PARENT STOCK OPTION AGREEMENT
This PARENT STOCK OPTION AGREEMENT dated as of February 17, 2000 is
by and between Champion International Corporation, a New York corporation
("Grantee"), and UPM-Kymmene Corporation, a corporation organized under the
laws of the Republic of Finland ("Company").
RECITALS
WHEREAS, Grantee, the Company and Blue Acquisition, Inc. ("Merger
Sub") propose to enter into an Agreement and Plan of Merger, dated as of
the date hereof (the "Merger Agreement"), providing for, among other
things, a merger (the "Merger") of Merger Sub with and into Grantee; and
WHEREAS, as a condition and inducement to Grantee's willingness to
enter into the Merger Agreement, Grantee has requested that the Company
agree, and the Company has agreed, to grant Grantee the Option (as defined
below).
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein and in the Merger Agreement, the Company and Grantee agree, subject
to Section 7, as follows:
1. Capitalized Terms. Certain capitalized terms used in this
Agreement are defined in Annex A hereto and are used herein with the
meanings therein ascribed. Those capitalized terms used but not defined
herein (including in Annex A hereto) that are defined in the Merger
Agreement are used herein with the same meanings as ascribed to them
therein; provided, however, that, as used in this Agreement, "Person" shall
have the meaning specified in Sections 3(a)(9) and 13(d)(3) of the Exchange
Act.
2. The Option.
(a) Grant of Option. Subject to the terms and conditions set
forth herein, the Company hereby grants to Grantee an irrevocable option
(the "Option") to purchase up to 66,334,802 ordinary shares (as adjusted as
set forth herein) (the "Option Shares") with no nominal value (the
"Shares") of the Company (being 19.9% of the number of shares outstanding
on February 14, 2000 before such issuance), at a purchase price per share
equal to the Exercise Price (as defined below).
(b) Exercise Price. The exercise price, as adjusted as set forth
herein (the "Exercise Price"), of the Option shall be Eur33.90 per Option
Share.
(c) Term. The Option shall be exercisable at any time and from
time to time following the occurrence of an Exercise Event and shall remain
in full force and effect until the earliest to occur of (i) the Effective
Time, (ii) six months after the first occurrence of an Exercise Event (or
if, at the expiration of such six months after the first occurrence of an
Exercise Event, the Option cannot be exercised by reason of any applicable
Order, Law or Regulation, 10 Business Days after such impediment to
exercise shall have been removed, but in no event under this clause (ii)
later than the first anniversary of the Exercise Event), (iii) termination
of the Merger Agreement in accordance with its terms other than a
termination with respect to which an Exercise Event shall occur and (iv)
the date on which Grantee shall have received the Profit Cap pursuant to
Section 5 (the "Option Term"). If the Option is not theretofore exercised,
the rights and obligations set forth in this Agreement shall terminate at
the expiration of the Option Term. "Exercise Event" shall mean (A) any of
the events giving rise to the obligation of the Company to pay the
Termination Fee under Section 9.3 of the Merger Agreement; (B) termination
of the Merger Agreement by Grantee under Section 9.1(c)(iii) and
(C) termination of the Merger Agreement under Section 9.1(d)(iii) and a
Takeover Proposal has been made and publicly announced or communicated to
the Company's shareholders after the date of this Agreement and prior to
the Parent's Shareholders Meeting.
(d) Exercise of Option.
(i) Grantee may exercise the Option, in whole or in part, at any
time and from time to time following the occurrence of an Exercise Event
during the Option Term. Notwithstanding the expiration of the Option Term,
Grantee shall be entitled to purchase those Option Shares with respect to
which it has exercised the Option in accordance with the terms hereof prior
to the expiration of the Option Term.
(ii) If Grantee wishes to exercise the Option, it shall send a
written notice (an "Exercise Notice") (the date of which being herein
referred to as the "Notice Date") to the Company specifying (i) the total
number of Option Shares it intends to purchase pursuant to such exercise
and (ii) a date (the "Closing Date") not earlier than three Business Days
nor later than 15 Business Days from the Notice Date for the closing of the
purchase and sale pursuant to the Option (the "Closing"); provided that
such closing shall be held only if (A) such purchase would not otherwise
violate or cause the violation of applicable Law (including the Hart-Scott-
Rodino Antitrust Improvements Act of 1976), (B) no Law or Regulation shall
have been adopted or promulgated, and no Order shall be in effect, which
prohibits delivery of such Option Shares (and the parties shall use their
reasonable best efforts to have any such Order vacated or reversed), and
(C) any prior notification to or approval of any other regulatory authority
in the United States or elsewhere required in connection with such purchase
shall have been made or obtained, other than those which if not made or
obtained would not reasonably be expected to result in a significant
detriment to the Company and its Subsidiaries taken as a whole.
