UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
July 2, 2008
Date of Report (Date of earliest event reported)
KapStone Paper and Packaging Corporation
(Exact name of registrant as specified in its charter)
Delaware |
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000-51150 |
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20-2699372 |
(State or other jurisdiction
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(Commission
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(IRS Employer
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1101 Skokie Boulevard, Suite 300 Northbrook, Illinois |
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60062 |
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(Address of principal executive offices) |
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(Zip Code) |
(847) 239-8800
(Registrants telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 1.01 |
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Entry Into a Material Definitive Agreement |
On July 1, 2008, in connection with the closing (the Closing) of the acquisition of substantially all of the assets, and the assumption of certain liabilities, of the paper mill located in North Charleston, South Carolina (the Charleston Mill) and related business from MeadWestvaco South Carolina, LLC ( SC) and MeadWestvaco Corporation (MeadWestvaco), described in Item 2.01 below, KapStone Paper and Packaging Corporation (the Company) and its subsidiaries KapStone Kraft Paper Corporation (KapStone) and KapStone Charleston Kraft, LLC (KapStone Charleston), entered into the agreements described below.
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Long Term Fiber Supply Agreement
Pursuant to the Long Term Fiber Supply Agreement (Supply Agreement), KapStone Charleston will purchase from MeadWestvaco Forestry, LLC, on a take or pay basis, specified amounts of pine pulpwood and saw timber for a period of 15 years.
The foregoing description of the Supply Agreement does not purport to describe all of the terms of such agreement and is qualified in its entirety by reference to the full text of the Supply Agreement, a copy of which is attached to this Current Report on Form 8-K as Exhibit 10.10.
Note Purchase Agreement
Pursuant to the Note Purchase Agreement dated July 1, 2008 (the Note Purchase Agreement) by and among the Company, KapStone and the purchasers listed in the Purchaser Schedule attached to the Note Purchase Agreement (the Purchasers), the Purchasers purchased from KapStone senior secured promissory notes (the Senior Notes) with an aggregate principal amount of $40,000,000. KapStone used the proceeds from the issuance of the Senior Notes, together with borrowings under the Senior Credit Agreement (as defined below) and cash on hand, to finance the consideration for KapStones acquisition of the Charleston Mill and related business from MeadWestvaco, to repay certain existing indebtedness and to pay transaction fees and expenses. The Senior Notes are guaranteed by the Company and the Companys other domestic subsidiaries and are secured by substantially all of the assets of the Company, KapStone and the Companys other domestic subsidiaries, including all of the capital stock of KapStone and the other guarantor subsidiaries and up to 66% of the capital stock of the Companys foreign subsidiaries.
The Senior Notes mature on July 1, 2015 and bear interest at the rate of 8.30% per annum, payable quarterly on the 1st day of October, January, April and July in each year. The Senior Notes are required to be repaid by KapStone in annual installments of $3 million on July 1, 2009; $4 million on July 1, 2010; $5 million on July 1, in each of the years 2011 to 2014, inclusive and $13 million on July 1, 2015. The Senior Notes may be prepaid at any time with the payment of an applicable yield-maintenance amount. In the event that a mandatory prepayment event occurs under the Senior Credit Agreement (certain asset dispositions, casualty events, exercises of outstanding warrants, debt and equity issuances and excess cash flow, in each case subject to certain conditions), then KapStone is required to offer to repay, without premium, a pro rata portion of the Senior Notes held by each holder who accepts the KapStones prepayment offer (such portion based on the product of (a) the net cash proceeds from the mandatory prepayment event required to be prepaid pursuant to the Senior Credit Agreement multiplied by (b) a fraction, the number of which is the aggregate outstanding principal amount of the Senior Notes held by such holder and the denominator of which is the sum of (x) the aggregate outstanding principal amount under the Senior Credit Agreement and (y) the aggregate outstanding principal amount under all Senior Notes.)
The Senior Notes contain covenants that are substantially the same as the covenants contained in our Credit Agreement, dated as of June 12, 2008 (the Senior Credit Agreement), among the Company, KapStone, as borrower, the other subsidiaries of the Company named therein, as guarantors, the lenders named therein, and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer.
Subject to the Intercreditor Agreement described below, if an event of default (other than an event of default resulting from certain events of bankruptcy, insolvency or reorganization) occurs and is continuing, the holders of more than 50% in principal amount of Senior Notes then outstanding may declare all of the Senior Notes immediately due and payable together with interest accrued thereon and any yield maintenance amount; provided that if such event of default arises from the failure to pay principal, any yield maintenance amount or interest on the Senior Notes, any holder of a Senior Note may declare all of the Senior Notes held by such holder to be immediately due and payable. If an event of default relating to the certain events of bankruptcy, insolvency or reorganization occurs and is continuing, the principal, interest and any yield maintenance amount on all of the Senior Notes shall automatically become immediately due and payable without notice or demand of any kind.
Intercreditor and Collateral Agency Agreement
The Company, KapStone and each of its guarantor subsidiaries entered into an Intercreditor and Collateral Agency Agreement dated July 1, 2008 (the Intercreditor Agreement) with Bank of America, N.A., as administrative agent under the Senior Credit Agreement, and each of the holders of Senior Notes. The Intercreditor Agreement provides, among other things, that the borrowings under the Senior Credit Agreement and the Senior Notes shall be secured equally and ratably by the assets of the Company, KapStone and the Companys other domestic subsidiaries. Bank of America, N.A. is appointed as collateral agent to act on behalf of the holders of the Senior Notes and the lenders under the Senior Credit Agreement.
Item 1.02 |
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Termination of a Material Definitive Agreement |
In connection with the Closing, KapStone repaid in full all obligations and liabilities owing under that certain Credit Agreement dated as of January 2, 2007 among KapStone, various financial institutions and LaSalle Bank National Association.
Item 2.01 |
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Completion of Acquisition or Disposition of Assets |
On July 1, 2008, KapStone Charleston and KapStone consummated the purchase of substantially all of the assets, and the assumption of certain liabilities, of the Charleston Mill, a related sawmill located in Summerville, South Carolina and four chipmills from SC and MeadWestvaco (the Charleston Business). The assets of the Charleston Business consist of accounts receivables, inventories and other assets used in the manufacture and distribution of unbleached saturating kraft, unbleached coated kraft folding carton board and unbleached kraft linerboard. The assets also include an on-site power generator facility for the Charleston Mill. The aggregate price for the purchased assets was approximately $485 million subject to certain post-closing adjustments.
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On July 1, 2008, the Company issued a press release announcing the Closing, a copy of which is attached to this Current Report on Form 8-K as Exhibit 99.1.
Item 2.03 |
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Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant |
Reference is made to the disclosure set forth under Item 1.01 of the Current Report on Form 8-K dated June 12, 2008, which disclosure is incorporated by reference, concerning the Senior Credit Agreement.
The term A loan facility of $390,000,000 and the term B loan facility of $25,000,000 under the Senior Credit Facilities was drawn in full at the Closing. In addition, $40,000,000 of Senior Notes were issued.
Reference is made to the disclosure set forth under Item 1.01 of this Current Report on Form 8-K, which disclosure is incorporated by reference, concerning the Senior Notes.
Item 8.01 |
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Other Events |
On July 1, 2008, in connection with the Closing, KapStone Charleston entered into the agreements described below
Transition Services Agreement
Pursuant to the Agreement for the Provision of Transition Services (TSA), MeadWestvaco has agreed to provide operational support to KapStone Charleston commencing on the date of the Closing. The services include the following: (1) invoicing, credit and collection services; (2) accounts payable services; (3) supply chain services, and (4) information technology services. Kapstone Charleston is to use commercially reasonable efforts to transition all services within 12 months from the date of the Closing; however, KapStone Charleston may continue to use certain services for up to a period of 18 months from the commencement of the TSA. KapStone Charleston may, subject to 60 days prior written notice, elect to cease using any services. The total cost for the transition services is estimated to be approximately $7.9 million based on the current terms for the respective services. If the services are terminated earlier, in accordance with the terms of the TSA, the costs will be correspondingly reduced.
Reciprocal Plant Operating Agreement
Pursuant to the Reciprocal Plant Operating Agreement (the Operating Agreement), KapStone Charleston and SC have agreed that the Charleston Mill and the crude tall oil plant (the CTO Plant) owned by SC (and located in the same industrial complex as the Charleston Mill) and the specialty chemical processing and manufacturing plant owned by SC (MCF) will share the use of the Cosgrove rail yard and pipe bridges that carry transmission lines and pipeline between the Charleston Mill, the CTO Plant and the MCF and the joint perimeter fence that borders each such partys property. The Charleston Mill and MCF will share the use of the jointly owned electrical distribution system. The Operating Agreement sets forth the repair and maintenance obligations of such parties with respect to the jointly used assets.
Pursuant to the Operating Agreement, KapStone Charleston will supply all of SCs requirements for low pressure steam for the CTO Plant and MCF, water for the CTO Plant, hot condensate for use in the MCF, de-ionized water for the MCF, compressed air for the CTO Plant and the MCF, and treatment of wastewater and storm water produced by the CTO Plant and the MCF. The Charleston Mill and SC will together maintain an interior industrial fire brigade.
In addition, the Operating Agreement provides for the supply and acceptance of certain by-products (By-Products) by the parties. Subject to certain exceptions, KapStone Charleston will supply SCs CTO Plant with all soap produced by the Charleston Mill, and the CTO Plant will drain excess black liquor from the soap and return the excess black liquor back to the Charleston Mill. Provided that the pH of Dirty Brine produced by the CTO plant is higher than 7.5, the Charleston Mill will accept the return from SC of at least that amount of dirty brine produced by the CTO Plant from the conversion of soap skimmings. The Charleston Mill will also supply all of SCs requirements for weak white liquor for use as a base in TRS scrubbers at the CTO Plant and the MCF. SC will return to the Charleston Mill all weak white liquor used by SC in its TRS scrubbers.
The price for the services and jointly used facilities are generally based upon: (a) actual metered use of a utility resource; (b) a specified, fixed percentage of the Charleston Mills actual costs; (c) a good faith allocation of the costs (including overhead) of providing the service; and (d) an allocation of the costs based upon several pro rata use. The Operating Agreement includes certain adjustments to the parties obligations in the event of shutdowns and/or closures or force majeure events and imposes penalties in the event a party fails to fulfill its obligations under the Operating Agreement.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Form 8-K, including statements regarding the acquisition of the Charleston Business, future financial and operating results, benefits and synergies of the transaction, future opportunities for the Company after the acquisition and any other statements about managements future expectations, beliefs, goals, plans or prospects constitute forward-looking statements intended to qualify for the safe harbor from liability established by the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on managements beliefs, assumptions and current expectations and are subject to certain risks and uncertainties which could cause actual results to differ materially from those presented in these forward-looking statements. The potential risks and uncertainties include, among others, the ability of the Company to successfully integrate the Charleston Business operations and employees, the ability to realize anticipated synergies and cost savings, general economic conditions and industry specific conditions. In addition, please refer to the documents that the Company files with the Securities and Exchange Commission on Forms 10-K/A, 10-Q and 8-K. These filings identify and address other important factors that could cause the Companys financial and operational results to differ materially from those contained in the forward looking statements set forth in this document. Accordingly, readers are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date hereof. Except to the extent required by law, the Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.
Item 9.01 |
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Financial Statements and Exhibits |
(a) Financial Statements of Business Acquired
The Report of Independent Registered Public Accounting firm is hereby incorporated by reference to Exhibit 99.2.
The audited combined balance sheets of The Kraft Business (A Business of MeadWestvaco Corporation) as of December 31, 2007 and 2006 and related combined
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statements of operations, changes in equity and cash flows for the years ended December 31, 2007, 2006 and 2005 are incorporated by reference to Exhibit 99.2.
The unaudited combined balance sheets of The Kraft Business (A Business of MeadWestvaco Corporation) as of March 31, 2008 and related unaudited combined statements of operations and cash flows for the three months ended March 31, 2008 and 2007 are incorporated by reference to Exhibit 99.3.
(b) Pro Forma Financial Information
The following information is attached hereto as Exhibit 99.4 and incorporated by reference:
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Unaudited pro forma condensed combined balance sheet as of March 31, 2008. |
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(ii) |
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Unaudited pro forma condensed combined statement of income for the year ended December 31, 2007. |
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(iii) |
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Unaudited pro forma condensed combined statement of income for the three months ended March 31, 2008. |
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(iv) |
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Notes to unaudited proforma condensed combined financial data. |
(d) Exhibits
10.10 |
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Long-Term Fiber Supply Agreement dated July 1, 2008 by and between MeadWestvaco Forestry, LLC and KapStone Charleston Kraft, LLC (with certain confidential information deleted there from) |
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10.11 |
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Note Purchase Agreement dated July 1, 2008 by and among KapStone Paper and Packaging Corporation, KapStone Kraft Paper Corporation and each of the Purchasers Named Therein. |
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10.12 |
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Intercreditor and Collateral Agency Agreement dated as of July 1, 2008 by and among Bank of America, N.A., a Collateral Agent, and Bank of American, N.A., as Administrative Agent under the Credit Facility Agreement on behalf of the Secured Lender Partners, and the Institutional Investors Listed Therein, as Noteholders. |
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23.1 |
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Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm for The Kraft Business |
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99.1 |
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Press Release, dated July 1, 2008, announcing the Closing |
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99.2 |
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Audited combined balance sheets of The Kraft Business (A Business of MeadWestvaco Corporation) as of December 31, 2007 and 2006, and related combined statements of operations, changes in equity and cash flows for the years ended December 31, 2007, 2006 and 2005. |
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99.3 |
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Unaudited combined balance sheets of The Kraft Business (A Business of MeadWestvaco Corporation) as of March 31, 2008 and December 31, 2007, and related unaudited combined statements of operations and cash flows for the three months ending March 31, 2008 and 2007. |
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99.4 |
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Unaudited pro forma condensed combined balance sheet as of March 31, 2008 and unaudited pro forma condensed combined statements of income for the year ended December 31, 2007 and the three months ended March 31, 2008. |
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: July 2, 2008
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KAPSTONE PAPER AND PACKAGING CORPORATION |
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By: |
/s/ Roger W. Stone |
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Name: Roger W. Stone |
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Title: Chief Executive Officer |
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Exhibit 10.10
EXECUTION COPY
LONG-TERM FIBER SUPPLY AGREEMENT
by and between
MEADWESTVACO FORESTRY, LLC
and
KAPSTONE CHARLESTON KRAFT LLC
July 1, 2008
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS |
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ARTICLE 2. PURCHASE OF PRODUCTS |
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Section 2.1 |
Purchase of Pine Pulpwood |
7 |
Section 2.2 |
Purchase of Pine Sawtimber |
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Section 2.3 |
Purchase of Hardwood |
12 |
Section 2.4 |
Modification of Specifications |
12 |
Section 2.5 |
Annual Plan |
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Section 2.6 |
Additional Delivery Locations |
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Section 2.7 |
Dempsey Wood Products |
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ARTICLE 3. FAILURE TO PURCHASE OR DELIVER |
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Section 3.1 |
Purchasers Obligation to Take or Pay |
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Section 3.2 |
Purchasers Failure to Purchase Amounts Not Subject to Take or Pay |
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Section 3.3 |
Sellers Failure to Supply |
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Section 3.4 |
Scheduling Shortfall Volume |
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Section 3.5 |
Required Notices |
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Section 3.6 |
Force Majeure |
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Section 3.7 |
Mitigation of Damages |
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ARTICLE 4. PRICE AND TERMS |
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Section 4.1 |
Price |
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Section 4.2 |
Emergency Pine Sawtimber Pricing |
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Section 4.3 |
Delivery Terms |
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Section 4.4 |
Payment |
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Section 4.5 |
Loggers |
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Section 4.6 |
Taxes and Fees |
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Section 4.7 |
Warranty |
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Section 4.8 |
Limitation of Warranties |
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ARTICLE 5. TERM |
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28 |
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ARTICLE 6. REPRESENTATIONS, WARRANTIES AND COVENANTS |
28 |
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Section 6.1 |
Seller Power and Authority; Enforceability |
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Section 6.2 |
Purchaser Power and Authority; Enforceability |
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Section 6.3 |
Management of the Timberlands and Sustainable Forest Practice Standards |
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Section 6.4 |
Continued Supply Upon Sale of Timberlands |
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Section 6.5 |
Independent Contractors |
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Section 6.6 |
Compliance with Laws |
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Section 6.7 |
Insurance |
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Section 6.8 |
Limitation of Liability and Indemnity |
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ARTICLE 7. TERMINATION |
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Section 7.1 |
General Termination |
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Section 7.2 |
Termination if Kraft Mill Will Cease Manufacturing |
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Section 7.3 |
Termination if the SLM Sawmill Will Cease Operating |
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ARTICLE 8. MISCELLANEOUS |
35 |
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Section 8.1 |
Assignment by Seller |
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Section 8.2 |
Assignment by Purchaser |
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Section 8.3 |
Notices |
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Section 8.4 |
Amendment; Waiver |
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Section 8.5 |
Entire Agreement |
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Section 8.6 |
Governing Law |
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Section 8.7 |
Binding Agreement |
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Section 8.8 |
Headings |
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Section 8.9 |
Counterparts |
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Section 8.10 |
Annexes |
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Section 8.11 |
Severability, etc |
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Section 8.12 |
No Presumption Against Drafter |
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Section 8.13 |
Dispute Resolution |
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ANNEXES |
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Annex A-1 |
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Pine Pulpwood Quality Specifications |
Annex A-2 |
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Pine Sawtimber Quality Specifications |
Annex A-3 |
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Pine Chip Quality Specifications |
Annex B-1 |
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Hardwood Pulpwood Quality Specifications |
Annex B-2 |
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Hardwood Chip Quality Specifications |
Annex C |
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Pine Pulpwood Committed Volume and Take or Pay Volume |
Annex D |
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Pine Sawtimber Committed Volume and Take or Pay Volume |
Annex E |
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Initial Delivery Locations |
Annex F |
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Logging Fee Components and Initial Logging Fees |
Annex G |
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Calculation of Productive Acres and Average Freight Premium |
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LONG-TERM FIBER SUPPLY AGREEMENT
THIS AGREEMENT (this Agreement ) is made this 1st day of July, 2008 by and between MEADWESTVACO FORESTRY, LLC, a Delaware limited liability company ( Seller ), and KAPSTONE CHARLESTON KRAFT LLC, a Delaware limited liability company ( Purchaser ), under the following circumstances:
A. An affiliate of Seller and Purchaser are parties to the Asset Purchase Agreement dated as of April 4, 2008 (the Asset Purchase Agreement ).
B. Pursuant to the Asset Purchase Agreement, Purchaser is purchasing from Seller a kraft mill located in North Charleston, South Carolina (the Kraft Mill ), a lumber and chip mill located in Summerville, South Carolina (the Summerville Lumber Mill ), other chip mills located in South Carolina and other assets of Sellers unbleached saturating kraft, unbleached uncoated kraft folding carton board and unbleached linerboard business (collectively, the Business ).
C. Seller controls timber that is a source of wood fiber for the operation of the Kraft Mill and the Summerville Lumber Mill, consisting of pine pulpwood ( Pine Pulpwood ), pine chips ( Pine Chips ), pine sawtimber (in the form of pine chipnsaw and pine sawtimber stems) ( Pine Sawtimber ), hardwood pulpwood ( Hardwood Pulpwood ) and hardwood chips ( Hardwood Chips ) (Pine Pulpwood, Pine Chips, Pine Sawtimber, Hardwood Pulpwood and Hardwood Chips are referred to collectively as the Products ). Purchaser desires to obtain a long-term source of supply of the Products, and Seller is willing to supply the Products, on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants described in this Agreement, and other good and valuable consideration the receipt and sufficiency of which are acknowledged, Purchaser and Seller hereby agree as follows:
Whenever used in this Agreement, the following terms shall have the respective meanings given to them in the provisions thereof indicated below:
AAA means the American Arbitration Association.
Affiliate of a Person means any other Person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with the first Person. As used in this definition and elsewhere in this Agreement with respect to any Affiliate of a Person, control (including the terms controlled by and under common control with) means the
possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a Person, whether through the ownership of voting securities, by voting trust, contract or similar arrangement, as trustee or executor, or otherwise.
Agreement shall have the meaning provided in the opening paragraph of this Agreement.
Annual Plan shall have the meaning provided in Section 2.5(b).
Annual Plan Pulpwood Volume shall have the meaning provided in Section 2.1(f).
Annual Plan Sawtimber Volume shall have the meaning provided in Section 2.2(d).
Annual Pulpwood Base Volume shall have the meaning provided in Section 2.1(b).
Annual Pulpwood Non-Take or Pay Volume shall have the meaning provided in Section 2.1(f).
Annual Pulpwood Take or Pay Volume shall have the meaning provided in Section 2.1(f).
Annual Sawtimber Non-Take or Pay Volume shall have the meaning provided in Section 2.2(d).
Annual Sawtimber Take or Pay Volume shall have the meaning provided in Section 2.2(b).
Arbitrator shall have the meaning provided in Section 8.13(b).
Asset Purchase Agreement shall have the meaning provided in the recitals to this Agreement.
Base Average Pulpwood Freight Premium shall have the meaning provided in Section 6.4(b)(i).
Base Average Sawtimber Premium shall have the meaning provided in Section 6.4(b)(ii).
Base Weighting Units for Pine Pulpwood shall have the meaning provided in Section 6.4(b)(i).
Base Weighting Units for Pine Sawtimber shall have the meaning provided in Section 6.4(b)(ii).
Business shall have the meaning provided in the recitals to this Agreement.
Calendar Monthly Average RLSPCL Price shall have the meaning provided in Section 4.2.
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Calendar Year means a full year beginning on January 1 and continuing through the following December 31.
Commencement of One-Shift Operation shall have the meaning provided in Section 2.2(e).
Committed Volume of Pine Products shall have the meaning provided in Section 6.4(a).
Contract Manager shall have the meaning provided in Section 8.13.
Contract Year means a one-year period beginning on the date of this Agreement or on an annual anniversary of such date.
Default Rate means a fixed rate equal to: (i) the three month London interbank offered rate (LIBOR) as of the date of determination, as reported in the Wall Street Journal Money Rate column (or, in the event the Wall Street Journal no longer is published, or no longer publishes such rate, such other similarly determined rate as Purchaser and Seller mutually agree), plus (ii) [****] percent ([****]%) per annum.
Delivery Locations means the locations listed on Annex E , as the same may be changed from time to time by written agreement of the parties to this Agreement, and such other Delivery Locations as may be specified pursuant to Section 2.7.
Derived Stumpage Price means the delivered price at which Products are sold by Seller to a Person or Persons other than Purchaser, less an amount equal to the Logging Fees that would have been payable by Purchaser with respect to such sale if such sale had been made by Seller to Purchaser pursuant to this Agreement with delivery to the location of such other Person or Persons.
Dispute shall have the meaning provided in Section 8.13.
DOB means diameter outside bark.
Dollar(s) means United States Dollar(s).
East Edisto District means those Timberlands of Seller situated to the east of the Edisto River and Four Hole Swamp and to the south of I-26.
Effective Date means 12:01 a.m. on July 1, 2008.
Fee Stumpage Reserve means the quantity of Products to be harvested from the Timberlands pursuant to the Annual Plan during a Calendar Year by Purchaser Assumed Contract Loggers, as provided in Section 2.5(d).
Force Majeure Event means any cause, condition or event beyond either partys reasonable control that delays or prevents that partys performance of its obligations hereunder, including war, acts of government, acts of public enemy, riots, civil strife, lightning, fires,
[****] indicates confidential treatment
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explosions, storms and floods (which storms and floods, in the case of Seller, makes logging in accordance with Section 6.3 commercially impracticable or, in the case of Purchaser, makes its operations at the Kraft Mill or the SLM Sawmill, respectively, commercially impracticable), power failures, other acts of God or nature, labor strikes or lockouts by either partys employees and other similar events or circumstances; provided, however, that adverse financial or market conditions shall not constitute a Force Majeure Event.
Hardwood Chips shall have the meaning provided in the recitals to this Agreement.
Hardwood Chips Quality Specifications shall have the meaning provided in Section 2.3.
Hardwood Products means Hardwood Pulpwood and Hardwood Chips.
Hardwood Pulpwood shall have the meaning provided in the recitals to this Agreement.
Hardwood Pulpwood Quality Specifications shall have the meaning provided in Section 2.3.
Kraft Mill shall have the meaning provided in the recitals to this Agreement.
Logging Fee Components shall have the meaning provided in Section 4.1(b).
Logging Fees shall have the meaning provided in Section 4.1(a).
Losses means any and all claims, liabilities, obligations, losses, fines, costs, proceedings, deficiencies or damages (whether absolute, accrued, conditional or otherwise and whether or not resulting from third party claims), including out-of-pocket expenses and reasonable attorneys and accountants fees incurred in the investigation or defense of any of the same or in enforcing any rights under this Agreement.
Market Related Downtime at the Kraft Mill means a shutdown of one or more paper machines at the Kraft Mill on a temporary basis because of market conditions.
Market Related Downtime at the SLM Sawmill means a shutdown of the SLM Sawmill on a temporary basis because of market conditions.
Non-Take or Pay Shortfall shall have the meaning provided in Section 3.2(c).
Notice Period has the meaning given that term in Section 7.2.
One-Shift Purchase Floor means [****] tons of Pine Sawtimber during the first five years of the Term; [****] tons of Pine Sawtimber during the second five years of the Term; and [****] tons of Pine Sawtimber during the last five years of the Term.
Payment Date shall have the meaning provided in Section 3.1(b).
[****] indicates confidential treatment
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Person means any individual, sole proprietorship, trust, estate, executor, legal representative, unincorporated association, association, institution, corporation, company, partnership, limited liability company, limited liability partnership, joint venture, government (whether national, federal, state, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof) or other entity.
Pine Chips shall have the meaning provided in the recitals to this Agreement.
Pine Chip Quality Specifications shall have the meaning provided in Section 2.1(a).
Pine Products means Pine Pulpwood, Pine Chips and Pine Sawtimber.
Pine Pulpwood shall have the meaning provided in the recitals to this Agreement.
Pine Pulpwood Committed Volume shall have the meaning provided in Section 2.1(b).
Pine Pulpwood Maximum Take or Pay Volume shall have the meaning provided in Section 2.1(b).
Pine Pulpwood Quality Specifications shall have the meaning provided in Section 2.1(a).
Pine Sawtimber shall have the meaning provided in the recitals to this Agreement.
Pine Sawtimber Maximum Committed Volume shall have the meaning provided in Section 2.2(c).
Pine Sawtimber Quality Specifications shall have the meaning provided in Section 2.2(a).
Products shall have the meaning provided in the recitals to this Agreement.
Product Specifications means the Pine Pulpwood Quality Specifications, the Pine Chips Quality Specifications, the Pine Sawtimber Quality Specifications, the Hardwood Pulpwood Quality Specifications and the Hardwood Chips Quality Specifications.
Pulpwood Non-Take or Pay Purchase Shortfall shall have the meaning provided in Section 3.2(a).
Pulpwood Supply Shortfall shall have the meaning provided in Section 3.3(a).
Purchaser Assumed Contract Loggers means the logging contractors who entered into master cut and haul agreements covering purchased stumpage which were assigned to Purchaser as an Assumed Contract (as defined in the Asset Purchase Agreement) pursuant to the Asset Purchase Agreement.
Purchaser Requested Additional Pulpwood Volume shall have the meaning provided in Section 2.1(c).
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Quantities means the respective quantities of Products required to be supplied by Seller and purchased by Purchaser under this Agreement.
Reported Diesel Fuel Price means the weekly Retail On-Highway Diesel Price (including taxes) reported by the U.S. Department of Energy, Energy Information Administration for the Lower Atlantic States (or, in the event such information is no longer published, or otherwise is not available from such source, such other reasonably similar information, from the same or another source, as the parties mutually determine in writing).
Rules shall have the meaning provided in Section 8.13(b).
Sawmill Notice Period shall have the meaning provided in Section 7.3.
Sawtimber Supply Shortfall shall have the meaning provided in Section 3.3(b).
Sawtimber Non-Take or Pay Purchase Shortfall shall have the meaning provided in Section 3.2(b).
Seller Offered Additional Pulpwood Volume shall have the meaning provided in Section 2.1(d).
Sellers Harvest Plan shall have the meaning provided in Section 2.5(b).
SLM Sawmill shall mean the sawmill located at the Summerville Lumber Mill.
Stumpage Price means a Dollar per ton stumpage price which shall be determined based on [****] plus or minus the adjustment indicated:
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Product |
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Price Category |
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Adjustment |
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1. |
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Pine Sawtimber (other than pine chipnsaw) |
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[****] |
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[****] |
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2. |
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Pine Chipnsaw (6 inch) |
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[****] |
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[****] |
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3. |
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Pine Pulpwood |
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[****] |
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[****] |
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4. |
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Hardwood Pulpwood |
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[****] |
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[****] |
The Stumpage Price for Pine Chips and Hardwood Chips shall be the same as the Stumpage Price for Pine Pulpwood and Hardwood Pulpwood, respectively, calculated as set forth above.
Summerville Lumber Mill has the meaning given that term in the recitals to this Agreement.
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Supply Shortfall shall mean a Pulpwood Supply Shortfall or a Sawtimber Supply Shortfall.
Sustainable Forest Practice Standards means standards substantially similar to the Sustainable Forestry Initiative of SFI, Inc. (including, without limitation, the American Tree Farm System of the American Forest Foundation), as that standard may be modified by SFI, Inc. from time to time.
Take or Pay Shortfall shall have the meaning provided in Section 3.1(a).
Term shall have the meaning provided in Article 5.
Timberlands means the timberlands located in any of the following counties of South Carolina which are now or hereafter owned by Seller or an Affiliate or on which Seller or an Affiliate controls the timber or from which Seller otherwise has the right to acquire the timber: Allendale, Bamberg, Barnwell, Beaufort, Berkeley, Calhoun, Charleston, Clarendon, Colleton, Dorchester, Florence, Georgetown, Hampton, Horry, Jasper, Marion, Orangeburg and Williamsburg.
ton means two thousand pounds.
Weighted Average Stumpage Price shall have the meaning provided in Section 3.1(a).
Weighting Units means acres of productive planted and natural pine stands, adjusted by stand age and thinned status, as determined in accordance with the methodology set forth in Annex G .
Section 2.1 Purchase of Pine Pulpwood . (a) Seller shall sell and deliver to Purchaser at the Delivery Locations determined in accordance with Sections 2.5 and 2.6, and Purchaser shall purchase, receive and pay for, in each Calendar Year, an amount of Pine Pulpwood from the Timberlands determined as provided in this Section 2.1. All Pine Pulpwood purchased and sold pursuant to this Agreement shall comply with the quality specifications set forth in Annex A-1 , as such specifications may be modified from time to time in accordance with Section 2.4 (the Pine Pulpwood Quality Specifications ). Seller, in its sole discretion, may deliver Pine Chips in lieu of Pine Pulpwood to fulfill a portion of its obligation to deliver Pine Pulpwood under this Agreement; however, Purchaser acknowledges that the volume of Pine Chips provided by Seller pursuant to this Agreement likely will decrease substantially, and may be eliminated, during the Term. Notwithstanding anything in this Agreement to the contrary, Seller acknowledges that all such Pine Chips so purchased by Purchaser hereunder shall be deemed purchases of Pine Pulpwood hereunder for purposes of satisfying Purchasers obligations to purchase Pine Pulpwood hereunder. All Pine Chips purchased and sold pursuant to this Agreement shall comply with the quality specifications set forth in Annex A-3 , as such
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specifications may be modified from time to time in accordance with Section 2.4 (the Pine Chip Quality Specifications ).
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Section 2.2 Purchase of Pine Sawtimber. (a) Seller shall sell and deliver to Purchaser, and Purchaser shall purchase, receive and pay for, in each Calendar Year, an amount of Pine Sawtimber determined as provided in this Section 2.2 at prices determined as provided in Article 4 (except as otherwise provided in Section 2.2(d)). All Pine Sawtimber purchased and sold pursuant to this Agreement shall comply with the quality specifications set forth in Annex A-2 , as such specifications may be modified from time to time in accordance with Section 2.4 (the Pine Sawtimber Quality Specifications ). The Pine Sawtimber delivered by Seller in each Calendar Year pursuant to this Agreement shall include all Pine Sawtimber harvested by Seller within a [****]mile haul radius of the SLM Sawmill (other than stems for use in the production of poles and pilings and stems greater than 20 inches DOB butt), up to the Annual Plan Sawtimber Volume, and shall consist of the following percentages of Chipnsaw 6 inch and Pine Sawtimber volume:
[****] indicates confidential treatment
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2008-2012 |
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2013-2017 |
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2018-2022 |
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Chipnsaw 6 inch |
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[****]%-[****]% |
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[****]%-[****]% |
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[****]%-[****]% |
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Pine Sawtimber |
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[****]%-[****]% |
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[****]%-[****]% |
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[****]%-[****]% |
[****] indicates confidential treatment
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(f) During Market Related Downtime at the SLM Sawmill, Seller shall limit deliveries of Pine Sawtimber to the SLM Sawmill, to the extent requested by Purchaser, and the parties shall work together and use commercially reasonable efforts to minimize and mitigate the impact of such Market Related Downtime on Sellers loggers (which may include, without limitation, maximizing the use of Purchasers wet storage capacity and, if the parties so agree, increasing the volume of Pine Pulpwood that is harvested by Seller and delivered to Purchaser during such Market Related Downtime at the SLM Sawmill and use of Sellers loggers to log stumpage controlled by Purchaser); provided, however, that: (i) if the parties determine to increase the volume of Pine Pulpwood to be harvested by Seller and delivered to Purchaser during such Market Related Downtime at the SLM Sawmill, the Pine Pulpwood Committed Volume and Take or Pay Volume amounts set forth on Annex C for each Calendar Year during the remainder of the Term shall be reduced evenly by a pro rata portion of such additional volume so delivered, (ii) the provisions of this Section 2.2(f) shall not apply to more than one period of Market Related Downtime in any Calendar Year, or to any period of Market Related Downtime to the extent it exceeds two months in duration, and (iii) nothing in this Section 2.2(f) shall limit any of the rights or obligations of the parties under Article 3.
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Section 2.3 Purchase of Hardwood . Seller shall sell and deliver to Purchaser, and Purchaser shall purchase from Seller, receive and pay for, in each Calendar Year at the prices determined as provided in Article 4, all Hardwood Pulpwood and Hardwood Chips harvested by Seller during the Calendar Year (or portion of the Calendar Year in which this Agreement is in effect) from Sellers Timberlands. Seller shall, in its commercially reasonable judgment, make the determination of whether hardwood products produced from such Timberlands will be classified as Hardwood Pulpwood or as higher value hardwood products which shall not be subject to this Agreement (all of which higher value hardwood products Seller may sell to third parties, provided that the stumpage price or Derived Stumpage Price thereof, as the case may be, exceeds the Stumpage Price that Seller would have received from Purchaser pursuant to Article 4 for such products). All Hardwood Pulpwood and Hardwood Chips purchased pursuant to this Agreement shall comply with, respectively, the quality specifications for Hardwood Pulpwood set forth in Annex B-1 , as such specifications may be modified from time to time in accordance with Section 2.4 (the Hardwood Pulpwood Quality Specifications ), and the quality specifications for Hardwood Chips set forth in Annex B-2 , as such specifications may be modified from time to time in accordance with Section 2.4 (the Hardwood Chips Quality Specifications ).
Section 2.4 Modification of Specifications . Purchaser and Seller shall use commercially reasonable efforts to agree from time to time upon any modifications to the Product Specifications and any price adjustments or required volume reductions for the Products covered by the modified Product Specifications. All Products sold by Seller to Purchaser following the date any mutually agreed upon modifications to the Product Specifications become effective shall comply with such modified Product Specifications.
Section 2.5 Annual Plan . (a) Prior to the Effective Date, the parties agreed upon an Annual Plan for the portion of Calendar Year 2008 after the Effective Date which sets forth the Quantities of Pine Pulpwood and Sawtimber to be delivered to each Delivery Location under this Agreement during the remainder of Calendar Year 2008 (which Quantities are not less than a pro rata portion of the Committed Volume of Pine Products for the initial Contract Year, based on the number of days in the Calendar Year after the Effective Date), the portion of the Pine Pulpwood which Seller anticipates furnishing during such period in the form of Pine Chips, the portion of the Products to be delivered pursuant to the Annual Plan which shall constitute the Fee Stumpage Reserve to be made available for harvesting by Purchaser Assumed Contract Loggers and the other provisions required to be contained in an Annual Plan pursuant to Section 2.5(b).
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Section 2.6 Additional Delivery Locations . (a) From time to time during the Term, Purchaser may designate additional Delivery Locations controlled by Purchaser by written notice given to Seller.
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Section 2.7 Dempsey Wood Products . The Annual Plan shall provide for the quantity of Pine Pulpwood, if any, to be delivered by Seller to the Dempsey Wood Products Delivery Location, and Pine Pulpwood delivered to the Dempsey Wood Products Delivery Location in accordance with the Annual Plan in any Calendar Year shall be counted towards the Annual Plan Pulpwood Volume for that Calendar Year. If, in connection with the preparation of the Annual Plan in any Calendar Year, Purchaser notifies Seller that Purchaser does not intend to purchase Pine Chips from Dempsey Wood Products during the following Calendar Year, then: (i) the Annual Plan shall not provide for the delivery of Pine Pulpwood by Seller to Dempsey Wood Products during such following Calendar Year, and (ii) in any subsequent Calendar Year, Seller shall not be required to deliver Pine Pulpwood to Dempsey Wood Products unless Seller determines in good faith that the price payable to Seller by Dempsey Wood Products for such Pine Pulpwood represents an acceptable market price in the area for products similar to the Products delivered to Dempsey Wood Products by Seller. The purchase price for Pine Pulpwood delivered by Seller to Dempsey Wood Products in accordance with the Annual Plan shall be the price negotiated between Seller and Dempsey Wood Products and shall be paid to Seller by Dempsey Wood Products. The purchase price payable by Purchaser for pine chips or other products processed by Dempsey Wood Products for Purchaser shall be the price negotiated by Purchaser with Dempsey Wood Products and shall be paid by Purchaser.
