Exhibit 10.3

 

FORM OF CHANGE OF CONTROL AGREEMENT -TIER I

 

Mr./Ms. [Full Name]

International Paper Company

[TITLE]

[ADDRESS]

 

Dear [First Name]:

 

International Paper Company (the “Company”) considers the establishment and
maintenance of a sound and vital management to be essential to protecting and
enhancing the best interests of the Company and its shareholders. In this
connection, the Company recognizes that, as is the case with many publicly held
corporations, the possibility of a change of control may exist and that such
possibility, and the uncertainty and questions which it may raise among senior
management, may result in the departure or distraction of senior management
personnel to the detriment of the Company and its shareholders. Accordingly, the
Company’s Board of Directors has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company’s senior management, including yourself, to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change of control of the
Company.

 

In order to induce you to remain in the employ of the Company, and to continue
to exercise your special skills and knowledge at the Company, this letter
agreement (this “Agreement”) sets forth the benefits which the Company agrees
will be provided to you in the event your employment with the Company is
terminated subsequent to a Change of Control (as defined in Section 2) under the
circumstances described below.

 

1. TERM

 

This Agreement shall commence on the date hereof and, unless there is a Change
of Control, shall continue until the earliest of (a) your termination of
employment as a “full-time employee” of the Company, (b) the date when you
attain the age of 65 years or (c) the date when this Agreement is terminated by
the Company in accordance with the next sentence. If a Change of Control has not
occurred, then the Company shall have the right at any time to terminate this
Agreement by giving you 6 months prior written notice of termination of this
Agreement.

 

If a Change of Control occurs at any time prior to the termination of this
Agreement pursuant to the preceding paragraph, then this Agreement shall
terminate on the second anniversary of such Change of Control.

 

2. CHANGE OF CONTROL

 

(a) For purposes of this Agreement, a “Change of Control” shall be deemed to
have occurred if:

 

(i) any “person” (as such term is used in Section 13(d) of the Securities
Exchange Act of 1934, as amended, other than employee benefit plans sponsored by
the Company) is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power
of the Company’s then outstanding securities;

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(ii) during any period of 2 consecutive years, individuals who at the beginning
of such period constitute the Board of Directors of the Company (the “Board”)
cease for any reason to constitute at least a majority thereof, unless the
election, or the nomination for election, by the Company’s shareholders of each
new director was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who were directors at the beginning of the
period;

 

(iii) a reorganization, merger or consolidation of the Company is consummated,
in each case, unless, immediately following such reorganization, merger or
consolidation, (x) more than 50% of the then outstanding shares of common stock
of the corporation resulting from such reorganization, merger or consolidation
and the combined voting power of the then outstanding securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
persons who were the beneficial owners of the Company’s securities outstanding
immediately prior to such reorganization, merger or consolidation, (y) no person
(other than employee benefit plans sponsored by the Company) beneficially owns,
directly or indirectly, 20% or more of the then outstanding shares of common
stock of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding securities of
such corporation entitled to vote generally in the election of directors and (z)
at least a majority of the members of the board of directors of the corporation
resulting from such reorganization, merger or consolidation were members of the
Board at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation;

 

(iv) the sale or other disposition of all or substantially all of the assets of
the Company is consummated, other than to any corporation with respect to which,
immediately following such sale or other disposition, (x) more than 50% of the
then outstanding shares of common stock of such corporation and the combined
voting power of the then outstanding securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the persons who were the
beneficial owners of the Company’s securities outstanding immediately prior to
such sale or other disposition, (y) no person (other than employee benefit plans
sponsored by the Company) beneficially owns, directly or indirectly, 20% or more
of the then outstanding shares of common stock of such corporation or the
combined voting power of the then outstanding securities of such corporation
entitled to vote generally in the election of directors and (z) at

 

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least a majority of the members of the board of directors of such corporation
were members of the Board at the time of the execution of the initial agreement
or action of the Board providing for such sale or other disposition; or

 

(v) the shareholders of the Company approve a complete liquidation or
dissolution of the Company;

 

provided that a “Change of Control”, as it affects any award specified in the
International Paper Company Long-Term Incentive Compensation Plan in effect
immediately prior to a Change of Control (the “LTICP”), shall have the meaning
for a “Change of Control of the Company” set forth in such plan and, as it
affects any benefits pursuant to the International Paper Company Unfunded
Supplemental Retirement Plan for Senior Managers in effect immediately prior to
a Change of Control (the “SERP”), shall have the meaning for a “Change of
Control” set forth in the SERP.

