criteria
o Return on Investment (ROI): The ROI of the Company shall
be compared against the ROI of the companies in the "Peer
Group" (as set forth in Appendix A). The ROI for any Award
period shall be measured before the inclusion or exclusion
of any special or extraordinary items, as determined in
the discretion of the Committee.
o Total Shareholder Return (TSR): The TSR of the Company
shall be compared against the TSR of the companies in the
Peer Group. TSR shall be the sum of (1) the increase in
the stock price of the relevant company during the Award
Period plus (2) the amount of any dividends paid by such
company during the Award Period, divided by the beginning
stock price.
C. Award Determination
o ROI: 75% of the total award is based upon ROI Performance.
The Company's average annual ROI for the Performance
Period will be compared to each Peer Company's average
annual ROI for the same period.
o TSR: 25% of the total reward is based upon TSR
performance. The Company's total TSR for the Performance
Period will be compared to each Peer Company's total TSR
for the same period. For all companies, the beginning and
ending stock prices will be established based on the 20
trading days immediately preceding the beginning or end of
the Performance Period.
o Awards are determined based upon performance according to
the Award Scale (as set forth in Appendix B). The actual
percent of target award earned is determined by the actual
performance against the Peer Group for ROI and TSR (as set
forth in the example in Appendix C).
D. Dividend Equivalents
All dividend equivalents credited on performance share awards
during an award period shall be reinvested in additional
performance shares.
E. Performance Periods
Each Performance Period shall be three years in length,
commencing on January 1 of a given year and ending on December
31 of the third year. A new Performance Period will commence
upon the beginning of each year until the earlier of (1) the
termination of the Plan pursuant to the provisions thereof and
(2) such time that the Committee determines, in its
discretion, to terminate this program.
V. Method of Timing of Payment of Awards
Performance Shares shall be earned on the date when the Committee, in
its discretion, reviews and approves the recommendation of the Chairman
and Chief Executive Officer of International Paper with respect to the
achievement by the Company of the relevant performance targets. Except
as otherwise determined by the Committee, settlement shall be in shares
of stock and shall occur on April 1 or as soon as reasonably
practicable after such approval.
The Committee, in its discretion, may award any or all of any unearned
Performance Shares and related dividend equivalents to a participant
(or his or her legal representative) who retires under a Company
pension plan, is disabled according to the condition of total
disability defined in the Company's long term disability plan, or such
participant's estate or beneficiary upon such participant's death.
VI. Definitions
Capitalized terms used in this Program that are not otherwise defined
herein shall have the meanings ascribed to them in the Plan.
VII. Governing-Law
This Program is governed by the laws of the State of New York.
VIII. Non-Transferability of Award
Subject to Section V, no award under this Program, and no rights or
interests therein, shall be assignable or transferable by any
participant (or his or her legal representative) or such participant's
estate or beneficiary.
Appendix A
Peer Group as of 1/02
Boise Cascade
Georgia-Pacific
Mead/Westvaco
Smurfit Stone
Stora Enso
UPM-Kymmene
Weyerhaeuser
The companies constituting the Peer Group may, at the discretion of the
Committee, be reviewed from time to time by the Committee, including in
connection with the merger, combination, sale, dissolution, liquidation or other
analogous transaction of any company included in the Peer Group.
Appendix B
Award Scale
RANK % of Target Award
- --------------------------------------------------------------------------------
1 175% - 250%
2
- --------------------------------------------------------------------------------
3 101% - 174%
4
- --------------------------------------------------------------------------------
5 100%
- --------------------------------------------------------------------------------
6 25% - 99%
7
- --------------------------------------------------------------------------------
8 0%
9
- --------------------------------------------------------------------------------
Appendix C
Award Determination - Example
Assumptions:
An executive is awarded 3,000 target performance shares on January 1, 2002. The
performance period ends December 31, 2004.
ROI:
IP ranks 4 of 9 with an average annual ROI of 6.1%. Company
number 3 is 6.5% and Company number 5 is 5.7%.
Company 3 = 6.5
IP = 6.1
Company 5 = 5.7
[ ] 6.5 - 5.7 = .8
[ ] 6.1 - 5.7 = .4
[ ] .4 / .8 = 50%
[ ] 50% x (100-174)* = 37% *From award scale
[ ] 37% + 100% = 137% x 75% = 102.75% of target
TSR: IP ranks 3 of 9 with a TSR appreciation of 39% over the base
period.
Company number 2 earned 40% and Company number 4 earned 25%.
[ ] 40% - 25% = 15%
[ ] 39% - 25% = 14%
[ ] 14% / 15% = 93%
[ ] 93% x (101-174)* = 67.89% *From award scale
[ ] 67.89% + 100% = 167.89% x 25% = 41.97%
Combined Performance:
ROI = 102.75%
TSR = +41.97%
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144.72%
Award Calculation:
Target Performance Shares 3,000
Plus Dividend Equivalents 150
Total Performance Shares 3150
Times Award Percentage 144.72%
Total Award 4,558 Shares