Section 3.1 Purchasers Obligation to Take or Pay . (a) Except as provided in Sections 3.1(b) and 3.6, Purchaser shall be required to pay for the entire Annual Pulpwood Take or Pay Volume and the entire Annual Sawtimber Take or Pay Volume with respect to each Calendar Year even if Purchaser fails to purchase such quantities of Products. Except as otherwise expressly provided in Sections 3.1(b) and 3.6, if Purchaser fails to purchase the Annual Pulpwood Take or Pay Volume or the Annual Sawtimber Take or Pay Volume in any Calendar Year, Purchaser shall, as Sellers sole and exclusive remedy for any such shortfall, pay to Seller an amount equal to the number of tons by which Purchasers purchases of Pine Pulpwood and Pine Chips, or Pine Sawtimber, as the case may be, during the Calendar Year were less than the Annual Pulpwood Take or Pay Volume or the Annual Sawtimber Take or Pay Volume, respectively, for the Calendar Year (a Take or Pay Shortfall ), multiplied by the weighted average Stumpage Price of Pine Pulpwood or of Pine Sawtimber of the type(s) for which there was a Take or Pay Shortfall, as the case may be, sold to Purchaser pursuant to this Agreement during the Calendar Year (the Weighted Average Stumpage Price ). In determining the Weighted Average Stumpage Price for Pine Sawtimber, the parties shall use the actual Stumpage Prices and the midpoint of the range of the type of Pine Sawtimber (chipnsaw 6 inch or pine sawtimber) that was to have been delivered during the Calendar Year, as specified in Section 2.2(a). Except as otherwise provided in Section 3.1(b), Seller shall calculate and invoice such amount to Purchaser by not later than January 15 of the Calendar Year following the Calendar Year in which the Take or Pay Shortfall occurs, and Purchaser shall pay the invoice by not later than January 31 of such Calendar Year.
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Section 3.2 Purchasers Failure to Purchase Amounts Not Subject to Take or Pay . (a) Except as provided in Sections 3.2(c) and 3.6, if Purchaser fails to purchase any Annual Pulpwood Non-Take or Pay Volume for a Calendar Year, then Seller shall use commercially reasonable efforts to sell all the shortfall volume (a Pulpwood Non-Take or Pay Purchase Shortfall ), at market prices, to one or more other Person(s) in the subsequent Calendar Year; provided, however, that Seller may sell all or a portion of the Pulpwood Non-Take or Pay Purchase Shortfall, at market prices, in the same Calendar Year: (i) to the extent that Purchaser so directs in writing, or (ii) if, after reasonable consultation by Purchaser and Seller during the annual planning process provided for in Section 2.5 for the subsequent Calendar Year and at such other times during the remainder of such Calendar Year as Seller may request, Purchaser consents in writing (which consent shall not unreasonably be withheld) to a request by Seller to sell during such Calendar Year to other Person(s) such portion of the Annual Pulpwood Non-Take or Pay Volume which it is reasonably apparent that Purchaser cannot accept from Seller during the remainder of the Calendar Year or carry over to the subsequent Calendar Year pursuant to Section 3.2(c). If the stumpage price or Derived Stumpage Price (as the case may be) of any such sale of the Pulpwood Non-Take or Pay Purchase Shortfall to other Persons is less than the Weighted Average Stumpage Price of Pine Pulpwood sold to Purchaser pursuant to this Agreement during the Calendar Year, Purchaser shall, as Sellers sole and exclusive remedy for any such shortfall, pay to Seller, for each such sale, the amount by which the Weighted Average Stumpage Price of Pine Pulpwood sold pursuant to this Agreement during the Calendar Year exceeded the stumpage price or Derived Stumpage Price (as the case may be) at which such sale was made multiplied by the number of tons so sold. Seller shall calculate such amount and invoice such amount to Purchaser by not later than January 15 of the Calendar Year following the Calendar Year in which Seller sells the Pulpwood Non-Take or Pay Purchase Shortfall, and Purchaser shall pay such invoice by not later than 30 days after receipt of the invoice.
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Section 3.3 Sellers Failure to Supply . (a) Except as otherwise provided in Sections 3.3(c) and 3.6, if during any Calendar Year Seller fails to supply to Purchaser the entire Annual Plan Pulpwood Volume for that Calendar Year, then Purchaser shall use commercially reasonable efforts to purchase all of the shortfall volume (a Pulpwood Supply Shortfall ), at market prices, from one or more other Persons in the subsequent Calendar Year; provided, however, that Purchaser may purchase all or a portion of the Pulpwood Supply Shortfall, at market prices, in the same Calendar Year: (i) to the extent that Seller so directs in writing, or (ii) if, after reasonable consultation by Purchaser and Seller during the annual planning process provided for in Section 2.5 for the subsequent Calendar Year and at such other times during the remainder of such Calendar Year as Purchaser may request, Seller consents in writing (which consent shall not unreasonably be withheld) to a request by Purchaser to purchase during such Calendar Year from other Person(s) such portion of the Annual Plan Pulpwood Volume which it is reasonably apparent that Seller cannot supply to Purchaser during the remainder of the Calendar Year or carry over to the subsequent Calendar Year pursuant to Section 3.3(c). If the weighted average purchase price (including Logging Fees) of Pine Pulpwood sold to Purchaser pursuant to this Agreement during the Calendar Year in which the Pulpwood Supply Shortfall occurred was less than the average price (including Logging Fees) paid by Purchaser for Pine Pulpwood purchased by Purchaser as roundwood to make up such shortfall in the same or subsequent Calendar Year from Persons other than Seller for delivery at the Delivery Location(s) with respect to which the Pulpwood Supply Shortfall occurred, Seller shall, as Purchasers exclusive remedy for such shortfall, pay to Purchaser an amount equal to the number of tons of the Pulpwood Supply Shortfall multiplied by the amount by which such average price (including Logging Fees) paid by Purchaser for such roundwood Pine Pulpwood purchased from Persons other than Seller exceeded such weighted average purchase price (including Logging Fees) paid by Purchaser to Seller. Except as otherwise provided in Section 3.3(c), Purchaser shall calculate such amount and invoice such amount to Seller by not later than January 15 of the Calendar Year following the Calendar Year in which Purchaser purchases the Pulpwood Supply Shortfall, and Seller shall pay such invoice by not later than 30 days after receipt of the invoice.
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Section 3.4 Scheduling Shortfall Volume . If under Section 3.2(b), Section 3.2(c) or Section 3.3(c) all or a portion of a Take or Pay Shortfall, a Non-Take or Pay Shortfall, a Pulpwood Supply Shortfall or a Sawtimber Supply Shortfall is carried over to the following Calendar Year, the parties shall work together in good faith to agree, by January 15 of such following Calendar Year, on a schedule for delivery of the volume so carried over, which generally shall be consistent with the volumes and Delivery Locations set forth in the Annual Plan for such following Calendar Year; provided, however, that if Seller determines, in its sole discretion, that it will not be able to supply the entire volume so carried over by June 30 of such following Calendar Year, Seller shall so notify Purchaser in writing by April 1 of such following Calendar Year, and the date by which such carried over volume must be supplied and purchased (and the date by which such carried over volume must be invoiced) automatically shall be extended by 90 days.
Section 3.5 Required Notices . Purchaser shall give Seller not less than the number of days prior written notice specified below for each of the following events:
(iv) the written notice specified in Sections 7.2 and 7.3, respectively, upon any closure of the Kraft Mill for six months or more or any closure of the SLM Sawmill for six months or more.
Section 3.6 Force Majeure . (a) Notwithstanding anything in this Agreement to the contrary and subject to the provisions of this Section 3.6, neither party shall be liable to the other party under this Agreement for any delay in or failure of performance by that party of its obligations hereunder resulting from a Force Majeure Event if that party has used commercially
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reasonable efforts to perform notwithstanding the occurrence of the Force Majeure Event. Each party shall use commercially reasonable efforts to mitigate or remedy the effects of a Force Majeure Event, and if the cause of the Force Majeure Event can be minimized or remedied, the parties shall use their respective commercially reasonable efforts to do so promptly. If a Force Majeure Event occurs, the Quantities which Seller is required to sell to Purchaser, and which Purchaser is required to purchase, under this Agreement (including the amounts subject to Purchasers obligations under Sections 2.2(c), 3.1 and 3.2 and the amounts subject to Sellers obligations under Section 3.3), shall be reduced on a proportionate basis based on the Timberlands (in the case of Seller) or the facility or facilities (in the case of Purchaser) affected by the Force Majeure Event, the weekly delivery schedules during the period in which such partys ability to perform is adversely affected as a result of the Force Majeure Event and the reasonable opportunities of the Parties to mitigate the effect of the Force Majeure Event, and Section 2.2(c) shall not apply during the duration of the Force Majeure Event to the extent that Seller is unable to supply the volumes of Pine Sawtimber set forth therein. The parties shall not be required to make up any reduction in the Quantities occurring as a result of a Force Majeure Event.
Section 3.7 Mitigation of Damages . Seller shall use commercially reasonable efforts to mitigate damages with respect to Non-Take or Pay Shortfalls pursuant to Section 3.2, and Purchaser shall use commercially reasonable efforts to mitigate damages with respect to Pulpwood Supply Shortfalls and Sawtimber Supply Shortfalls pursuant to Section 3.3.
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Section 4.1 Price . (a) Except as otherwise provided in Sections 2.2(d) and 4.2, the price to be paid by Purchaser to Seller for Products (other than Purchaser Requested Additional Pulpwood Volume) purchased and sold pursuant to this Agreement shall be, for each ton of Products purchased, the Stumpage Price for such Product plus logging and hauling fees (collectively, the Logging Fees ) calculated as provided in Section 4.1(b). For purposes of this Agreement, the weight of Products shall be determined by Purchaser at the time of delivery of each load by subtracting the tare weight of the truck from the gross loaded weight of the same load, as measured on scales certified by the South Carolina Department of Agriculture, Division of Weights and Measures, and maintained by Purchaser within the variation tolerances required by the Department and any applicable law or regulations.
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Section 4.2 Emergency Pine Sawtimber Pricing . If during the Term the simple average of the published weekly Southern Pine Composite Lumber prices for the immediately preceding calendar month, as reported in Random Lengths, The Weekly Report on North American Forest Products Markets (the Calendar Monthly Average RLSPCL Price ), falls below $[****] per thousand board feet, then effective on the second Monday following the Friday on which the final weekly prices for the last week of such immediately preceding calendar month are published, the Stumpage Prices determined as otherwise provided in Section 4.1(a) shall be discounted as follows, based on the Calendar Monthly Average RLSPCL Price:
Calendar Monthly Average RLSPCL Price |
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Discount on Pine Sawtimber Stumpage Price |
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[****]% |
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[****]% |
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$[****]-$[****] |
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[****]% |
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$[****] or less |
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[****]% |
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The discounts shall cease, and the Stumpage Price of Pine Sawtimber shall revert to the full Stumpage Price determined as provided in Section 4.1(a), on the second Monday following the next Friday on which the final weekly prices for the last week of a calendar month are published showing that the Calendar Monthly Average RLSPCL Price is $300 per thousand board feet or more. As an example only, the Stumpage Price calculated as provided in this Section 4.2 for December, 2007 would have been as follows:
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11/02/07 |
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11/09/07 |
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11/16/07 |
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11/23/07 |
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11/20/07 |
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November
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[****] |
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[****] |
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[****] |
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[****] |
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[****] |
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[****] |
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November Calendar Monthly Average RLSPCL of $[****] indicates a [****]% discount on Stumpage Price for Pine Sawtimber for December, 2007.
Section 4.3 Delivery Terms . All Products covered by this Agreement shall be delivered to Purchaser F.O.B. to the Delivery Locations. Risk of loss and title shall pass to Purchaser when Products are weighed in at the designated Delivery Locations. Deliveries of Products to the Delivery Locations shall be made as reasonably directed by Purchaser, consistent with the provisions of Sections 2.5 and 2.6.
Section 4.4 Payment . Purchaser shall pay Seller for Products delivered by Seller the price determined as provided in Section 4.1 on Wednesday of each week for deliveries made during the period from Monday of the prior week through Sunday of that week. Amounts not paid when due shall bear interest at a fixed rate per annum equal to the Default Rate (determined as of the date the amount was due). Purchaser shall report to Seller the information required by Section 48-23-97 of the South Carolina Code of Laws (or any successor provision) in an
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electronic format reasonably acceptable to both parties in substantially the same manner as the current practice as of the Effective Date.
Section 4.5 Loggers . Seller shall be responsible for paying all loggers who log Products being delivered to Purchaser pursuant to this Agreement.
Section 4.6 Taxes and Fees . Any taxes or fees now or hereafter assessed with respect to Products processed or sold under this Agreement shall be allocated between Seller and Purchaser as provided by applicable law. For purposes of clarity, the South Carolina Forest Renewal Tax, as in effect on the Effective Date, is a tax paid by the processor of primary forest products and, therefore, shall continue to be paid by Purchaser as long as applicable law provides that such tax shall be paid by the processor of primary forest products.
Section 4.7 Warranty . (a) Seller will convey to Purchaser upon delivery good and valid title to all of the Products sold to Purchaser under this Agreement, free and clear of all liens, charges, security interests, mortgages and other encumbrances (other than any such liens, charges, security interests, mortgages or encumbrances created by or through Purchaser). The Products sold to Purchaser under this Agreement will meet the applicable Product Specifications, if any, at the time of delivery.
(x) reject the nonconforming Pine Sawtimber in the load (which nonconforming Pine Sawtimber shall be returned to Seller at Sellers expense on the same truck and shall not count towards the Annual Plan Sawtimber Volume for that Calendar Year), or
(y) reject the entire truckload of Products (which shall be returned to Seller at Sellers expense on the same truck and shall not count towards the Annual Plan Sawtimber Volume or the Annual Plan Pulpwood Volume for that Calendar Year), or
(z) accept the entire truckload, but reduce the price paid for that portion of the Pine Sawtimber that is nonconforming to the price payable under this Agreement for Pine Pulpwood (a cull), and the nonconforming Pine Sawtimber shall count towards the Annual Plan Pulpwood Volume for that Calendar Year (with the remainder of the Pine Sawtimber on the truck counting towards the Annual Plan Sawtimber Volume for that Calendar Year); or
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(x) accept the entire truckload of Products, but reduce the price paid for [****]% (and not more than [****]%) of the net load weight of the Pine Sawtimber on such truck to the price payable under this Agreement for Pine Pulpwood, and such [****]% portion of the net load weight shall count towards the Annual Plan Pulpwood Volume for that Calendar Year (with the remainder of the Pine Sawtimber on the truck counting towards the Annual Plan Sawtimber Volume for that Calendar Year); or
(y) reject the entire truckload of Products (which shall be returned to Seller at Sellers expense and shall not count towards the Annual Plan Sawtimber Volume or the Annual Plan Pulpwood Volume for that Calendar Year).
Section 4.8 Limitation of Warranties . EXCEPT FOR THE WARRANTIES EXPRESSLY SET FORTH IN SECTION 4.7(a) OF THIS AGREEMENT, THE PRODUCTS ARE BEING SOLD AS IS AND WITH ALL FAULTS, AND SELLER IS NOT MAKING ANY OTHER WARRANTIES, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, INCLUDING, IN PARTICULAR, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE (AS DEFINED IN THE SOUTH CAROLINA UNIFORM COMMERCIAL CODE), ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED AND DISCLAIMED.
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This Agreement shall remain in full force and effect for the period from the Effective Date through the fifteenth anniversary of the Effective Date (the Term ), unless sooner terminated as provided in Article 7 and subject to extension by mutual written agreement of the parties.
Section 6.1 Seller Power and Authority; Enforceability . Seller represents and warrants to Purchaser that: (i) Seller is a limited liability company duly organized and validly existing under the laws of the State of Delaware, with the requisite authority to enter into this Agreement and to perform its obligations hereunder, and (ii) this Agreement has been duly authorized, executed and delivered by Seller and constitutes the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by bankruptcy, reorganization, insolvency, moratorium, receivership or other similar laws affecting or relating to the enforcement of creditors rights or remedies generally and general principles of equity (whether considered at law or in equity).
Section 6.2 Purchaser Power and Authority; Enforceability . Purchaser represents and warrants to Seller that: (i) Purchaser is a limited liability company duly organized and validly existing under the laws of the State of Delaware, with the requisite authority to enter into this Agreement and to perform its obligations hereunder, and (ii) this Agreement has been duly authorized, executed and delivered by Purchaser and constitutes the legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, except as such enforceability may be limited by bankruptcy, reorganization, insolvency, moratorium, receivership or other similar laws affecting or relating to the enforcement of creditors rights or remedies generally and general principles of equity (whether considered at law or in equity).
Section 6.3 Management of the Timberlands and Sustainable Forest Practice Standards . Seller (or its designee(s)) shall be solely responsible for managing the silvicultural activities on the Timberlands and selecting the individual tracts from the Timberlands from which Products are supplied in accordance with the then current Annual Plan. All Products shall be harvested from the Timberlands. Seller (or its designees) shall cultivate, manage and maintain the Timberlands substantially in accordance with Sustainable Forest Practice Standards (or such other sustainable forest practices program as may be agreed upon by the parties in writing), and shall use loggers trained in such standards to log the Timberlands in accordance with the Best Management Practices published by the South Carolina Forestry Commission. Seller shall supply Products under this Agreement only from (i) portions of the Timberlands that have been certified by a third party as being in compliance with the Sustainable Forest Practice Standards or other agreed upon sustainable forest practices program or (ii) Timberlands which Seller has determined in its sole discretion no longer will be used for forestry purposes after the timber thereon is harvested.
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Section 6.4 Continued Supply Upon Sale of Timberlands . (a) If, in connection with the sale of Timberlands used by Seller to produce Products for sale to Purchaser (other than Timberlands located in the East Edisto District), Seller determines that it will not be able to continue to deliver to Purchaser the Pine Pulpwood Committed Volume set forth on Annex C and the Pine Sawtimber Committed Volume set forth on Annex D (together, as adjusted, the Committed Volume of Pine Products ) from its remaining Timberlands and remain in compliance with its obligations under Section 6.3, Seller shall so notify Purchaser in writing and shall condition the sale of such Timberlands upon the assumption by the purchaser(s) of such Timberlands, on the same terms as are set forth in this Agreement, of: (i) Sellers obligation to supply all Hardwood Pulpwood and Hardwood Chips harvested from such Timberlands (but only such Timberlands), (ii) Sellers obligations under Section 2.1(e) with respect to such Timberlands (but only with respect to such Timberlands), (iii) Sellers obligation to supply sufficient Pine Products from such Timberlands so that Seller and all such purchaser(s) thereafter are able to sell to Purchaser, in the aggregate, the Committed Volume of Pine Products pursuant to the terms of this Agreement, and (iv) all other obligations of Seller under this Agreement, to the extent related to the foregoing obligations so assumed by such purchaser(s). In such event, Seller shall be obligated to comply with its remaining obligations under this Agreement, including, without limitation, its obligation to supply its share of the Committed Volume of Pine Products from its remaining Timberlands, its obligations under Sections 2.1(e) and 2.3 with respect to its remaining Timberlands and all other obligations under this Agreement relating to the foregoing. Notwithstanding the foregoing, the sale by Seller of all or a portion of the Timberlands located in the East Edisto District shall not relieve Seller from complying with all of its obligations under this Agreement from the remaining Timberlands.
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Section 6.5 Independent Contractors . No relationship of employer and employee, or master and servant, is intended to exist, nor shall any be construed to exist, between Purchaser and Seller, or between either party and any servant, agent, employee, subcontractor or supplier of or to the other party. Each party shall select and pay its own servants, agents, employees,
30
subcontractors and suppliers, and neither party nor any of its servants, agents, employees, subcontractors and suppliers shall be subject to any orders, supervision or control of the other party. The parties acknowledge that this Agreement does not create a partnership, joint venture or any relationship other than a contract between independent parties.
Section 6.6 Compliance with Laws . In performing their respective obligations under this Agreement, each party shall comply, in all material respects, with all applicable laws and all applicable rules, regulations and orders of governmental authorities having jurisdiction over the party.
Section 6.7 Insurance . (a) Seller shall maintain during the Term, at Sellers sole expense, insurance of the following types in at least the amounts specified:
31
32
Section 6.8 Limitation of Liability and Indemnity . (a) Purchaser and its Affiliates shall in no way be liable for any personal injuries (including death), property damage or other Losses caused by, resulting from, or attributable to, Sellers performance under this Agreement, or in the operation of the business of Seller or any servant, agent, employee, subcontractor or supplier of Seller in connection with this Agreement. Seller shall indemnify, defend and hold Purchaser and its subsidiaries and other Affiliates, and each of its and their respective agents, officers, partners, directors, employees, successors and assigns harmless, from and against any third party claim, demand, cause of action, lawsuit or other Loss arising out or resulting from performance of this Agreement by Seller, except to the extent such Loss is finally determined (in accordance with the dispute resolution provisions of this Agreement) to have arisen out of or resulted from, but only to the extent of, the negligence, intentional misconduct or bad faith of Purchaser or any such subsidiary, Affiliate, servant, agent, officer, partner, director, subcontractor or supplier.
Section 7.1 General Termination . (a) This Agreement may be terminated prior to the end of the Term in the following manner:
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Section 7.2 Termination if Kraft Mill Will Cease Manufacturing. If the Kraft Mill will cease manufacturing paper and paperboard products for a period of more than six months, Purchaser shall so notify Seller in writing at least 120 days (180 days, if Purchaser then directly or indirectly controls another mill (other than Purchasers mill in Roanoke Rapids, North Carolina) which is engaged in the production of linerboard) (the Notice Period ) in advance of the date on which such operations are to cease, and this Agreement shall terminate, effective as of the end of the Notice Period; provided, however, that such termination shall not relieve Purchaser of the obligation to: (i) purchase the full Annual Pulpwood Take or Pay Volume and the full Annual Sawtimber Take or Pay Volume pursuant to Section 3.1 during the period from the date of such written notice through the Notice Period (with the amount to be purchased determined based on a pro rata portion of the Annual Plan or Annual Plans in effect during such Notice Period plus the amount of any unpurchased carryover from the prior Calendar Year), (ii) pay Seller for any failure by Purchaser to purchase the full Annual Pulpwood Non-Take or Pay Volume and the full Annual Sawtimber Non-Take or Pay Volume pursuant to Section 3.2 during the period from the date of such written notice through the Notice Period (with the amount to be purchased determined based on a pro rata portion of the Annual Plan or Annual Plans in effect during such period), and (iii) purchase from Seller any remaining unpurchased amount of any Annual Pulpwood Take or Pay Volume and/or Annual Sawtimber Take or Pay Volume carried over from the prior Calendar Year. If during the Notice Period Purchaser determines that the
34
Kraft Mill will not cease manufacturing paper and paperboard products for a period of more than six months, Purchaser may revoke the termination of this Agreement by giving written notice of such revocation to Seller as soon as practicable and, in any event, prior to the end of the Notice Period, in which event the Notice Period shall immediately cease for purposes of the following sentence. The provisions of Section 2.2(f) and the last sentence of Section 2.6(b) shall not apply during the Notice Period.
Section 7.3 Termination if the SLM Sawmill Will Cease Operating . If the SLM Sawmill will cease operating for a period of more than six months, Purchaser shall so notify Seller in writing at least 90 days (the Sawmill Notice Period ) in advance of the date on which such operation is to cease, and this Agreement shall terminate with respect to Pine Sawtimber, effective as of the end of the 90-day period; provided, however, that: (i) if such termination occurs during the initial 24-month period following the date of the Asset Purchase Agreement, then during the remainder of such 24-month period Purchaser shall purchase or pay for the Annual Sawtimber Take or Pay Volume, as adjusted in accordance with Section 2.2(e) as if the SLM Sawmill had begun one-shift operation on the date of the Asset Purchase Agreement (regardless of whether the SLM Sawmill was then operating with only one shift), (ii) the Pine Pulpwood Committed Volume for the portion of such Calendar Year following the effective date of such termination and each subsequent Calendar Year during the Term shall be reduced by 50%, (iii) subject to the penultimate sentence of this Section 7.3, Sellers obligations under Section 2.1(e) shall terminate, effective immediately, and (iv) Purchaser shall purchase from Seller any remaining unpurchased amount of any Sawtimber Take or Pay Volume carried over from the prior Calendar Year. Notwithstanding any such termination of the parties respective obligations with respect to Pine Sawtimber under this Agreement, the chip mill located at the SLM Sawmill may, at Purchasers discretion, continue to serve as a Delivery Location for the delivery of Products other than Pine Sawtimber. Seller shall use commercially reasonable efforts to provide Purchaser with the opportunity to quote on the purchase of Pine Pulpwood meeting the Pine Pulpwood Quality Specifications that is to be harvested by Seller from the Timberlands during the Sawmill Notice Period that does not meet the specifications set forth in the last sentence of Section 2.1(e); provided that Seller shall not be under any obligation to accept any such quote. If during the Sawmill Notice Period Purchaser determines that the SLM Sawmill will not cease operating for a period of more than six months, Purchaser may revoke the termination of this Agreement with respect to Pine Sawtimber by giving written notice of such revocation to Seller as soon as practical and, in any event, prior to the end of the Sawmill Notice Period, in which event: (i) Sellers obligations under Section 2.1(e) shall be immediately reinstated, and (ii) the Sawmill Notice Period shall immediately cease for purposes of the following sentence. The provisions of Section 2.2(f) shall not apply during the Sawmill Notice Period.
Section 8.1 Assignment by Seller . Except as otherwise provided in Section 6.4(a) or this Section 8.1, this Agreement may not be assigned by Seller in whole or in part. Notwithstanding the foregoing, and subject to this Section 8.1, Seller may assign all of its rights
35
and obligations under this Agreement, with prior written notice to Purchaser: (i) to any Person who is and at all times during the Term remains controlled by Seller, or (ii) to any Person who acquires all or a substantial part of the Timberlands (whether through an asset sale or a merger) and who assumes all of the liabilities and obligations of Seller under this Agreement (including, without limitation, the obligation of Seller (together with any purchasers of Timberlands who have assumed the obligations of Seller pursuant to Section 6.4(a)) to supply the Committed Volume of Pine Products and the obligations of Seller under Section 2.1(e) and Section 2.3 with respect to the Timberlands so acquired from Seller); provided, however, that in no event shall any such obligations assumed by any such Person apply to or cover any timberlands then or thereafter owned or controlled by such Person other than the Timberlands so acquired from Seller. No such assignment or assumption pursuant to Section 8.1(i) shall in any way affect the liabilities or obligations of Seller under this Agreement, and in the event of any such assignment or assumption, Seller shall remain fully liable for its liabilities and obligations under this Agreement. Upon any assignment and assumption pursuant to Section 8.1(ii), Seller automatically shall be released from all of its obligations under this Agreement; provided, however, that thereafter until the fifteenth anniversary of the Effective Date (or such earlier date on which this Agreement is terminated), Seller shall not sell any Pine Pulpwood or Hardwood Pulpwood meeting the Pine Pulpwood Quality Specifications (other than Pine Pulpwood described in the last sentence of Section 2.1(e)) or the Hardwood Pulpwood Quality Specifications, respectively, from any of the Timberlands Seller continues to own or control (including, without limitation, any Timberlands it thereafter acquires or controls) to any Person other than Purchaser unless: (x) such Pulpwood is being sold to the Person who has assumed Sellers rights and obligations under this Agreement pursuant to this Section 8.1 for resale to Purchaser pursuant to this Agreement as part of the Committed Volume of Pine Products, or (y) Seller has first offered such Pine Pulpwood or Hardwood Pulpwood, as the case may be, to Purchaser at prices determined as provided in Article 4 (or, if Seller elects not to sell such Products on a delivered basis, at the Stumpage Price determined as provided in Article 4), and Purchaser elects not to accept such offer. If Purchaser elects to accept the offer referred to in clause (y) of the preceding sentence, Seller may sell the Pine Pulpwood or Hardwood Pulpwood subject to such offer directly to Purchaser or to another Person who is obligated in turn to sell all such Pine Pulpwood or Hardwood Pulpwood to Purchaser at prices determined as provided in Article 4. The purchase price for the foregoing Products shall be paid as provided in Section 4.4, and the Products shall comply with the warranties set forth in Section 4.7 and the last sentence of Section 6.3. Any purported assignment or transfer of this Agreement in violation of this Section 8.1 shall be void and of no force or effect. Nothing in this Section 8.1 shall limit the obligation of Seller to comply with Section 6.4.
Section 8.2 Assignment by Purchaser . Except as otherwise provided in this Section 8.2, this Agreement may not be assigned by Purchaser in whole or in part. Notwithstanding the foregoing, Purchaser may assign all of its rights and obligations under this Agreement, with prior written notice to Seller, to any Person who is and at all times during the Term remains controlled by Purchaser. No such assignment or assumption shall in any way affect the liabilities or obligations of Purchaser under this Agreement, and in the event of any such assignment or assumption, Purchaser shall remain fully liable for its liabilities and obligations under this Agreement. Purchaser also may, upon written notice to Seller, assign its rights and obligations under this Agreement with respect to Pine Pulpwood, Pine Chips,
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Hardwood Pulpwood and Hardwood Chips to any Person who acquires all or substantially all of the assets of the Kraft Mill (whether through an asset sale or a merger), upon which event Purchaser automatically shall be released from all of its obligations hereunder with respect to the purchase of such Products. Purchaser also may, upon written notice to Seller, assign its rights and obligations under this Agreement with respect to Pine Sawtimber to any Person who acquires substantially all of the assets of the SLM Sawmill (whether through an asset sale or a merger) (a Sawmill Purchaser ), upon which event Purchaser automatically shall be released from all of its obligations hereunder with respect to Pine Sawtimber. The applicable purchaser described in the foregoing two sentences shall assume all of the liabilities and obligations of Purchaser with respect to the applicable Products under this Agreement. In the event that Purchaser assigns its rights and obligations under this Agreement with respect to Pine Sawtimber to a Sawmill Purchaser and Seller subsequently terminates this Agreement with respect to Pine Sawtimber in accordance with Section 7.1(a)(ii) or (iii) due to a breach of this Agreement with respect to Pine Sawtimber by the Sawmill Purchaser, then, from and after the effective date of such termination, (i) the Pine Pulpwood Committed Volume for the portion of such Calendar Year following the effective date of such termination and each subsequent Calendar Year during the Term shall be reduced by 50% and (ii) Sellers obligations under Section 2.1(e) shall immediately terminate. Any purported assignment or transfer of this Agreement in violation of this Section 8.2 shall be void and of no force or effect.
Section 8.3 Notices . All notices and other communications hereunder shall be in writing and shall be deemed given when delivered personally or sent by electronic mail (other than notices under Sections 3.5, 6.4 or Article 7 or 8) or overnight mail or, to the extent receipt is confirmed, by facsimile, or by registered mail, return receipt requested, or by overnight courier service, to a party at the following address (or to such other address as such party may have specified by notice given to the other party pursuant to this Section 8.3):
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If to Purchaser: |
KAPSTONE CHARLESTON KRAFT LLC |
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P.O. Box 118005 |
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Charleston, SC 29423-8005 |
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Attention: Manager of Wood Procurement |
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Telephone: 843-745-3125 |
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Facsimile : 843-745-3495 |
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With a copy (solely |
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with respect to |
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notices under |
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Section 3.5, Section 6.4 |
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or Article 7 or 8) to: |
KAPSTONE CHARLESTON KRAFT LLC |
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1101 Skokie Boulevard |
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Suite 300 |
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Northbrook, Illinois 60062 |
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Attention: President |
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Telephone: 847/239-8806 |
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Facsimile : 847/205-7264 |
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Telephone: 843-745-3125 |
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Facsimile : 843-745-3495 |
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If to Seller: |
MEADWESTVACO FORESTRY, LLC |
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180 Westvaco Road |
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Summerville, SC 29483 |
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Attention: Regional Director |
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Telephone: 843-851-4686 |
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Facsimile: 843-851-4642 |
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With a copy (solely |
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with respect to |
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notices under |
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Section 3.5, Section 6.4 |
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or Article 7 or 8) to: |
MEADWESTVACO CORPORATION |
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11013 West Broad Street |
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Glen Allen, Virginia 23060 |
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Attention: General Counsel |
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Telephone: (804) 327-6443 |
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Facsimile: (804) 327-8164 |
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Notices shall be deemed received at the earlier of actual receipt or one business day after being sent by overnight mail or by overnight courier services, the first business day after being sent by facsimile, or five business days after being sent by registered mail. Business day shall be a business day in the jurisdiction of the recipient.
Section 8.4 Amendment; Waiver . No amendment, modification or discharge of this Agreement, including by custom, usage of trade, or course of dealing or performance, and no waiver under this Agreement, shall be valid or binding unless set forth in writing and duly executed by the party against whom enforcement of the amendment, modification, discharge or waiver is sought. Any such waiver shall constitute a waiver only with respect to the specific matter described in such writing and shall in no way impair the rights of the party granting such waiver in any other respect or at any other time. The failure of either party to insist in any one or more instances upon strict performance of any of the provisions of this Agreement or take advantage of any of its rights hereunder shall not be construed as a waiver of any such provisions or the relinquishment of any such rights, but the same shall continue and remain in full force and effect.
Section 8.5 Entire Agreement . This instrument constitutes the entire agreement between the parties relating to the subject matter hereof and there are no agreements, understandings, conditions, representations, or warranties not expressly set forth herein.
Section 8.6 Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of South Carolina, without reference to the conflicts of laws or choice of law provisions thereof.
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Section 8.7 Binding Agreement. Subject to the limitations set forth in Sections 8.1 and 8.2, this Agreement shall bind and inure to the benefit of the parties and their respective successors and permitted assigns, and to the benefit of each Person entitled to indemnification under Section 6.8.
Section 8.8 Headings. The section and other headings in this Agreement are inserted solely as a matter of convenience and for reference, are not a part of this Agreement, and shall not be deemed to affect the meaning or interpretation of this Agreement.
Section 8.9 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument.
Section 8.10 Annexes. All Annexes to this Agreement referenced herein are incorporated herein by reference.
Section 8.11 Severability, etc. Any term or provision of this Agreement that is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability, without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or unenforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any term or provision of this Agreement is so broad as to be invalid or unenforceable, the provision shall be interpreted to be only so broad as is valid or enforceable. Subject to the foregoing provisions of this Section 8.11, if any term or provision of this Agreement is invalid or unenforceable for any reason, such circumstances shall not have the effect of rendering such term or provision invalid or unenforceable in any other case or circumstance.
Section 8.12 No Presumption Against Drafter. Each of the parties hereto has jointly participated in the negotiation and drafting of this Agreement. In the event of any ambiguity or question of intent or interpretation, this Agreement shall be construed as if drafted jointly by each of the parties hereto and no presumptions or burdens of proof shall arise favoring any party by virtue of the authorship of any of the provisions of this Agreement.
Section 8.13 Dispute Resolution. (a) Each of the parties from time to time shall designate an individual who shall be responsible for managing such partys relationship with the other party under this Agreement (a Contract Manager ). In the event of any controversy, dispute or claim arising between the parties in connection with, or with respect to, any provision of this Agreement or the performance by any party of its obligations under this Agreement, or the breach, termination or validity thereof, including the dispute of any payment or any claim by a party that the other party has breached the terms of this Agreement (a Dispute ), the parties shall refer the Dispute to the two Contract Managers, who shall cooperate in attempting to resolve such Dispute. If the Contract Managers fail to resolve the Dispute within 10 days after it has been referred to them, either party may submit the Dispute in writing for resolution to a panel consisting of the individual then acting as general manager (regardless of title) of Sellers forestry operations and the individual then acting as general manager (regardless of title) of Purchasers Kraft Mill. Neither party shall institute any legal action to enforce this Agreement
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with respect to the matter that is the subject of the Dispute until at least 10 days after the Dispute has been referred to the two general managers for resolution.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above.
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KAPSTONE CHARLESTON KRAFT LLC |
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By: |
/s/ Roger W. Stone |
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Name: Roger W. Stone |
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Title: Chief Executive Officer |
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MEADWESTVACO FORESTRY, LLC, |
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By: |
/s/ Robert E. Birkenholz |
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Name: Robert E. Birkenholz |
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Title: Treasurer |
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ANNEX A-1
PINE PULPWOOD QUALITY SPECIFICATIONS
1. Minimum top diameter outside bark, [****] inches.
2. Maximum diameter outside bark anywhere on stem, [****] inches.
3. Tops from sawtimber trees (including CNS trees) acceptable.
4. Minimum piece length is [****] feet.
5. Limbs must be trimmed flush with stem.
6. Defects such as forks and excessive crooks not accepted.
7. Stems must be clean (no vines, limbs, plastic, etc.), and bark shall not intentionally have been removed.
8. Stems must be free of wire, nails or metal of any kind.
9. Stems must be able to convey through the mill.
10. Loads deemed unsafe to unload for any reason such as stems placed above the standards or any other unsafe condition will be rejected.