 

(b) Provided that you remain in the employment of the Company as of the date
immediately preceding a Change of Control, then upon the occurrence of such
Change of Control:

 

(i) each stock option to purchase shares of the common stock of the Company (or
such other securities of the Company that may be substituted for such stock of
the Company) granted to you by the Company under any plan, arrangement or
agreement before or after the date hereof (but prior to the Change of Control),
including the LTICP, and then held by you shall become fully (100%) vested and
exercisable;

 

(ii) any and all forfeiture provisions, transfer restrictions and any other
restrictions applicable to each award of restricted stock of the Company (or
such other securities of the Company that may be substituted for such stock of
the Company) granted to you by the Company under any plan, arrangement or
agreement before or after the date hereof (but prior to the Change of Control),
including the LTICP, and then held by you shall immediately lapse in their
entirety;

 

(iii) the performance goals applicable to any performance-based awards granted
to you by the Company under any plan, arrangement or agreement (other than any
short-term annual incentive plan) before or after the date hereof (but prior to
the Change of Control), including the LTICP, and then held by you will be deemed
to have been fully satisfied (i.e., achieved at 100% of target, or, if
determinable, achieved at the actual level) and all forfeiture provisions,
transfer restrictions and any other restrictions applicable to any such
performance-based awards shall immediately lapse in their entirety and all such
awards shall be fully and immediately payable; and

 

(iv) each executive continuity award and each other long-term award granted to
you by the Company under any plan, arrangement or agreement

 

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before or after the date hereof (but prior to the Change of Control), including
the LTICP, and then held by you shall become fully (100%) vested and, if
applicable, exercisable.

 

3. TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL

 

If a Change of Control occurs, you shall be entitled to the benefits provided in
Section 5 upon the subsequent termination of your employment during the term of
this Agreement, unless such termination is (x) because of your death, Disability
(as defined below) or Retirement (as defined below), (y) by the Company for
Cause (as defined below) or (z) by you, other than for Good Reason (as defined
below).

 

(a) Disability; Retirement. If, as a result of your incapacity due to physical
or mental illness, you shall have been absent from the full-time performance of
your duties with the Company for 6 consecutive months, and within 30 days after
written notice of termination is given you shall not have returned to the
full-time performance of your duties, the Company may terminate your employment
for “Disability”. Termination based on “Retirement” shall mean voluntary
termination other than for Good Reason after your becoming eligible for “normal
retirement” under the Company’s pension plan in effect immediately prior to a
Change of Control.

 

(b) Cause. Termination by the Company of your employment for “Cause” shall mean
termination upon:

 

(i) the willful and continued failure by you substantially to perform your
duties with the Company (other than any such failure resulting from your
incapacity due to physical or mental illness or any such actual or anticipated
failure resulting from termination by you for Good Reason) after a written
demand for substantial performance is delivered to you by the Board, which
demand specifically identifies the manner in which the Board believes that you
have not substantially performed your duties; or

 

(ii) the willful engaging by you in conduct which is demonstrably and materially
injurious to the Company, monetarily or otherwise.

 

For purposes of this Section 3(b), no act, or failure to act, on your part shall
be deemed “willful” unless done, or omitted to be done, by you not in good faith
and without reasonable belief that your action or omission was in the best
interest of the Company.

 

Notwithstanding the foregoing, you shall not be deemed to have been terminated
for Cause unless and until there shall have been delivered to you a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
(3/4) of the entire membership of the Board at a meeting of the Board called and
held for such purpose (after reasonable notice to you and an opportunity for
you, together with your counsel, to be heard before the Board), finding that in
the good faith opinion of the Board you were guilty of conduct set forth above
in Sections 3(b)(i) or 3(b)(ii) and specifying the particulars thereof in
detail.