(iii) If the Closing cannot be effected by reason of a
restriction set forth in Clause (A), (B) or (C) of the proviso in Section
2(d)(ii), the Closing Date shall be extended to the tenth Business Day
following the expiration or termination of such restriction. Without
limiting the foregoing, if prior notification to, or Authorization of, any
Governmental Entity is required in connection with the purchase of such
Option Shares by virtue of the application of such Law, Regulation or
Order, Grantee and, if applicable, the Company shall promptly file the
required notice or application for Authorization and Grantee, with the
cooperation of the Company, shall expeditiously process the same.
(iv) Notwithstanding Section 2(d)(iii), if the Closing Date shall
not have occurred within twelve months after the first occurrence of an
Exercise Event as a result of one or more restrictions imposed by the
application of any Law, Regulation or Order, the exercise of the Option
effected on the Notice Date shall be deemed to have expired.
(e) Payment and Delivery of Shares.
(i) On each Closing Date, Grantee shall pay to the Company in
immediately available funds by wire transfer to a bank account designated
by the Company an amount equal to the Exercise Price multiplied by the
number of Option Shares to be purchased on such Closing Date.
(ii) On each Closing Date, simultaneously with the delivery of
immediately available funds as provided above, the Company shall deliver to
Grantee, in Grantee's book-entry account in the Finnish Book-Entry
Securities System, such number of Shares representing the Option Shares to
be purchased at such Closing, which Option Shares shall be duly authorized,
validly issued, fully paid and nonassessable and free and clear of all
Liens, and Grantee shall deliver to the Company its written agreement that
Grantee will not offer to sell or otherwise dispose of such Option Shares
in violation of applicable Law or the provisions of this Agreement.
(f) If at the time of issuance of any Shares pursuant to any
exercise of the Option, the Company shall have issued any share purchase
rights or similar securities to holders of Shares, then each Option Share
purchased pursuant to the Option shall also include rights with terms
substantially the same as and at least as favorable to Grantee as those
issued to other holders of Shares.
3. Adjustment Upon Changes in Capitalization, Etc.
(a) In the event of any change in the Shares by reason of stock
dividend, stock split, split-up, combination, reclassification,
recapitalization, exchange of shares, dividend, dividend payable in any
other securities or similar event, the type and number of Shares or
securities subject to the Option, and the Exercise Price therefor, shall be
adjusted appropriately, and proper provision shall be made in the
agreements governing such transaction, so that Grantee shall receive upon
exercise of the Option the same class and number of outstanding shares or
other securities or property that Grantee would have received in respect of
the Shares if the Option had been exercised immediately prior to such
event, or the record date therefor, as applicable.
(b) If any additional Shares are issued after the date of this
Agreement (other than pursuant to an event described in Section 3(a) above
and other than as permitted by the Merger Agreement), the number of Shares
then remaining subject to the Option shall be adjusted so that, after such
issuance of additional Shares, such number of Shares then remaining subject
to the Option, together with shares theretofore issued pursuant to the
Option and the Parent Treasury Option, equals 19.9% of the number of Shares
then issued and outstanding. In no event shall the number of Option Shares
plus the number of Shares purchased pursuant to the Parent Treasury Option
exceed 19.9% of the number of Shares issued and outstanding at the time of
exercise (without giving effect to the issuance of any Shares subject to or
issued pursuant to the Option or the Parent Treasury Option).
(c) To the extent any of the provisions of this Agreement apply to
the Exercise Price, they shall be deemed to refer to the Exercise Price as
adjusted pursuant to this Section 3.
(d) Without limiting the foregoing, whenever the number of Option
Shares purchasable upon exercise of the Option is adjusted as provided in
this Section 3, the Exercise Price per Option Share shall be adjusted by
multiplying the Exercise Price by a fraction, the numerator of which is
equal to the number of Option Shares purchasable prior to the adjustment
and the denominator of which is equal to the number of Option Shares
purchasable after the adjustment.