11. Maximum length not to exceed [****] feet.
12. Wood must be cut from sources harvested within the preceding [****] months.
[****] indicates confidential treatment
ANNEX A-2
PINE SAWTIMBER QUALITY SPECIFICATIONS
1. Minimum top diameter outside bark (DOB): pine chipnsaw, [****] inches and pine sawtimber, [****] inches
2. Maximum diameter outside bark anywhere on stem, [****] inches.
3. Splinter pulls are not acceptable. Butt spurs must be trimmed flush.
4. Butts must be sawed squarely, eliminating fiber separation and bevel cuts.
5. All stems with excessive flared butts must be trimmed. Excessive flare is any butt that is [****] larger than the diameter of the stem one foot from the butt.
6. The butt diameter of a tree is determined at a point above any excessive swell. Excessive swell is any butt that is [****] inches larger than the diameter of the stem [****] inches from the butt. In the case of a swelled butt the official butt diameter will be measured at a point [****] inches above the actual cut.
7. Limbs must be trimmed flush with stem.
8. Defects such as forks and excessive crooks are not acceptable.
9. Stems must be clean (no vines, limbs, plastic, etc.).
10. Stems must be free of wire, nails, or metal of any kind.
11. No severe cronartium scars. Severe scars are defined as those affecting [****] or more of the circumference of the stem where they occur.
12. No Pond Pine or Spruce Pine will be accepted.
13. Stems must be reasonably straight and able to convey through the mill.
14. Loads deemed unsafe to unload for reasons such as stems placed above the standards or any other unsafe condition will be rejected.
15. Maximum length not to exceed [****] feet.
16. No excessive or large knots. Knots are defined as the red core of a limb that has been cut off or a decayed knot. Excessive knots are defined as three or more knots that are greater than [****] inches in diameter in a [****] foot Section of the log. Large knots are [****] inches or larger in diameter.
[****] indicates confidential treatment
17. No branch whorls. A branch whorl is defined as a group of knots resulting in [****] inches or more of taper in a one foot Section of the log.
18. Wood must be cut from freshly harvested sources and delivered within [****] weeks of harvest.
6 inch Top Chipnsaw Specifications :
A. No minimum [****] inch butt (DOB) without butt swell or flare.
B. Minimum length is [****] feet to a merchantable [****] inches minimum top DOB.
C. Stems must be reasonably straight. Maximum allowable sweep is [****] inches per [****] foot log on no minimum -[****] inch butt stems and [****] inches per [****] foot log on the larger sizes.
D. Stems may be loaded in either direction to maximize payload.
7 inch Top Sawtimber Specifications :
A. [****] inches -[****] inch butt (DOB) without butt swell or flare.
B. Minimum [****] inch merchantable top DOB.
C. Stems must be reasonably straight. Maximum allowable sweep is [****] inches per [****] foot log.
D. Excessive or large knots are not acceptable.
E. Cut logs [****] foot [****] inches or [****] foot [****] inches are acceptable. Up to [****] cut logs can be placed on top of a long load between the front and rear bolsters. Double deck loads are also acceptable.
F. Minimum length for tree length stems is [****] feet.
[****] indicates confidential treatment
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ANNEX A-3
PINE CHIP QUALITY SPECIFICATIONS
WOOD : All chips are to be produced from sound, clean, bark free, unseasoned materials. Chips are to be free of plastics and other foreign material (metal, large limbs, tarps, rubber).
SPECIES : Pine trees of genus Pinus .
MOISTURE : When delivered, the moisture content shall not exceed [****]%, which is determined by comparing the sample weight to the oven dry (O.D.) weight of the sample. The parties shall review in a systematic and scientific manner the impact, if any, on the operation of the Kraft Mill from increasing the maximum moisture content of pine chips to [****]% from the [****]% previously in effect and shall consider either changing the purchase price of Pine Chips or reducing the Committed Volume of Pine Products by a proportionate amount, in either case consistent with the impact, if any, they determine exists. No kiln dried chips will be accepted.
BARK : Bark content will not exceed [****]% by weight of the chips delivered.
CHIP SIZE : The chipper will set up to cut a [****] inch chip length with the majority of the chips falling in the [****]mm thickness range. Target sizes as classified by the Radar Classifier are listed below.
Category |
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Target % |
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Category |
Sawdust |
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[****] |
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3mm RH |
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[****] |
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2mm Bar |
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[****] |
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4mm Bar |
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[****] |
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[****] |
6mm Bar |
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[****] |
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[****] |
8mm Bar |
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[****] |
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[****] |
10mm Bar |
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[****] |
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Target is that an average of [****]% of the chips on a monthly basis will be in the Accepts category. The Accepts percentage shall be a percentage calculated in accordance with the following formula: [****]
Suppliers should follow the appropriate specification for chip size according to the primary type of material (pine or hardwood) they are chipping.
UNACCEPTABLE CHIPS : Chips exhibiting the following characteristics are not acceptable:
a. Metal
b. Excessive mud or sand
c. Rotten wood
d. Contamination (tar, oils, concrete, asphalt, rubber, plastic)
e. Wood not harvested within the preceding four months
[****] indicates confidential treatment
ANNEX B-1
HARDWOOD PULPWOOD QUALITY SPECIFICATIONS
19. Minimum to diameter outside bark, [****] inches.
20. Maximum diameter outside bark anywhere on the stem, is [****] inches.
21. Tops from sawtimber trees acceptable.
22. Minimum piece length is [****] feet.
23. Limbs must be trimmed flush with stem.
24. Defects such as excessive crooks are not accepted.
25. Stems must be clean (no vines, limbs, metal, plastic, etc.), and bark shall not intentionally have been removed.
26. Stems must be free of wire, nails or metal of any kind.
27. Stems must be able to convey through the mill.
28. Loads deemed unsafe to unload for reasons such as stems placed above the standards or any other unsafe condition will be rejected.
29. Maximum length not to exceed [****] feet.
30. Wood must be cut from sources harvested within the preceding [****] months.
[****] indicates confidential treatment
ANNEX B-2
HARDWOOD CHIP QUALITY SPECIFICATIONS
WOOD : All chips are to be produced from sound, clean, bark free, unseasoned materials. Chips are to be free of plastics and other foreign material (metal, large limbs, tarps, rubber).
SPECIES : Hardwood local deciduous tree species that bear leaves. Pine and hardwood shall not be mixed.
MOISTURE : When delivered, the moisture content shall not exceed [****]%, which is determined by comparing the sample weight to the oven dry (O.D.) weight of the sample. No kiln dried chips will be accepted.
BARK : Bark content will not exceed [****]% by weight of the chips delivered.
CHIP SIZE : The chipper will set up to cut a [****] inch chip length, with the majority of the chips falling in the [****]mm thickness range. Target sizes as classified by the Radar Classifier are listed below.
Category |
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Target % |
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Category |
Sawdust |
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[****] |
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3mm RH |
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[****] |
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2mm Bar |
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[****] |
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[****] |
4mm Bar |
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[****] |
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[****] |
6mm Bar |
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[****] |
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[****] |
8mm Bar |
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[****] |
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|
10mm Bar |
|
[****] |
|
|
Target is that an average of [****]% of the chips on a monthly basis will be in the Accepts category. The Accepts percentage shall be a percentage calculated in accordance with the following formula: [****]
Seller shall follow the appropriate specification for chip size according to the primary type of material (pine or hardwood) it is chipping.
UNACCEPTABLE CHIPS : Chips exhibiting the following characteristics are not acceptable:
a. Metal
b. Excessive mud or sand
c. Rotten wood
d. Contamination (tar, oils, concrete, asphalt, rubber, plastic)
e. Wood not harvested within the preceding four months
[****] indicates confidential treatment
ANNEX C
PINE
PULPWOOD COMMITTED VOLUME
AND TAKE OR PAY VOLUME
Calendar Year |
|
Committed Volume and
|
|
Maximum Take or Pay Volume
|
|
7/1/08 12/31/08 |
|
[****] |
|
[****] |
|
2009 |
|
[****] |
|
[****] |
|
2010 |
|
[****] |
|
[****] |
|
2011 |
|
[****] |
|
[****] |
|
2012 |
|
[****] |
|
[****] |
|
2013 |
|
[****] |
|
[****] |
|
2014 |
|
[****] |
|
[****] |
|
2015 |
|
[****] |
|
[****] |
|
2016 |
|
[****] |
|
[****] |
|
2017 |
|
[****] |
|
[****] |
|
2018 |
|
[****] |
|
[****] |
|
2019 |
|
[****] |
|
[****] |
|
2020 |
|
[****] |
|
[****] |
|
2021 |
|
[****] |
|
[****] |
|
2022 |
|
[****] |
|
[****] |
|
1/1/23 6/30/23 |
|
[****] |
|
[****] |
|
[****] indicates confidential treatment
ANNEX D
PINE SAWTIMBER COMMITTED VOLUME AND TAKE OR PAY VOLUME
Calendar Year |
|
Take or Pay Volume (and
|
|
7/1/08 12/31/08 |
|
[****] |
|
2009 |
|
[****] |
|
2010 |
|
[****] |
|
2011 |
|
[****] |
|
2012 |
|
[****] |
|
2013 |
|
[****] |
|
2014 |
|
[****] |
|
2015 |
|
[****] |
|
2016 |
|
[****] |
|
2017 |
|
[****] |
|
2018 |
|
[****] |
|
2019 |
|
[****] |
|
2020 |
|
[****] |
|
2021 |
|
[****] |
|
2022 |
|
[****] |
|
1/1/23 6/30/23 |
|
[****] |
|
[****] indicates confidential treatment
ANNEX E
INITIAL DELIVERY LOCATIONS
North Charleston Paper Mill
Andrews Chip Mill
Hampton Chip Mill
Beech
Hill Chip Mill
(or replacement facility at Badham)
Summerville Lumber Mill
Dempsey
Wood Products
(Rowesville, South Carolina)
ANNEX F
LOGGING FEE COMPONENTS AND INITIAL LOGGING FEES
Logging fees are calculated on a per ton basis by adding the Stump to Truck amount plus the Base Haul amount plus the Rate Per Additional Mile for each mile hauled over the mileage covered by the Base Haul amount plus the applicable Fuel Adjustment amount.
|
|
Stump to Truck |
|
Base Haul (35 miles) |
|
Rate per Additl. Mile |
|
|||
|
|
|
|
|
|
|
|
|||
I. CLEARCUT PINE |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
Product Type |
|
|
|
|
|
|
|
|||
Roundwood |
|
$ |
[****] |
* |
$ |
[****] |
|
$ |
[****] |
|
|
|
|
|
|
|
|
|
|||
In-Woods Chips |
|
$ |
[****] |
* |
$ |
[****] |
|
$ |
[****] |
** |
|
|
|
|
|
|
|
|
|||
Shovel Roundwood
|
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
|
|
|
|
|
|
|
|
|||
Shovel In-Woods Chips
|
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
** |
|
|
|
|
|
|
|
|
|||
II. THINNING PINE |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
Product Type |
|
|
|
|
|
|
|
|||
Roundwood |
|
$ |
[****] |
* |
$ |
[****] |
|
$ |
[****] |
|
|
|
|
|
|
|
|
|
|||
In-Woods Chips |
|
$ |
[****] |
* |
$ |
[****] |
|
$ |
[****] |
** |
|
|
|
|
|
|
|
|
|||
III. CLEARCUT HARDWOOD |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
Product Type |
|
|
|
|
|
|
|
|||
Roundwood |
|
$ |
[****] |
* |
$ |
[****] |
|
$ |
[****] |
|
|
|
|
|
|
|
|
|
|||
In-Woods Chips |
|
$ |
[****] |
* |
$ |
[****] |
|
$ |
[****] |
** |
|
|
|
|
|
|
|
|
|||
Shovel Roundwood
|
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
|
|
|
|
|
|
|
|
|||
Shovel In-Woods Chips
|
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
** |
*Add $ [****] per ton if the logger owns shovel logging equipment.
**To be reduced to $ [****] if the Reported Diesel Fuel Price falls below $[****] per gallon.
[****] indicates confidential treatment
Fuel Adjustment (per ton)
On-Highway |
|
Roundwood |
|
In-Woods Chips |
|
|||
Diesel Price |
|
Adjustment |
|
Adjustment |
|
|||
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
[****] indicates confidential treatment
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
[****] indicates confidential treatment
53
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
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|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
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$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
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$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
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$ |
[****] |
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$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
|
$ |
[****] |
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$ |
[****] |
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$ |
[****] |
|
$ |
[****] |
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$ |
[****] |
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$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
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$ |
[****] |
|
$ |
[****] |
|
$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
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$ |
[****] |
|
The parties shall expand this table by including additional amounts (calculated on the same proportional basis as the amounts already set forth in this table) if there are during the Term increases or decreases in diesel fuel prices above or below the amounts shown.
[****] indicates confidential treatment
54
ANNEX G
CALCULATION OF PRODUCTIVE ACRES AND AVERAGE FREIGHT PREMIUM
Base Average Pulpwood Freight Premium
PINE PULPWOOD
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Freight Logic Delivery Location (FLDL) |
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Weighted |
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Weighting |
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Weighted |
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Average |
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Number |
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Average |
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Units > |
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Average Haul |
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Premium per |
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Minimum |
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Mileage |
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of |
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Weighting |
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Haul |
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Minimum |
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for Weighting |
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Weighting |
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Haul |
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Premium |
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Tracts |
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Units* |
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Distance |
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Haul |
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Units > Min Haul |
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Unit |
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Andrews |
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[****] |
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[****] |
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[****] |
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[****] |
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[****] |
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[****] |
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[****] |
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$ |
[****] |
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Badham |
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[****] |
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[****] |
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[****] |
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[****] |
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[****] |
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[****] |
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[****] |
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$ |
[****] |
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BeechHill |
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[****] |
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[****] |
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[****] |
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[****] |
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[****] |
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[****] |
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[****] |
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$ |
[****] |
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Hampton |
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[****] |
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[****] |
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[****] |
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[****] |
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[****] |
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[****] |
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[****] |
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$ |
[****] |
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SLM |
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[****] |
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[****] |
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[****] |
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[****] |
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[****] |
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[****] |
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[****] |
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$ |
[****] |
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[****] |
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**** |
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Total Freight Premium per Weighting Unit: |
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$ |
[****] |
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*See worksheet Weighting Units
Base Average Sawtimber Freight Premium
PINE SAWTIMBER
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Freight Logic Delivery Location (FLDL) |
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Weighted |
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Average |
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Weighted |
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Weighting |
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Average Haul |
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Premium per |
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Minimum |
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Mileage |
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Number of |
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Weighting |
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Average Haul |
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Units > |
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for Weighting |
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Weighting |
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Haul |
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Premium |
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Tracts |
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Units* |
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Distance |
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Minimum Haul |
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Units > Min Haul |
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Unit |
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SLM |
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[****] |
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[****] |
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[****] |
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[****] |
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[****] |
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[****] |
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[****] |
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$ |
[****] |
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Total Freight Premium per Weighting Unit: |
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$ |
[****] |
|
*See worksheet Weighting Units
* Weighting Units Worksheet
Pine Pulpwood Weighting Units
Pine productive acres (PPA) for all pine stands, both planted and natural, regenerated in 2008 or before
If stand was planted after 2000, only a thinning is possible, so weighting units = PPA * [ ****] %
If stand was planted before 2001 and has already been thinned, weighting units = PPA * [ ****] %
If stand was planted before 2001 and has NOT been thinned, weighting units = PPA * [ ****] %
Pine Sawtimber Weighting Units
Pine productive acres (PPA) for all pine stands, both planted and natural, regenerated in 2000 or before, within [ ****] miles of SLM
If stand has been thinned, weighting units = PPA * [ ****] %
If stand has not been thinned, weighting units = PPA * [ ****] %
[****] indicates confidential treatment
Exhibit 10.11
KAPSTONE PAPER
AND PACKAGING CORPORATION
KAPSTONE KRAFT PAPER CORPORATION
$40,000,000
8.30% SENIOR SECURED NOTES DUE JULY 1, 2015
NOTE PURCHASE AGREEMENT
Dated as of July 1, 2008
TABLE OF CONTENTS
(Not Part of Agreement)
i
ii
iii
iv
v
KAPSTONE PAPER AND PACKAGING
CORPORATION
KAPSTONE KRAFT PAPER CORPORATION
1101 Skokie Boulevard, Suite 300
Northbrook, Illinois 60062
As of July 1, 2008
To Each of the Purchasers
Named in the
Purchaser Schedule Attached Hereto
Ladies and Gentlemen:
The undersigned, Kapstone Kraft Paper Corporation, a Delaware corporation (the Company ), and Kapstone Paper and Packaging Corporation, a Delaware corporation and the owner of all of the outstanding shares of capital stock of the Company (the Parent ), hereby agree with the purchasers named in the Purchaser Schedule attached hereto (herein called the Purchasers ) as set forth below. Reference is made to paragraph 10 hereof for definitions of capitalized terms used herein and not otherwise defined.
1. AUTHORIZATION OF ISSUE OF NOTES. The Company will authorize the issue of its senior secured promissory notes (the Notes ) in the aggregate principal amount of $40,000,000, to be dated the date of issue thereof, to mature July 1, 2015, to bear interest on the unpaid balance thereof from the date thereof until the principal thereof shall have become due and payable at the rate of 8.30% per annum (provided that, during any period when an Event of Default shall be in existence, at the election of the Required Holder(s) the outstanding principal balance of the Notes shall bear interest from and after the date of such Event of Default and until the date such Event of Default ceases to be in existence at the rate per annum from time to time equal to the Default Rate) and on overdue payments at the rate per annum from time to time equal to the Default Rate, and to be substantially in the form of Exhibit A attached hereto. The term Notes as used herein shall include each such senior secured promissory note delivered pursuant to any provision of this Agreement and each such senior secured promissory note delivered in substitution or exchange for any other Note pursuant to any such provision.
2. PURCHASE AND SALE OF NOTES. The Company hereby agrees to sell to each Purchaser and, subject to the terms and conditions herein set forth, each Purchaser agrees to purchase from the Company the aggregate principal amount of Notes set forth opposite such Purchasers name in the Purchaser Schedule attached hereto at 100% of such aggregate principal amount. The Company will deliver to each Purchaser, at the offices of Schiff Hardin LLP at 6600 Sears Tower, Chicago, Illinois, 60606, one or more Notes registered in such Purchasers name (or, if specified in the Purchaser Schedule, in the name of the nominee(s) for such Purchaser specified in the Purchaser Schedule), evidencing the aggregate principal amount of Notes to be purchased by such Purchaser and in the denomination or denominations specified with respect to such Purchaser in the Purchaser Schedule against payment of the purchase price thereof by transfer of immediately available funds on the date of closing, which shall be July 1, 2008
(herein called the closing or the date of closing ), for credit to the account or accounts as shall be specified in a letter on the Companys letterhead, in substantially the form of Exhibit B attached hereto, from the Company to the Purchasers delivered prior to the date of closing.
3. CONDITIONS OF CLOSING. Each Purchasers obligation to purchase and pay for the Notes to be purchased by such Purchaser hereunder is subject to the satisfaction, on or before the date of closing, of the following conditions:
3A. Documents. Such Purchaser shall have received original counterparts or, if satisfactory to such Purchaser, certified or other copies, of all of the following, each duly executed and delivered by the party or parties thereto, in form and substance satisfactory to such Purchaser, dated the date of closing unless otherwise indicated, and on the date of closing in full force and effect with no event having occurred and being then continuing that would constitute a default thereunder or constitute or provide the basis for the termination thereof:
(i) the Note or Notes to be purchased by such Purchaser in the form of Exhibit A attached hereto;
(ii) an Intercreditor and Collateral Agency Agreement among the Purchasers, the Bank Agent, the Collateral Agent, the Company and the Guarantors (herein, as the same may be amended, modified or supplemented from time to time in accordance with the provisions thereof, called the Intercreditor Agreement );
(iii) a Guaranty Agreement made by each Guarantor in favor of the holders of the Notes in the form of Exhibit C attached hereto (together with any other guaranty pursuant to which the Notes are guarantied and which is entered into as contemplated hereby or by the Intercreditor Agreement or by any other Transaction Document, as the same may be amended, modified or supplemented from time to time in accordance with the provisions thereof, together with all joinders thereto, the Guaranty Agreement );
(iv) a Pledge and Security Agreement made by the Company and each Guarantor in favor of the Collateral Agent for the benefit of the Banks and the holders of the Notes under which the Notes, the Companys obligations under the Credit Agreement and such Guarantors obligations under its Guaranty Agreement are secured by a security interest in all personal property of the Company and such Guarantor, including without limitation by a pledge of all of the capital stock of or other ownership interests in the Company and each Subsidiary of the Company (together with any other security agreement pursuant to which the Notes are secured and which is entered into as contemplated hereby, by the Intercreditor Agreement or by any other Transaction Document, as the same may be amended, modified, or supplemented from time to time in accordance with the provisions thereof, collectively called the Security Agreements and individually called a Security Agreement );
(v) a Mortgage or Leasehold Mortgage made by the Company and each Guarantor, as appropriate, with respect to each parcel of real property owned or leased by the Company or such Guarantor which is listed on Schedule 8Q hereto in favor of the Collateral Agent for the benefit of the Banks and the holders of the Notes under which
2
the Notes, the Companys obligations under the Credit Agreement and such Guarantors obligations under its Guaranty Agreement, as applicable, are secured by a mortgage lien in such parcel or leasehold interest, as the case may be (together with any other mortgage pursuant to which the Notes are secured and which is entered into as contemplated hereby, by the Intercreditor Agreement or by any other Transaction Document, as the same may be amended, modified or supplemented from time to time in accordance with the provisions thereof, collectively called the Mortgages and individually called a Mortgage );
(vi) Deposit Account Control Agreements and the Securities Account Control Agreements made by the Company and each Guarantor to the extent required under the Security Agreement, in favor of the Collateral Agent for the benefit of the Banks and the holders of the Notes under which the Notes, the Companys obligations under the Credit Agreement and such Guarantors obligations under its Guaranty Agreement, as applicable, are secured by a lien in such each deposit account and each securities account of the Company and the Guarantors described therein;
(vii) except as set forth on Schedule 3A, estoppel and consent agreements executed by each of the lessors of the leased real properties of the Company and each Guarantor, along with (1) a memorandum of lease in recordable form with respect to such leasehold interest, executed and acknowledged by the owner of the affected real property, as lessor, or (2) evidence that the applicable lease with respect to such leasehold interest or a memorandum thereof has been recorded in all places necessary or desirable, in such Purchasers reasonable judgment, to give constructive notice to third-party purchasers of such leasehold interest, or (3) if such leasehold interest was acquired or subleased from the holder of a recorded leasehold interest, the applicable assignment or sublease document, executed and acknowledged by such holder, in each case in form sufficient to give such constructive notice upon recordation and otherwise in form satisfactory to such Purchaser;
(viii) all chattel paper, instruments and documents of title in which the Collateral Agent has been granted a security interest and are then required under the Collateral Documents to be delivered to the Collateral Agent, together with the related transfer documents executed in blank, in each case received by the Collateral Agent, all Uniform Commercial Code financing statements perfecting the security interests and liens granted to the Collateral Agent, duly filed in all offices necessary to perfect such security interests and liens or deemed by such Purchaser to be advisable, and all such other certificates, documents, agreements, recording and filings necessary to establish a valid and perfected first priority lien and security interest (subject only to Liens described in paragraph 6C) in favor of the Collateral Agent in all of the Collateral or deemed by such Purchaser to be advisable;
(ix) a Secretarys Certificate signed by the Secretary or an Assistant Secretary and one other officer of the Company and each Guarantor certifying, among other things, (a) as to the names, titles and true signatures of the officers of the Company or such Guarantor, as the case may be, authorized to sign the Transaction Documents to which the Company or such Guarantor, as the case may be, is a party, (b) that attached thereto is
3
a true, accurate and complete copy of the certificate of incorporation or other formation document of the Company or such Guarantor, as the case may be, certified by the Secretary of State of the state of organization of the Company or such Guarantor, as the case may be, as of a recent date, (c) that attached thereto is a true, accurate and complete copy of the by-laws, operating agreement or other organizational document of the Company or the Guarantor, as the case may be, which were duly adopted and are in effect as of the date of closing and have been in effect immediately prior to and at all times since the adoption of the resolutions referred to in clause (d), below, (d) that attached thereto is a true, accurate and complete copy of the resolutions of the board of directors or other managing body of the Company or such Guarantor, as the case may be, duly adopted at a meeting or by unanimous written consent of such board of directors or other managing body, authorizing the execution, delivery and performance of the Transaction Documents to which the Company or such Guarantor, as the case may be, is a party, and that such resolutions have not been amended, modified, revoked or rescinded, are in full force and effect and are the only resolutions of the shareholders, partners or members of the Company or such Guarantor, as the case may be, or of such board of directors or other managing body or any committee thereof relating to the subject matter thereof, (e) that the Transaction Documents executed and delivered to such Purchaser by the Company or such Guarantor, as the case may be, are in the form approved by its board of directors or other managing body in the resolutions referred to in clause (d), above, and (f) that no dissolution or liquidation proceedings as to the Company or any Subsidiary have been commenced or are contemplated;
(x) a certificate of corporate or other type of entity and tax good standing for the Company and each Guarantor from the Secretary of State of the state of organization of the Company and each Guarantor and of each state in which the Company or any Guarantor is required to be qualified to transact business as a foreign organization, in each case dated as of a recent date;
(xi) Certified copies of Requests for Information or Copies (Form UCC-11) or equivalent reports listing all effective financing statements which name the Company, any Subsidiary or any Guarantor (under its present name and previous names) or any Seller (to the extent the collateral described on such financing statement includes any Purchased Assets as defined in the Mead Purchase Agreement) as debtor and which are filed in the office of the Secretary of State in any state in which the Company, any Subsidiary or any Guarantor or any Seller is located (as determined under the UCC), and lien and judgment search reports from the county recorder of any county in which the Company, any Subsidiary or any Guarantor or any Seller maintains an office or in which any assets of the Company, any Subsidiary or any Guarantor or any Seller (to the extent such assets include any Purchased Assets as defined in the Mead Purchase Agreement) are located; and
(xii) such other certificates, documents and agreements as such Purchaser may reasonably request.
3B. Opinion of Purchasers Special Counsel. Such Purchaser shall have received from Schiff Hardin LLP, who are acting as special counsel for the Purchasers in connection with
4
this transaction, a favorable opinion satisfactory to such Purchaser as to such matters incident to the matters herein contemplated as it may reasonably request.
3C. Opinion of Companys and Guarantors Counsel. Such Purchaser shall have received from (i) Sonnenschein Nath & Rosenthal LLP, special counsel for the Company and the Guarantors, a favorable opinion satisfactory to such Purchaser and substantially in the form of Exhibit D-1 attached hereto, (ii) Ellis Lawhorne & Sims, P.A., special South Carolina counsel to the Company and the Guarantors, a favorable opinion satisfactory to such Purchaser and substantially in the form of Exhibit D-2 attached hereto, and (iii) Sellers counsel, a favorable opinion delivered in connection with the Kraft Acquisition which opinion is either (A) addressed to such Purchaser or (B) accompanied by a reliance letter from such counsel addressed to such Purchaser that expressly states that such Purchaser may rely on such opinion, and each of the Parent and the Company, by its execution hereof, hereby requests and authorizes the counsel referenced in clauses (i) and (ii) to render such opinions and to allow such Purchaser to rely on such opinions, and understands and agrees that each Purchaser receiving such opinions will be relying, and is hereby authorized to rely, on such opinions.
3D. Representations and Warranties; No Default; Satisfaction of Conditions; Material Adverse Effect. The representations and warranties contained in paragraph 8 hereof and in the other Transaction Documents shall be true on and as of the date of closing, both before and immediately after giving effect to the issuance of the Notes on the date of closing and the consummation of any other transactions contemplated hereby, including the consummation of the Kraft Acquisition, and by the other Transaction Documents; there shall exist on the date of closing no Event of Default or Default, both before and immediately after giving effect to the issuance of the Notes on the date of closing and the consummation of any other transactions contemplated hereby, including the consummation of the Kraft Acquisition, and by the other Transaction Documents; the Company and each Guarantor shall have performed all agreements and satisfied all conditions required under this Agreement or the other Transaction Documents to be performed or satisfied on or before the date of closing; and the Company and each Guarantor shall have delivered to such Purchaser an Officers Certificate of the Parent, dated the date of closing, to each such effect.
3E. Purchase Permitted By Applicable Laws; Approvals. The purchase of and payment for the Notes to be purchased by such Purchaser on the date of closing on the terms and conditions herein provided (including the use of the proceeds of such Notes by the Company) shall not violate any applicable law or governmental regulation (including, without limitation, section 5 of the Securities Act or Regulation T, U or X of the Board of Governors of the Federal Reserve System) and shall not subject such Purchaser to any tax, penalty, liability or other onerous condition under or pursuant to any applicable law or governmental regulation, and such Purchaser shall have received such certificates or other evidence as it may request to establish compliance with this condition. All necessary authorizations, consents, approvals, exceptions or other actions by or notices to or filings with any court or administrative or governmental body or other Person required in connection with the execution, delivery and performance of this Agreement, the Notes and the other Transaction Documents and the Mead Purchase Agreement or the consummation of the transactions contemplated hereby or thereby shall have been issued or made, shall be final and in full force and effect and shall be in form and substance satisfactory
5
to such Purchaser, and the Company and each Guarantor shall have delivered to such Purchaser an Officers Certificate, dated the date of closing, to each such effect.
3F. Title Insurance, Surveys and Environmental Assessments. Such Purchaser shall have received (i) fully paid American Land Title Association Lenders Extended Coverage title insurance policies or binder therefore (the Mortgage Policies ), with endorsements and in amounts acceptable to the Required Holders, issued, coinsured and reinsured by title insurers acceptable to such Purchaser, insuring the Mortgages to be valid first and subsisting Liens on the property described therein, free and clear of all defects (including, but not limited to, mechanics and materialmens Liens) and encumbrances, excepting only those encumbrances specifically permitted under each respective Mortgage and other Liens permitted under the Transaction Documents, and providing for such other affirmative insurance (including for mechanics and materialmens Liens and for zoning of the applicable property) and such coinsurance and direct access reinsurance as such Purchaser may deem necessary or desirable, (ii) Express Map form surveys, for which all necessary fees (where applicable) have been paid, and dated no more than 30 days before the day of closing, and which shall be in form sufficient to delete any standard survey exception which would otherwise be contained in the related Mortgage Policy, certified to such Purchaser and the issuer of the Mortgage Policies in a manner satisfactory to such Purchaser by a land surveyor duly registered and licensed in the States in which the property described in such surveys is located and acceptable to such Purchaser, showing all buildings and other improvements, any off-site improvements, the location of any easements, parking spaces, rights of way, building set-back lines and other dimensional regulations and the absence of encroachments, either by such improvements or on to such property, and other defects, other than encroachments and other defects acceptable to such Purchaser, (iii) engineering, soils and other reports (including environmental audits and corresponding reliance letters) as to the properties described in the Mortgages, from professional firms acceptable to such Purchaser, (iv) evidence of the insurance required by the terms of the Mortgages, and (v) evidence that all other action that such Purchaser or the Collateral Agent may deem necessary or desirable in order to create valid first and subsisting Liens on the property described in the Mortgages has been taken.
3G. Certificates of Insurance. The Company shall have delivered from insurance carriers acceptable to such Purchaser certificates of insurance in such forms and amounts acceptable to such Purchaser evidencing insurance required to be maintained under paragraph 5F hereof or under any of the Collateral Documents under insurance policies with loss payable and additional insured clauses in favor of the Collateral Agent and acceptable to such Purchaser.
3H. Material Adverse Change. No material adverse change in the business, condition (financial or otherwise), operations or prospects of the Parent, the Company and its Subsidiaries, taken as a whole, since December 31, 2007 shall have occurred or be threatened, as determined by such Purchaser in its sole judgment, except as set forth on Schedule 3H hereto.
3I. New Credit Agreement. The Credit Agreement, providing for a $100,000,000 revolving credit facility to the Company and for term loans to the Company in the aggregate principal amount of $415,000,000 (or if the Term B-2 Loan (as defined in the Credit Agreement) is funded prior to the date of closing, then $455,000,000) and having other terms and conditions satisfactory to such Purchaser, shall have been duly executed and delivered by the Company, the Bank Agent and the Banks, and shall be in full force and effect. All conditions precedent to the
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making of the term loans and the initial revolving loan under the Credit Agreement shall have been satisfied (except to the extent waived with the consent of such Purchaser) and the Company shall have received the proceeds of the term loans and the initial revolving loan thereunder. Such Purchaser shall have received a copy of the Credit Agreement and all instruments, documents and agreements delivered at the closing of making of the term loan and the initial revolving loan thereunder, certified by an Officers Certificate of the Parent, dated the date of closing, as correct and complete.
3J. Termination of Existing Credit Agreement. All obligations of the Company under the Credit Agreement, dated January 2, 2007, between the Company, LaSalle Bank National Association, as agent, and the lenders party thereto (as amended and in effect on the date of closing, the Existing Credit Agreement ), shall have been discharged, the Existing Credit Agreement shall have been terminated, all liens and security interests securing any of such obligations, and all financing statements or other filings and recordings relating thereto, shall have been terminated and released, or such Purchaser shall have received payoff letters with respect to the release of such liens and termination of such financing statements, and otherwise in form and substance satisfactory to such Purchaser, and such payoff letters shall be in full force and effect, and such Purchaser shall have received such evidence as it may reasonably request to demonstrate the satisfaction of the foregoing.
3K. Kraft Acquisition. The Asset Purchase Agreement dated April 4, 2008, among the Sellers, the Parent and Oak Acquisition LLC (the Mead Purchase Agreement ), shall be in form and substance satisfactory to such Purchaser, shall have been duly executed and delivered by the parties thereto and shall be in full force and effect. All conditions precedent to the Companys obligations to acquire the Purchased Assets (as defined in the Mead Purchase Agreement) thereunder (the Kraft Acquisition ) shall have been satisfied (except to the extent waived with the consent of such Purchaser), and substantially concurrently with the closing of the transaction contemplated hereby, Oak Acquisition LLC (now known as Kapstone Charleston Kraft LLC) shall have consummated the acquisition of the assets to be acquired thereunder. All necessary authorizations, consents, approvals, exceptions or other actions by or notices to or filings with any court or administrative or governmental body or other Person required in connection with the execution, delivery or performance of the Mead Purchase Agreement or the consummation of the transactions contemplated thereby shall be final and in full force and effect and shall be in form and substance satisfactory to such Purchaser. Such Purchaser shall have received (i) a copy of the Mead Purchase Agreement and all instruments, documents and agreements related thereto (the Kraft Acquisition Documents ), and all other Related Agreements, certified by an Officers Certificate of the Parent, dated the date of closing, as correct and complete, (ii) an Officers Certificate of the Parent, dated as of the date of closing, certifying that no event or circumstance since December 31, 2007 that has had or could be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect (as such term is defined in the Mead Purchase Agreement) except as set forth on Schedule 3H hereto shall have occurred or be threatened; and (iii) evidence that the sum of (a) the aggregate purchase price of the Kraft Acquisition, (b) the amount required to refinance the Existing Credit Agreement and (c) related fees and expenses shall not exceed $551,000,000.
3L. Note Assignment; BONY Documents; SCANA Side Letters; Underwriting Agreement; Warrants; International Paper Purchase Agreement. Such Purchaser shall have
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received a copy of (i) the assignment agreement relating to the assignment of the Cogen Notes from Teachers to the Seller (the Note Assignment ), (ii) the acknowledgement signed by Teachers relating to the Note Assignment, (iii) the BONY documents, (iv) the SCANA Side Letters, (v) the Underwriting Agreement, (vi) the Warrants and (vii) the International Paper Purchase Agreement, each on terms and conditions satisfactory to such Purchaser, certified by an Officers Certificate of the Parent, dated the date of closing, as correct and complete.
3M. Financial Information. Such Purchaser shall have received:
(i) the financial statements described in paragraph 8B;
(ii) projected income statements, balance sheets and cash flow statements prepared by the Company on a Pro Forma Basis and giving effect to the Kraft Acquisition, the issuance of the Notes contemplated hereby and the Loans (as defined in the Credit Agreement) contemplated by the Credit Agreement and the use of proceeds therefrom, on a quarterly basis for the fiscal year ending December 31, 2008 and on an annual basis for each fiscal year thereafter;
(iii) a pro forma consolidated balance sheet of the Parent and its Subsidiaries as of the date of the most recent consolidated balance sheet delivered pursuant to clause (ii) of this paragraph 3M, adjusted to give effect to the consummation of the Kraft Acquisition and the issuance of the Notes contemplated hereby and the Loans (as defined in the Credit Agreement) contemplated by the Credit Agreement as if such transactions had occurred on such date, and which is consistent in all material respects with the sources and uses of cash for the Kraft Acquisition previously described to such Purchaser and the forecasts previously provided to such Purchaser; and
(iv) an officers certificate prepared by the chief financial officer of the Company as to the financial condition, solvency and related matters of the Company and its Subsidiaries, after giving effect to the Kraft Acquisition, the issuance of the Notes and the Loans (as defined in the Credit Agreement) to be made on the date of closing and the other transactions contemplated by the Transaction Documents, in form and substance reasonably satisfactory to such Purchaser.
3N. Capitalization. The pro forma capitalization and structure of the Parent and its Subsidiaries (excluding any change in ownership of the Parent involving a non-material shareholder) after giving effect to the Kraft Acquisition as disclosed in the Mead Purchase Agreement shall not have been modified in any material respect without the approval of the Required Holders.
3O. Debt. Such Purchaser shall have received evidence that the Parent and its Subsidiaries shall have no Debt other than the Debt evidenced by the Notes and other Debt permitted pursuant to paragraph 6B.
3P. Intercompany Subordinated Note. Such Purchaser shall have received a copy of the Intercompany Subordinated Note in form and substance satisfactory to such Purchaser, certified by an Officers Certificate of the Parent, dated the date of closing, as correct and complete.