 

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(c) Good Reason. You shall be entitled to terminate your employment for Good
Reason. For purposes of this Agreement, “Good Reason” shall mean, without your
express written consent, any of the following:

 

(i) the assignment to you of any duties with the Company (or with a successor or
affiliated company) inconsistent with your status as an executive, or a
substantial adverse alteration in the nature or status of your responsibilities,
from those in effect immediately prior to a Change of Control;

 

(ii) a reduction in your annual base salary as in effect on the date hereof or
as the same may be increased from time to time (except for across-the-board
salary reductions similarly affecting all executives of the Company and all
executives of any person in control of the Company);

 

(iii) the failure by the Company to continue in effect any material compensation
plan in which you participate (including but not limited to the Company’s
performance share plan, stock option plan and management incentive plan, each as
in effect immediately prior to a Change of Control) or any substitute plans
adopted prior to the Change of Control, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan in connection with the Change of Control, or the failure by
the Company to continue your participation therein on substantially the same
basis, both in terms of the amount of benefits provided and the level of your
participation relative to other participants, as existed immediately prior to
the Change of Control;

 

(iv) except for across-the-board reductions similarly affecting all executives
of the Company and all executives of any person in control of the Company: (A)
the failure by the Company to continue to provide you with benefits
substantially similar to those enjoyed by you under any of the Company’s
pension, life insurance, medical, health and accident or disability plans in
which you were participating at the time of a Change of Control, (B) the taking
of any action by the Company which would directly or indirectly materially
reduce any of such benefits or deprive you of any material fringe benefit
enjoyed by you at the time of the Change of Control or (C) the failure by the
Company to provide you with the number of paid vacation days to which you are
entitled on the basis of years of service with the Company in accordance with
the Company’s normal vacation policy in effect immediately prior to the Change
of Control;

 

(v) the failure of the Company to obtain a satisfactory agreement from any
successor to assume and agree to perform this Agreement;

 

(vi) any purported termination of your employment which is not effected pursuant
to a Notice of Termination satisfying the requirements of Section 3(d) (and, if
applicable, the requirements of Section 3(b)); for purposes of this Agreement,
no such purported termination shall be an effective termination by the Company;
or

 

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(vii) the Company’s requiring you to be based at a new place of work more than
50 miles from your place of work immediately prior to the Change of Control,
except for required travel on the Company’s business to an extent substantially
consistent with your present business travel obligations.

 

Your right to terminate your employment pursuant to this Section 3(c) shall not
be affected by your incapacity due to physical or mental illness.

 

(d) Notice of Termination. Any termination of your employment by the Company or
by you shall be communicated by written Notice of Termination to the other party
hereto in accordance with Section 7. For purposes of this Agreement, a “Notice
of Termination” shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated, and shall
specify a date for termination of employment (“Date of Termination”) which shall
not be less than 30 days or more than 60 days after the date of delivery of the
Notice of Termination.

 

4. DEATH, DISABILITY OR ELIGIBILITY FOR NORMAL RETIREMENT

 

This Agreement shall not be applicable in the event of termination of your
employment because of your death, Disability or Retirement.

 

5. COMPENSATION UPON TERMINATION

 

If a Change of Control occurs and your employment is subsequently terminated
during the term of this Agreement under the circumstances described in Section 3
(other than for Cause) which entitle you to benefits under this Agreement, then:

 

(a) The Company will continue to provide medical and dental insurance coverage
to you and your dependents at Company expense which is comparable in benefits,
deductibles, co-payments and other terms, to the coverage which you had (i)
immediately prior to the Change of Control or (ii) as of the Date of
Termination, whichever is better in your sole discretion, and this coverage will
continue until the earlier of (A) the third anniversary of the Date of
Termination and (B) such time as you become eligible to join a comparable plan
sponsored by another employer.

 

(b) Provided that you are eligible to participate in the Company’s Retiree
Medical Plan as of the Date of Termination, after the cessation of benefits
described in Section 5(a) above, the Company will provide retiree medical
coverage for you and your dependents which is comparable in benefits and in
participant contributions, deductibles, co-payments and other terms to the
coverage provided by the Company’s retiree medical plan in effect (i)
immediately prior to the Change of Control or (ii) as of the Date of
Termination, whichever is better in your sole discretion (with a coordination of
benefits clause comparable to the clause used in connection with the relevant
retiree medical plan).