(e) Without limiting the parties' relative rights and obligations
under the Merger Agreement, in the event that the Company enters into an
agreement (i) to consolidate with or merge into any person, other than
Grantee or one of its Subsidiaries, and the Company will not be the
continuing or surviving corporation in such consolidation or merger, (ii)
to permit any Person, other than Grantee or one of its Subsidiaries, to
merge into the Company and the Company will be the continuing or surviving
corporation, but in connection with such merger, the ordinary shares of the
Company outstanding immediately prior to the consummation of such merger
will be changed into or exchanged for ordinary shares or other securities
of the Company or any other Person or cash or any other property, or (iii)
to sell or otherwise transfer all or substantially all of its assets to any
Person, other than Grantee or one of its Subsidiaries, then, and in each
such case, the agreement governing such transaction will make proper
provision so that the Option will, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be
converted into, or exchanged for, an option with identical terms
appropriately adjusted to acquire the number and class of shares or other
securities or property that Grantee would have received in respect of
Option Shares had the Option been exercised immediately prior to such
consolidation, merger, sale or transfer or the record date therefor, as
applicable. The Company shall take such steps in connection with such
consolidation, merger, liquidation or other such transaction as may be
reasonably necessary to assure that the provisions hereof shall thereafter
apply as nearly as possible to any securities or property thereafter
deliverable upon exercise of the Option.
4. Purchase Not For Distribution. Grantee hereby represents and
warrants to the Company that any Option Shares or other securities acquired
by Grantee upon exercise of the Option will not be taken with a view to the
public distribution thereof and will not be transferred or otherwise
disposed of except in a transaction registered or exempt from registration
under the Securities Act.
5. Profit Limitation.
(a) Notwithstanding any other provision of this Agreement in no
event shall Grantee's Total Profit exceed the Profit Cap and, if it
otherwise would exceed such amount, Grantee, at its sole election, shall
either (i) pay cash or other consideration to the Company, (ii) reduce the
number of Shares subject to the Option or (iii) undertake any combination
thereof, so that Grantee's Total Profit shall not exceed the Profit Cap
after taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this
Stock Option may not be exercised for a number of Option Shares that would,
as of any Notice Date, result in a Notional Total Profit of more than the
Profit Cap, and, if exercise of the Option otherwise would exceed the
Profit Cap, Grantee, at its sole option, may (in addition to the actions
specified in Section 5(a)) (i) reduce the number of Option Shares subject
to the Option or (ii) increase the Exercise Price for that number of Option
Shares set forth in the Exercise Notice so that the Notional Total Profit
shall not exceed the Profit Cap; provided, however, that nothing in this
sentence shall restrict any exercise of the Option otherwise permitted by
this Section 5(b) on any subsequent date at the Exercise Price set forth in
Section 2(b) if such exercise would not then be restricted under this
Section 5(b).
(c) Notwithstanding any other provision of this Agreement, nothing
in this Agreement shall affect the ability of Grantee to receive, nor
relieve the Company's obligation to pay, any Termination Fee provided for
in Section 9.3 of the Merger Agreement; provided that if and to the extent
the Total Profit received by Grantee would exceed the Profit Cap following
receipt of such payment, Grantee shall be obligated to promptly comply with
the terms of Section 5(a).
(d) For purposes of Section 5(a) and clause (ii) of the definition
of Total Profit, the value of any Option Shares delivered by Grantee to the
Company shall be the Applicable Price of such Option Shares.
6. Additional Covenants of the Company.
(a) If the Shares or any other securities then subject to the
Option are then listed on the HSE, the Company, upon the occurrence of an
Exercise Event, will promptly file an application to list on the HSE the
Shares or other securities then subject to the Option, following the
issuance thereof and will use all reasonable efforts to cause such listing
application to be approved as promptly as practicable.
(b) The Company will use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
permit the exercise of the Option in accordance with the terms and
conditions hereof, as soon as practicable after the date hereof, including
making any appropriate filing pursuant to the HSR Act and any other
applicable law, supplying as promptly as practicable any additional
information and documentary material that may be requested pursuant to the
HSR Act and any other applicable law, and taking all other actions
necessary to cause the expiration or termination of the applicable waiting
periods under the HSR Act as soon as practicable.
(c) The Company agrees not to avoid or seek to avoid (whether by
charter amendment or through reorganization, consolidation, merger,
issuance of rights, dissolution or sale of assets, or by any other
voluntary act) the observance or performance of any of the covenants,
agreements or conditions to be observed or performed hereunder by it.
(d) Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, the Company will execute and deliver a new
Agreement of like tenor and date.