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3Q. Fees and Expenses. Without limiting the provisions of paragraph 11B hereof, the Company shall have paid the reasonable fees, charges and disbursements of special counsel to the Purchaser referred to in paragraph 3B hereof.
3R. Structuring Fee. The Company shall have paid to such Purchaser, by wire transfer of immediately available funds, such Purchasers ratable portion (in proportion to the aggregate principal amount of the Notes to be purchased by such Purchaser) of a structuring fee in the aggregate amount, for all Purchasers, of $300,000.00.
3S. Proceedings. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in substance and form to such Purchaser, and such Purchaser shall have received all such counterpart originals or certified or other copies of such documents as it may reasonably request.
4. PREPAYMENTS. The Notes shall be subject to prepayment only with respect to the required prepayments specified in paragraphs 4A and 4E, the optional prepayments permitted by paragraph 4B, and upon acceleration pursuant to paragraph 7A.
4A(1). Required Prepayments. Until the Notes shall be paid in full, the Company shall apply to the prepayment of the Notes, without premium, the sum of $3,000,000 on July 1, 2009, $4,000,000 on July 1, 2010, and $5,000,000 on July 1 in each of the years 2011 to 2014, inclusive, and such principal amounts of the Notes, together with interest thereon to the prepayment dates, shall become due on such prepayment dates (provided that upon any prepayment or purchase of the Notes pursuant to paragraph 4B, 4E or 4F the principal amount of each required prepayment of the Notes becoming due under this paragraph 4A(1) on and after the date of such prepayment or purchase shall be reduced in the same proportion as the aggregate unpaid principal amount of the Notes is reduced as a result of such prepayment or purchase). The remaining outstanding principal amount of the Notes, together with any accrued and unpaid interest thereon, shall become due on July 1, 2015, the maturity date of the Notes.
4A(2). Required Prepayment Pursuant to Intercreditor Agreement. If any amounts are to be applied to the principal of the Notes on any date pursuant to the terms of the Intercreditor Agreement other than as a result of a Senior Debt Prepayment Event (prepayments as a result of which are governed by paragraph 4E), such principal amount of the Notes, together with interest thereon to such date and together with the Yield-Maintenance Amount, if any, with respect to each Note, shall be due and payable on such date. Any partial prepayment of the Notes pursuant to this paragraph 4A(2) shall be applied in satisfaction of the required payments of principal thereof (including the required payment of principal due upon the maturity thereof) in the inverse order of their scheduled due dates.
4B. Optional Prepayment With Yield-Maintenance Amount. The Notes shall be subject to prepayment, in whole at any time or from time to time in part (in integral multiples of $1,000,000 and in a minimum amount of $5,000,000 on any one occurrence), at the option of the Company, at 100% of the principal amount so prepaid plus interest thereon to the prepayment date and the Yield-Maintenance Amount, if any, with respect to each Note. Any partial prepayment of the Notes pursuant to this paragraph 4B shall be applied in satisfaction of required
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payments of principal thereof (including the required payment of principal due upon the maturity thereof) on a pro rata basis in proportion to the respective amounts thereof.
4C. Notice of Optional Prepayment. The Company shall give the holder of each Note irrevocable written notice of any prepayment pursuant to paragraph 4B not less than 10 Business Days prior to the prepayment date, specifying such prepayment date and the aggregate principal amount of the Notes, and of the Notes held by such holder, to be prepaid on such date and stating that such prepayment is to be made pursuant to paragraph 4B. Notice of prepayment having been given as aforesaid, the principal amount of the Notes specified in such notice, together with interest thereon to the prepayment date and together with the Yield-Maintenance Amount, if any, with respect thereto, shall become due and payable on such prepayment date. The Company shall, on or before the day on which it gives written notice of any prepayment pursuant to paragraph 4B, give telephonic notice of the principal amount of the Notes to be prepaid and the prepayment date to each Significant Holder which shall have designated a recipient of such notices in the Purchaser Schedule attached hereto or by notice in writing to the Company.
4D. Partial Payments Pro Rata. In the case of each prepayment of less than the entire outstanding principal amount of all Notes pursuant to paragraph 4A(1), 4A(2) or 4B, the principal amount so prepaid shall be allocated pro rata to all Notes at the time outstanding in proportion to the respective outstanding principal amounts thereof.
4E. Offer to Prepay Notes upon a Senior Debt Prepayment Event.
4E(1). Notice of Senior Debt Prepayment Event. The Company will, at least 15 days prior to any Senior Debt Prepayment Event (or, if such prior notice is not possible, as promptly as possible), give written notice of such Senior Debt Prepayment Event to each holder of the Notes. Such notice shall contain and constitute an offer to prepay the Notes as described in paragraph 4E(3) and shall be accompanied by the certificate described in paragraph 4E(6).
4E(2). Notice of Acceptance of Offer under Paragraph 4E(1). If the Company shall at any time receive an acceptance to an offer to prepay Notes under paragraph 4E(1) from some, but not all, of the holders of the Notes, then the Company will, within two Business Days after the receipt of such acceptance, give written notice of such acceptance to each other holder of the Notes.
4E(3). Offer to Prepay Notes. The offer to prepay Notes contemplated by paragraph 4E(1) shall be an offer to prepay, in accordance with and subject to this paragraph 4E, the Ratable Portion of the Notes held by each holder (in this case only, holder in respect of any Note registered in the name of a nominee for a disclosed beneficial owner shall mean such beneficial owner) at the time of the occurrence of the Senior Debt Prepayment Event.
4E(4). Rejection; Acceptance. A holder of Notes may accept or reject the offer to prepay made pursuant to this paragraph 4E by causing a notice of such acceptance or rejection to be delivered to the Company prior to the prepayment date. A failure by a
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holder of Notes to so respond to an offer to prepay made pursuant to this paragraph 4E shall be deemed to constitute a rejection of such offer by such holder if no Event of Default exists at the time of such Senior Debt Prepayment Event and no Event of Default would result therefrom, or an acceptance of such offer by such holder if an Event of Default exists at the time of such Senior Debt Prepayment Event or would result therefrom.
4E(5). Prepayment. Prepayment of the Notes to be prepaid pursuant to this paragraph 4E shall be at 100% of the principal amount of such Notes to be prepaid, together with interest on the principal amount of such Notes to be prepaid accrued to the date of prepayment and, if an Event of Default exists at the time of such Senior Debt Prepayment Event or would result therefrom, the Yield-Maintenance Amount, if any, with respect thereto. The prepayment shall be made at the time of occurrence of a Senior Debt Prepayment Event.
4E(6). Officers Certificate. Each offer to prepay the Notes pursuant to this paragraph 4E shall be accompanied by a certificate, executed by a Responsible Officer of the Company and dated the date of such offer, specifying (i) the proposed prepayment date (which shall be the date of the Senior Debt Prepayment Event), (ii) that such offer is made pursuant to this paragraph 4E, (iii) the Ratable Portion of the principal amount of each Note offered to be prepaid, (iv) the interest that would be due on the ratable Portion of each Note offered to be prepaid, accrued to the prepayment date, (v) that the conditions of this paragraph 4E have been fulfilled, and (vi) in reasonable detail, the nature and anticipated date of the Senior Debt Prepayment Event.
4F. No Acquisition of Notes. The Company shall not, and shall not permit any of its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or in part prior to their stated final maturity (other than by prepayment pursuant to paragraph 4A or 4B, upon acceptance of an offer to prepay pursuant to paragraph 4E or upon acceleration of such final maturity pursuant to paragraph 7A), or purchase or otherwise acquire, directly or indirectly, Notes held by any holder unless the Company or such Subsidiary or Affiliate shall have offered to prepay or otherwise retire or purchase or otherwise acquire, as the case may be, the same proportion of the aggregate principal amount of Notes held by each other holder of Notes at the time outstanding upon the same terms and conditions. Any Notes so prepaid or otherwise retired or purchased or otherwise acquired by the Company or any of its Subsidiaries or Affiliates shall not be deemed to be outstanding for any purpose under this Agreement.
5. AFFIRMATIVE COVENANTS.
5A. Financial Statements. Each of the Parent and the Company covenants that it will deliver to each Significant Holder in duplicate:
(i) as soon as practicable and in any event within 30 days after the end of each month (other than the last month of a quarterly period) in each fiscal year, consolidated statements of earnings and cash flows of the Parent and its Subsidiaries for the period from the beginning of the current fiscal year to the end of such month, and a consolidated balance sheet of the Parent and its Subsidiaries as at the end of such month,
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setting forth in each case in comparative form figures for the corresponding period in the preceding fiscal year, all in reasonable detail and certified by an authorized financial officer of the Parent as fairly presenting, in all material respects, the financial position of the Parent and its Subsidiaries and their results of operations and cash flows, subject to changes resulting from year-end adjustments; provided, however, that any comparisons delivered in accordance with this clause (i) with respect to any period preceding the date of closing shall include a comparison with respect to the Business for such period;
(ii) as soon as practicable and in any event within 45 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, consolidated statements of earnings and cash flows of the Parent and its Subsidiaries for the period from the beginning of the current fiscal year to the end of such quarterly period, and a consolidated balance sheet of the Parent and its Subsidiaries as at the end of such quarterly period, setting forth in each case in comparative form figures for the budget for such quarterly period and for the corresponding period in the preceding fiscal year, all in reasonable detail and prepared in accordance with generally accepted accounting principles applicable to quarterly financial statements and certified by an authorized financial officer of the Parent as fairly presenting, in all material respects, the financial position of the Parent and its Subsidiaries and their results of operations and cash flows, subject to changes resulting from year-end adjustments; provided, however, that any comparisons delivered in accordance with this clause (ii) with respect to any period preceding the date of closing shall include a comparison with respect to the Business for such period;
(iii) as soon as practicable and in any event within 90 days after the end of each fiscal year, consolidating and consolidated statements of earnings and cash flows of the Parent and its Subsidiaries for such year, and a consolidating and consolidated balance sheet of the Parent and its Subsidiaries as at the end of such year, setting forth in each case in comparative form corresponding consolidated figures from the budget for such fiscal year and from the preceding annual audit, all in reasonable detail and prepared in accordance with generally accepted accounting principles and, as to the consolidated statements, certified without reference to going concern value and without qualification by independent public accountants of recognized national standing selected by the Parent and reasonably acceptable to the Required Holder(s), and, as to the consolidating statements, certified by an authorized financial officer of the Parent; provided, however, that any comparisons delivered in accordance with this clause (iii) with respect to any period preceding the date of closing shall include a comparison with respect to the Business for such period;
(iv) promptly upon transmission thereof, copies of all such financial statements, proxy statements, notices and reports as it shall send to the Parents public stockholders generally and copies of all registration statements (without exhibits) (other than on Form S-8) and all reports which it files with the Securities and Exchange Commission (or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission);
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(v) promptly upon receipt thereof, a copy of each management letter or other report submitted to the Parent, the Company or any other Subsidiary of the Parent by independent accountants in connection with any annual or interim audit made by them of the books of the Parent, the Company or any other Subsidiary of the Parent;
(vi) as soon as practicable, and in any event not later than 45 days after the commencement of each fiscal year, financial projections for the Parent and its Subsidiaries for such fiscal year (including quarterly operating and cash flow budgets) prepared in a manner consistent with the projections delivered by the Parent to the Purchasers prior to the date of closing or otherwise in a manner reasonably satisfactory to the Required Holders, accompanied by an Officers Certificate of the Parent on behalf of the Parent to the effect that (a) such projections were prepared by the Parent in good faith, (b) the Parent has a reasonable basis for the assumptions contained in such projections and (c) such projections have been prepared in accordance with such assumptions;
(vii) promptly upon becoming aware of any of the following, written notice describing the same and the steps being taken by the Parent or the Subsidiary affected thereby with respect thereto:
(a) any litigation, arbitration or governmental investigation or proceeding not previously disclosed by the Company to the holders of the Notes which has been instituted or, to the knowledge of the Company or the Parent, is threatened against the Parent or any Subsidiary or to which any of the properties of any thereof is subject which might reasonably be expected to have a Material Adverse Effect;
(b) the institution of any steps by any member of the Controlled Group or any other Person to terminate any Plan, or the failure of any ERISA Affiliate to make a required contribution to any Plan (if such failure is sufficient to give rise to a Lien under Section 302(f) of ERISA) or to any Multiemployer Plan, or the taking of any action with respect to a Plan which could result in the requirement that the Parent or any Subsidiary furnish a bond or other security to the PBGC or such Plan, or the occurrence of any event with respect to any Plan or Multiemployer Plan which could result in the incurrence by any ERISA Affiliate of any material liability, fine or penalty (including any claim or demand for withdrawal liability or partial withdrawal from any Multiemployer Plan), or any material increase in the contingent liability of the Parent or any Subsidiary with respect to any post-retirement welfare benefit plan or other employee benefit plan of the Company or another ERISA Affiliate, or any notice that any Multiemployer Plan is in reorganization, that increased contributions may be required to avoid a reduction in plan benefits or the imposition of an excise tax, that any such plan is or has been funded at a rate less than that required under Section 412 of the Code, that any such plan is or may be terminated, or that any such plan is or may become insolvent but only to the extent that the event(s) described in this subsection individually or in the aggregate might reasonably be expected to have a Material Adverse Effect;
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(c) any cancellation or material change in any material insurance maintained by the Parent or any Subsidiary; or
(d) any other event (including (1) any violation of any Environmental Law or the assertion of any Environmental Claim or (2) the enactment or effectiveness of any law, rule or regulation) which might reasonably be expected to have a Material Adverse Effect.
(viii) promptly following receipt, copies of any material notices (including notices of default or acceleration) received in connection with the Related Transactions;
(ix) simultaneously with the transmission thereof, to the extent not otherwise furnished hereunder, copies of all notices, reports, financial statements or other communications given to the Bank Agent or the Banks under the Credit Agreement, excluding routine borrowing requests and notices selecting interest rates applicable thereto; and
(x) with reasonable promptness, such other information as such Significant Holder may reasonably request.
Together with each delivery of financial statements required by clauses (ii) and (iii) above, the Parent will deliver to each Significant Holder an Officers Certificate of the Parent demonstrating (with computations in reasonable detail) compliance by the Parent and its Subsidiaries with the provisions of paragraphs 6A(1), 6A(2), 6B, 6D, 6E, 6F and 6L and stating that there exists no Event of Default or Default, or, if any Event of Default or Default exists, specifying the nature and period of existence thereof and what action the Parent and its Subsidiaries propose to take with respect thereto. The Parent also covenants that immediately after any Responsible Officer obtains knowledge of an Event of Default or Default, it will deliver to each Significant Holder an Officers Certificate of the Parent specifying the nature and period of existence thereof and what action the Parent proposes to take with respect thereto.
Documents required to be delivered pursuant to paragraphs 5A(i), (ii) (iii) and (iv) (to the extent any such documents are included in materials otherwise filed with the Securities and Exchange Commission) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Parent posts such documents, or provides a link thereto on the Parents website on the Internet at the website address [www.kapstonepaper.com] to which each holder of the Notes has access; or (ii) on which such documents are posted on the Parents behalf on an Internet or intranet website, if any, to which each holder of the Notes has access (whether a commercial, third-party website); provided that: (a) the Parent shall deliver paper copies of such documents to each Significant Holder that requests the Parent to deliver such paper copies until a written request to cease delivering paper copies is given by such Significant Holder and (b) the Parent shall notify each holder of the Notes (by telecopier or, if instructed by such Significant Holder, electronic mail) of the posting of any such documents and provide to the such Significant Holder by electronic mail, electronic versions ( i.e. , soft copies) of such documents and any passwords or other requirements to access such documents on the website where they have been posted. Notwithstanding anything contained herein, in every instance the Parent shall be required to provide paper copies of the Officers Certificates of the
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Parent and the certificate of accountants described in the prior paragraph to each Significant Holder.
5B. Information Required by Rule 144A. The Company covenants that it will, upon the request of the holder of any Note, provide such holder, and any qualified institutional buyer designated by such holder, such financial and other information as such holder may reasonably determine to be necessary in order to permit compliance with the information requirements of Rule 144A under the Securities Act in connection with the resale of Notes, except at such times as the Company is subject to and in compliance with the reporting requirements of section 13 or 15(d) of the Exchange Act. For the purpose of this paragraph 5B, the term qualified institutional buyer shall have the meaning specified in Rule 144A under the Securities Act.
5C. Inspection of Property. Each of the Parent and the Company covenants that it will permit any Person designated by any Significant Holder in writing, at such Significant Holders expense if no Default or Event of Default exists and at the Companys expense if a Default or an Event of Default exists, to visit and inspect any of the properties of the Parent, the Company and any Subsidiary, to examine the corporate books and financial records of the Parent, the Company and any Subsidiary and make copies thereof or extracts therefrom and to discuss the affairs, finances and accounts of any of such corporations with the principal officers of the Parent and the Company and its independent public accountants, all at such reasonable times and with reasonable notice (or at any time without notice if an Event of Default exists) and as often as such Significant Holder may reasonably request.
5D. Covenant to Secure Notes Equally. Each of the Parent and the Company covenants that if the Parent, the Company or any other Subsidiary of the Parent shall create or assume any Lien upon any of its property or assets, whether now owned or hereafter acquired, other than Liens permitted by the provisions of paragraph 6C (unless prior written consent to the creation or assumption thereof shall have been obtained pursuant to paragraph 11C), it will make or cause to be made effective provision whereby the Notes will be secured by such Lien equally and ratably with any and all other Debt thereby secured so long as any such other Debt shall be so secured; provided that the creation and maintenance of such equal and ratable Lien shall not in any way limit or modify the right of the holders of the Notes to enforce the provisions of paragraph 6C.
5E. Compliance with Law. Each of the Parent and the Company covenants that it will, and will cause each of the Subsidiaries to, comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, environmental laws, and will obtain and maintain in full force and effect all licenses, certificates, permits, franchises, operating rights and other authorizations from federal, state, foreign, regional, municipal and other local regulatory bodies or administrative agencies or governmental bodies having jurisdiction over the Parent and its Subsidiaries or any of their respective properties necessary to the ownership, operation or maintenance of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in full force and effect such licenses, certificates, permits, franchises,
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operating rights and other authorizations could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.
5F. Maintenance of Insurance. Each of the Parent and the Company covenants that it will, and will cause each of its Subsidiaries to, maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated.
5G. Maintenance of Properties. Each of the Parent and the Company covenants that it will, and will cause each of its Subsidiaries to, maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), and from time to time make, or cause to be made, all needful and proper repairs, renewals and replacements thereto, so that the business carried on in connection therewith may be properly conducted at all times, provided that this paragraph 5G shall not prevent the Parent or any of its Subsidiaries from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and such discontinuance could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.
5H. Payment of Taxes. Each of the Parent and the Company covenants that it will, and will cause each of its Subsidiaries to, file all income tax or similar tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges or levies payable by any of them, and to pay and discharge all amounts payable for work, labor and materials, in each case to the extent such taxes, assessments, charges, levies and amounts payable have become due and payable and before they have become delinquent, provided that neither the Parent nor any Subsidiary of the Parent need pay any such tax, assessment, charge, levy or amount payable if (i) the amount, applicability or validity thereof is being actively contested by the Parent or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Parent or such Subsidiary has established adequate reserves therefor in accordance with generally accepted accounting principles on the books of the Parent or such Subsidiary or (ii) the nonpayment of all such taxes, assessments, charges, levies and amounts payable in the aggregate could not reasonably be expected to have a Material Adverse Effect.
5I. Corporate Existence. Each of the Parent and the Company will at all times preserve and keep in full force and effect its corporate existence. The Parent will at all times preserve and keep in full force and effect the corporate existence of the Company. Subject to paragraphs 6F and 6G, each of the Parent and the Company will at all times preserve and keep in full force and effect the corporate, limited liability company or partnership, as the case may be, existence of each of the Subsidiaries (other than the Company), unless the termination of or failure to preserve and keep in full force and effect such corporate existence, certificate, could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.
5J. Lines of Business. Each of the Parent and the Company covenants that it will not, and it will not permit any of the Subsidiaries to, engage in any business if, as a result
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thereof, the general nature of the businesses of the Parent and its Subsidiaries, taken as a whole, would be substantially changed from the businesses of the Parent and its Subsidiaries as conducted as of the date of closing.
5K. Subsequent Guarantors. Each of the Parent and the Company covenants that if at any time any Person, which is not a Domestic Subsidiary as of the date hereof, shall become a Domestic Subsidiary, the Parent and the Company will cause such Person to execute and deliver to the holders of the Notes a joinder to the Guaranty Agreement substantially in the form of the joinder attached to the Guaranty Agreement delivered at the closing pursuant to paragraph 3A(iii) hereof, and will cause such Person to comply with the provisions of paragraph 5L hereof. Each such joinder shall be accompanied by a certificate of the Secretary or Assistant Secretary of such Person certifying such Persons charter and by-laws (or comparable governing documents), resolutions of the board of directors (or comparable governing body) of such Person authorizing the execution and delivery of such joinder to the Guaranty Agreement and documents executed by such Person pursuant to paragraph 5L hereof and incumbency and specimen signatures of the officers of such Person executing such documents. Without limiting the generality of the foregoing, the Company shall cause Cogen JV and any other Domestic Subsidiary acquired or formed in connection with the consummation of the Kraft Acquisition to comply with the provisions of this paragraph 5K and the provisions of paragraph 5L not later that 14 days after the date of closing.
5L. Deliveries; Further Assurances. Each of the Parent and the Company covenants to, and to cause each Subsidiary to, at its sole expense, promptly execute and deliver, or cause to be executed and delivered, to the holders of the Notes or the Collateral Agent, in due form for filing or recording (the Company hereby agrees to pay the cost of filing or recording the same (including without limitation any and all filing fees and recording taxes)) in all public offices necessary or deemed necessary by the Required Holder(s) or the Collateral Agent, such collateral assignments, security agreements, pledge agreements, mortgages, leasehold mortgages, warehouse receipts, bailee letters, consents, waivers, financing statements and other instruments and documents, and do such other acts and things, including, without limitation, all acts and things as the Required Holder(s) or the Collateral Agent may from time to time reasonably request, to establish and maintain to the satisfaction of the Required Holder(s) and the Collateral Agent a valid and perfected first priority security interest in favor of the Collateral Agent in all of the present and/or future Collateral free of all other Liens whatsoever (subject only to the Liens permitted by paragraph 6C), and to deliver to the Collateral Agent or the holders of the Notes such certificates, documents, instruments and opinions in connection therewith as may be reasonably requested by the Collateral Agent or the Required Holder(s), each in form and substance reasonably satisfactory to the Collateral Agent and the Required Holder(s). In the event that the Company or any Subsidiary hereafter acquires any real property or interest in real property on which a Lien is required to be granted to the Collateral Agent pursuant to this paragraph, then the Company shall also supply to the Collateral Agent and the holders of the Notes, at the Companys sole cost and expense, a survey, environmental report, hazard insurance policy and a mortgagees policy of title insurance from a title insurer reasonably acceptable to the Required Holder(s) insuring the validity of such Lien on the real property or interest in real property encumbered thereby, each in form and substance reasonably satisfactory to the Collateral Agent and the Required Holder(s). Each of the Parent and the Company hereby irrevocably makes, constitutes and appoints the Collateral Agent (and all other persons
17
designated by the Collateral Agent for that purpose) as the Parent and the Companys true and lawful agent and attorney-in-fact to, if the Parent or the Company, as the case may be, fails to do so as required upon the request of the Required Holder(s) or the Collateral Agent, sign the Parents or the Companys, as the case may be, name on any such agreements, instruments and documents referred to in the preceding sentences and to deliver such agreements, instruments and documents to such Persons as the Required Holder(s) or the Collateral Agent in their sole discretion may elect.
5M. Agreement Assuming Liability on Notes. Each of the Parent and the Company covenants that, if at any time any Person should become liable (as co-obligor, endorser, guarantor or surety) on any other obligation of the Parent or any Subsidiary under the Credit Agreement or any other Loan Documents (as defined in the Credit Agreement), the Parent and the Company will, at the same time, cause such Person to deliver to the holders of the Notes an agreement pursuant to which such Person becomes similarly liable on the Notes. The delivery of such an agreement shall not in any way limit or modify the rights of the holders of the Notes to enforce the provisions of paragraph 6B.
5N. Compliance with Terms of Leaseholds . Each of the Parent and the Company covenants to, and shall cause its Subsidiaries to, make all payments and otherwise perform all obligations in respect of all leases of real property to which the Parent, the Company or any other Subsidiary is a party, keep such leases in full force and effect and not allow such leases to lapse or be terminated or any rights to renew such leases to be forfeited or cancelled, notify the holders of the Notes of any default by any party with respect to such leases and cooperate with the holders of the Notes in all respects to cure any such default, and cause each of its Subsidiaries to do so, except, in any case, where the failure to do so, either individually or in the aggregate, could not be reasonably likely to have a Material Adverse Effect.
5O. Material Contracts . Each of the Parent and the Company covenants to, and shall cause the Subsidiaries to, perform and observe all the terms and provisions of each Material Contract to be performed or observed by it, maintain each such Material Contract in full force and effect (except in connection with the termination or replacement of such Material Contracts in the ordinary course of business), enforce each such Material Contract in accordance with its terms, except, in any case, where the failure to do so, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.
5P. Amendments to Credit Agreement or Loan Documents . Each of the Parent and the Company covenants that if either the Credit Agreement or any of the other Loan Documents (as defined in the Credit Agreement as in effect on the date of closing) is amended after the date of closing to change (in a manner that is more restrictive to the Parent, the Company or any of the other Subsidiaries) any financial covenant, negative covenant or event of default as it exists on the date of closing, or any such section or other provision of such document is amended to include any additional financial covenants, negative covenants or events of default that are not set forth in (or that are more restrictive than those set forth in) this Agreement, then the Parent and the Company shall, and shall cause each applicable Subsidiary to, offer to amend this Agreement and/or the other Transaction Documents, as applicable (and, upon the request of the Required Holders, the Parent and the Company shall, and shall cause
18
each applicable Subsidiary to, execute appropriate amendment documents) to reflect corresponding changes.
6. NEGATIVE COVENANTS.
6A. Financial Covenants.
6A(1). Total Leverage Ratio. The Parent covenants is shall not permit the Total Leverage Ratio as of the end of any fiscal quarter of the Parent set forth below to be greater than the ratio corresponding to such fiscal quarter:
Calendar Year |
|
March 31 |
|
June 30 |
|
September 30 |
|
December 31 |
|
2008 |
|
N/A |
|
4.00:1.00 |
|
4.00:1.00 |
|
3.75:1.00 |
|
2009 |
|
3.50:1.00 |
|
3.50:1.00 |
|
3.50:1.00 |
|
3.00:1.00 |
|
2010 |
|
3.00:1.00 |
|
3.00:1.00 |
|
3.00:1.00 |
|
3.00:1.00 |
|
2011 |
|
3.00:1.00 |
|
3.00:1.00 |
|
3.00:1.00 |
|
3.00:1.00 |
|
2012 |
|
3.00:1.00 |
|
3.00:1.00 |
|
3.00:1.00 |
|
3.00:1.00 |
|
2013 |
|
3.00:1.00 |
|
2.50:1.00 |
|
2.50:1.00 |
|
2.50:1.00 |
|
Thereafter |
|
2.50: 1.00 |
|
2.50: 1.00 |
|
2.50: 1.00 |
|
2.50: 1.00 |
|
6A(2). Fixed Charge Coverage Ratio . The Parent covenants it shall not permit the Fixed Charge Coverage Ratio as of the end of any fiscal quarter of the Parent to be less than (i) from the date of closing to and including the fiscal quarter ending September 30, 2011, 1.10:1.00 and (ii) commencing with the fiscal quarter ending December 31, 2011 and thereafter, 1.15:1.00.
6B. Debt . Each of the Parent and the Company covenants that it shall not, and shall not permit any Subsidiary to, create, incur, assume or suffer to exist any Debt, except:
(a) the obligations under this Agreement and Notes;
(b) Debt secured by Liens permitted by paragraph 6C(d), and extensions, renewals and refinancings thereof; provided that the aggregate amount of all such Debt at any time outstanding shall not exceed $5,000,000;
(c) Debt (other than the Intercompany Subordinated Debt) of the Company to any Guarantor or of any Guarantor to the Company; provided that to the extent requested in writing by the Required Holders such Debt shall be evidenced by a demand note in form and substance reasonably satisfactory to the Required Holders and pledged and delivered to the Collateral Agent pursuant to the Collateral Documents as additional collateral security for the Notes, and the obligations under such demand note shall be subordinated to the Notes in a manner reasonably satisfactory to the Required Holders;
(d) the Earn-Out Obligations;
(e) Hedging Obligations incurred for bona fide hedging purposes and not for speculation, and Debt in respect of Cash Management Agreements;
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(f) Debt outstanding on the date hereof and listed on Schedule 6B(f) and any refinancings, refundings, renewals or extensions thereof; provided that (i) the amount of such Debt is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing and by an amount equal to any existing commitments unutilized thereunder and (ii) the terms relating to principal amount, amortization, maturity, collateral (if any) and subordination (if any), and other material terms taken as a whole, of any such refinancing, refunding, renewing or extending Debt, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Parent, the Company and the other Subsidiaries or the holders of the Notes than the terms of any agreement or instrument governing the Debt being refinanced, refunded, renewed or extended and the interest rate applicable to any such refinancing, refunding, renewing or extending Debt does not exceed the then applicable market interest rate;
(g) the Debt to be Repaid (which Debt shall include the Term B-2 Loan (as defined in the Credit Agreement) if such Term B-2 Loan is funded prior to the date of closing) set forth on Schedule 6B(g) (so long as such Debt is repaid on the date of closing);
(h) Contingent Liabilities arising with respect to indemnification obligations in favor of (i) sellers in connection with acquisitions or (ii) purchasers in connection with dispositions, in each case permitted under paragraph 6F;
(i) Intercompany Subordinated Debt in an aggregate outstanding principal amount not at any time exceeding $87,000,000 (plus accrued paid-in-kind interest);
(j) Contingent Liabilities in respect of guarantees of the Company or any Guarantor in respect of Debt or other obligations otherwise permitted hereunder and to the extent such Debt is required to be subordinated such Contingent Liabilities will be equally subordinated;
(k) subject to the terms of the Intercreditor Agreement (to the extent applicable), Debt pursuant to the Credit Agreement and the Loan Documents (as defined in the Credit Agreement) in an aggregate outstanding principal amount not at any time exceeding $515,000,000, and any refinancings, refundings, renewals or extensions thereof to the extent permitted under the Intercreditor Agreement (to the extent applicable), provided that the Term B-2 Loan (as defined in the Credit Agreement) shall not be permitted under this clause (k) and instead is addressed in the foregoing clause (g);
(l) unsecured Debt and Debt secured by Liens permitted under paragraph 6C(h), in addition to the Debt listed above, collectively, in an aggregate outstanding principal amount not at any time exceeding $20,000,000 so long as (i) no Default or Event of Default has occurred and is continuing on the date of any such Debt is incurred
20
or would result therefrom, and (ii) after giving effect to such Debt, the Parent and its Subsidiaries are in compliance on a pro forma basis with the financial covenants set forth in paragraph 6A as of the last day of the most recent fiscal quarter for which an Officers Certificate of the Parent has been delivered in accordance with paragraph 5A; and
(m) other unsecured Debt, in addition to the Debt listed above, in an aggregate outstanding principal amount not at any time exceeding $30,000,000 so long as (i) such Debt is subordinated to the Notes, and pursuant to documentation, on terms satisfactory to the Required Holders, (ii) no Default or Event of Default has occurred and is continuing on the date of any such Debt is incurred or would result therefrom, and (iii) after giving effect to such Debt, the Parent and its Subsidiaries are in compliance on a pro forma basis with the financial covenants set forth in paragraph 6A as of the last day of the most recent fiscal quarter for which an Officers Certificate of the Parent has been delivered in accordance with paragraph 5A.
6C. Liens . Each of the Parent and the Company covenants that it shall not, and shall not permit any Subsidiary to, create or permit to exist any Lien on any of its real or personal properties, assets or rights of whatsoever nature (whether now owned or hereafter acquired), except:
(a) Liens for taxes or other governmental charges not at the time delinquent or thereafter payable without penalty or being contested in good faith by appropriate proceedings and, in each case, for which it maintains adequate reserves;
(b) Liens arising in the ordinary course of business (such as (i) Liens of landlords, carriers, warehousemen, mechanics and materialmen and other similar Liens imposed by law and (ii) Liens in the form of deposits or pledges incurred in connection with workers compensation, unemployment compensation and other types of social security (excluding Liens arising under ERISA) or in connection with surety bonds, bids, performance bonds and similar obligations) for sums not overdue or being contested in good faith by appropriate proceedings and not involving any advances or borrowed money or the deferred purchase price of property or services and, in each case, for which it maintains adequate reserves;
(c) Liens described on Schedule 6C as of the date of closing;
(d) subject to the limitation set forth in paragraph 6B(b), (i) Liens arising in connection with Capital Leases (and attaching only to the property being leased), (ii) Liens existing on property at the time of the acquisition thereof by the Company or any Guarantor (and not created in contemplation of such acquisition) and (iii) Liens that constitute purchase money security interests on any property securing debt incurred for the purpose of financing all or any part of the cost of acquiring such property, provided that any such Lien attaches to such property within 60 days of the acquisition thereof and attaches solely to the property so acquired;
21
(e) attachments, appeal bonds, judgments and other similar Liens, for sums not exceeding $5,000,000 arising in connection with court proceedings, provided the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings;
(f) easements, rights of way, restrictions, minor defects or irregularities in title and other similar Liens not interfering in any material respect with the ordinary conduct of the business of the Parent, the Company or any other Subsidiary;
(g) Liens in favor of the Collateral Agent arising under the Collateral Documents, which also may secure, subject to the terms of the Intercreditor Agreement (to the extent applicable), the obligations under the Credit Agreement to the extent permitted under paragraph 6B(k);
(h) Liens on the property of a Person existing at the time such Person becomes a Subsidiary of the Company in a transaction permitted hereunder; provided , however , that any such Lien may not extend to any other property of the Parent, the Company or any other Subsidiary that is not a Subsidiary of such Person; provided , further, that any such Lien was not created in anticipation of or in connection with the transaction or series of transactions pursuant to which such Person became a Subsidiary of the Company; and
(i) the replacement, extension or renewal of any Lien permitted by clause (c) above upon or in the same property subject thereto arising out of the extension, renewal or replacement of the Debt secured thereby (without increase in the amount thereof).
6D. Operating Leases . Each of the Parent and the Company covenants that it shall not permit the aggregate amount of all rental payments under Operating Leases made (or scheduled to be made) by the Parent, the Company and the other Subsidiaries (on a consolidated basis) to exceed $5,000,000 in any fiscal year.
6E. Restricted Payments . Each of the Parent and the Company covenants that it shall not, and shall not permit any Subsidiary to, make any distribution to any holders of its Capital Securities, purchase or redeem any of its Capital Securities, pay any management fees or similar fees or expenses to any of its equityholders or any Affiliate thereof, make any redemption, prepayment, defeasance, repurchase or any other payment in respect of any Intercompany Subordinated Debt or set aside funds for any of the foregoing. Notwithstanding the foregoing:
(a) the Company may reimburse Parent for out-of-pocket costs and expenses incurred by Parent on behalf of or for the benefit of the Company, and for fees charged by Parent to the Company, in an aggregate amount not to exceed $4,000,000 during any fiscal year;
22
(b) subject to the Intercompany Subordination Agreement, the Company may make payments in kind of scheduled interest on the Intercompany Subordinated Note at the non-default rate of interest set forth in the Intercompany Subordinated Note;
(c) any Subsidiary may pay dividends or make other distributions to the Company or to a Domestic Subsidiary that is a Wholly-Owned Subsidiary and a Guarantor;
(d) so long as the Company files a consolidated income tax return with Parent, the Company may make distributions to Parent to permit Parent to pay federal and state income taxes then due and owing; provided that the amount of such distribution shall not be greater, nor the receipt by the Company of tax benefits less, than they would have been had the Company not filed a consolidated return with Parent;
(e) the Company may make, and the Parent may distribute to its shareholders, the Permitted Parent Dividends and other cash distributions to Parent from time to time so long as (i) no Default or Event of Default has occurred and is continuing on the date of any such distribution or would result therefrom, (ii) after giving effect to any such distribution (and any Debt incurred to fund such distribution), the Parent is in compliance on a pro forma basis with the financial covenants set forth in paragraph 6A as of the last day of the most recent fiscal quarter for which an Officers Certificate of the Parent has been delivered in accordance with paragraph 5A, and (iii) after giving effect to any such distribution, the aggregate amount of all such distributions made following the date of closing shall not exceed Cumulative Available Excess Cash Flow as of the date of such distribution; and
(f) the Parent may satisfy its obligations in connection with the Warrants and the Underwriting Agreement.
6F. Mergers, Consolidations, Acquisitions, Sales . Each of the Parent and the Company covenants that it shall not, and shall not permit any Subsidiary to:
(a) be a party to any merger or consolidation, or purchase or otherwise acquire all or substantially all of the assets or any Capital Securities of any class of, or any partnership or joint venture interest in, any other Person other than in connection with a Permitted Acquisition,
(b) sell, transfer, convey or lease all or any substantial part of its assets or Capital Securities (including the sale of Capital Securities of any Subsidiary) except for the disposition of assets no longer useful or used in connection with the Company or a Guarantors business, sales of inventory in the ordinary course of business and obsolete or worn-out equipment, or
(c) sell or assign with or without recourse any receivables,
23
except for (i) any such merger, consolidation, sale, transfer, conveyance, lease or assignment of or by any Wholly-Owned Subsidiary into the Company or into any other Domestic Subsidiary that is a Wholly-Owned Subsidiary and a Guarantor; (ii) any such purchase or other acquisition by the Company or any Domestic Subsidiary that is a Wholly-Owned Subsidiary and a Guarantor of the assets or Capital Securities of any Wholly-Owned Subsidiary; (iii) sales and dispositions of assets (including the Capital Securities of Subsidiaries) for at least fair market value (as determined by the Board of Directors of the Parent) so long as the net book value of all assets sold or otherwise disposed of in any fiscal year does not exceed 10% of the net book value of the consolidated assets of the Parent and its Subsidiaries as of the last day of the preceding fiscal year.