 

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(c) The Company shall pay to you the following amounts in one lump-sum payment
in cash within 30 days of the Date of Termination:

 

(i) your full base salary through the Date of Termination, at the rate in effect
at the time Notice of Termination is given, plus an amount in cash equal to the
value of any vacation earned but not taken (based upon such rate of base
salary);

 

(ii) to the extent not paid, your full prior-year short-term annual incentive
compensation (in the amount determined prior to the Date of Termination, or if
such amount has not been determined as of the Date of Termination, an amount not
less than the higher of (x) your actual short-term annual incentive compensation
amount for the year before such prior-year or (y) your target short-term annual
incentive compensation amount for such prior-year);

 

(iii) your short-term annual incentive compensation for the year in which the
Date of Termination occurs, as if the performance goals applicable to such
amount have been fully satisfied (i.e., achieved at 100% of target, or, if
determinable, achieved at the actual level); provided that such compensation
will be prorated to reflect the number of days that have elapsed as of the Date
of Termination since the beginning of such year; plus

 

(iv) a termination payment equal to the sum of:

 

(A) the product of “3” times a “Base Amount” consisting of the sum of (I) your
annualized base salary as of the Date of Termination and (II) your target
short-term annual incentive compensation amount for the year in which the Date
of Termination occurs; provided that Base Amount shall exclude any compensation
under long-term incentive compensation plans, performance share plans, stock
option plans or executive continuity awards; plus

 

(B) in the event it shall be determined that any compensation by or benefit from
the Company to you or for your benefit, whether pursuant to the terms of this
Agreement or otherwise (collectively, the “Payment”), would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the “Code”), or any similar provision or any interest or penalties with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the “Excise Tax”), an
additional lump-sum payment (a “Gross-Up Payment”) in an amount determined by an
accounting firm selected by the Company prior to the Change of Control such that
after payment by you of all taxes (including any interest or penalties imposed
with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up
Payment, you retain an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payment; provided, however, that if the aggregate value of the
Payment is less than 115% of the product of “3” times your “base amount” (as
defined in Section 280G(b)(3) of the Code) (such product, the “Golden Parachute
Threshold”), then you shall not be entitled to any Gross-Up Payment and,
instead, the Payment shall be reduced to an amount equal to $1.00 less than the
Golden Parachute Threshold;

 

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provided that such lump-sum payment under this Section 5(c) shall be deposited
in a “rabbi trust” upon the execution of any merger, stock purchase, asset
purchase or similar agreement that, upon the consummation of the transactions
contemplated thereunder, would result in a Change of Control.

 

(d) You shall be entitled to receive the highest, as determined by an accounting
firm selected by the Company prior to the Change of Control, of:

 

(i) your benefits pursuant to the SERP, as if there had been a Change of
Control;

 

(ii) your benefits pursuant to the SERP, as if there had not been a Change of
Control and as if you were credited with 3 years of additional age and 3 years
of additional service; or

 

(iii) your benefits pursuant to the Retirement Plan of International Paper
Company in effect immediately prior to the Change of Control, as if you were
credited with 3 years of additional age and 3 years of additional service.

 

You shall be entitled to receive the benefits under this Section 5(d) as a
lump-sum payment within 30 days of the Date of Termination and you shall not be
required to receive any consent or other approval from the Company to receive
such benefits.

 

You shall not be required to mitigate the amount of any payment provided for in
this Section 5 (by seeking other employment or otherwise), nor shall the amount
of any payment provided for in this Section 5 be reduced by any compensation
earned by you as a result of employment by another employer after the Date of
Termination.

 

The compensation set forth above shall be in lieu of any severance or
termination payments which might otherwise be payable under any other severance
programs or policy or practice of the Company, other than those set out as part
of any of the Company’s long-term incentive plans, performance share plans,
stock option plans, executive continuity awards and retirement or supplemental
retirement plans.

 

In addition to the payments under this Agreement, you shall continue to be
eligible to receive all of your vested accrued benefits under employee pension
and welfare benefit plans sponsored by the Company.