7. Shareholder Approval; Enforceability. Notwithstanding
anything to the contrary, this Agreement, the performance of the
obligations and covenants of the Company contained herein and Grantee's
rights under Section 2(d) hereof, are subject in their entirety to the
Company obtaining the required approval of its shareholders. In the event
of a failure to obtain such approval in the meeting of the Company's
shareholders where such approval is first sought, this Agreement shall
forthwith become void and there shall be no liability hereunder on the part
of the Company or Grantee. Subject to complying with its fiduciary duties,
as set forth in Section 6.5(b) of the Merger Agreement, the Company's Board
of Directors shall recommend the approval and adoption by its shareholders
of this Agreement.
8. Miscellaneous.
(a) Expenses. Except as otherwise provided in the Merger
Agreement or as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its
behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may be
waived at any time by the party that is entitled to the benefits of such
provision. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.
(c) Entire Agreement; No Third Party Beneficiary. Except as
otherwise set forth in the Merger Agreement, this Agreement (including the
Merger Agreement and the other documents and instruments referred to herein
and therein) (i) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereof and (ii) is not intended to
confer upon any Person other than the parties hereto any rights or remedies
hereunder.
(d) Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic
or legal substance of the transactions contemplated hereby is not affected
in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that transactions contemplated
hereby are fulfilled to the extent possible.
(e) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the Laws of the State of New York, regardless
of the Laws that might otherwise govern under applicable principles of
conflicts of law.
(f) Descriptive Headings. The descriptive headings contained
herein are for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement.
(g) Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(with confirmation) or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses or sent by
electronic transmission to the telecopier number specified below:
If to Grantee to:
Champion International Corporation
One Champion Plaza
Stamford, Connecticut 06921
Telecopy: (203) 358-6562
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Telecopy: (212) 735-2000
Attention: Blaine V. Fogg, Esq.
Joseph A. Coco, Esq.
If to the Company to:
UPM-Kymmene Corporation
Etelaesplanadi 2
P.O. Box 380
FIN-00101 Helsinki
Telecopy: 011-358-204-150-304
Attention: Reko Aalto-Setala
with a copy to:
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
Telecopy: (212) 354-8113
Attention: Timothy B. Goodell, Esq.
(h) Counterparts. This Agreement and any amendments hereto may
be executed in counterparts, each of which shall be deemed an original and
all of which taken together shall constitute but a single document.
(i) Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder or under the Option shall be sold,
assigned or otherwise disposed of or transferred by either of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other party, except that Grantee may assign this Agreement
to a wholly owned Subsidiary of Grantee; provided, however, that no such
assignment shall have the effect of releasing Grantee from its obligations
hereunder. Subject to the preceding sentence, this Agreement shall be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
(j) Further Assurances. In the event of any exercise of the
Option by Grantee, the Company and Grantee shall execute and deliver all
other documents and instruments and take all other action that may be
reasonably necessary in order to consummate the transactions provided for
by such exercise.
(k) Specific Performance. The parties hereto hereby acknowledge
and agree that the failure of any party to this Agreement to perform its
agreements and covenants hereunder will cause irreparable injury to the
other party to this Agreement for which damages, even if available, will
not be an adequate remedy. Accordingly, each of the parties hereto hereby
consents to the granting of equitable relief (including specific
performance and injunctive relief) by any court of competent jurisdiction
to enforce any party's obligations hereunder. The parties further agree to
waive any requirement for the securing or posting of any bond in connection
with the obtaining of any such equitable relief and that this provision is
without prejudice to any other rights that the parties hereto may have for
any failure to perform this Agreement.
IN WITNESS WHEREOF, the Company and Grantee have caused this
Parent Stock Option Agreement to be signed by their respective officers
thereunto duly authorized, all as of the day and year first written above.
CHAMPION INTERNATIONAL CORPORATION
By: /s/ Richard E. Olson
-------------------------------------------
Name: Richard E. Olson
Title: Chairman and Chief Executive Officer
UPM-KYMMENE CORPORATION
By: /s/ Juha Niemela
-------------------------------------------
Name: Juha Niemela
Title: President and Chief Executive Officer
By: /s/ Reko Aalto-Setala
-------------------------------------------
Name: Reko Aalto-Setala
Title: General Counsel
SCHEDULE OF DEFINED TERMS
The following terms when used in the Parent Stock Option
Agreement shall have the meanings set forth below unless the context shall
otherwise require:
"Agreement" shall mean this Parent Stock Option Agreement.