6G. Modification of Organization Documents . Each of the Parent and the Company covenants that it shall not permit any Organizational Documents of the Parent, the Company or any other Subsidiary to be amended or modified in any way which could reasonably be expected to adversely affect the interests of the holders of the Notes; and not change, or allow the Parent, the Company or any other Subsidiary to change, its state of formation or its organizational form upon less than 30 days prior notice to the holders of the Notes.
6H. Transactions with Affiliates. Each of the Parent and the Company covenants that it shall not, and shall not permit any Subsidiary to, enter into, or cause, suffer or permit to exist any transaction, arrangement or contract with any of its other Affiliates (other than the Company, the Parent and the other Guarantors) which is on terms which are less favorable than are obtainable from any Person which is not one of its Affiliates; provided, that the transactions contemplated under the Intercompany Subordinated Note shall not be deemed violative of this paragraph 6H.
6I. Unconditional Purchase Obligations . Except as set forth on Schedule 6I, each of the Parent and the Company covenants that it shall not, and shall not permit any Subsidiary to, enter into or be a party to any contract for the purchase of materials, supplies or other property or services if such contract requires that payment be made by it regardless of whether delivery is ever made of such materials, supplies or other property or services.
6J. Inconsistent Agreements . Each of the Parent and the Company covenants that it shall not, and shall not permit any Subsidiary to, enter into any agreement containing any provision which would (a) be violated or breached by the issuance of the Notes by the Company hereunder or by the performance by the Company or any Subsidiary of its obligations hereunder, under the Notes or under any other Transaction Document, (b) prohibit the Parent, the Company or any other Subsidiary from granting to the Collateral Agent a Lien on any of its assets or (c) create or permit to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (i) pay dividends or make other distributions to the Company or any other Subsidiary, or pay any Debt owed to the Company or any other Subsidiary, (ii) make loans or advances to the Company or any Guarantor or (iii) transfer any of its assets or properties to the Company or any Guarantor, other than (A) customary restrictions and conditions contained in agreements relating to the sale of all or a substantial part of the assets of any Subsidiary pending such sale, provided that such restrictions and conditions apply only to the Subsidiary to be sold and such sale is permitted hereunder (B) restrictions or conditions imposed by any agreement
24
relating to purchase money Debt, Capital Leases and other secured Debt permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Debt and (C) customary provisions in leases and other contracts restricting the assignment thereof.
6K. Business Activities; Issuance of Equity . Each of the Parent and the Company covenants that it shall not, and shall not permit any Subsidiary to, engage in any line of business other than the businesses engaged in on the date hereof and businesses reasonably related thereto. The Company covenants that it shall not, and each of the Parent and the Company covenants that it shall not permit any Subsidiary (other than the Parent) to, issue any Capital Securities other than any issuance by a Subsidiary to the Company or another Subsidiary that is a Guarantor in accordance with paragraphs 6E and 6L.
6L. Investments . Each of the Parent and the Company covenants that it shall not, and shall not permit any Subsidiary to, make or permit to exist any Investment in any other Person, except the following:
(a) contributions by the Company to the capital of any Domestic Subsidiary that is a Wholly-Owned Subsidiary, or by any Subsidiary to the capital of any other Domestic Subsidiary that is a Wholly-Owned Subsidiary, so long as the recipient of any such capital contribution has guaranteed the Companys obligations under the Notes and this Agreement and such guaranty is secured by a pledge of all of its Capital Securities and substantially all of its real and personal property, in each case in accordance with paragraph 5L;
(b) Investments constituting Debt permitted by paragraph 6B;
(c) Contingent Liabilities constituting Debt permitted by paragraph 6B or Liens permitted by paragraph 6C;
(d) Cash Equivalent Investments;
(e) bank deposits in the ordinary course of business and in connection with Cash Management Agreements; provided that any such deposit accounts shall (A) be subject to a Deposit Account Control Agreement in favor of the Collateral Agent or other similar arrangement satisfactory to the Required Holders or (B) not at any time exceed $150,000;
(f) Investments in securities of Account Debtors received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such account debtors;
(g) Investments in Foreign Subsidiaries in an aggregate amount not to exceed $500,000 at any one time outstanding; and
(h) Investments listed on Schedule 6L as of the date of closing;
25
provided that (x) any Investment which when made complies with the requirements of the definition of the term Cash Equivalent Investment may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements; and (y) no Investment otherwise permitted by clause (b) or (c) shall be permitted to be made if, immediately before or after giving effect thereto, any Default or Event of Default exists.
6M. Restriction of Amendments to Certain Documents . Each of the Parent and the Company covenants that it shall not, and shall not permit any Guarantor to, amend or otherwise modify, or waive any rights under, the Related Agreements, if, in any case, such amendment, modification or waiver could be adverse to the interests of the holders of the Notes. Without limiting the generality of the foregoing, the Company shall not amend the International Paper Purchase Agreement in any manner which would accelerate the payment of the Earn-Out Obligations and the Company shall not prepay the Earn-Out Obligations.
6N. Working Capital Facility. The Company covenants that it shall not at any time fail to maintain in full force and effect a working capital credit facility with aggregate commitments to provide revolving loans to the Company of not less than $75,000,0000.
6O. Accounting Changes; Fiscal Year . Each of the Parent and the Company covenants that it shall not, and shall not permit any Subsidiary to, make any change in (a) accounting policies or reporting practices, except as permitted by GAAP, or (b) its fiscal year.
6P. Prepayments, Etc. of Debt . Each of the Parent and the Company covenants that it shall not, and shall not permit any Subsidiary to, prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner, or make any payment in violation of any subordination terms of, any Debt, except (a) the prepayment of the Notes in accordance with the terms of this Agreement, (b) regularly scheduled or required repayments or redemptions of Debt set forth in Schedule 6B(f) and refinancings and refundings of such Debt in compliance with paragraph 6B(c), (c) with respect to the term loans outstanding under the Credit Agreement, (i) scheduled principal amortization payments as provided in the Credit Agreement as in effect on the closing date, provided if the Term B-2 Loan (as defined in the Credit Agreement) has been funded prior to the date of closing, then it shall be prepaid on the date of closing with proceeds of the Notes, (ii) mandatory prepayments as provided in the Credit Agreement as in effect on the closing date, and (iii) so long as no Default or Event of Default has occurred or is continuing, optional prepayments of the Term Loans (as defined in the Credit Agreement) in accordance with the terms of this Agreement and the Intercreditor Agreement (to the extent applicable) and (d) repayments of the revolving loans outstanding under the Credit Agreement.
6Q. Amendment, Etc. of Debt . Each of the Parent and the Company covenants that it shall not, and shall not permit any Subsidiary to, amend, modify or change in any manner any term or condition of (a) any Debt set forth in Schedule 6B, except for (i) any refinancing, refunding, renewal or extension thereof permitted by paragraph 6B(c), (ii) in connection with Contingent Liabilities arising with respect to indemnification obligations, any modification or amendment that does not increase the amount or accelerate the time of payment of any such Debt
26
and (iii) any other amendment or modification if, taken as a whole, such amendment or modification would not (w) be adverse in any material respect to the Parent, the Company and the other Subsidiaries, (x) shorten the final maturity or average life to maturity, (y) require any payment to be made sooner than originally scheduled or (z) increase the interest rate applicable thereto or (b) the Credit Agreement, except to the extent permitted under the Intercreditor Agreement (to the extent applicable) and in accordance with paragraph 6P hereof.
6R. Holding Company . The Parent covenants that it shall not engage in any business or activity other than (a) the ownership of all outstanding Capital Securities of the Company, (b) maintaining its corporate existence, (c) formation and ownership of direct or indirect Subsidiaries, (d) the issuance of Equity Interests (subject to compliance with the applicable terms of this Agreement), (e) participating in tax, accounting and other administrative activities as the parent of the consolidated group of companies, including the Company and the other Guarantors (including execution and delivery of contracts and agreements in the ordinary course of business in connection therewith), (f) the execution and delivery of the Transaction Documents and Loan Documents (as defined in the Credit Agreement) to which it is a party and the performance of its obligations thereunder, (g) fulfilling its obligations as an issuer of publicly traded securities and an entity subject to (i) regulation by the SEC and (ii) applicable securities laws and NASDAQ rules, (h) acting as the lender under the Intercompany Subordinated Note, (i) the performance of its obligations under the applicable contracts set forth on Schedule 6R, (j) the performance of its obligations under the Warrants and the Underwriting Agreement, (k) guarantees of obligations of the Company and the other Guarantors in the ordinary course of business and (l) activities incidental to the businesses or activities described in clauses (a) through (l) of this paragraph 6Q.
6S. Limitation on Speculative Hedging. Each of the Parent and Company covenants that it will not, and will not permit any Subsidiary to, at any time enter into any obligations under any swap, hedging or similar transactions except to the extent entered into in the ordinary course of business to hedge or limit currency exchange rate, interest rate, commodity price or other price exposures from its line of business and not entered into for speculative purposes.
6T. Terrorism Sanctions Regulations . Each of the Parent and the Company covenants that it will not and will not permit any Subsidiary to (a) become a Person described or designated in the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control or in Section 1 of the Anti-Terrorism Order or (b) engage in any dealings or transactions with any such Person.
7. EVENTS OF DEFAULT.
7A. Acceleration. If any of the following events shall occur and be continuing for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or otherwise):
(i) the Company defaults in the payment of any principal of or Yield-Maintenance Amount payable with respect to any Note when the same shall become due, either by the terms thereof or otherwise as herein provided; or
27
(ii) the Company defaults in the payment of any interest on any Note for more than 3 days after the date due; or
(iii) except for Contingent Liabilities arising with respect to indemnification obligations of the Parent, the Company or any other Subsidiary being contested in good faith by appropriate proceedings and for which the Parent, the Company or such other Subsidiary maintains adequate reserves, any default or other event shall occur under the terms applicable to (i) Debt under the Credit Agreement or any of the other Loan Documents (as defined in the Credit Agreement) or (ii) any other Debt of the Parent, the Company or any other Subsidiary in an aggregate amount (for all such Debt so affected and including undrawn committed or available amounts and amounts owing to all creditors under any combined or syndicated credit arrangement) exceeding $5,000,000 and, in either case, such default or event shall (a) consist of the failure to pay such Debt when due, whether by acceleration or otherwise, or (b) accelerate the maturity of such Debt or permit the holder or holders thereof, or any trustee or agent for such holder or holders, to cause such Debt to become due and payable (or require the Parent, the Company or any other Subsidiary to purchase or redeem such Debt or post cash collateral in respect thereof) prior to its expressed maturity;
(iv) any representation or warranty made by the Company, the Parent or any other Guarantor herein or in any other Transaction Document or by the Company, the Parent or any other Guarantor or any of its respective officers in any writing furnished in connection with or pursuant to this Agreement or any other Transaction Document shall be false or misleading in any material respect on the date as of which made; or
(v) the Company fails to perform or observe any agreement contained in paragraph 4E or the Parent or the Company fails to perform or observe any agreement contained in paragraph 5C, 5E, 5H or 6; or
(vi) (a) the Parent or the Company fails to perform or observe any agreement contained in paragraph 5A(i), (ii), (iii), (v) or (vi) or the penultimate paragraph of paragraph 5A and such failure shall not be remedied within 5 days after the earlier of the date any Responsible Officer obtains actual knowledge thereof or any notice thereof is given to the Parent or the Company by any Significant Holder, (b) the Parent or the Company fails to perform or observe any other agreement, term or condition contained herein and such failure shall not be remedied within 30 days after the earlier of the date any Responsible Officer obtains actual knowledge thereof or any notice thereof is given to the Parent or the Company by any Significant Holder, or (c) the Company or any Guarantor fails to perform or observe any agreement contained in any other Transaction Document and such failure shall not be remedied within the grace period, if any, provided therefor in such Transaction Document; or
(vii) the Parent, the Company or any other Subsidiary becomes insolvent or generally fails to pay, or admits in writing its inability or refusal to pay, debts as they become due; or the Parent, the Company or any other Subsidiary applies for, consents to, or the Parent, the Company or any other Subsidiary acquiesces in the appointment of a trustee, receiver or other custodian for such Person or any property thereof, or makes a
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general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is appointed for the Parent, the Company or any other Subsidiary or for a substantial part of the property of any thereof and is not discharged within 60 days; or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is commenced in respect of the Parent, the Company or any other Subsidiary, and if such case or proceeding is not commenced by such Person, it is consented to or acquiesced in by such Person, or remains for 60 days undismissed; or the Parent, the Company or any other Subsidiary takes any action to authorize, or in furtherance of, any of the foregoing; or
(viii) one or more judgments or orders for the payment of money (not paid or fully covered by insurance maintained in accordance with the requirements of this Agreement and as to which the relevant insurance company has acknowledged coverage) aggregating in excess of $5,000,000 shall be rendered against any or all of the Parent, the Company or any other Subsidiary and either (a) enforcement proceedings shall have been commenced by any creditor upon any such judgments or orders or (b) there shall be any period of thirty (30) consecutive days during which a stay of enforcement of any such judgments or orders, by reason of a pending appeal, bond or otherwise, shall not be in effect; or
(ix) (i) any Person institutes steps to terminate a Plan if as a result of such termination the Parent, the Company or any ERISA Affiliate could be required to make a contribution to such Plan, or could incur a liability or obligation to such Pension Plan, in excess of $5,000,000; (ii) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA; (iii) the Unfunded Liability exceeds twenty percent of the Total Plan Liability, or (iv) there shall occur any withdrawal or partial withdrawal from a Multiemployer Plan and the withdrawal liability (without unaccrued interest) to Multiemployer Plans as a result of such withdrawal (including any outstanding withdrawal liability that the Parent, the Company or any ERISA Affiliate have incurred on the date of such withdrawal) exceeds $5,000,000; or
(x) any Guaranty Agreement or any Collateral Document shall cease to be in full force and effect, or the Company or any Guarantor shall contest or deny the validity or enforceability of, or deny that it has any liability or obligations under, any Guaranty Agreement or any Collateral Document, or the Collateral Agent does not have or ceases to have a valid first priority perfected security interest (subject only to Liens permitted by paragraph 6C) in any material part of the Collateral for the benefit of the holders of the Notes; or
(xi) an Event of Default, as defined in the Credit Agreement, has occurred;
(xii) the Maturity Date with respect to the Revolving Credit Facility or the Term A Loan (each as defined in the Credit Agreement), has occurred before June 12, 2013 or the Maturity Date with respect to the Term B Loan (each as defined in the Credit Agreement), has occurred before June 12, 2015; or
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(xiii) a Change of Control has occurred; or
(xiv) any subordination provision in the Intercompany Subordination Agreement shall cease to be in full force and effect, or the Parent, the Company or any other Subsidiary shall contest in any manner the validity, binding nature or enforceability of any such provision;
then (a) if such event is an Event of Default specified in clause (i) or (ii) of this paragraph 7A, any holder of any Note (other than the Company or any of its Subsidiaries or Affiliates) may at its option, by notice in writing to the Company, declare all of the Notes held by such holder to be, and all of the Notes held by such holder shall thereupon be and become, immediately due and payable at par together with interest accrued thereon, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company, (b) if such event is an Event of Default specified in clause (vii) of this paragraph 7A with respect to the Company, all of the Notes at the time outstanding shall automatically become immediately due and payable together with interest accrued thereon and together with the Yield-Maintenance Amount, if any, with respect to each Note, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company, and (c) if such event is not an Event of Default specified in clause (vii) of this paragraph 7A with respect to the Company, the Required Holder(s) may at its or their option, by notice in writing to the Company, declare all of the Notes to be, and all of the Notes shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with the Yield-Maintenance Amount, if any, with respect to each Note, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) and without the occurrence of an Event of Default and that the provision for payment of Yield-Maintenance Amount by the Company in the event the Notes are prepaid or are accelerated as a result of an Event of Default is intended to provide compensation for the deprivation of such right under such circumstances.
7B. Rescission of Acceleration. At any time after any or all of the Notes shall have been declared immediately due and payable pursuant to paragraph 7A, the Required Holder(s) may, by notice in writing to the Company, rescind and annul such declaration and its consequences if (i) the Company shall have paid all overdue interest on the Notes, the principal of and Yield-Maintenance Amount, if any, payable with respect to any Notes which have become due otherwise than by reason of such declaration, and interest on such overdue interest and overdue principal and Yield-Maintenance Amount at the Default Rate, (ii) the Company shall not have paid any amounts which have become due solely by reason of such declaration, (iii) all Events of Default and Defaults, other than non-payment of amounts which have become due solely by reason of such declaration, shall have been cured or waived pursuant to paragraph 11C, and (iv) no judgment or decree shall have been entered for the payment of any amounts due pursuant to the Notes or this Agreement. No such rescission or annulment shall extend to or affect any subsequent Event of Default or Default or impair any right arising therefrom.
7C. Notice of Acceleration or Rescission. Whenever any Note shall be declared immediately due and payable pursuant to paragraph 7A or any such declaration shall be
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rescinded and annulled pursuant to paragraph 7B, the Company shall forthwith give written notice thereof to the holder of each Note at the time outstanding.
7D. Other Remedies. If any Event of Default or Default shall occur and be continuing, the holder of any Note may proceed to protect and enforce its rights under this Agreement, the other Transaction Documents and such Note by exercising such remedies as are available to such holder in respect thereof under applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any covenant or other agreement contained in this Agreement or the other Transaction Documents or in aid of the exercise of any power granted in this Agreement or any Transaction Document. No remedy conferred in this Agreement or the other Transaction Documents upon the holder of any Note or the Collateral Agent is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy conferred herein or now or hereafter existing at law or in equity or by statute or otherwise.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. Each of the Parent and the Company represents, covenants and warrants as follows, both immediately before and after giving effect to the Kraft Acquisition:
8A(1). Organization; Subsidiary Preferred Equity. Each of the Parent and the Company is a corporation duly organized and existing in good standing under the laws of the State of Delaware and each Subsidiary other than the Company is duly organized and existing in good standing under the laws of the jurisdiction in which it is organized. The Parent, the Company and each of the other Subsidiaries have duly qualified or been duly licensed, and are authorized to do business and are in good standing, in each jurisdiction in which the ownership of their respective properties or the nature of their respective businesses makes such qualification or licensing necessary and in which the failure to be so qualified or licensed could be reasonably likely to have a Material Adverse Effect. The Parent owns all of the outstanding shares of capital stock of the Company free and clear of any Liens other than Liens permitted by paragraph 6C(g). Schedule 8A(1) hereto sets forth, as of the date hereof, a correct list of each Subsidiary, its jurisdiction of incorporation and its ownership. No Subsidiary has any outstanding shares of any class of capital stock or other equity interests which has priority over any other class of capital stock or other equity interests of such Subsidiary as to dividends or distributions or in liquidation except as may be owned beneficially and of record by the Company or a Wholly-Owned Subsidiary. Except as set forth on Schedule 8A(1), there are no options for, rights to acquire, agreements to issue, or securities exercisable for or convertible into shares of the Companys capital stock or the equity interests of any other Subsidiary.
8A(2). Power and Authority. The Parent, the Company and each other Subsidiary has all requisite corporate, limited liability company or partnership, as the case may be, power to own or hold under lease and operate their respective properties which it purports to own or hold under lease and to conduct its business as currently conducted and as currently proposed to be conducted.
8A(3). Execution and Delivery of Transaction Documents. The Parent, the Company and each other Subsidiary has all requisite corporate, limited liability company or partnership, as the case may be, power to execute, deliver and perform its obligations under this Agreement, the
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Notes and the other Transaction Documents to which it is a party. The execution, delivery and performance of this Agreement, the Notes and the other Transaction Documents has been duly authorized by all requisite corporate, limited liability company or partnership, as the case may be, action, and this Agreement, the Notes and the other Transaction Documents have been duly executed and delivered by authorized officers of the Parent, the Company and each other Subsidiary which is a party thereto and are valid obligations of the Parent, the Company and each such other Subsidiary, legally binding upon and enforceable against the Parent, the Company and each such other Subsidiary in accordance with their terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
8B. Financial Statements. The Parent and the Company have furnished each Purchaser with the following financial statements, identified by a principal financial officer of the Parent: (i) a consolidated balance sheet of the Parent and its Subsidiaries as at December 31 in each of the years 2005 to 2007, inclusive, and consolidated statements of income, stockholders equity and cash flows of the Parent and its Subsidiaries for each such year, all reported on by PricewaterhouseCoopers LLP; (ii) a consolidated balance sheet of the Business as at December 31 in each of the years 2005 to 2007, inclusive, and consolidated statements of income, stockholders equity and cash flows of the Seller and its Subsidiaries for each such year, all reported on by PricewaterhouseCoopers LLP; and (iii) unaudited consolidated balance sheet of the Parent and its Subsidiaries as at March 31, 2008 and consolidated statements of income or operations and cash flows for the three-month period ended on each such date, prepared by the Parent. Such financial statements (including any related schedules and/or notes) are true and correct in all material respects (subject, as to interim statements, to changes resulting from audits and year-end adjustments), have been prepared in accordance with generally accepted accounting principles consistently followed throughout the periods involved and show all liabilities, direct and contingent, of the Parent and its Subsidiaries and the Seller and its Subsidiaries, as applicable, required to be shown in accordance with such principles. The balance sheets fairly present the condition of the Parent and its Subsidiaries and the Seller and its Subsidiaries, as applicable, as at the dates thereof, and the statements of income, stockholders equity and cash flows fairly present the results of the operations of the Parent and its Subsidiaries and the Seller and its Subsidiaries, as applicable, and their respective cash flows for the periods indicated. Since December 31, 2007, neither the Parent nor any Subsidiary of the Parent has paid or declared any dividend on any shares of its capital stock or made any other distribution on account of any shares of its capital stock (other than dividends or distributions payable solely to the Parent or a Wholly-Owned Subsidiary of the Parent) or redeemed, purchased, retired or otherwise acquired any shares of its capital stock or any warrants, rights or options to acquire, or securities convertible into or exchangeable for, any shares of its capital stock (other than from the Parent or a Wholly-Owned Subsidiary of the Parent). There has been no material adverse change in the business, property or assets, condition (financial or otherwise), operations or prospects of the Parent, the Company and the other Subsidiaries taken as a whole or Seller and its Subsidiaries, taken as a whole, in either case since December 31, 2007, except as set forth on Schedule 3H.
8C. Actions Pending. There is no action, suit, investigation or proceeding pending or, to the knowledge of the Parent or the Company, threatened against the Parent, the Company
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or any of the other Subsidiaries, or any properties or rights of the Parent or any of its Subsidiaries, by or before any court, arbitrator or administrative or governmental body which, individually or in the aggregate, could reasonably be expected to result in any Material Adverse Effect, except as set forth on Schedule 8C.
8D. Outstanding Debt. Neither the Parent, nor the Company nor any other Subsidiaries has outstanding any Debt except as permitted by paragraph 6B. There exists no material default under the provisions of any instrument evidencing such Debt or of any agreement relating thereto.
8E. Title to Properties. The Parent, the Company and each of the other Subsidiaries has good and marketable title to its respective real properties (other than properties which it leases) and good title to all of its other respective properties and assets, including the properties and assets reflected in the balance sheet of the Parent as at December 31, 2007 referred to in paragraph 8B (other than properties and assets disposed of in the ordinary course of business), and after giving effect to the Kraft Acquisition, the Purchased Assets (as defined in the Mead Purchase Agreement) reflected in the balance sheet of the Seller as at December 31, 2007, subject to no Lien of any kind except Liens permitted by paragraph 6C. All leases necessary in any material respect for the conduct of the respective businesses of the Parent and its Subsidiaries are valid and subsisting and are in full force and effect.
8F. Taxes. Except as set forth on Schedule 8F, the Parent and the Company has, and each of the other Subsidiaries has, filed all federal, state and other income tax returns which, to the knowledge of the officers of the Parent and its Subsidiaries, are required to be filed, and each has paid all taxes as shown on such returns and on all assessments received by it to the extent that such taxes have become due, except such taxes as are being actively contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with generally accepted accounting principles.
8G. Conflicting Agreements and Other Matters. Neither the Parent, nor the Company nor any of the other Subsidiaries is a party to any contract or agreement or subject to any charter, by-law, limited liability company operating agreement, partnership agreement, or other corporate, limited liability company or partnership restriction which could reasonably be expected to have a Material Adverse Effect. Neither the execution nor delivery of this Agreement, the Notes or the other Transaction Documents, nor the offering, issuance and sale of the Notes, nor fulfillment of nor compliance with the terms and provisions hereof and of the Notes and the other Transaction Documents will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien (other than Liens created pursuant to the Collateral Documents) upon any of the properties or assets of the Parent, the Company or any of the other Subsidiaries pursuant to, the charter, limited liability company operating agreement, partnership agreement, by-laws, limited liability company operating agreement or partnership agreement of the Parent, the Company or any of the other Subsidiaries, any award of any arbitrator or, assuming, solely with respect to the Existing Credit Agreement, the satisfaction of the condition contained in paragraph 3J, any agreement (including any agreement with stockholders, members or partners), instrument, order, judgment, decree, statute, law, rule or regulation to which the Parent, the Company or any of the other Subsidiaries is subject. Neither the Parent, nor the Company nor
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any of the other Subsidiaries is a party to, or otherwise subject to any provision contained in, any instrument evidencing Debt of the Parent, the Company or such other Subsidiary, any agreement relating thereto or any other contract or agreement (including its charter, by-laws, limited liability company operating agreement or partnership agreement) which limits the amount of, or otherwise imposes restrictions on the incurring of, Debt of the Company of the type to be evidenced by the Notes or Debt of any Guarantor of the type to be evidenced by the Guaranty Agreement except as set forth in the agreements listed on Schedule 8G.
8H. Offering of Notes. Neither the Company nor any agent acting on its behalf has, directly or indirectly, offered the Notes, any Guaranty Agreement or any similar security of the Company or any Guarantor for sale to, or solicited any offers to buy the Notes, any Guaranty Agreement or any similar security of the Company or any Guarantor from, or otherwise approached or negotiated with respect thereto with, any Person other than Institutional Investors, and neither the Company, any Guarantor nor any agent acting on its behalf has taken or will take any action which would subject the issuance or sale of the Notes or the execution and delivery of the Guaranty Agreements to the provisions of section 5 of the Securities Act or to the provisions of any securities or Blue Sky law of any applicable jurisdiction.
8I. Use of Proceeds. Neither the Parent, nor the Company nor any other Subsidiary owns or has any present intention of acquiring any margin stock as defined in Regulation U (12 CFR Part 221) of the Board of Governors of the Federal Reserve System (herein called margin stock). The proceeds of sale of the Notes will be used first, if the Term B-2 Loan (as defined in the Credit Agreement) has been funded prior to the date of closing, to repay the such Term B-2 Loan, and second to finance the Kraft Acquisition and for general corporate purposes. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any margin stock or for the purpose of maintaining, reducing or retiring any Debt which was originally incurred to purchase or carry any stock that is currently a margin stock or for any other purpose which might constitute the sale or purchase of any Notes a purpose credit within the meaning of such Regulation U. Neither the Parent nor the Company is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock. Neither the Company nor any agent acting on its behalf has taken or will take any action which might cause this Agreement, any of the other Transaction Documents or any Note to violate Regulation T, Regulation U or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act, in each case as in effect now or as the same may hereafter be in effect.
8J. ERISA.
(a) The Unfunded Liability of all Plans does not in the aggregate exceed the greater of (i) twenty percent of the Total Plan Liability for all such Plans and (ii) $5,000,000. Each Plan complies in all material respects with all applicable requirements of law and regulations. No contribution failure under Section 412 of the Code, Section 302 of ERISA or the terms of any Plan has occurred with respect to any Plan, sufficient to give rise to a Lien under Section 302(f) of ERISA, or otherwise to have a Material Adverse Effect. There are no pending or, to the knowledge of the Company, threatened, claims, actions, investigations or lawsuits against any Plan, any fiduciary of any Plan, or the Company or any ERISA Affiliate with respect to a Plan or
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a Multiemployer Plan which could reasonably be expected to have a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has engaged in any prohibited transaction (as defined in Section 4975 of the Code or Section 406 of ERISA) in connection with any Plan or Multiemployer Plan which could reasonably be expected to have a Material Adverse Effect. Within the past five years, neither the Company nor any ERISA Affiliate engaged in a transaction which resulted in a Plan with an Unfunded Liability being transferred out of the Company and its ERISA Affiliates, which could reasonably be expected to have a Material Adverse Effect. No Termination Event has occurred or is reasonably expected to occur with respect to any Plan, which could reasonably be expected to have a Material Adverse Effect.
(b) All contributions (if any) have been made to any Multiemployer Plan that are required to be made by the Company or any ERISA Affiliate under the terms of the plan or of any collective bargaining agreement or by applicable law; neither the Company nor any ERISA Affiliate has withdrawn or partially withdrawn from any Multiemployer Plan, incurred any material withdrawal liability with respect to any such plan or received notice of any material claim or demand for withdrawal liability or partial withdrawal liability from any such plan, and no condition has occurred which, if continued, could result in a withdrawal or partial withdrawal from any such plan; and neither the Company nor any ERISA Affiliate has received any notice that any Multiemployer Plan is in reorganization, that increased contributions may be required to avoid a reduction in plan benefits or the imposition of any excise tax, that any such plan is or has been funded at a rate less than that required under Section 412 of the Code, that any such plan is or may be terminated, or that any such plan is or may become insolvent.
8K. Governmental Consent. Neither the nature of the Parent, of the Company or of any other Subsidiary, nor any of their respective businesses or properties, nor any relationship between the Parent, the Company or any other Subsidiary and any other Person, nor any circumstance in connection with the offering, issuance, sale or delivery of the Notes is such as to require any authorization, consent, approval, exemption or other action by or notice to or filing with any court or administrative or governmental body (other than routine filings after the date of closing with the Securities and Exchange Commission and/or state Blue Sky authorities and other than the filings and recordings necessary to perfect the Liens in the Collateral intended to be created by the Collateral Documents described on Schedule 8K hereto and any other consent or approval that has been obtained and is in full force and effect and copies of which have been provided to the Purchasers prior to the date of closing) in connection with the execution and delivery of this Agreement or the other Transaction Documents, the offering, issuance, sale or delivery of the Notes or fulfillment of or compliance with the terms and provisions hereof, thereof or of the Notes.
8L. Compliance with Environmental and Other Laws. The Parent, the Company and the other Subsidiaries and all of their respective properties and facilities have complied at all times and in all respects with all federal, state, local, foreign and regional statutes, laws, ordinances and judicial or administrative orders, judgments, rulings and regulations, including, without limitation, those relating to protection of the environment except, in any such case, where failure to comply, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
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8M. Regulatory Status. Neither the Parent, nor the Company nor any of the other Subsidiaries is (i) an investment company or a company controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended, or an investment adviser within the meaning of the Investment Advisers Act of 1940, as amended, (ii) a holding company or a subsidiary company or an affiliate of a holding company or of a subsidiary company of a holding company, within the meaning of the Public Utility Holding Company Act of 2005, or (iii) a public utility within the meaning of the Federal Power Act, as amended.
8N. Permits and Other Operating Rights. The Parent, the Company and each other Subsidiary has all such valid and sufficient certificates of convenience and necessity, franchises, licenses, permits, operating rights and other authorizations from federal, state, foreign, regional, municipal and other local regulatory bodies or administrative agencies or other governmental bodies having jurisdiction over the Parent, the Company or any other Subsidiary or any of its properties, as are necessary for the ownership, operation and maintenance of its businesses and properties, as presently conducted and as proposed to be conducted while the Notes are outstanding, subject to exceptions and deficiencies which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, and such certificates of convenience and necessity, franchises, licenses, permits, operating rights and other authorizations from federal, state, foreign, regional, municipal and other local regulatory bodies or administrative agencies or other governmental bodies having jurisdiction over the Parent, the Company, any other Subsidiary or any of its properties are free from restrictions or conditions which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, and neither the Parent, nor the Company nor any other Subsidiary is in violation of any thereof in any material respect.
8O. Rule 144A. The Notes are not of the same class as securities of the Company, if any, listed on a national securities exchange, registered under Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system.
8P. Absence of Financing Statements, Etc. Except with respect to the Liens permitted by paragraph 6C hereof, there is no financing statement, security agreement, chattel mortgage, real estate mortgage or other document filed or recorded with any filing records, registry or other public office, that purports to cover, affect or give notice of any present or possible future Lien on, or security interest in, any assets or property of the Parent, the Company or any other Subsidiary or any rights relating thereto.
8Q. Establishment of Security Interest. Schedule 8Q hereto sets forth as of the date of closing a complete and accurate list of (i) the name, jurisdiction of organization and organizational identification number of the Parent, the Company and each of its other Subsidiaries, (ii) if the Parent, the Company or any other Subsidiary is not a registered organization (as defined in the UCC) organized under that law of a State (as defined in the UCC), the location of its place of business (if it has only one place of business) or its chief executive office (if it has more than one place of business), (iii) all real property owned or leased by the Parent, the Company or any of the other Subsidiaries, and (iv) all registered patents, trademarks, trade names, service marks, services names or copyrights owned or licensed by the Parent, the Company or any of the other Subsidiaries. As of the date hereof, all filings,
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assignments, pledges and deposits of documents or instruments have been made, and all other actions have been taken, that are necessary or advisable under applicable law and are required to be made or taken on or prior to the date of closing under the provisions of this Agreement and the other Transaction Documents to create and perfect a security interest in the Collateral in favor of the Collateral Agent to secure the Notes, the Companys obligations under the Credit Agreement and each Guarantors obligations under its Guaranty Agreement, subject to no Liens other than Liens permitted under paragraph 6C. The Collateral and the Collateral Agents rights with respect to the Collateral are not subject to any setoff, claims, withholdings or other defenses (except any such setoff, claim or defense which could not, individually or in the aggregate, materially impair the rights of the Collateral Agent with respect to the Collateral). The Parent, the Company or another Subsidiary is the owner of the Collateral described in the Collateral Documents free from any Lien, security interest, encumbrance and any other claim or demand, except for Liens permitted under paragraph 6C.
8R. Foreign Assets Control Regulations, Etc .
(i) Neither the sale of the Notes by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto.
(ii) Neither the Parent, nor the Company nor any other Subsidiary (i) is a Person described or designated in the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control or in Section 1 of the Anti-Terrorism Order or (ii) engages in any dealings or transactions with any such Person. The Company and its Subsidiaries are in compliance, in all material respects, with the USA Patriot Act.
(iii) No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended, assuming in all cases that such Act applies to the Company.
8S. Disclosure. Neither this Agreement, any other Transaction Document nor any other document, certificate or statement furnished to any Purchaser by or on behalf of the Parent, the Company or any Subsidiary in connection herewith or therewith contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. There is no fact or facts peculiar to the Parent, the Company or any of the other Subsidiaries which materially adversely affects or in the future may (so far as the Parent or the Company can now reasonably foresee), individually or in the aggregate, reasonably be expected to materially adversely affect the business, property or assets, or financial condition of the Parent, the Company or any of the other Subsidiaries and which has not been set forth in this Agreement or in the other documents, certificates and statements furnished to each Purchaser by or on behalf of the Parent prior to the date hereof in connection with the transactions contemplated hereby. Any financial projections delivered to
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any Purchaser on or prior to the date hereof are reasonable based on the assumptions stated therein and the best information available to the officers of the Company.
8T. Labor Matters. Except as set forth on Schedule 8T, neither the Parent, nor the Company nor any other Subsidiary is subject to any labor or collective bargaining agreement. There are no existing or threatened strikes, lockouts or other labor disputes involving the Parent, the Company or any other Subsidiary that singly or in the aggregate could reasonably be expected to have a Material Adverse Effect. Hours worked by and payment made to employees of the Parent, the Company and the other Subsidiaries are not in material violation of the Fair Labor Standards Act or any other applicable law, rule or regulation dealing with such matters.
8U. Related Agreements, etc.
(a) The Company has heretofore furnished the Purchasers a true and correct copy of the Related Agreements;
(b) The Parent, the Company and each other Subsidiary and, to the Companys knowledge, each other party to the Related Agreements, has duly taken all necessary corporate, partnership or other organizational action to authorize the execution, delivery and performance of the Related Agreements and the consummation of transactions contemplated thereby;
(c) The Related Transactions will comply in all material respects with all applicable legal requirements, and all necessary governmental, regulatory, creditor, shareholder, partner and other material consents, approvals and exemptions required to be obtained by the Parent, the Company and the other Subsidiaries and, to the Parents and the Companys knowledge, each other party to the Related Agreements in connection with the Related Transactions will be, prior to consummation of the Related Transactions, duly obtained and will be in full force and effect. As of the date of the Related Agreements, all applicable waiting periods with respect to the Related Transactions will have expired without any action being taken by any competent governmental authority which restrains, prevents or imposes material adverse conditions upon the consummation of the Related Transactions;
(d) The execution and delivery of the Related Agreements did not, and the consummation of the Related Transactions will not, violate any statute or regulation of the United States (including any securities law) or of any state or other applicable jurisdiction, or any order, judgment or decree of any court or governmental body binding on the Parent, the Company or any other Subsidiary or, to the Parents and the Companys knowledge, any other party to the Related Agreements, or result in a breach of, or constitute a default under, any material agreement, indenture, instrument or other document, or any judgment, order or decree, to which the Parent, the Company or any other Subsidiary is a party or by which the Parent, the Company or any other Subsidiary is bound or, to the Parents or the Companys knowledge, to which any other party to the Related Agreements is a party or by which any such party is bound; and
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(e) No statement or representation made in the Related Agreements by the Parent, the Company or any other Subsidiary or, to the Parents or the Companys knowledge, any other Person, contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they are made, not misleading.