 

Notwithstanding anything else in this Agreement to the contrary, no amount
payable under this Agreement shall be paid earlier than six months and one day
following the Date of Termination if such delay is necessary to avoid the
imposition on you of an additional tax under Section 409A of the Code, and no
continuing benefit shall be continued for any period beyond the period for which
such benefit can be provided without subjecting you to any additional tax under
Section 409A of the Code. To the extent that a benefit can not be provided to
you due to the immediately preceding

 

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sentence, the Company shall pay you the economic equivalent of the benefit that
can not be provided, in a single cash payment, as soon as practicable following
the earliest date at which such cash payment can be made without subjecting you
to an additional tax under Section 409A of the Code.

 

6. SUCCESSORS; BINDING AGREEMENT

 

(a) Successor Companies. The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to you, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. Failure by the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle you to
terminate your employment and to receive compensation from the Company in the
same amount and on the same terms as you would be entitled hereunder if you
terminated your employment for Good Reason, except that the date on which any
such succession becomes effective shall be deemed the Date of Termination. As
used in this Agreement, “Company” shall mean the Company hereinbefore defined
and any successor to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Section 6 or which otherwise becomes
bound by all terms and provisions of this Agreement by operation of law.

 

(b) Heirs; Representatives. This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amounts would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee, or, if there be no such designee, to your estate.

 

7. NOTICE

 

For the purposes of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States certified mail, return
receipt requested, postage prepaid, addressed to the respective addresses set
forth on the first page of this Agreement; provided that all notices to the
Company shall be directed to the attention of the Senior Vice President Human
Resources of the Company with a copy to the Secretary of the Company, or to such
address as either party may have furnished to the other in writing in accordance
herewith, except that notices of change of address shall be effective only upon
receipt.

 

8. MISCELLANEOUS

 

(a) Amendments, Entire Agreement, Etc. This Agreement constitutes the entire
agreement on this subject matter between the parties and supersedes any prior
oral or written agreements or understandings on the subject matter covered by
this

 

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Agreement, including, without limitation, the Change of Control Agreement
between the Company and you dated [DATE] and shall not be amended or modified
except by written agreement signed by both parties.

 

(b) Waiver. No significant provisions of this Agreement may be waived or
discharged, unless such waiver or discharge is in writing signed by the party
who is making the waiver or discharge. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of any similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. In the event that this Agreement
provides benefits upon termination of your employment which duplicate benefits
contained in any employment arrangement with you, such arrangement shall
automatically be amended in accordance with this Agreement so that your benefits
under this Agreement shall be sole and exclusive to the extent to which they are
duplicative.

 

(c) Withholding. Amounts paid to you hereunder shall be subject to all
applicable federal, state and local withholding taxes.

 

(d) Governing Law. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of New York.

 

9. VALIDITY

 

The invalidity or unenforceability of any provisions of this Agreement shall not
affect the validity or enforceability of any other provisions of this Agreement,
which shall remain in full force and effect.

 

10. ARBITRATION

 

Any dispute or controversy arising under or in connection with this Agreement
shall be settled exclusively by arbitration in Memphis, Tennessee, in accordance
with the rules of the American Arbitration Association then in effect.
Notwithstanding the pendency of any such dispute or controversy, the Company
will continue to pay you your base salary in effect when the notice giving rise
to the dispute was given, and will continue you as a participant in all
compensation, benefit and insurance plans in which you were participating when
the notice giving rise to the dispute was given, until the dispute is finally
resolved.

 

Judgment may be entered on the arbitrator’s award in any court having
jurisdiction; provided, however, that you shall be entitled to seek specific
performance of your right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.

 

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11. RELEASE.

 

You will be required to execute and deliver a valid and irrevocable release of
employment-related claims in the form provided by the Company in order to
receive any of your compensation or benefits pursuant to the terms of this
Agreement.

 

If this, letter correctly sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.

 

Sincerely, INTERNATIONAL PAPER COMPANY By:  

 

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    Jerome N. Carter     Senior Vice President- Human Resources

 

Agreed:

 

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[NAME] [TITLE]

 

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