"Applicable Price", as of any date, means the highest of (i) the
highest purchase price per Share paid or proposed to be paid by any third
Person for Shares pursuant to any Takeover Proposal for or with the Company
made on or prior to such date, and (ii) the Current Market Price. If the
consideration to be offered, paid or received pursuant to the foregoing
clause (i) shall be other than in cash, the value of such consideration
shall be determined in good faith by an independent nationally recognized
investment banking firm jointly selected by Grantee and the Company.
"Authorization" shall mean any and all permits, licenses,
authorizations, orders certificates, registrations or other approvals
granted by any Governmental Entity.
"Beneficial Ownership," "Beneficial Owner" and "Beneficially Own"
shall have the meanings ascribed to them in Rule 13d-3 under the Exchange
Act.
"Business Day" shall mean a day other than Saturday, Sunday or a
federal holiday in the United States or in Finland.
"Closing" shall have the meaning ascribed to such term in Section
2 herein.
"Closing Date" shall have the meaning ascribed to such term in
Section 2 herein.
"Current Market Price" shall mean, as of any date, the average of
the closing prices (or, if such securities should not trade on any trading
day, the average of the bid and asked prices therefor on such day) of the
Shares as reported on the HSE during the ten consecutive trading days
ending on (and including) the trading day immediately prior to such date
or, if the Shares are not quoted thereon, on the principal trading market
(as defined in Regulation M under the Exchange Act) on which such shares
are traded as reported by a recognized source during such ten trading day
period.
"Exercise Event" shall have the meaning ascribed to such term in
Section 2(c).
"Exercise Notice" shall have the meaning ascribed to such term in
Section 2(d) herein.
"Exercise Price" shall have the meaning ascribed to such term in
Section 2 herein.
"Governmental Entity" shall mean any federal, state or foreign
governmental or regulatory agency, body or authority.
"Law" shall mean all laws, statutes and ordinances of the United
States, any state of the United States, any foreign country, any foreign
state and any political subdivision thereof, including all decisions of
Governmental Entities having the effect of law in each such jurisdiction.
"Lien" shall mean any mortgage, pledge, security interest,
adverse claim, encumbrance, lien or charge of any kind (including any
agreement to give any of the foregoing), any conditional sale or other
title retention agreement, any lease in the nature thereof or the filing of
or agreement to give financing statement under the Laws of any
jurisdiction.
"Notice Date" shall have the meaning ascribed to such term in
Section 2 herein.
"Notional Total Profit" shall mean, with respect to any number of
Option Shares as to which Grantee may propose to exercise the Option, the
Total Profit determined as of the date of the Exercise Notice assuming that
the Option were exercised on such date for such number of Option Shares and
assuming that such Option Shares, together with all other Option Shares
previously acquired upon exercise of the Option and held by Grantee as of
such date, were sold for cash at the closing market price per Share as of
the close of business on the preceding trading day (less customary
brokerage commissions).
"Option" shall have the meaning ascribed to such term in Section
2 herein.
"Option Shares" shall have the meaning ascribed to such term in
Section 2 herein.
"Option Term" shall have the meaning ascribed to such term in
Section 2 herein.
"Parent Treasury Option" shall mean Grantee's option to purchase
Shares pursuant to the Parent Treasury Stock Option Agreement.
"Parent Treasury Stock Option Agreement" shall mean the Parent
Treasury Stock Option Agreement dated as of February 17, 2000, between
Grantee and the Company.
"Order" shall mean any judgment, order or decree of any
Governmental Entity.
"Profit Cap" shall mean $210 million.
"Regulation" shall mean any rule or regulation of any
Governmental Entity having the effect of Law or of any rule or regulation
of any self-regulatory organization, such as the NYSE and the HSE.
"Total Profit" shall mean (i) the aggregate amount (before income
taxes) of (A) any excess of (x) the net cash amounts plus the fair market
value of any other consideration (net of expenses incurred) received by
Grantee pursuant to a sale of the Option Shares (or securities into which
such shares are converted or exchanged) over (y) Grantee's aggregate
purchase price for such Option Shares (or other securities) plus (B) any
amounts received by Grantee from the Company or concurrently being paid to
Grantee pursuant to Section 9.3 of the Merger Agreement minus (ii) the
amounts of any cash previously paid by Grantee to the Company pursuant to
Section 5 of this Agreement.
"Unexercised Option Shares" shall mean, from and after the
Exercise Date until the expiration of the Option Term, those Option Shares
as to which the Option remains unexercised from time to time.