8V. Casualty, Etc . Except as set forth on Schedule 8V, neither the businesses nor the properties of the Parent, the Company or any other Subsidiary are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance) that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
8W. Material Contracts . Schedule 8W lists, as of the date of closing, each Material Contract to which the Parent, the Company or any other Subsidiary is a party, by which either of them or their respective properties is bound or to which either of them is subject. As of the date of closing, except as set forth on Schedule 8W, (a) each Material Contract is in full force and effect and is enforceable by the Parent, the Company and each other Subsidiary party thereto in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws, statutes or rules of general application affecting the enforcement of creditors rights or general principles of equity, and (b) neither the Parent, nor the Company nor any other Subsidiary, nor, to the knowledge of the Parent, the Company and the other Subsidiaries, any other party thereto, is in breach of or default under any Material Contract in any material respect or has given notice of termination or cancellation of any Material Contract.
8X. Kraft Acquisition Documents . With respect to each of the Kraft Acquisition Documents, (i) all representations made by the Parent, the Company or any other Subsidiary in the Kraft Acquisition Documents are complete, true and correct in all material respects as of the date of closing; (ii) the execution and delivery by the Parent, the Company or any other Subsidiary of the Kraft Acquisition Documents and the consummation of the transactions therein contemplated or the compliance with the provisions thereof will not violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Parent, the Company or such other Subsidiary or any of the provisions of the organizational documents of the Parent, the Company or any other Subsidiary or any of the provisions of any indenture, agreement, document, instrument or undertaking to which the Parent, the Company or any other Subsidiary is a party or subject, or by which the Parent, the Company or any other Subsidiary or any property of the Parent, the Company or any other Subsidiary is bound, or conflict with or constitute a default thereunder or result in the creation or imposition of any Lien pursuant to the terms of any such indenture, agreement, document, instrument or undertaking, except to the extent such violation, conflict or default would not reasonably be likely to result in a Material Adverse Effect; (iii) no material order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by, any governmental, regulatory, administrative or public body or authority, or any subdivision thereof, or any other Person is required to authorize, or is required in connection with, the execution, delivery or performance of, or the legality, validity, binding effect or enforceability of, any of the Kraft Acquisition
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Documents except those which have already been obtained or given; and (iv) upon the effectiveness of this Agreement, all conditions to effectiveness of the Mead Purchase Agreement have been satisfied.
9. REPRESENTATIONS OF EACH PURCHASER. Each Purchaser represents as follows:
9A. Nature of Purchase. Such Purchaser is not acquiring the Notes to be purchased by it hereunder with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act, provided that the disposition of such Purchasers property shall at all times be and remain within its control.
9B. Source of Funds. At least one of the following statements is an accurate representation as to each source of funds (a Source ) to be used by such Purchaser to pay the purchase price of the Notes to be purchased by such Purchaser hereunder:
(i) the Source is an insurance company general account (as that term is defined in the United States Department of Labors Prohibited Transaction Exemption ( PTE ) 95-60) in respect of which the reserves and liabilities (as defined by the annual statement for life insurance companies approved by the National Association of Insurance Commissioners (the NAIC Annual Statement )) for the general account contract(s) held by or on behalf of any employee benefit plan together with the amount of the reserves and liabilities for the general account contract(s) held by or on behalf of any other employee benefit plans maintained by the same employer (or affiliate thereof as defined in PTE 95-60) or by the same employee organization in the general account do not exceed 10% of the total reserves and liabilities of the general account (exclusive of separate account liabilities) plus surplus as set forth in the NAIC Annual Statement filed with such Purchasers state of domicile; or
(ii) the Source is a separate account that is maintained solely in connection with such Purchasers fixed contractual obligations under which the amounts payable, or credited, to any employee benefit plan (or its related trust) that has any interest in such separate account (or to any participant or beneficiary of such plan (including any annuitant)) are not affected in any manner by the investment performance of the separate account; or
(iii) the Source is either (a) an insurance company pooled separate account, within the meaning of PTE 90-1, or (b) a bank collective investment fund, within the meaning of the PTE 91-38 and, except as disclosed by such Purchaser to the Company in writing pursuant to this clause (iii), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or
(iv) the Source constitutes assets of an investment fund (within the meaning of Part V of PTE 84-14 (the QPAM Exemption )) managed by a qualified professional asset manager or QPAM (within the meaning of Part V of the QPAM
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Exemption), no employee benefit plans assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of control in Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (a) the identity of such QPAM and (b) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this clause (iv); or
(v) the Source constitutes assets of a plan(s) (within the meaning of Section IV of PTE 96-23 (the INHAM Exemption )) managed by an in-house asset manager or INHAM (within the meaning of Part IV of the INHAM Exemption), the conditions of Part I(a), (g) and (h) of the INHAM Exemption are satisfied, neither the INHAM nor a person controlling or controlled by the INHAM (applying the definition of control in Section IV(h) of the INHAM Exemption) owns a 5% or more interest in the Company and (a) the identity of such INHAM and (b) the name(s) of the employee benefit plan(s) whose assets constitute the Source have been disclosed to the Company in writing pursuant to this clause (v); or
(vi) the Source is a governmental plan; or
(vii) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this clause (vii); or
(viii) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA.
As used in this paragraph 9B, the terms employee benefit plan , governmental plan , and separate account shall have the respective meanings assigned to such terms in Section 3 of ERISA.
10. DEFINITIONS; ACCOUNTING MATTERS. For the purpose of this Agreement, the terms defined in paragraphs 10A and 10B (or within the text of any other paragraph) shall have the respective meanings specified therein and all accounting matters shall be subject to determination as provided in paragraph 10C.
10A. Yield-Maintenance Terms.
Called Principal shall mean, with respect to any Note, the principal of such Note that is to be prepaid pursuant to paragraph 4A(2), 4B or 4E or is declared to be or otherwise becomes due and payable pursuant to paragraph 7A, as the context requires.
Discounted Value shall mean, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such
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Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (as converted to reflect the periodic basis on which interest on such Note is payable, if interest is payable other than on a semi-annual basis) equal to the Reinvestment Yield with respect to such Called Principal.
Reinvestment Yield shall mean, with respect to the Called Principal of any Note, 0.50% over the yield to maturity implied by (i) the yields reported as of 10:00 a.m. (New York City local time) on the Business Day next preceding the Settlement Date with respect to such Called Principal for the most recent actively traded on the run U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date on the display designated as Page PX1 on Bloomberg Financial Markets (or such other display as may replace Page PX1 on Bloomberg Financial Markets or, if Bloomberg Financial Markets shall cease to report such yields or shall cease to be Prudential Capital Groups customary source of information for calculating yield-maintenance amounts on privately placed notes, then such source as is then Prudential Capital Groups customary source of such information), or (ii) if such yields shall not be reported as of such time or the yields reported as of such time shall not be ascertainable (including by way of interpolation), the Treasury Constant Maturity Series yields reported, for the latest day for which such yields shall have been so reported as of the Business Day next preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (or any comparable successor publication) for U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. In the case of each determination under clause (i) or (ii) of the preceding sentence, such implied yield shall be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (1) the applicable U.S. Treasury security with the maturity closest to and greater than such Remaining Average Life and (2) the applicable U.S. Treasury security with the maturity closest to and less than such Remaining Average Life. The Reinvestment Yield shall be rounded to that number of decimal places as appears in the coupon of the applicable Note.
Remaining Average Life shall mean, with respect to the Called Principal of any Note, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) each Remaining Scheduled Payment of such Called Principal (but not of interest thereon) by (b) the number of years (calculated to the nearest one-twelfth year) which will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment.
Remaining Scheduled Payments shall mean, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due on or after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date.
Settlement Date shall mean, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to paragraph 4A(2), 4B or 4E
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or is declared to be or otherwise becomes due and payable pursuant to paragraph 7A, as the context requires.
Yield-Maintenance Amount shall mean, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Called Principal of such Note over the sum of (i) such Called Principal plus (ii) interest accrued thereon as of (including interest due on) the Settlement Date with respect to such Called Principal. The Yield-Maintenance Amount shall in no event be less than zero.
10B. Other Terms.
Account Debtor has the meaning set forth in the Security Agreement.
Account or Accounts has the meaning set forth in the UCC.
Acquisition shall mean any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of all or substantially all of any business or division of a Person, (b) the acquisition of in excess of 50% of the Capital Securities of any Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is already a Subsidiary).
Adjusted Working Capital shall mean the remainder of: (a) (i) the consolidated current assets of the Company and its Subsidiaries minus (ii) the amount of cash and cash equivalents included in such consolidated current assets; minus (b) (i) consolidated current liabilities of the Company and its Subsidiaries minus (ii) the amount of short-term Debt (including current maturities of long-term Debt) of the Company and its Subsidiaries included in such consolidated current liabilities.
Affiliate shall mean (i) with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such first Person, and (ii) with respect to Prudential, shall include any managed account, investment fund or other vehicle for which Prudential or any Affiliate of Prudential then acts as investment advisor or portfolio manager. A Person shall be deemed to control a corporation or other entity if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation or entity, whether through the ownership of voting securities, by contract or otherwise.
Anti-Terrorism Order means Executive Order No. 13,224 of September 24, 2001, Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit or Support Terrorism, 66 U.S. Fed. Reg. 49, 079 (2001), as amended.
Asset Disposition shall mean the sale, lease, assignment or other transfer for value (each, a Disposition ) by the Parent, the Company or any other Subsidiary to any Person (other than the Company or a Guarantor) of any asset or right of the Parent, the Company or such other Subsidiary (including, the loss, destruction or damage of any portion thereof or any actual or threatened (in writing to the Parent, the Company or any other Subsidiary) condemnation,
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confiscation, requisition, seizure or taking thereof) other than (a) the sale or lease of inventory in the ordinary course of business and (b) other Dispositions in any fiscal year the Net Proceeds of which do not in the aggregate exceed $5,000,000.
Bank Agent shall mean Bank of America, N.A., as agent for the Banks under the Credit Agreement, and its successors and assigns in that capacity.
Banks shall mean the institutions from time to time party to the Credit Agreement as lenders, and their respective successors and assigns.
BONY Documents shall mean (a) Acknowledgment of Assignment of Indebtedness and Related Liens dated contemporaneously with the date of closing, executed by The Bank of New York and addressed to the Seller, Cogen South L.L.C. and Oak Acquisition, LLC, (b) Assignment of Mortgage and Assignment of Rents and Assignment and Security Agreement dated contemporaneously with the date of closing, executed by The Bank of New York for the benefit of Oak Acquisition, LLC, (c) the Resignation of Agent/Appointment of New Agent letter dated contemporaneously with the date of closing, executed by The Bank of New York and addressed to the Seller, Cogen South L.L.C. and Oak Acquisition, LLC, and (d) the Letter Agreement relating to the assignment of Collateral from the Bank of New York to Oak Acquisition, LLC.
Business has the meaning given such term in the Mead Purchase Agreement.
Business Day shall mean any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed.
Capital Expenditures shall mean all expenditures which, in accordance with GAAP, would be required to be capitalized and shown on the consolidated balance sheet of the Parent, including expenditures in respect of Capital Leases, but excluding any such expenditures for which the Company has been reimbursed by the Seller pursuant to the Kraft Acquisition Documents and expenditures made in connection with the replacement, substitution or restoration of assets to the extent financed (a) from insurance proceeds (or other similar recoveries) paid on account of the loss of or damage to the assets being replaced or restored or (b) with awards of compensation arising from the taking by eminent domain or condemnation of the assets being replaced.
Capital Securities shall mean, with respect to any Person, all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Persons capital, whether now outstanding or issued or acquired after the date of closing, including common shares, preferred shares, membership interests in a limited liability company, limited or general partnership interests in a partnership, interests in a trust, interests in other unincorporated organizations, warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests) or any other equivalent of such ownership interest.
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Capital Lease shall mean, with respect to any Person, any lease of (or other agreement conveying the right to use) any real or personal property by such Person that, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of such Person.
Cash Equivalent Investment shall mean, at any time, (a) any evidence of Debt, maturing not more than one year after such time, issued or guaranteed by the United States Government or any agency thereof, (b) commercial paper, maturing not more than one year from the date of issue, or corporate demand notes, in each case rated at least A-l by S&P or P-l by Moodys, (c) any certificate of deposit, time deposit or bankers acceptance, maturing not more than one year after such time, or any overnight federal funds transaction that is issued or sold by a commercial banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000, (d) any repurchase agreement entered into with any commercial banking institution of the nature referred to in clause (c) which (i) is secured by a fully perfected security interest in any obligation of the type described in any of clauses (a) through (c) above and (ii) has a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such commercial banking institution thereunder and (e) money market accounts or mutual funds which invest exclusively in assets satisfying the foregoing requirements, and (f) other short term liquid investments approved in writing by the Required Holders.
Cash Management Agreement shall mean any agreement to provide cash management services, including treasury, depository, overdraft, credit or debit card, credit card processing, purchase card, ACH transactions, electronic funds transfer and other cash management arrangements.
Change of Control shall mean the occurrence of any of the following events: (a) any person or group (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have beneficial ownership of all Capital Securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an option right)), directly or indirectly, of more than 35% of the Capital Securities of the Parent entitled to vote for members of the board of directors or equivalent governing body of the Parent on a fully diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right); provided that the acquisition by any one or more Exempt Persons (as defined below) (acting singly or in concert) of the beneficial ownership of 35% or more of the Capital Securities of the Parent entitled to vote for members of the board of directors or equivalent governing body of the Parent on a fully diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right) shall not be a Change of Control; (b) a majority of the members of the Board of Directors of the Parent shall cease to be Continuing Members (as defined below); (c) the Parent shall cease to own and control 100% of each class of the outstanding Capital Securities of the Company; (d) the Company shall cease to, directly or indirectly, own and control 100% of each class of the outstanding Capital Securities of each Subsidiary (other than the Company); or (e) all of Roger W. Stone (or a replacement reasonably satisfactory to the Required Holders),
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Matthew Kaplan (or a replacement reasonably satisfactory to the Required Holders) and Timothy Keneally (or a replacement reasonably satisfactory to the Required Holders) shall cease at any time to be employed full time by the Parent in a position at least equivalent to their current respective positions; provided , however , such an event under this clause (e) shall not constitute a Change of Control for up to 135 days if the Parent is diligently working to replace such Person(s) with a reasonably qualified candidate (or candidates) to perform the same or similar duties as such Person(s). For purposes of the foregoing, (x) Continuing Member shall mean a member of the Board of Directors of Parent who either (i) was a member of Parents Board of Directors on the day before the date of closing and has been such continuously thereafter or (ii) became a member of such Board of Directors after the day before the date of closing and whose election or nomination for election by the stockholders of Parent was approved by a vote of the majority of the Continuing Members then members of Parents Board of Directors and (y) Exempt Person shall mean each member of the class consisting of: (i) Roger Stone, (ii) Matthew Kaplan and (iii) so long as voting control is retained by such Person, any spouse, lineal descendant, parent or sibling of such Person, or any trust or similar estate planning entity controlled by such Person or whose beneficiaries or owners are solely comprised of such Persons spouse, lineal descendant, parent or sibling .
closing or date of closing shall have the meaning given in paragraph 2 hereof.
Code shall mean the Internal Revenue Code of 1986, as amended.
Cogen Junior Notes shall mean the subordinated promissory note from Cogen JV to the Company dated October 22, 2001 in the original principal amount of $9,500,000 and the subordinated promissory note from Cogen JV to the Company dated December 31, 2004 in the original principal amount of $57,500,000.
Cogen JV shall mean Cogen South LLC, a Delaware limited liability company.
Cogen Loan Agreement shall mean that certain Amended and Restated Construction and Term Loan Agreement of Cogen JV dated as of December 15, 1996, as amended or assigned, and all documents executed in connection therewith.
Cogen Notes shall mean the Cogen Senior Notes and the Cogen Junior Notes.
Cogen Senior Notes shall mean all indebtedness outstanding under the Cogen Loan Agreement, including those certain Replacement Promissory Notes dated as of December 31, 1998 executed by Cogen JV in favor of the Company in the principal amounts of $50,000,000 and $8,039,721.92, respectively.
Collateral shall mean all of the Collateral and Mortgaged Property referred to in the Collateral Documents and all of the other property that is or is intended under the terms of the Collateral Documents to be subject to Liens in favor of the Collateral Agent for the benefit of the Banks and the holders of the Notes.
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Collateral Agent shall mean Bank of America, N.A., in its capacity as collateral agent under the Intercreditor Agreement, and its successor and assigns in that capacity.
Collateral Documents shall mean the Security Agreements, the Mortgages, the Deposit Account Control Agreements, the Securities Account Control Agreements, the estoppel and consent agreements, and any other agreement, document or instrument in effect on the date of closing or executed by the Parent or any Subsidiary after the date of closing under which the Parent or such Subsidiary has granted a lien upon or security interest in any property or assets to the Collateral Agent to secure all or any part of the obligations of the Company under this Agreement or the Notes or of any Guarantor under any Guaranty Agreement, and all financing statements, certificates, documents and instruments relating thereto or executed or provided in connection therewith, each as amended, restated, supplemented or otherwise modified from time to time.
Consolidated Net Income shall mean, with respect to the Parent and its Subsidiaries for any period, the net income (or loss) of the Parent and its Subsidiaries for such period, excluding any gains from Asset Dispositions, any extraordinary gains and any gains from discontinued operations.
Contingent Liability shall mean, with respect to any Person, each obligation and liability of such Person and all such obligations and liabilities of such Person incurred pursuant to any agreement, undertaking or arrangement by which such Person: (a) guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, dividend, obligation or other liability of any other Person in any manner (other than by endorsement of instruments in the course of collection), including any indebtedness, dividend or other obligation which may be issued or incurred at some future time; (b) guarantees the payment of dividends or other distributions upon the Capital Securities of any other Person; (c) undertakes or agrees (whether contingently or otherwise): (i) to purchase, repurchase, or otherwise acquire any indebtedness, obligation or liability of any other Person or any property or assets constituting security therefor, (ii) to advance or provide funds for the payment or discharge of any indebtedness, obligation or liability of any other Person (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain solvency, assets, level of income, working capital or other financial condition of any other Person, or (iii) to make payment to any other Person other than for value received; (d) agrees to lease property or to purchase securities, property or services from such other Person with the purpose or intent of assuring the owner of such indebtedness or obligation of the ability of such other Person to make payment of the indebtedness or obligation; (e) induces the issuance of any letter of credit for the benefit of such other Person; or (f) undertakes or agrees otherwise to assure a creditor against loss. The amount of any Contingent Liability which is in the form of a guaranty of Debt shall (subject to the limitation set forth below and any other limitation set forth herein) be deemed to be the outstanding principal amount (or maximum permitted principal amount, if larger) of the indebtedness, obligation or other liability guaranteed or supported thereby. The amount of any Contingent Liability which is not in the form of a guaranty of Debt shall be equal to the reasonably anticipated maximum amount of such Contingent Liability as determined by such Person in good faith.
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Credit Agreement shall mean the Credit Agreement, dated as of June 12, 2008, between the Parent, the Company, the Bank Agent and the Banks, as amended, restated, supplemented or otherwise modified from time to time.
Cumulative Available Excess Cash Flow shall mean, as of any date of determination, the sum of Available Excess Cash Flow (as defined below) for each of the fiscal years ended prior to such date of determination for which audited financial statements of the Parent and its Subsidiaries have been delivered to each Significant Holder in accordance with paragraph 5A(iii) (commencing with the 2008 fiscal year). Available Excess Cash Flow shall mean (a) with respect to the 2008 fiscal year, 50% of Excess Cash Flow for the period commencing the date of closing through the end of such fiscal year, (b) with respect to the 2009 fiscal year, 50% of Excess Cash Flow for such fiscal year and (c) with respect to the 2010 fiscal year and each fiscal year thereafter, (i) if as of such date of determination the Total Leverage Ratio is greater than or equal to 2.0:1.0, 50% of Excess Cash Flow for such fiscal year and (ii) if as of such date of determination the Total Leverage Ratio is less than 2.0:1.0, 100% of Excess Cash Flow for such fiscal year.
Debt of any Person shall mean, without duplication, (a) all indebtedness of such Person for borrowed money, whether or not evidenced by bonds, debentures, notes or similar instruments, (b) all obligations of such Person as lessee under Capital Leases which have been or should be recorded as liabilities on a balance sheet of such Person in accordance with GAAP, (c) all obligations of such Person to pay the deferred purchase price of property or services (excluding trade accounts payable in the ordinary course of business but including the Earn-Out Obligations), (d) all indebtedness secured by a Lien on the property of such Person, whether or not such indebtedness shall have been assumed by such Person; provided that if such Person has not assumed or otherwise become liable for such indebtedness, such indebtedness shall be measured at the fair market value of such property securing such indebtedness at the time of determination, (e) all obligations, contingent or otherwise, with respect to the face amount of all letters of credit (whether or not drawn), bankers acceptances and similar obligations issued for the account of such Person (including the Letters of Credit), (f) all Hedging Obligations of such Person, (g) all Contingent Liabilities of such Person, (h) all Debt of any partnership of which such Person is a general partner, (i) the principal portion of all obligations of such Person under Synthetic Lease Obligations and other Off-Balance Sheet Liabilities (excluding Operating Leases to the extent they would otherwise be included) and (j) any Capital Securities or other equity instrument, whether or not mandatorily redeemable, that under GAAP is characterized as debt, whether pursuant to financial accounting standards board issuance No. 150 or otherwise.
Debt to be Repaid shall mean Debt listed on Schedule 6B(g).
Debtor Relief Laws shall mean the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
Default shall mean any of the events specified in paragraph 7A, whether or not any requirement for such event to become an Event of Default has been satisfied.
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Default Rate shall mean a rate per annum from time to time equal to the greater of (i) 10.30% or (ii) 2.00% over the rate of interest publicly announced by JPMorgan Chase Bank from time to time as its prime rate.
Deposit Account Control Agreement shall mean an agreement, among the Company or a Guarantor, a depository institution, and the Collateral Agent, which agreement is in a form acceptable to the Collateral Agent and which provides the Collateral Agent with control (as such term is used in Article 9 of the Uniform Commercial Code) over the deposit account(s) described therein, as the same may be amended, modified, extended, restated, replaced, or supplemented from time to time.
Domestic Subsidiary shall mean any Subsidiary that is organized under the laws of any political subdivision of the United States.
Earn-Out Obligations shall mean the Companys payment obligations under Sections 1.11 and 1.12 of the International Paper Purchase Agreement.
EBITDA shall mean, for any period, Consolidated Net Income for such period plus , to the extent deducted in determining such Consolidated Net Income for such period (without duplication), (a) Interest Expense, (b) income tax expense, (c) depreciation and amortization, (d) extraordinary losses (or less gains), net of related tax effects, (e) other non-cash charges or losses (or less gains or income) for which no cash outlay (or cash receipt) is foreseeable, (f) cold mill maintenance outage costs in an aggregate amount of up to $7,500,000 for the term of this Agreement (it being understood that such add-back shall only be permitted in connection with one such outage until all of the Notes have been repaid in full) but only to the extent that (i) the aggregate amount of such costs for such period exceeds the actual expense allocable to such outage during such period and (ii) any such resulting add-back is applied to reduce EBITDA in the future periods to which such expenses actually relate on a dollar for dollar basis and (g) expenses and fees incurred to consummate the transactions contemplated by the Transaction Documents in an aggregate amount for all periods not exceeding $13,500,000. For purposes of calculating the Total Leverage Ratio and the Fixed Charge Coverage Ratio, (i) EBITDA shall be deemed to be: $38,877,600 for the fiscal quarter ending September 30, 2007, $39,298,700 for the fiscal quarter ending December 31, 2007 and $33,475,400 for the fiscal quarter ending March 31, 2008 and (ii) EBITDA for the period from April 1, 2008 to the date of closing shall be determined in a manner consistent with clause (i) above.
Environmental Claims shall mean all claims, however asserted, by any governmental, regulatory or judicial authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment.
Environmental Laws shall mean all present or future federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative or judicial orders, consent agreements, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case relating to any matter arising out of or relating to public health and safety, or pollution or protection of the environment or workplace, including any of the foregoing relating to the
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presence, use, production, generation, handling, transport, treatment, storage, disposal, distribution, discharge, emission, release, threatened release, control or cleanup of any Hazardous Substance.
Environmental Liability shall mean any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Parent, the Company or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Substances, (c) exposure to any Hazardous Substances, (d) the release or threatened release of any Hazardous Substances into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended.
ERISA Affiliate shall mean any corporation which is a member of the same controlled group of corporations as the Parent or the Company within the meaning of section 414(b) of the Code, or any trade or business which is under common control with the Company within the meaning of section 414(c) of the Code.
Event of Default shall mean any of the events specified in paragraph 7A, provided that there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act.
Excess Cash Flow shall mean, for any period, (a) EBITDA for such period, minus (b) scheduled repayments of principal of the Term Loans (as defined in the Credit Agreement) made during such period, minus (c) voluntary prepayments of the Term Loans (as defined in the Credit Agreement) during such period, minus (d) scheduled or voluntary prepayments of the Notes during such period, minus (e) cash payments made in such period with respect to Capital Expenditures (to the extent such cash payments are unfinanced), minus (f) all income taxes paid in cash by the Company and the Guarantors during such period, minus (g) cash Interest Expense of the Company and the Guarantors during such period, minus (h) any cash losses (and plus any cash gains) from extraordinary items to the extent excluded from the calculation of EBITDA, minus (i) any increase in Adjusted Working Capital for such period.
Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
Existing Credit Agreement shall have the same meaning given in paragraph 3J hereof
Extraordinary Receipt shall mean any cash received by or paid to or for the account of any Person not in the ordinary course of business, including tax refunds, pension plan reversions, proceeds of insurance (other than proceeds of business interruption insurance to the extent such proceeds constitute compensation for lost earnings), condemnation awards (and payments in lieu thereof), indemnity payments and any purchase price adjustments.
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FILOT Lease shall mean, collectively, (i) the lease agreement to be entered into on or before the date of closing between Charleston County, South Carolina and KapStone Charleston Kraft LLC and (ii) the lease agreement to be entered into on or before the date of closing between Charleston County, South Carolina and Cogen South LLC.
Fixed Charge Coverage Ratio shall mean, as of the last day of any fiscal quarter, for the period of four consecutive fiscal quarters ending in such date, the ratio of (a) the total for such period of (i) EBITDA minus (ii) the sum of income taxes paid in cash by the Parent and its Subsidiaries minus (iii) cash dividends paid during such period minus (iv) all unfinanced Capital Expenditures to (b) the sum for such period of (i) cash Interest Expense plus (ii) required payments of principal of Funded Debt (including the Notes and the Term Loans (as defined in the Credit Agreement) but excluding the Revolving Credit Loans (as defined in the Credit Agreement) and the Intercompany Subordinated Debt); provided , with respect to each of clauses (a)(ii), (a)(iii), (a)(iv), (b)(i) and (b)(ii) above, for any fiscal quarter ending during the first three full fiscal quarters following the date of closing, the relevant amount shall be determined not by taking the actual amount for such four consecutive fiscal quarter period but instead by dividing (x) the actual amount of such item from the date of closing to such fiscal quarter end by (y) the number of days from (and including) the date of closing to (and including) such fiscal quarter end and multiplying the quotient by 365.
Foreign Subsidiary shall mean any Subsidiary that is not a Domestic Subsidiary.
Funded Debt shall mean, as to any Person, all Debt for borrowed money of such Person that matures more than one year from the date of its creation (or is renewable or extendible, at the option of such Person, to a date more than one year from such date).
Governmental Authority shall mean the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
Hedging Obligation shall mean, with respect to any Person, any liability of such Person under any Swap Contract.
Guarantor shall mean the Parent and each Domestic Subsidiary of the Company in existence as of the date of closing and each other Person which may from time to time execute a Guaranty Agreement.
Guaranty Agreement and Guaranty Agreements shall have the same meaning given in paragraph 3A (iii) hereof.
including shall mean, unless the context clearly requires otherwise, including without limitation, whether or not so stated.
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Institutional Investor shall mean any insurance company, commercial, investment or merchant bank, finance company, mutual fund, registered money or asset manager, savings and loan association, credit union, registered investment advisor, pension fund, investment company, licensed broker or dealer, qualified institutional buyer (as such term is defined under Rule 144A promulgated under the Securities Act) or accredited investor (as such term is defined in Regulation D promulgated under the Securities Act).
Intercompany Subordinated Debt shall mean unsecured Debt of the Company to Parent in respect of the loan made by Parent to the Company pursuant to the Intercompany Subordinated Note.
Intercompany Subordinated Note shall mean that certain Subordinated Promissory Note dated as of the date of closing by the Company in favor of Parent.
Intercompany Subordination Agreement shall mean that certain Subordination and Intercreditor Agreement dated as of the date hereof by and among Parent, Company, the Bank Agent and the holders of the Notes, as amended, restated or otherwise modified from time to time pursuant to the terms thereof.
Intercreditor Agreement shall have the meaning given in paragraph 3A(ii) hereof.
Interest Expense shall mean for any period the consolidated interest expense of the Parent and its Subsidiaries for such period (including all imputed interest on Capital Leases).
International Paper Purchase Agreement shall mean that certain Purchase Agreement dated as of June 23, 2006 among the Parent, the Company and International Paper Company, as amended from time to time.
Investment shall mean, with respect to any Person, any investment in another Person, whether by acquisition of any Debt or Capital Security, by making any loan or advance, by becoming obligated with respect to a Contingent Liability in respect of obligations of such other Person (other than travel and similar advances to employees in the ordinary course of business) or by making an Acquisition.
Kraft Acquisition shall have the meaning given in paragraph 3K.
Kraft Acquisition Documents shall have the meaning given in paragraph 3K.
Lien shall mean, with respect to any Person, any interest granted by such Person in any real or personal property, asset or other right owned or being purchased or acquired by such Person (including an interest in respect of a Capital Lease) which secures payment or performance of any obligation and shall include any mortgage, lien, encumbrance, title retention lien, charge or other security interest of any kind, whether arising by contract, as a matter of law, by judicial process or otherwise.
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Material Adverse Effect shall mean (a) a material adverse change in, or a material adverse effect upon, the financial condition, operations, assets, business or properties of the Company and the Guarantors taken as a whole, (b) a material impairment of the ability of the Company or any Guarantor to perform any of its respective obligations under this Agreement the Notes or any other Transaction Document or (c) a material adverse effect upon any substantial portion of the collateral under the Collateral Documents or upon the legality, validity, binding effect or enforceability against the Company or any Guarantor of any Transaction Document.
Material Contract shall mean, with respect to any Person, (a) each contract or other agreement, written or oral, to which such Person is a party involving aggregate consideration payable to or by such Person of $10,000,000 or more and (b) any other contract, agreement, permit or license, written or oral, to which such Person is a party as to which the breach, nonperformance, cancellation or failure to renew by any party thereto could reasonably be expected to have a Material Adverse Effect.
Mead Purchase Agreement shall have the meaning given in paragraph 3K hereof.
Moodys shall mean Moodys Investors Service, Inc. and any successor thereto.
Mortgage and Mortgages shall have the meaning given in paragraph 3A(v) hereof.
Multiemployer Plan shall mean any Plan which is a multiemployer plan (as such term is defined in section 4001(a)(3) of ERISA).
Net Cash Proceeds shall mean:
(a) with respect to any Asset Disposition, the aggregate cash proceeds (including cash proceeds received pursuant to policies of insurance or by way of deferred payment of principal pursuant to a note, installment receivable or otherwise, but only as and when received) received by the Company or any Guarantor pursuant to such Asset Disposition net of (i) the direct costs relating to such sale, transfer or other disposition (including sales commissions and legal, accounting and investment banking fees), (ii) taxes paid or reasonably estimated by the Company to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements) and (iii) amounts required to be applied to the repayment of any Debt secured by a Lien on the asset subject to such Asset Disposition (other than the Senior Debt);
(b) with respect to any issuance or exercise of Capital Securities (including, without limitation, the Warrants), the aggregate cash proceeds received by the Company or any Guarantor pursuant to such issuance or exercise, net of the direct costs relating to such issuance or exercise (including sales and underwriters commissions); and
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(c) with respect to any issuance of Debt, the aggregate cash proceeds received by the Parent, the Company or any other Subsidiary pursuant to such issuance, net of the direct costs of such issuance (including up-front, underwriters and placement fees).
Notes shall have the meaning given in paragraph 1 hereof.
Off-Balance Sheet Liabilities shall mean, with respect to any Person as of any date of determination thereof, without duplication and to the extent not included as a liability on the consolidated balance sheet of such Person and its Subsidiaries in accordance with GAAP: (a) with respect to any asset securitization or similar transaction (including any accounts receivable purchase facility) (i) the unrecovered investment of purchasers or transferees of assets so transferred and (ii) any other payment, recourse, repurchase, hold harmless, indemnity or similar obligation of such Person or any of its Subsidiaries in respect of assets transferred or payments made in respect thereof, other than limited recourse provisions that are customary for transactions of such type and that neither (x) have the effect of limiting the loss or credit risk of such purchasers or transferees with respect to payment or performance by the obligors of the assets so transferred nor (y) impair the characterization of the transaction as a true sale under applicable Laws (including Debtor Relief Laws); or (b) the monetary obligations under any financing lease (excluding any operating lease) or so-called synthetic, tax retention or off-balance sheet lease transaction which, upon the application of any Debtor Relief Law to such Person or any of its Subsidiaries, would be characterized as indebtedness; or (c) the monetary obligations under any sale and leaseback transaction which does not create a liability on the consolidated balance sheet of such Person and its Subsidiaries; or (d) any other monetary obligation arising with respect to any other transaction which (i) upon the application of any Debtor Relief Law to such Person or any of its Subsidiaries, would be characterized as indebtedness or (ii) is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the consolidated balance sheet of such Person and its Subsidiaries (for purposes of this clause (d), any transaction structured to provide tax deductibility as interest expense of any dividend, coupon or other periodic payment will be deemed to be the functional equivalent of a borrowing).
Officers Certificate shall mean a certificate signed in the name of the Parent or the Company, as applicable, by its President, one of its Vice Presidents or its Treasurer.
Operating Lease shall mean any lease of (or other agreement conveying the right to use) any real or personal property by the Company or any Guarantor, as lessee, other than any Capital Lease and obligations in respect of the FILOT Lease.
Organization Documents shall mean, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or
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organization and, if applicable, any certificate or articles of formation or organization of such entity.
PBGC shall mean the Pension Benefit Guaranty Corporation, or any successor or replacement entity thereto under ERISA.
Person shall mean and include an individual, a partnership, a joint venture, a corporation, a trust, a limited liability company, an unincorporated organization and a government or any department or agency thereof.
Permitted Acquisition shall mean any Proposed Acquisition which is either (a) approved in writing by the Required Holders or (b) which satisfies each of the following conditions:
(i) Other than Debt permitted under paragraph 6B, neither the Parent, nor the Company nor any other Subsidiary shall incur or assume any Debt or other liabilities in connection with such Proposed Acquisition except for ordinary course trade payables and accrued expenses. No earn-out or similar payment obligations shall be incurred in connection with such Proposed Acquisition unless approved in writing by the Required Holders ;
(ii) Before and after giving effect to such Proposed Acquisition, no Default or Event of Default shall have occurred and be continuing;
(iii) The aggregate amount payable in connection with, and other consideration for (in each case, including all transaction costs and all Debt, liabilities and Contingent Liabilities incurred or assumed in connection therewith or otherwise reflected in a consolidated balance sheet of the Parent and such acquired Person) such Proposed Acquisition and all other Permitted Acquisitions under clause (b) of this definition shall not exceed $60,000,000;
(iv) After giving effect to such Proposed Acquisition, the Parent shall be in compliance on a pro forma basis with the financial covenants set forth in paragraph 6A, recomputed for the most recent fiscal quarter for which financial statements have been delivered;
(v) Upon consummation of such Proposed Acquisition, the Collateral Agent shall have a perfected first priority Lien upon all assets acquired in connection therewith, subject only to Permitted Liens;
(vi) Not less than twenty (20) Business Days prior to consummating such Proposed Acquisition, the Company shall deliver to the holders of the Notes an acquisition summary with respect to such Proposed Acquisition, such summary to include (A) a reasonably detailed description of the business to be acquired (including financial information) and operating results (including financial statements in form and substance reasonably satisfactory to the Required Holders), (B) the terms and conditions, including economic terms, of the Proposed Acquisition, and (C) pro forma financial projections for
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the Parent and its Subsidiaries for the four fiscal quarters following the date of such Proposed Acquisition, together with a calculation of the Parents compliance on a Pro Forma Basis with the financial covenants set forth in paragraph 6A for such period, in each case in form and substance reasonably satisfactory to the Required Holders;
(vii) The holders of the Notes shall have been furnished with copies of the Companys business, legal and environmental due diligence with respect to the proposed business and assets to be acquired, with results reasonably satisfactory to the Required Holders; and
(viii) Prior to consummating such Proposed Acquisition, the Company shall provide the holders of the Notes with all acquisition documents relating thereto and such other information (including officers certificates and opinions of counsel) as the Required Holders shall reasonably request in order to confirm that the conditions set forth herein have been satisfied.
Permitted Lien shall mean a Lien expressly permitted hereunder pursuant to paragraph 6C.
Permitted Parent Dividends shall mean the dividend the Company is permitted to pay to the Parent in an aggregate amount not to exceed (a) (i) from the date of closing through the fiscal year ending December 31, 2009, 50% of Cumulative Available Excess Cash Flow and (ii) thereafter, 100% of Cumulative Available Excess Cash Flow plus (b) an aggregate amount of up to $500,000 in connection with the redemption of the Warrants pursuant to the terms thereof and in connection with the obligations of the Parent pursuant to the Underwriting Agreement, if applicable.
Plan shall mean any employee pension benefit plan (as such term is defined in section 3 of ERISA) which is or has been established or maintained, or to which contributions are or have been made, by the Company or any ERISA Affiliate.
Pro Forma Basis shall mean, with respect to any determination for any period and any Pro Forma Transaction, that such determination shall be made by giving pro forma effect to each such Pro Forma Transaction, as if each such Pro Forma Transaction had been consummated on the first day of such period.
Pro Forma Transaction shall mean any transaction consummated as part of any Permitted Acquisition, together with each other transaction relating thereto and consummated in connection therewith, including any incurrence or repayment of Debt.
Proposed Acquisition shall mean (a) any proposed acquisition that is consensual and approved by the board of directors of such Proposed Acquisition Target, of all or substantially all of the assets or Capital Securities of any Proposed Acquisition Target by the Company or any Subsidiary of the Company or (b) any proposed merger of any Proposed Acquisition Target with or into the Company or any Subsidiary of the Company (and, in the case of a merger with the Company, with the Company being the surviving corporation).
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Proposed Acquisition Target shall mean any Person or any brand, line of business, division, branch, operating division or other unit operation of any Person.
Proposed Prepayment Date shall have the meaning given in paragraph 4E(4) hereof.
Prudential shall mean The Prudential Insurance Company of America.
Purchasers shall have the meaning given in the introductory paragraph hereof.
Ratable Portion shall mean, as of any date of determination, with respect to the Notes of any holder of the Notes that has accepted an offer to prepay the Notes upon a Senior Debt Prepayment Event pursuant to paragraph 4E, an amount equal to the product of (a) the Net Cash Proceeds required under the Credit Agreement to be applied to the prepayment of any Senior Debt in connection with such Senior Debt Prepayment Event multiplied by (b) a fraction, the numerator of which is (x) the then aggregate outstanding principal amount of the Notes held by such holder (y) the denominator of which is the then aggregate outstanding principal amount of all Senior Debt to which such Net Cash Proceeds are so required to be applied.
Related Agreements shall mean the Kraft Acquisition Documents and all agreements and instruments entered into or delivered in connection therewith, including without limitation all supply agreements and transitional services agreements with Seller.
Related Transactions shall mean the transactions contemplated by the Related Agreements.
Reportable Event shall mean a reportable event as defined in Section 4043 of ERISA and the regulations issued thereunder as to which the PBGC has not waived the notification requirement of Section 4043(a), or the failure of a Plan to meet the minimum funding standards of Section 412 of the Code (without regard to whether the Plan is a plan described in Section 4021(a)(2) of ERISA) or under Section 302 of ERISA.
Required Holder(s) shall mean the holder or holders of more than 50% of the aggregate principal amount of the Notes from time to time outstanding.
Responsible Officer shall mean the chief executive officer, chief operating officer, chief financial officer or chief accounting officer of the Company or any Guarantor or any other officer of the Parent or the Company or any Guarantor involved principally in its financial administration or its controllership function.
S&P shall mean Standard & Poors Ratings Services, a division of The McGraw-Hill Companies, Inc., and any successor thereto.
SCANA Side Letters shall mean those certain letter agreements dated as of April 3, 2008 and April 4, 2008, among MeadWestvaco Corporation, MeadWestvaco South Carolina LLC, SCANA Corporation, South Carolina Electric and Gas Company, Cogen South L.L.C., the Parent and Oak Acquisition LLC.
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Securities Account Control Agreements shall have the meaning given in the Security Agreement.
Securities Act shall mean the Securities Act of 1933, as amended.
Security Agreement and Security Agreements shall have the meaning given in paragraph 3A(iv) hereof.
Seller shall mean a collective reference to MeadWestvaco Corporation and MeadWestvaco South Carolina LLC.
Senior Debt shall mean the Notes and the Loans (as defined in the Credit Agreement).
Senior Debt Prepayment Event shall mean any event giving rise to the requirement to make a prepayment of Senior Debt pursuant to Section 2.05(b)(i), (ii), (iii), (iv), (v) or (vi) of the Credit Agreement as in effect on the date of closing.
Significant Holder shall mean (i) each Purchaser, so long as such Purchaser or any of its Affiliates shall hold (or be committed under this Agreement to purchase) any Note, or (ii) any other Person which, together with its Affiliates, is the holder of at least 5% of the aggregate principal amount of the Notes from time to time outstanding.
Subsidiary of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a Subsidiary or to Subsidiaries shall refer to a Subsidiary or Subsidiaries of the Parent. For the avoidance of doubt, any reference to a Subsidiary of the Parent shall include the Company.
Swap Contract shall mean (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules,
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a Master Agreement ), including any such obligations or liabilities under any Master Agreement.
Synthetic Lease Obligation shall mean the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment). In no event shall any Operating Lease or any FILOT Lease be construed as a Synthetic Lease Obligation.
Teachers shall mean Teachers Insurance and Annuity Association of America.
Termination Event shall mean, with respect to a Plan that is subject to Title IV of ERISA, (a) a Reportable Event, (b) the withdrawal of the Company or any ERISA Affiliate from such Plan during a plan year in which the Company or any ERISA Affiliate was a substantial employer as defined in Section 4001(a)(2) of ERISA or was deemed such under Section 4068(f) of ERISA, (c) the termination of such Plan, the filing of a notice of intent to terminate the Plan or the treatment of an amendment of such Plan as a termination under Section 4041 of ERISA, (d) the institution by the PBGC of proceedings to terminate such Plan or (e) any event or condition that might constitute grounds under Section 4042 of ERISA for the termination of, or appointment of a trustee to administer, such Plan.
Total Debt shall mean all Debt of the Parent and its Subsidiaries, determined on a consolidated basis, excluding (a) contingent obligations in respect of Contingent Liabilities (except to the extent constituting Contingent Liabilities in respect of Debt of a Person other than the Company or any Guarantor or in respect of Letters of Credit (as defined in the Credit Agreement)), (b) Hedging Obligations, (c) Debt of the Parent to Subsidiaries and Debt of Subsidiaries to the Parent or to other Subsidiaries and (d) the Earn-Out Obligations.
Total Leverage Ratio shall mean, as of the last day of any fiscal quarter, the ratio of (a) Total Debt as of such day to (b) EBITDA for the period of four consecutive fiscal quarters ending on such day.
Total Plan Liability shall mean, at any time, the present value of all vested and unvested accrued benefits under all Pension Plans, determined as of the then most recent valuation date for each Plan, using PBGC actuarial assumptions for single employer plan terminations.
Transaction Documents shall mean this Agreement, the Notes, the Intercreditor Agreement, the Guaranty Agreements, the Collateral Documents, the Intercompany Note Subordination Agreement and the other agreements, documents, certificates and instruments now or hereafter executed or delivered by the Company or any Subsidiary or Affiliate in connection with this Agreement.
Transferee shall mean any direct or indirect transferee of all or any part of any Note purchased by any Purchaser under this Agreement.
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UCC shall mean the Uniform Commercial Code as in effect in the State of Illinois; provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of Illinois, UCC shall mean the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.
Underwriting Agreement shall mean the Underwriting Agreement dated on or about August 15, 2005 between Stone Arcade Acquisition Corporation, Morgan Joseph & Co., Inc., as Representative, and the other Underwriters identified therein, as in effect on the date of closing.
Unfunded Liability shall mean the amount (if any) by which the present value of all vested and unvested accrued benefits under all Plans exceeds the fair market value of all assets allocable to those benefits, all determined as of the then most recent valuation date for each Plan, using PBGC actuarial assumptions for single employer plan terminations.
USA Patriot Act shall mean United States Public Law 107-56, Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.
Warrants shall mean those certain warrants to purchase 40,000,000 shares of common stock of the Parent at an exercise price of $5.00 per share dated on or about August 15, 2005.
Wholly-Owned Subsidiary shall mean any Subsidiary of the Company all of the outstanding capital stock or other equity interests of every class of which is owned by the Company or another Wholly-Owned Subsidiary of the Company.
10C. Accounting Principles, Terms and Determinations. All references in this Agreement to generally accepted accounting principles or GAAP shall be deemed to refer to generally accepted accounting principles in effect in the United States at the time of application thereof. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all unaudited financial statements and certificates and reports as to financial matters required to be furnished hereunder shall be prepared, in accordance with generally accepted accounting principles, applied on a basis consistent with the most recent audited consolidated financial statements of the Company and its Subsidiaries delivered pursuant to clause (ii) of paragraph 5A or, if no such statements have been so delivered, the most recent audited financial statements referred to in clause (i) of paragraph 8B. Notwithstanding the foregoing, if at any time any change in GAAP or in accounting practices as permitted under paragraph 6N hereof would affect the computation of any financial ratio or requirement set forth in any Transaction Document, and either the Company or the Required Holders shall so request, the holders of the Notes and the Company shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP or accounting practices (subject to the approval of the Required Holders); provided that, until so amended, (i) such ratio or requirement shall continue
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to be computed in accordance with GAAP or past accounting practices prior to such change therein and (ii) the Company shall provide to the holders of the Notes financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP or accounting practices, as appropriate. Any reference herein to any specific citation, section or form of law, statute, rule or regulation shall refer to such new, replacement or analogous citation, section or form should such citation, section or form be modified, amended or replaced. All references herein to consolidated financial statements of the Parent and its Subsidiaries or to the determination of any amount for the Parent and its Subsidiaries on a consolidated basis or any similar reference shall, in each case, be deemed to include each variable interest entity that the Parent is required to consolidate pursuant to FASB Interpretation No. 46 Consolidation of Variable Interest Entities: an interpretation of ARB No. 51 (January 2003) as if such variable interest entity were a Subsidiary as defined herein.
11. MISCELLANEOUS.
11A. Note Payments. The Company agrees that, so long as any Purchaser shall hold any Note, it will make payments of principal of, interest on and any Yield-Maintenance Amount payable with respect to such Note, which comply with the terms of this Agreement, by wire transfer of immediately available funds for credit (not later than 12:00 noon, New York City time, on the date due) to such Purchasers account or accounts as specified in the Purchaser Schedule attached hereto, or such other account or accounts in the United States as such Purchaser may from time to time designate in writing, notwithstanding any contrary provision herein or in any Note with respect to the place of payment. Each Purchaser agrees that, before disposing of any Note, such Purchaser will make a notation thereon (or on a schedule attached thereto) of all principal payments previously made thereon and of the date to which interest thereon has been paid. The Company agrees to afford the benefits of this paragraph 11A to any Transferee which shall have made the same agreement as each Purchaser has made in this paragraph 11A. No holder shall be required to present or surrender any Note or make any notation thereon, except that upon the written request of the Company made concurrently with or reasonably promptly after the payment or prepayment in full of any Note, the applicable holder shall surrender such Note for cancellation, reasonably promptly after such request, to the Company at its principal office.
11B. Expenses. Whether or not the transactions contemplated hereby shall be consummated, the Company shall pay, and save each Purchaser and any Transferee harmless against liability for the payment of, all out-of-pocket expenses arising in connection with such transactions, including:
(i) (a) all stamp and documentary taxes and similar charges, (b) costs of obtaining a private placement number from Standard and Poors Ratings Group for the Notes and (c) fees and expenses of brokers, agents, dealers, investment banks or other intermediaries or placement agents, in each case as a result of the execution and delivery of this Agreement or the other Transaction Documents or the issuance of the Notes;
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(ii) document production and duplication charges and the reasonable fees and expenses of any special counsel engaged by such Purchaser or such Transferee in connection with (a) this Agreement, any of the other Transaction Documents and the transactions contemplated hereby or thereby and (b) any subsequent proposed waiver, amendment or modification of, or proposed consent under, this Agreement or any other Transaction Document, whether or not such proposed waiver, amendment, modification or consent shall be effected or granted;
(iii) the costs and expenses, including attorneys and financial advisory fees, incurred by such Purchaser or such Transferee in enforcing (or determining whether or how to enforce or cause the Collateral Agent to enforce) any rights under this Agreement, the Notes or any other Transaction Document (including, without limitation, to protect, collect, lease, sell, take possession of, release or liquidate any of the Collateral) or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or any other Transaction Document or the transactions contemplated hereby or thereby or by reason of your or such Transferees having acquired any Note, including without limitation costs and expenses incurred in any workout, restructuring or renegotiation proceeding or bankruptcy case;
(iv) all costs and expenses, including without limitation reasonable attorneys fees, preparing, recording and filing all financing statements, instruments and other documents to create, perfect and fully preserve and protect the Liens granted in the Collateral Documents and the rights of the holders of the Notes or of the Collateral Agent for the benefit of the holders of the Notes; and
(v) any judgment, liability, claim, order, decree, cost, fee, expense, action or obligation resulting from the consummation of the transactions contemplated hereby, including the use of the proceeds of the Notes by the Company, except to the extent resulting from the gross negligence or willful misconduct of the holders of the Notes.
The Company also will promptly pay or reimburse each Purchaser or holder of a Note (upon demand, in accordance with each such Purchasers or holders written instruction) for all fees and costs paid or payable by such Purchaser or holder to the Securities Valuation Office of the National Association of Insurance Commissioners in connection with the initial filing of this Agreement and all related documents and financial information, and all subsequent annual and interim filings of documents and financial information related to this Agreement, with such Securities Valuation Office or any successor organization acceding to the authority thereof.
The obligations of the Company under this paragraph 11B shall survive the transfer of any Note or portion thereof or interest therein by any Purchaser or Transferee and the payment of any Note.
11C. Consent to Amendments. This Agreement may be amended, and the Parent and Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, if the Parent and the Company shall obtain the written consent to such amendment, action or omission to act, of the Required Holder(s) except that, without the written consent of the holder or holders of all Notes at the time outstanding, no amendment to this
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Agreement shall change the maturity of any Note, or change the principal of, or the rate, method of computation or time of payment of interest on or any Yield-Maintenance Amount payable with respect to any Note, or affect the time, amount or allocation of any prepayments, or change the proportion of the principal amount of the Notes required with respect to any consent, amendment, waiver or declaration. Each holder of any Note at the time or thereafter outstanding shall be bound by any consent authorized by this paragraph 11C, whether or not such Note shall have been marked to indicate such consent, but any Notes issued thereafter may bear a notation referring to any such consent. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of any Note. Without limiting the generality of the foregoing, no negotiations or discussions in which any holder of any Note may engage regarding any possible amendments, consents or waivers with respect to this Agreement or any other Transaction Document shall constitute a waiver of any Default or Event of Default, any term of this Agreement or any other Transaction Documents or any rights of any such holder under this Agreement or any other Transaction Document. As used herein and in the Notes, the term this Agreement and references thereto shall mean this Agreement as it may from time to time be amended or supplemented.
11D. Form, Registration, Transfer and Exchange of Notes; Lost Notes. The Notes are issuable as registered notes without coupons in denominations of at least $100,000, except as may be necessary to (i) reflect any principal amount not evenly divisible by $100,000 or (ii) enable the registration of transfer by a holder of its entire holding of Notes; provided, however, that no such minimum denomination shall apply to Notes issued upon transfer by any holder of the Notes to Prudential or any of Prudentials Affiliates or to any other entity or group of Affiliates with respect to which the Notes so issued or transferred shall be managed by a single entity. The Company shall keep at its principal office a register in which the Company shall provide for the registration of Notes and of transfers of Notes. Upon surrender for registration of transfer of any Note at the principal office of the Company, the Company shall, at its expense, execute and deliver one or more new Notes of like tenor and of a like aggregate principal amount, registered in the name of such transferee or transferees. At the option of the holder of any Note, such Note may be exchanged for other Notes of like tenor and of any authorized denominations, of a like aggregate principal amount, upon surrender of the Note to be exchanged at the principal office of the Company. Whenever any Notes are so surrendered for exchange, the Company shall, at its expense, execute and deliver the Notes which the holder making the exchange is entitled to receive. Every Note surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer duly executed, by the holder of such Note or such holders attorney duly authorized in writing. Any Note or Notes issued in exchange for any Note or upon transfer thereof shall carry the rights to unpaid interest and interest to accrue which were carried by the Note so exchanged or transferred, so that neither gain nor loss of interest shall result from any such transfer or exchange. Upon receipt of written notice from the holder of any Note of the loss, theft, destruction or mutilation of such Note and, in the case of any such loss, theft or destruction, upon receipt of such holders unsecured indemnity agreement, or in the case of any such mutilation upon surrender and cancellation of such Note, the Company will make and deliver a new Note, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Note.
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11E. Persons Deemed Owners; Participations. Prior to due presentment for registration of transfer, the Company may treat the Person in whose name any Note is registered as the owner and holder of such Note for the purpose of receiving payment of principal of, interest on and any Yield-Maintenance Amount payable with respect to such Note and for all other purposes whatsoever, whether or not such Note shall be overdue, and the Company shall not be affected by notice to the contrary. Subject to the preceding sentence, the holder of any Note may from time to time grant participations in such Note to any Person on such terms and conditions as may be determined by such holder in its sole and absolute discretion, but the Company shall be entitled to deal directly with such holder notwithstanding the sale of any such participation.
11F. Survival of Representations and Warranties; Entire Agreement. All representations and warranties contained herein or in any other Transaction Documents or made in writing by or on behalf of the Company or any Guarantor in connection herewith or therewith shall survive the execution and delivery of this Agreement, the other Transaction Documents and the Notes, the transfer by any Purchaser of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any Transferee, regardless of any investigation made at any time by or on behalf of any Purchaser or any Transferee. Subject to the preceding sentence, this Agreement, the other Transaction Documents and the Notes embody the entire agreement and understanding between the Purchasers, the Parent and the Company with respect to the subject matter hereof and supersede all prior agreements and understandings relating to such subject matter.
11G. Successors and Assigns. All covenants and other agreements in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including, without limitation, any Transferee) whether so expressed or not.
11H. Independence of Covenants. All covenants hereunder and in the other Transaction Documents shall be given independent effect so that if a particular action or condition is prohibited by any one of such covenants, the fact that it would be permitted by an exception to, or otherwise be in compliance within the limitations of, another covenant shall not (i) avoid the occurrence of a Default or Event of Default if such action is taken or such condition exists or (ii) in any way prejudice an attempt by the holder of any Note to prohibit through equitable action or otherwise the taking of any action by the Parent or any Subsidiary which would result in a Default or Event of Default.
11I. Notices. All written communications provided for hereunder shall be sent by first class mail or nationwide overnight delivery service (with charges prepaid) and (i) if to any Purchaser, addressed to such Purchaser at the address specified for such communications in the Purchaser Schedule attached hereto, or at such other address as such Purchaser shall have specified to the Company in writing, (ii) if to any other holder of any Note, addressed to such other holder at such address as such other holder shall have specified to the Company in writing or, if any such other holder shall not have so specified an address to the Company, then addressed to such other holder in care of the last holder of such Note which shall have so specified an address to the Company, and (iii) if to the Parent or the Company, addressed to it at 1101 Skokie Boulevard, Suite 300, Northbrook, Illinois, 60062, Attention: Andrea K. Tarbox, or
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at such other address as the Company shall have specified to the holder of each Note in writing; provided, however, that any such communication to the Company may also, at the option of the holder of any Note, be delivered by any other means either to the Company at its address specified above or to any officer of the Company.
11J. Payments Due on Non-Business Days. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of, interest on or Yield-Maintenance Amount payable with respect to any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day.
11K. Satisfaction Requirement. If any agreement, certificate or other writing, or any action taken or to be taken, is by the terms of this Agreement required to be satisfactory to any Purchaser, to any holder of a Note or to the Required Holder(s), the determination of such satisfaction shall be made by such Purchaser, such holder or the Required Holder(s), as the case may be, in the sole and exclusive judgment (exercised in good faith) of the Person or Persons making such determination.
11L. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF ILLINOIS (EXCLUDING ANY CONFLICTS OF LAW RULES WHICH WOULD OTHERWISE CAUSE THIS AGREEMENT TO BE CONSTRUED OR ENFORCED IN ACCORDANCE WITH, OR THE RIGHTS OF THE PARTIES TO BE GOVERNED BY, THE LAWS OF ANY OTHER JURISDICTION).
11M. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE NOTES OR THE OTHER TRANSACTION DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS IN COOK COUNTY, ILLINOIS, OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARENT AND THE COMPANY HEREBY IRREVOCABLY ACCEPTS, UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING. EACH OF THE PARENT AND THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS PROVIDED IN PARAGRAPH 11I OR TO CT CORPORATION SYSTEM AT 208 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60604, SUCH SERVICE TO BECOME EFFECTIVE UPON RECEIPT. EACH OF THE PARENT AND THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
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COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE PARENT AND/OR THE COMPANY IN ANY OTHER JURISDICTION. EACH OF THE PARENT AND THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS BROUGHT IN ANY OF THE AFORESAID COURTS AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE PARENT OR THE COMPANY HAS OR MAY HEREAFTER ACQUIRE IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OF NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE WITH RESPECT TO ITSELF OR ITS PROPERTY), EACH OF THE PARENT AND THE COMPANY HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS. EACH OF THE PARENT AND THE COMPANY AND EACH PURCHASER HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
11N. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
11O. Descriptive Headings; Advice of Counsel; Interpretation; Time of the Essence. The descriptive headings of the several paragraphs of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. Each party to this Agreement represents to the other parties to this Agreement that such party has been represented by counsel in connection with this Agreement and the other Transaction Documents, that such party has discussed this Agreement and the other Transaction Documents with its counsel and that any and all issues with respect to this Agreement and the other Transaction Documents have been resolved as set forth herein and therein. No provision of this Agreement or any other Transaction Document shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured, drafted or dictated such provision. Time is of the essence in the performance of this Agreement and the other Transaction Documents.
11P. Counterparts; Facsimile or Electronic Signatures. This Agreement may be executed in any number of counterparts (or counterpart signature pages), each of which counterparts shall be an original but all of which together shall constitute one instrument. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or
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electronic transmission shall be effective as delivery of a manually executed counterpart of this Agreement.
11Q. Severalty of Obligations. The sales of Notes to the Purchasers are to be several sales, and the obligations of the Purchasers under this Agreement are several obligations. No failure by any Purchaser to perform its obligations under this Agreement shall relieve any other Purchaser or the Company of any of its obligations hereunder, and no Purchaser shall be responsible for the obligations of, or any action taken or omitted by, any other Purchaser hereunder.
11R. Independent Investigation. Each Purchaser represents to and agrees with each other Purchaser that it has made its own independent investigation of the condition (financial and otherwise), prospects and affairs of the Parent and its Subsidiaries in connection with its purchase of the Notes hereunder and has made and shall continue to make its own appraisal of the creditworthiness of the Company. No holder of Notes shall have any duties or responsibility to any other holder of Notes, either initially or on a continuing basis, to make any such investigation or appraisal or to provide any credit or other information with respect thereto. No holder of Notes is acting as agent or in any other fiduciary capacity on behalf of any other holder of Notes.
11S. Directly or Indirectly. Where any provision in this Agreement refers to actions to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether the action in question is taken directly or indirectly by such Person.
11T. C onfidential Information . For the purposes of this paragraph 11T, Confidential Information means information delivered to any Purchaser by or on behalf of the Parent or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by such Purchaser as being confidential information of the Parent or such Subsidiary, provided that such term does not include information that (a) was publicly known or otherwise known to such Purchaser prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by such Purchaser or any person acting on such Purchasers behalf, (c) otherwise becomes known to such Purchaser other than through disclosure by the Parent or any Subsidiary or (d) constitutes financial statements delivered to such Purchaser under paragraph 5A that are otherwise publicly available, provided that financial statements posted to a website to satisfy the delivery requirements of paragraph 5A shall not be deemed to be publicly available unless such financial statements, on such website or otherwise, are publicly available. Each Purchaser will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by such Purchaser in good faith to protect confidential information of third parties delivered to such Purchaser, provided that such Purchaser may deliver or disclose Confidential Information to (i) its directors, officers, employees, attorneys, trustees and affiliates (to the extent such disclosure reasonably relates to the administration of such Purchasers investments), (ii) its financial advisors, agents and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this paragraph 11T, (iii) any other holder of any securities of the Company or the Parent (if such holder has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of
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this paragraph 11T), (iv) any Institutional Investor to which it sells or offers to sell any securities of the Company or the Parent or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this paragraph 11T), (v) any Person from which it offers to purchase any security of the Company or the Parent (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this paragraph 11T), (vi) any federal or state regulatory authority having jurisdiction over such Purchaser, (vii) the National Association of Insurance Commissioners or the Securities Valuation Office or, in each case, any similar organization, or any nationally recognized rating agency that requires access to information about such Purchasers investment portfolio, or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to such Purchaser, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which such Purchaser is a party or (z) if an Event of Default has occurred and is continuing, to the extent such Purchaser may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under such Purchasers Notes, this Agreement or any other Transaction Document. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this paragraph 11T as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this paragraph 11T.
11U. Transaction References. Each of the Parent and the Company agrees that Prudential Financial Management, Inc. or any of its Affiliates may (a) refer to its role in originating the purchase of the Notes from the Company, as well as the identity of the Parent and the Company and the aggregate principal amount and issue date of the Notes, on its internet site or in marketing materials, press releases, published tombstone announcements or any other print or electronic medium and (b) display the Parents and/or the Companys corporate logo in conjunction with any such reference.
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11V. Binding Agreement. When this Agreement is executed and delivered by the Company, the Parent and each of the Purchasers it shall become a binding agreement between the Company, the Parent and each of the Purchasers.
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Very truly yours, |
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KAPSTONE PAPER AND PACKAGING |
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CORPORATION |
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Roger W. Stone |
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Chairman of the Board and CEO |
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KAPSTONE KRAFT PAPER CORPORATION |
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/s/ Roger W. Stone |
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Roger W. Stone |
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Chief Executive Officer |
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The foregoing Agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: |
G. Anthony Coletta |
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Vice President |
Exhibit 10.12
Execution Copy
INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT
Dated as of July 1, 2008
By and Among
BANK OF AMERICA, N.A.,
AS COLLATERAL AGENT
And
BANK OF AMERICA, N.A., AS ADMINISTRATIVE
AGENT UNDER THE CREDIT
FACILITY AGREEMENT ON BEHALF OF THE SECURED LENDER PARTIES
And
THE INSTITUTIONAL INVESTORS LISTED ON SCHEDULE 1 HERETO, AS NOTEHOLDERS
WITH RESPECT TO INDEBTEDNESS ISSUED BY KAPSTONE KRAFT PAPER CORPORATION
TABLE OF CONTENTS
SECTION |
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HEADING |
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PAGE |
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SECTION 1. |
Definitions |
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2 |
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Section 1.1. |
Definitions |
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2 |
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Section 1.2. |
Effectiveness of this Agreement |
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7 |
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SECTION 2. |
Relationships Among Secured Parties |
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7 |
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Section 2.1. |
Equal and Ratable Sharing of Collateral |
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7 |
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Section 2.2. |
Restrictions on Actions |
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8 |
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Section 2.3. |
Representations and Warranties |
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10 |
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Section 2.4. |
Cooperation; Accountings |
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Section 2.5. |
Termination Note Agreement, Credit Facility Agreement or Franchise Loan Facility Agreement |
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SECTION 3. |
Appointment and Authorization of Collateral Agent |
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SECTION 4. |
Agency Provisions |
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Section 4.1. |
Delegation of Duties |
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Section 4.2. |
Exculpatory Provisions |
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Section 4.3. |
Reliance by Collateral Agent |
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Section 4.4. |
Knowledge or Notice of Default or Event of Default |
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Section 4.5. |
Non-Reliance on Collateral Agent and Other Creditors |
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Section 4.6. |
Indemnification |
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Section 4.7. |
Collateral Agent in Its Individual Capacity |
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Section 4.8. |
Successor Collateral Agent |
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SECTION 5. |
Actions by the Collateral Agent |
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Section 5.1. |
Duties and Obligations |
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Section 5.2. |
Notification of Default |
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Section 5.3. |
Exercise of Remedies |
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Section 5.4. |
Changes to Security Documents |
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Section 5.5. |
Release of Collateral |
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Section 5.6. |
Other Actions |
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Section 5.7. |
Cooperation |
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Section 5.8. |
Distribution of Proceeds |
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Section 5.9. |
Authorized Investments |
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Section 5.10. |
Determination of Amount of Senior Secured Obligations |
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Section 5.11. |
Reinstatement |
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SECTION 6. |
Bankruptcy Proceedings |
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SECTION 7. |
Miscellaneous |
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Section 7.1. |
Creditors; Other Collateral |
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Section 7.2. |
Marshalling |
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Section 7.3. |
Consents, Amendments, Waivers |
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Section 7.4. |
Governing Law |
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22 |
Section 7.5. |
Parties in Interest |
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22 |
Section 7.6. |
Counterparts |
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22 |
Section 7.7. |
Termination |
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23 |
Section 7.8. |
Notices |
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ATTACHMENTS TO INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT:
Schedule 1 Information relating to the Noteholders
Exhibit A List of Security Documents
INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT
THIS INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT dated as of July 1, 2008 (this Agreement ) , is entered into by and among (i) Bank of America, N.A., in its capacity as Collateral Agent (as hereinafter defined), (ii) Bank of America, N.A., in its capacity as administrative agent (the Credit Facility Agent ) under the Credit Facility Agreement (as hereinafter defined) on behalf of itself and each of the Secured Lender Parties (as hereinafter defined), (iii) each of the institutional investors listed on Schedule 1 attached hereto (together with their respective successors and assigns, each a Noteholder and collectively, the Noteholders ), (iv) the Company (as hereinafter defined) and (v) the Guarantors (as hereinafter defined).
RECITALS:
A. KapStone Kraft Paper Corporation, a Delaware corporation (the Company ), is concurrently herewith entering into that certain Note Purchase Agreement dated as of July 1, 2008 (as amended, supplemented or restated from time to time, the Note Agreement ) with the institutional investors listed on Schedule A attached thereto, (the Holders ) pursuant to which the Holders are purchasing from the Company those certain 8.30% senior secured notes due 2015 in the original aggregate principal amount of $40,000,000 (as amended, supplemented or restated from time to time, the Private Placement Notes ).
B. The Company has heretofore entered into that certain Credit Agreement dated as of June 12, 2008 with the Credit Facility Lenders and the Credit Facility Agent (as amended, supplemented or restated from time to time, the Credit Facility Agreement ), pursuant to which the Credit Facility Lenders may from time to time make certain extensions of credit to the Company in an aggregate amount not to exceed $515,000,000.
C. The obligations of the Company to the Noteholders under the Note Agreement and the Private Placement Notes and the other Note Documents, the obligations of the Company to the Credit Facility Lenders, the Credit Facility Agent and the other Secured Lender Parties under the Credit Facility Agreement and the other Credit Facility Loan Documents (as hereinafter defined), and the other Senior Secured Obligations (as hereinafter defined), if any, will be secured equally and ratably by the Collateral (as hereinafter defined) pursuant to certain documents set forth on Exhibit A hereto and the other Security Documents and administered in accordance with the terms and conditions hereof and thereof. The Noteholders, and the Credit Facility Agent on behalf of the Secured Lender Parties desire to appoint Bank of America, N.A. as the collateral agent (the Collateral Agent ) to act on behalf of the Noteholders and the Secured Lender Parties regarding the Collateral, all as more fully provided herein. The parties hereto have entered into this Agreement to, among other things, further define the rights, duties, authority and responsibilities of the Collateral Agent and the relationship between the Noteholders, and the Secured Lender Parties regarding their equal and ratable interests in the Collateral.
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS.
Section 1.1. Definitions. The following terms shall have the meanings assigned to them below in this Section 1.1 or in the provisions of this Agreement referred to below:
Affiliate means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. Control means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. Controlling and Controlled have meanings correlative thereto.
Agreement is defined in the preamble hereof, and shall include such agreement as amended, restated, supplemented or otherwise modified in accordance with its terms.
Bankruptcy Proceeding shall mean, with respect to any Person, a general assignment by such Person for the benefit of its creditors, or the institution by or against such Person of any proceeding seeking relief as debtor, or seeking to adjudicate such Person as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or composition of such Person or its debts, under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking appointment of a receiver, trustee, custodian or other similar official for such Person or for any substantial part of its property.
Business Day shall mean any day other than a Saturday, a Sunday or a day on which commercial banks in Chicago, Illinois, New York, New York or Charlotte, North Carolina are required or authorized to be closed.
Cash Equivalent Investments shall mean, (a) direct obligations of the United States Government or any agencies thereof and obligations guaranteed by the United States Government, in each case having remaining terms to maturity of not more than 30 days; and (b) certificates of deposit, time deposits and acceptances, having remaining terms to maturity of not more than 60 days issued by United States banks which have a combined capital and surplus of at least $1,000,000,000 and having an A rating or better assigned thereto by Standard & Poors Ratings Group, a Division of The McGraw Hill Companies, Inc. or Moodys Investors Service, Inc.
Cash Management Agreements shall mean the Cash Management Agreements under and as defined in the Credit Facility Agreement.
Collateral shall mean all collateral under, and cash received in respect of, the Security Documents.
Collateral Agent shall be the party identified as such in the Recitals hereof, and its successors and permitted assigns.
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Commitment means the Commitment under and as defined in the Credit Facility Agreement as in effect on the date hereof.
Company Proceeds shall have the meaning assigned thereto in Section 2.1(c).
Credit Facility Agent shall have the meaning assigned thereto in the Recitals hereof, and shall include its successors and permitted assigns.
Credit Facility Agreement shall have the meaning assigned thereto in the Recitals hereof.
Credit Facility Agreement Obligations shall mean the Obligations under and as defined in the Credit Facility Agreement as in effect on the date hereof.
Credit Facility Loan Documents mean the Loan Documents under and as defined in the Credit Facility Agreement as in effect on the date hereof.
Credit Facility Lenders shall mean the financial institutions from time to time party to the Credit Facility Agreement as Lenders thereunder and as defined therein and their successors and permitted assigns.
Credit Facility Notes shall mean the Notes under and as defined in the Credit Facility Agreement as in effect on the date hereof.
Creditor shall mean any one of the Noteholders or the Secured Lender Parties, but, in each case, only in such capacity, and any successors and permitted assigns to the interests in the Senior Secured Obligations owing to any such Person in such capacity.
Default shall mean any event or condition, the occurrence of which would, with the lapse of time or the giving of notice, or both, constitute an Event of Default.
Default Notice shall have the meaning assigned thereto in Section 5.2.
Disallowed Obligations shall have the meaning assigned thereto in Section 5.10(b).
Enforcement Event shall mean (a) the commencement of a Bankruptcy Proceeding with respect to the Company or any Subsidiary, (b) the acceleration of the obligations pursuant to the Private Placement Notes or Private Placement Note Purchase Agreement or the Credit Facility Agreement Obligations or (c) the exercise of any remedy by the Collateral Agent against the Company or any Subsidiary with respect to the Collateral.
Event of Default shall mean any event or occurrence which would constitute an Event of Default under the terms of the Note Agreement, the Credit Facility Agreement or any Security Document.
Financing Documents means the Credit Facility Loan Documents and the Note Documents.
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Governmental Authority means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
Guaranties shall mean each of the Guaranty (as defined in the Credit Facility Agreement and the Guaranty Agreement (as defined in the Note Agreement), as applicable) as each is in effect on the date hereof and as each may be amended, restated, supplemented, replaced or otherwise modified in accordance with the terms thereof.
Guarantors shall mean the Guarantors under and as defined in the Credit Facility Agreement and/or the Note Agreement, as applicable.
Hedging Agreements shall mean the Secured Hedge Agreements under and as defined in the Credit Facility Agreement.
Indemnity Share shall have the meaning assigned thereto in Section 4.6.
L/C Issuer shall mean the L/C Issuer under and as defined in the Credit Facility Agreement, and shall include any successor thereof.
Letter of Credit Collateral Account shall have the meaning assigned thereto in Section 5.8 hereof.
Letter of Credit Exposure shall mean, at any time and without duplication, the sum of (a) the aggregate undrawn portion of all uncancelled and unexpired Letters of Credit and (b) the aggregate unpaid reimbursement obligations of the Company in respect of drawings under any Letter of Credit.
Letters of Credit shall mean all Letters of Credit issued under or pursuant to the Credit Facility Agreement.
Lien shall mean, with respect to any Person, any interest granted by such Person in any real or personal property, asset or other right owned or being purchased or acquired by such Person (including an interest in respect of a Capital Lease) which secures payment or performance of any obligation and shall include any mortgage, lien, encumbrance, title retention lien, charge or other security interest of any kind, whether arising by contract, as a matter of law, by judicial process or otherwise.
Majority Creditors shall mean Creditors holding more than 50% of the sum of (a) the aggregate outstanding principal amount of the indebtedness evidenced by the Private Placement Notes and (b) Total Outstandings (as defined in the Credit Facility Agreement).
Non-Indemnifying Creditor shall have the meaning assigned thereto in Section 4.6.
Note Agreement shall have the meaning assigned thereto in the Recitals hereof.
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Note Documents shall mean the Note Agreement, the Private Placement Notes and all other Transaction Documents under and as defined in the Note Agreement as in effect on the date hereof.
Noteholders shall mean the parties identified as such in the Recitals hereof, and their successors and permitted assigns.
Notice of Default shall mean a notice pursuant to Section 5.2 hereof from the Collateral Agent to the Creditors of the occurrence of an Event of Default.
Outstanding Amount shall have the meaning assigned thereto in the Credit Facility Agreement as in effect on the date hereof.
Person means any natural person, corporation, partnership, trust, limited liability company, association, Governmental Authority or unit, or any other entity, whether acting in an individual, fiduciary or other capacity.
Preferential Amount shall mean, with respect to any Creditor, an amount equal to (a) the outstanding principal amount of any Loans under the Credit Facility Agreement owed to such Creditor, the outstanding principal amount of any Private Placement Notes held by such Creditor, the outstanding amount of such Creditors Letter of Credit Exposure and/or the outstanding amount of all obligations of the Company or any of its Affiliates owed to such Creditor in respect of any Cash Management Agreements on the date of the occurrence of the Sharing Date with respect to an Enforcement Event, less (b) the outstanding principal amount of any Loans under the Credit Facility Agreement owed to such Creditor, the outstanding principal amount of any Private Placement Notes held by such Creditor, the outstanding amount of such Creditors Letter of Credit Exposure and/or the outstanding amount of all obligations of the Company or its Affiliates owed to such Creditor in respect of any Cash Management Agreement on the date of such Enforcement Event.
Requisite Creditors shall mean (a) the Noteholders holding obligations under the Private Placement Notes, the approval of which is required to approve any contemplated amendment or modification of, termination or waiver of any provision of or consent to any departure from the terms of this Agreement under the terms of the Note Agreement and (b) the Credit Facility Lenders the approval of which is required to approve any contemplated amendment or modification of, termination or waiver of any provision of or consent to any departure from the terms of this Agreement under the terms of the Credit Facility Agreement, in each case, voting as a separate class.
Returned Amount shall have the meaning assigned thereto in Section 5.11.
Secured Lender Parties shall mean the Credit Facility Agent, the L/C Issuer, the Credit Facility Lenders and any Hedge Bank (as defined in the Credit Facility Agreement) and any Cash Management Bank (as defined in the Credit Facility Agreement).
Security shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended.
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Security Documents shall mean the documents set forth on Exhibit A hereto including all agreements, documents and instruments relating to, arising out of, or in any way connected with any of the foregoing documents or granting to the Collateral Agent Liens to secure the Senior Secured Obligations, whether now or hereafter executed, each as amended or amended and restated in conjunction herewith, or as may be amended, restated, replaced, supplemented or otherwise modified from time to time hereafter in accordance with the terms hereof. Security Documents shall not include the Note Agreement, the Private Placement Notes, the Credit Facility Notes or the Credit Facility Agreement.
Senior Secured Obligations shall mean collectively (a) the indebtedness, obligations and liabilities of the Company and its Affiliates (including, without limitation, the Guarantors) to the Noteholders under the Note Documents (including, but not limited to, all unpaid principal of, and the Yield-Maintenance Amount, if any, and accrued and unpaid interest on, the Private Placement Notes) and (b) the indebtedness, obligations and liabilities of the Company and its Affiliates (including, without limitation, the Guarantors) to the Secured Lender Parties under the Credit Facility Loan Documents (including, but not limited to, all amounts owed in respect of Secured Hedge Agreements or Cash Management Agreements of the Company or its Affiliates owing to a Credit Facility Secured Creditor or any of its Affiliates) and any other Credit Facility Agreement Obligation, in each case whether now existing or hereafter arising, joint or several, direct or indirect, absolute or contingent, due or to become due, matured or unmatured, liquidated or unliquidated, arising by contract, operation of law or otherwise, and all obligations of the Company and their Affiliates to the Creditors arising out of any extension, refinancing or refunding of any of the foregoing obligations.
Sharing Date with respect to an Enforcement Event shall mean the earliest date on or prior to the date of such Enforcement Event (a) on which a Sharing Event occurred and (b) on each date after which, until the date of such Enforcement Event, one or more Sharing Events were in effect.
Sharing Event shall mean the delivery to the Collateral Agent or the Credit Facility Agent of written notice (which notice the Collateral Agent or the Credit Facility Agent, as the case may be, shall promptly forward to each Creditor or to such Creditors agent or representative) of, or the actual knowledge of the Collateral Agent or the Credit Facility Agent of, (a) the occurrence of any Specified Event of Default, or (b) any refusal by any Secured Lender Party to make any loan under the Credit Facility Agreement or issue any Letter of Credit requested by the Company, either when obligated to do so under the Credit Facility Agreement or on the grounds that an Event of Default has occurred or that a representation or warranty of the Company is not true as of the date of the requested loan or Letter of Credit where such loan or issuance would not cause the Company to exceed the limitations set forth in Section 2.01 or 2.03 of the Credit Facility Agreement, so long as such refusal continues for a period of at least three (3) consecutive Business Days. Any Sharing Event occurring under clause (b) shall be deemed to have ceased to be in effect at such time as the Secured Lender Parties make loans and issue Letters of Credit under the Credit Facility Agreement as requested by the Company.
Specified Event of Default shall mean (a) any default in any payment of any Senior Secured Obligation when due, (b) an Event of Default described in Section 8.01(d) of the Credit Facility Agreement or clause (vii) of paragraph 7A of the Note Agreement, or (c) an Event of
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Default described in clause 8.01(e)(i) of the Credit Facility Agreement or clause (v) of paragraph 7A of the Note Agreement, provided that any Specified Event of Default which occurs under this clause (c) shall, unless otherwise agreed by the Credit Facility Agent and the Required Holders (as defined in the Note Agreement), be deemed to have ceased to be in effect if such Specified Event of Default has been cured or waived (in accordance with the provisions of the Credit Facility Agreement and/or the Note Agreement, as applicable) or if, within 365 days of the occurrence thereof, no Enforcement Event, Sharing Event described in clause (b) of the definition thereof, or Specified Event of Default described in clause (a) or (b) of this definition has occurred.
Subsidiary shall mean, as to any Person, any corporation, association or other business entity in which at least a majority of the outstanding voting securities shall be beneficially owned, directly or indirectly, by such Person . Unless the context otherwise clearly requires, any reference to a Subsidiary is a reference to a Subsidiary of the Company.
Yield-Maintenance Amount shall have the meaning assigned thereto in the Note Agreement as in effect on the date hereof.
Section 1.2. Effectiveness of this Agreement. The effectiveness of this Agreement is conditioned upon the execution and delivery of (a) this Agreement by the Collateral Agent, the Noteholders and the Credit Facility Agent, (b) the Note Agreement by each of the parties thereto and the Private Placement Notes by the Company, (c) the Credit Facility Agreement by each of the parties thereto and (d) the Security Documents by each of the parties thereto that are necessary for such agreements to be legally effective.
SECTION 2. RELATIONSHIPS AMONG SECURED PARTIES.
Section 2.1. Equal and Ratable Sharing of Collateral.
(a) The equal and ratable sharing of Collateral by the Creditors as provided for by this Agreement shall not be altered or otherwise affected by any amendment, modification, supplement, extension, renewal, restatement or refinancing of any of the Note Agreement, the Credit Facility Agreement or the institution of any Bankruptcy Proceeding unless expressly agreed to in writing by the Requisite Creditors.
(b) Notwithstanding the order or time of attachment of, or the order, time, or manner of perfection or the order or time of filing or recordation of any document or instrument, or other method of perfecting any Lien which may have heretofore been, or may hereafter be, granted to, or created in favor of, any Creditor (in its capacity as such) in any property or assets included or intended to be included in the Collateral, and notwithstanding any conflicting terms or conditions which may be contained in any Financing Document or Security Document and notwithstanding any provision of the Uniform Commercial Code (as in effect in any applicable jurisdiction) or other applicable law, the Collateral Agent shall have a senior priority lien on and security interest in the Collateral. No Creditor (in its capacity as such) shall have apart from its interest as provided herein and in the Security Documents, (i) any Lien on or security interest in the property and assets included in the Collateral or (ii) any Lien on or security interest in
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any other property or assets of the Company or any Subsidiary, and, notwithstanding the foregoing, to the extent any Creditor acquires any such Liens or security interests, such Creditor shall be deemed to (and by its acceptance of this Agreement agrees to) hold those Liens and security interests for the ratable benefit of all Creditors and such property or assets shall be deemed a part of the Collateral.
(c) All proceeds received by the Collateral Agent or any Creditor upon the sale, exchange, collection, foreclosure, or other disposition of or realization upon all or any part of the Collateral, in each case pursuant to the exercise of remedies under any Financing Document or any Security Document, or upon any collection or enforcement under any guaranty of the Senior Secured Obligations in connection with, or during the existence of, an Enforcement Event and any payment received by the Collateral Agent or any Creditor with respect to the Senior Secured Obligations on or after the occurrence of an Enforcement Event (together, the Company Proceeds ), which term shall include, without limitation, (i) the proceeds of any liquidation, foreclosure sale, enforcement of any Lien, or other realization upon any Collateral or of any collection or enforcement under any guaranty of the Senior Secured Obligations, together with any other sums thereafter received by any Creditor or the Collateral Agent as part of the Collateral (including, without limitation, all amounts received by the Collateral Agent or any Creditor pursuant to the exercise by it of any right of set off in respect of the Senior Secured Obligations held by it) and (ii) the proceeds of any distributions of Collateral received by any Creditor or the Collateral Agent in respect of any amounts owing to it under any of the Financing Documents following any marshaling of the assets of the Company (whether in bankruptcy, reorganization, winding up proceedings or similar proceedings, or otherwise), or following confirmation of any plan of arrangement or plan of reorganization of Company or any guarantor, shall be delivered to the Collateral Agent and distributed among the Creditors and the Collateral Agent as set forth in Section 5.8.
(d) Subject to clause (e) below, upon the occurrence of an Enforcement Event each Creditor shall deliver such Creditors Preferential Amount, if any, to the Collateral Agent, which shall be distributed among the Creditors and the Collateral Agent as set forth in Section 5.8.
(e) Notwithstanding the provision of subsection (c) and (d) of this Section 2.1, upon agreement between the Collateral Agent and any Creditor who is required to deliver any Company Proceeds or Preferential Amount to the Collateral Agent under either such subsection, such Creditor may deliver an amount of such Company Proceeds or Preferential Amount which is net of the amount thereof which would be distributed to such Creditor under Section 5.8, in which event such Creditor shall be deemed to have delivered the full amount of such Company Proceeds or Preferential Amount to the Collateral Agent and to have received the amount thereof which would have been distributed to such Creditor under Section 5.8 for all purposes hereof.
Section 2.2. Restrictions on Actions. Each Creditor agrees that, so long as any Senior Secured Obligations are outstanding, the provisions of this Agreement shall provide the exclusive method by which any Creditor may exercise rights and remedies under the Security
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Documents or with respect to the Collateral. Therefore, each Creditor shall, for the mutual benefit of all Creditors, except as permitted under this Agreement:
(a) refrain from taking or filing any action, judicial or otherwise, to enforce any rights or pursue any remedy under the Security Documents, except for delivering notices hereunder;
(b) refrain from (1) selling any Senior Secured Obligations to the Company or any Affiliate of the Company or (2) accepting any guaranty of, or any other security for, the Senior Secured Obligations from the Company or any Affiliate of the Company, except (i) the Guaranties, including any joinders thereto pursuant to Section 6.10(a) of the Credit Facility Agreement or paragraph 5K of the Note Agreement and (ii) any other guaranty or security granted to the Collateral Agent for the benefit of all Creditors; and
(c) refrain from exercising any rights or remedies under the Security Documents which have or may have arisen or which may arise as a result of a Default or Event of Default or exercising any rights of set-off against any account of the Company or any of its Affiliates (other than in connection with ordinary course set-off rights including, but not limited to, for the payment of account fees);
provided, however, that nothing contained in subsections (a) through (c) above, shall prevent any Creditor from exercising any remedy under its documents that does not exercise a right under the Security Documents or with respect to the Collateral, constitute a demand for payment under the Guaranties or constitute an exercise of rights of set-off against an account of the Company or any of its Affiliates (other than in connection with ordinary course set-off rights including, but not limited to, for the payment of account fees). For the avoidance of doubt, the Creditors agree that this Section 2.2 shall not prohibit any of the following: (i) imposing a default rate of interest in accordance with the Note Agreement, the Private Placement Notes or the Credit Facility Agreement, as applicable, (ii) ceasing to honor requests for credit extensions of any kind including the issuance, extension or increase of Letters of Credit, (iii) ceasing to continue or make Eurodollar Rate Loans under and as defined in the Credit Facility Agreement, (iv) raising any defenses in any action in which it has been made a party defendant or has been joined as a third party, except that the Collateral Agent may direct and control any defense directly relating solely to the Collateral or any one or more of the Security Documents but not relating to any Creditor, which shall be governed by the provisions of this Agreement, (v) exercising any right of setoff, recoupment or similar right; provided that, with respect to this clause (v) and other than in connection with ordinary course set-off rights (including, but not limited to, for the payment of account fees), such action has been authorized in writing by the Majority Creditors and the amounts so set-off or recouped shall constitute Collateral for purposes of this Agreement and the Creditor shall promptly cause such amounts to be delivered to the Collateral Agent for application pursuant to Section 5.8, (vi) accelerating the obligations pursuant to the Private Placement Notes or Private Placement Note Purchase Agreement or the Credit Facility Agreement Obligations in accordance with the Note Agreement, the Private Placement Notes or the Credit Facility Agreement, as applicable, or (vii) subject to subsection (b) above, agreeing to new or modified covenants and other terms under, or otherwise amending, the Note Agreement, the Private Placement Notes or the Credit Facility Agreement, as applicable.
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Section 2.3. Representations and Warranties.
(a) Each of the parties hereto represents and warrants to the other parties hereto that:
(i) the execution, delivery and performance by such Person of this Agreement has been duly authorized by all necessary corporate proceedings and does not and will not contravene any provision of law, its charter or by-laws or any amendment thereof, or of any indenture, agreement, instrument or undertaking binding upon such Person; and
(ii) the execution, delivery and performance by such Person of this Agreement will result in a valid and legally binding obligation of such Person enforceable in accordance with its terms.
(b) The Credit Facility Agent represents and warrants to the other parties hereto that it is authorized to execute this Agreement on behalf of itself and each other Credit Facility Secured Creditor and the execution, delivery and performance by the Credit Facility Agent of this Agreement will result in a valid and legally binding obligation of each Credit Facility Secured Creditor enforceable in accordance with its terms.
Section 2.4. Cooperation; Accountings. Each of the Creditors will, upon the reasonable request of another Creditor, from time to time execute and deliver or cause to be executed and delivered such further instruments, and do and cause to be done such further acts as may be necessary or proper to carry out more effectively the provisions of this Agreement. Each of the Noteholders and the Credit Facility Agent, on behalf of the Secured Lender Parties, agree to provide to each other upon reasonable request a statement of all payments received in respect of Senior Secured Obligations.
Section 2.5. Termination of Note Agreement or Credit Facility Agreement. Upon payment in full to any Creditor of all Senior Secured Obligations of such Creditor, and, in the case of the Credit Facility Lenders, the termination of such Credit Facility Lenders Commitment and the expiration or cancellation of any Letter of Credit under such facility, and provided that no Sharing Event or Enforcement Event shall be continuing at such time, such Creditor (a Former Creditor ) shall, subject to Section 5.11 hereof, cease to be a party to this Agreement; provided, however, if all or any part of any payments to any Creditor made prior to such Former Creditor ceasing to be a party to this Agreement become a Returned Amount, then this Agreement in respect of such Former Creditor shall be renewed as of such date and shall thereafter continue in full force and effect to the extent of the Senior Secured Obligations so invalidated, set aside or repaid.
SECTION 3. APPOINTMENT AND AUTHORIZATION OF COLLATERAL AGENT.
(a) Each Creditor and each other holder of Senior Secured Obligations by its acceptance thereof hereby designates and appoints Bank of America, N.A. as the Collateral Agent of such Creditor under this Agreement and the Security Documents. The appointment made by this Section 3(a) is given for valuable consideration and
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coupled with an interest and, subject to Section 4.8, is irrevocable so long as the Senior Secured Obligations, or any part thereof, shall remain unpaid or any Credit Facility Lender is obligated to fund its Commitment or make or fund any advances under the Letters of Credit.
(b) Each Creditor and each other holder of Senior Secured Obligations by its acceptance thereof hereby irrevocably authorizes Bank of America, N.A. as the Collateral Agent for such Creditor to (1) execute and enter into each of the Security Documents and all other instruments relating to said Security Documents, (2) take action on its behalf expressly permitted to perfect, maintain and preserve the Liens granted thereby, (3) execute instruments of release or to take such other action necessary to release Liens upon the Collateral to the extent authorized by this Agreement or the Financing Documents or the Requisite Creditors, (4) act as its agent for perfection and (5) exercise such other powers and perform such other duties as are, in each case, expressly delegated to the Collateral Agent by the terms hereof together with such powers as are reasonably incidental thereto.
(c) Notwithstanding any provision to the contrary elsewhere in this Agreement or the Security Documents, the Collateral Agent shall not have any duties or responsibilities except those expressly set forth herein or therein and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into the Security Documents or this Agreement or otherwise be deemed to exist for, be undertaken by or apply to the Collateral Agent.
(d) The relationship between the Collateral Agent and each of the Creditors is that of an independent contractor. The use of the term Collateral Agent is for convenience only and is used to describe, as a form of convention, the independent contractual relationship between the Collateral Agent and each of the Creditors. Nothing contained in this Agreement nor the other Security Documents shall be construed to create an agency, trust or other fiduciary relationship between the Collateral Agent and any of the Creditors or the Company. As an independent contractor empowered by the Creditors to exercise certain rights and perform certain duties and responsibilities hereunder and under the other Security Documents, the Collateral Agent is nevertheless a representative of the Creditors, as that term is defined in Article 1 of the Uniform Commercial Code, for purposes of actions for the benefit of the Creditors and the Collateral Agent with respect to all Collateral. Such actions include the designation of the Collateral Agent as secured party, mortgagee or the like on all financing statements and other documents and instruments, whether recorded or otherwise, relating to the attachment, perfection, priority or enforcement of any security interests, mortgages or deeds of trust in collateral security intended to secure the payment or performance of any of the Senior Secured Obligations, all for the benefit of the Creditors and the Collateral Agent.
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SECTION 4. AGENCY PROVISIONS.
Section 4.1. Delegation of Duties. The Collateral Agent may exercise its powers and execute any of its duties under this Agreement and the Security Documents by or through employees, agents or attorneys-in-fact and shall be entitled to take and to rely on advice of counsel concerning all matters pertaining to such powers and duties. The Collateral Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. The Collateral Agent may utilize the services of such Persons as the Collateral Agent in its sole discretion may determine, and all reasonable fees and expenses of such Persons shall be borne by the Company (and shall constitute a Senior Secured Obligation under the Security Documents and hereunder) and shall be subject to the indemnity provisions of Section 4.6.
Section 4.2. Exculpatory Provisions. Neither the Collateral Agent nor any of the Collateral Agents officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any Security Document (except for its or such Persons own gross negligence or willful misconduct) or (b) responsible in any manner to any of the Creditors for any recitals, statements, representations or warranties made by the Company or any officer, representative, agent or employee thereof contained in any Security Document or in any certificate, report, statement or other document referred to or provided for in, or received by, the Collateral Agent under or in connection with this Agreement or any Security Document, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of the Security Documents or for any failure of the Company to perform its obligations thereunder. The Collateral Agent shall be under no obligation to the Creditors to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, the Security Documents or any of the Note Documents or the Credit Facility Loan Documents.
Section 4.3. Reliance by Collateral Agent. The Collateral Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation reasonably believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Company), independent accountants and other experts selected by the Collateral Agent. The Collateral Agent shall be fully justified in failing or refusing to take action under this Agreement or any Security Document unless it shall first receive such advice or concurrence of the Majority Creditors as is contemplated by Section 5 hereof and it shall first be indemnified to its reasonable satisfaction by the Creditors against any and all liability and expense which may be incurred by it by reason of taking, continuing to take or refraining from taking any such action. The Collateral Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the Security Documents in accordance with the provisions of Section 5.6 hereof and in accordance with written instructions of the Majority Creditors pursuant to Section 5.3 hereof, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Creditors and all future holders of the Senior Secured Obligations.
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Section 4.4. Knowledge or Notice of Default or Event of Default. The Collateral Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless the Collateral Agent has received written notice from a Creditor or the Company referring to the Note Agreement or the Credit Facility Agreement, describing such Default or Event of Default, setting forth in reasonable detail the facts and circumstances thereof and stating that the Collateral Agent may rely on such notice without further inquiry; provided that the failure of any Creditor to provide such notice shall not impair any rights of such Creditor hereunder.
Section 4.5. Non-Reliance on Collateral Agent and Other Creditors. Each Creditor expressly acknowledges that except as set forth in Section 2.3(a) hereof, neither the Collateral Agent nor any of the Collateral Agents officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it. Each Creditor represents that it has, independently and without reliance upon the Collateral Agent or any other Creditor, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Company. Each Creditor also represents that it will, independently and without reliance upon the Collateral Agent or any other Creditor, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under the Security Documents and this Agreement and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Company. The Collateral Agent shall have no duty or responsibility to provide any Creditor with information concerning the business, operations, property, financial or other condition, or creditworthiness of Company that may come into the possession of the Collateral Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates; provided , however , that the foregoing shall not alter the obligations of the Credit Facility Agent (in its capacity as such) under the Credit Facility Agreement to deliver to the Credit Facility Lenders certain financial information and other notices.
Section 4.6. Indemnification.
(a) Each Creditor agrees to indemnify the Collateral Agent and its employees, directors, officers, agents and attorneys-in-fact in their capacity as such (to the extent not reimbursed by the Company and without limiting the obligation of the Company to do so), ratably according to its respective share of the sum of the aggregate outstanding principal amount of indebtedness evidenced by the Private Placement Notes and the aggregate Outstanding Amount under the Credit Facility Agreement and all amounts owed in respect of Secured Hedge Agreements or Cash Management Agreements by the Company or its Affiliates from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following an Event of Default or the payment of the Senior Secured Obligations) be imposed on, incurred by or asserted against the Collateral Agent arising out of or relating to the Security Documents, the actions or omissions of the Collateral Agent specifically required or permitted by this Agreement or the Security Documents or the exercise of remedies pursuant to written instructions of the Majority Creditors pursuant to Section 5.3
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hereof; provided that no Creditor shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Collateral Agents gross negligence or willful misconduct. If any Creditor (a Non-Indemnifying Creditor ) fails to tender payment of its ratable share of any of such Indemnified Liabilities (its Indemnity Share ), then the Collateral Agent is hereby expressly granted the right thereafter to, and shall, withhold from any distributions of Collateral otherwise payable to such Non-Indemnifying Creditor an amount equal to its Indemnity Share remaining unpaid at such time of receipt of such distributions and apply such amount withheld in satisfaction of such Indemnity Share. The Collateral Agent shall also have the right to collect from such Non-Indemnifying Creditor, or withhold from any distributions to otherwise be made to such Non-Indemnifying Secured Creditor, the Collateral Agents reasonable costs and expenses incurred in collecting such Non-Indemnifying Creditors Indemnity Share. The agreements in this Section 4.6(a) shall survive the payment of the Senior Secured Obligations, the resignation or removal of the Collateral Agent and the termination of this Agreement, the Security Documents and the Financing Documents.
(b) The Company agrees to indemnify the Collateral Agent its employees, directors, officers, agents and attorneys-in-fact in their capacity as such from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever (including, without limitation, reasonable attorneys fees and expenses) which may at any time (including, without limitation, at any time following an Event of Default or the payment of the Senior Secured Obligations) be imposed on, incurred by or asserted against the Collateral Agent arising out of or relating to (i) the Security Documents, (ii) the actions or omissions of the Collateral Agent specifically required or permitted by this Agreement or the Security Documents or the exercise of remedies pursuant to written instructions of the Majority Creditors pursuant to Section 5.3 hereof, (iii) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Company, and regardless of whether any Person to be indemnified hereunder is a party thereto, in all cases, whether or not caused by or arising, in whole or in part, out of the comparative, contributory or sole negligence of such indemnitee and (iv) the payment, failure to pay, or delay in payment of any taxes in respect of the granting of security under this Agreement or the Security Documents, any stamp or other taxes in respect of Senior Secured Obligations, or any other taxes imposed upon or assessed against the Collateral Agent relating to or, in connection with its services hereunder and thereunder (but excluding therefrom net income taxes and franchise taxes in lieu of net income taxes imposed on the Collateral Agent as a result of a present or former connection between the jurisdiction of the governmental authority imposing such tax and the Collateral Agent (except a connection arising solely from the Collateral Agent having executed, delivered or performed its obligations or received a payment under, or enforced, any of the Security Documents or any of the Financing Documents), provided that the Company shall not be liable under this Section 4.6(b) for any such loss, claim, damage, liability, expense or obligation incurred by the Collateral Agent to the extent resulting from its own gross negligence or willful misconduct. It is the express intention of the parties hereto that each Person to be indemnified hereunder shall be indemnified and held harmless against
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any and all losses, liabilities, claims or damages arising out of or resulting from the ordinary, sole or contributory negligence of such Person. The Company shall also reimburse any Creditor upon demand for any indemnification obligation in respect of which such Creditor shall become liable to the Collateral Agent as contemplated by Section 4.6(a) of this Agreement. The indemnity rights set forth in this Section 4.6(b) shall survive the payment of the Senior Secured Obligations, the resignation or removal of the Collateral Agent and the termination of this Agreement, the Security Documents and the Financing Documents.
Section 4.7. Collateral Agent in Its Individual Capacity. Bank of America, N.A. and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Company and its Affiliates as though such Person was not the Collateral Agent hereunder. With respect to any obligations owed to it under the Credit Facility Agreement, Bank of America, N.A. shall have the same rights and powers under this Agreement as any Creditor and may exercise the same as though it were not the Collateral Agent, and the terms Creditor and Creditors shall include the Collateral Agent in its individual capacity.
Section 4.8. Successor Collateral Agent.
(a) The Collateral Agent may resign at any time upon 60 days written notice to the Creditors and the Company and may be removed at any time, with or without cause, by the Majority Creditors by written notice delivered to the Company, the Collateral Agent and the Creditors. After any resignation or removal hereunder of the Collateral Agent, the provisions of this Section 4 shall continue to inure to its benefit as to any actions taken or omitted to be taken by it in connection with its agency hereunder while it was the Collateral Agent under this Agreement.
(b) Upon receiving written notice of any such resignation or removal, a successor Collateral Agent shall be appointed by the Majority Creditors; provided, however, that such successor Collateral Agent shall be (1) a bank or trust company having a combined capital and surplus of at least $1,000,000,000, subject to supervision or examination by a Federal or state banking authority; and (2) authorized under the laws of the jurisdiction of its incorporation or organization to assume the functions of the Collateral Agent. If a successor Collateral Agent shall not have been appointed pursuant to this Section 4.8(b) within such 60 day period after the Collateral Agents resignation or upon removal of the Collateral Agent then any Creditor or the Collateral Agent (unless the Collateral Agent is being removed) may petition a court of competent jurisdiction for the appointment of a successor Collateral Agent. Such court shall, after such notice as it may deem proper, appoint a successor Collateral Agent meeting the qualifications specified in this Section 4.8(b). The Creditors hereby consent to such petition and appointment so long as such criteria are met.
(c) The resignation or removal of a Collateral Agent shall take effect on the day specified in the notice described in Section 4.8(a), unless previously a successor Collateral Agent shall have been appointed and shall have accepted such appointment, in which event such resignation or removal shall take effect immediately upon the acceptance of such appointment by such successor Collateral Agent, provided, however,
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that no such resignation or removal shall be effective hereunder unless and until a successor Collateral Agent shall have been appointed and shall have accepted such appointment.
(d) The appointment of a successor Collateral Agent pursuant to Section 4.8(b) shall become effective upon the acceptance of the appointment as Collateral Agent hereunder by a successor Collateral Agent. Upon such effective appointment, the successor Collateral Agent shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent. Such appointment and designation shall be full evidence of the right and authority to act as Collateral Agent hereunder and all Collateral, power, trusts, duties, documents, rights and authority of the previous Collateral Agent shall rest in the successor, without any further deed or conveyance. The predecessor Collateral Agent shall, nevertheless, on the written request of the Majority Creditors or successor Collateral Agent, execute and deliver any other such instrument transferring to such successor Collateral Agent all the Collateral, properties, rights, power, trust, duties, authority and title of such predecessor. The Company, to the extent requested by the Majority Creditors or the Collateral Agent shall procure any and all documents, conveyances or instruments and execute the same, to the extent required, in order to reflect the transfer to the successor Collateral Agent.
SECTION 5. ACTIONS BY THE COLLATERAL AGENT.
Section 5.1. Duties and Obligations. The duties and obligations of the Collateral Agent are only those set forth in this Agreement and in the Security Documents.
Section 5.2. Notification of Default. If the Collateral Agent has been notified in writing that a Default or an Event of Default has occurred, the Collateral Agent shall notify the Creditors and may notify the Company of such determination. Any Creditor which has actual knowledge of a Default or an Event of Default, shall deliver to the Collateral Agent a written statement to such effect (a Default Notice ). Failure to deliver a Default Notice to the Collateral Agent, however, shall not (a) constitute a waiver of such Default or Event of Default by the Creditors or (b) impair any rights of such Creditor hereunder. No Default Notice from any Creditor shall be required to be given (i) if such Event of Default is waived or cured by amendment prior to the time a Default Notice is delivered or (ii) if notice of such Event of Default has previously been delivered to the Collateral Agent. Upon receipt of a Default Notice or a notice as required by Section 4.4 from a Creditor, the Collateral Agent shall promptly (and in any event no later than five (5) Business Days after receipt of such notice in the manner provided in Section 7.8 hereof) issue its Notice of Default to all Creditors. The Notice of Default may contain a recommendation of actions by the Creditors and/or request instructions from the Creditors as to specific matters and shall specify a date on which responses are due.
Section 5.3. Exercise of Remedies . Except for the preservation of Collateral (and similar actions) in exigent circumstances to prevent the damage, destruction or perishing of the Collateral or to the extent expressly authorized herein, the Collateral Agent shall take only such actions and exercise only such remedies under the Security Documents as are approved in a written notice delivered to the Collateral Agent and signed by the Majority Creditors; provided, however , that if, solely in connection with the initial exercise of remedies against the Collateral,
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such action has not been approved by (a) Noteholders holding more than 50% of the aggregate outstanding principal amount of the indebtedness evidenced by the Private Placement Notes and (b) Credit Facility Lenders holding more than 50% of the sum of (i) Total Outstandings (as defined in the Credit Facility Agreement) and (ii) aggregate unused Revolving Credit Commitments aggregate (as defined in the Credit Facility Agreement), in each case, voting as a separate class, then the Collateral Agent shall not take such action until ten (10) Business Days have elapsed from the date of the Collateral Agents request for approval (during which time the disapproving Creditors shall have the opportunity to voice their objections and potentially alter the voting of the Majority Creditors).
Section 5.4. Changes to Security Documents. Any term of the Security Documents may be amended, and the performance or observance by the parties to a Security Document of any term of such Security Document may be waived (either generally or in a particular instance and either retroactively or prospectively) by the Collateral Agent only upon the written consent of the Requisite Creditors.
Section 5.5. Release of Collateral. Unless an Event of Default has occurred and is continuing and the Collateral Agent shall have received a Default Notice in connection therewith, the Collateral Agent may (but shall not be obligated to), without the approval of the Majority Creditors as required by Section 5.3 hereof, release any Collateral under the Security Documents which is permitted to be sold or disposed of by the Company and its Affiliates pursuant to the Note Agreement and the Credit Facility Agreement and execute and deliver such releases as may be necessary to terminate of record the Collateral Agents security interest in such Collateral so long as, if such sale or disposition causes the Company to be required to make a mandatory prepayment of the loans under the Credit Facility Agreement or an offer to prepay the Private Placement Notes under the Note Agreement, the proceeds from such sale or disposition are used to prepay such loans and, to the extent such offer has been accepted (or deemed to have been accepted) under the Note Agreement, the Private Placement Notes in accordance with the terms of the Credit Facility Agreement and the Note Agreement. In determining whether any such release is permitted, the Collateral Agent may rely upon the instructions or stipulation from the class of Majority Creditors party to such agreement.
Section 5.6. Other Actions. The Collateral Agent shall have the right to take such actions, or omit to take such actions, hereunder and under the Security Documents not inconsistent with the written instructions of the Majority Creditors delivered pursuant to Section 5.3 hereof or the terms of this Agreement, including actions the Collateral Agent deems necessary or appropriate to perfect or continue the perfection of the Liens on the Collateral for the benefit of the Creditors. Except as otherwise provided by applicable law, the Collateral Agent shall have no duty as to the collection or protection of the Collateral or any income thereon, nor as to the preservation of rights against prior parties, nor as to the preservation of rights pertaining to the Collateral beyond those duties imposed by Section 207 of Article 9 of the Uniform Commercial Code with respect to any Collateral in the Collateral Agents actual possession.
Section 5.7. Cooperation. To the extent that the exercise of the rights, powers and remedies of the Collateral Agent in accordance with this Agreement requires that any action be taken by any Creditor, such Creditor shall take such reasonable action and cooperate with the
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Collateral Agent to reasonably ensure that the rights, powers and remedies of all Creditors are exercised in full.
Section 5.8. Distribution of Proceeds. All amounts owing with respect to the Senior Secured Obligations shall be secured pro rata by the Collateral without distinction as to whether some Senior Secured Obligations are then due and payable and other Senior Secured Obligations are not then due and payable. The Collateral Agent shall distribute any Company Proceeds or Preferential Amount received by it in accordance with the provisions of this Section 5.8. Upon any realization upon the Collateral and/or the receipt of any payments under any Security Document after the occurrence of an Enforcement Event and any payments under any Guaranty and any other guaranty of any Senior Secured Obligations, the Creditors agree that the proceeds thereof shall be applied:
first, to any amounts owing to the Collateral Agent by the Company or the Creditors pursuant to this Agreement or the Security Documents, including, without limitation, payment of expenses incurred by the Collateral Agent with respect to maintenance and protection of the Collateral and of expenses incurred with respect to the sale of or realization upon any of the Collateral or the perfection, enforcement or protection of the rights of the Creditors (including reasonable attorneys fees and expenses);
second, equally and ratably to the payment of all amounts of the Senior Secured Obligations constituting reimbursement of expenses (including attorney fees and other expenses of other professionals) and indemnities (other than breakage costs) required to be paid pursuant to the Note Agreement or the Credit Facility Agreement;
third, equally and ratably to the payment of all amounts of interest outstanding that constitute Senior Secured Obligations (other than any Yield-Maintenance Amount or breakage costs but including any periodic payments due under any Hedging Agreement constituting a Senior Secured Obligation) and letter of credit fees and commitment fees that constitute Senior Secured Obligations and are required to be paid pursuant to any Financing Document according to the aggregate amounts of such interest and fees then owing to each Creditor;
fourth, equally and ratably to the payment of all outstanding amounts of principal, Letter of Credit Exposure, the termination value of any Hedging Agreement or Cash Management Agreement, breakage compensation, prepayment premiums and the Yield-Maintenance Amount, if any, which constitute Senior Secured Obligations;
fifth, equally and ratably to all other amounts then due to the Creditors under the Note Agreement and the Credit Facility Agreement;
sixth, equally and ratably to all Disallowed Obligations under the Note Agreement and the Credit Facility Agreement; and
seventh, the balance, if any, shall be returned to the Company or such other Persons as are entitled thereto.
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Any payment pursuant to this Section 5.8 with respect to the outstanding amount of any undrawn Letters of Credit shall be paid to the Collateral Agent for deposit in an account (the Letter of Credit Collateral Account ) to be held as collateral for the Senior Secured Obligations and disposed of as provided herein. On each date on which a payment is made to a beneficiary pursuant to a draw on a Letter of Credit, the Collateral Agent shall distribute from the Letter of Credit Collateral Account for application to the payment of the reimbursement obligation due to the Credit Facility Lenders with respect to such draw an amount equal to the product of (1) the amount then on deposit in the Letter of Credit Collateral Account, and (2) a fraction, the numerator of which is the amount of such draw and the denominator of which is the outstanding amount of all undrawn Letters of Credit immediately prior to such draw. On each date on which a reduction in the outstanding amount of undrawn Letters of Credit occurs other than on account of a payment made to a beneficiary pursuant to a draw on a Letter of Credit, then the Collateral Agent shall distribute from the Letter of Credit Collateral Account an amount equal to the product of (i) the amount then on deposit in the Letter of Credit Collateral Account, and (ii) a fraction, the numerator of which is the amount of such reduction in the outstanding amount of undrawn Letters of Credit and the denominator of which is the amount of all undrawn Letters of Credit immediately prior to such reduction, which amount shall be distributed as provided in the first paragraph of this Section 5.8. At such time as the outstanding amount of all undrawn Letters of Credit is reduced to zero, any amount remaining in the Letter of Credit Collateral Account, after the distribution therefrom as provided above, shall be distributed as provided in the first paragraph of this Section 5.8. All payments by the Collateral Agent hereunder shall be made (x) if to a Noteholder, directly to the applicable Noteholder, (y) if to any Credit Facility Secured Creditor, to the Credit Facility Agent for the account of the applicable Credit Facility Secured Creditor and (z) if to the Collateral Agent, directly to the Collateral Agent.
The Company and each Guarantor agrees that in the event the Company or any Guarantor shall make any payment to any Creditor with respect to the Senior Secured Obligations that such Creditor is required to deliver to the Collateral Agent for distribution pursuant to this Section 5.8, then, notwithstanding that such payment was initially delivered to such Creditor, such payment shall discharge the Senior Secured Obligations to the extent such payment is distributed with respect to the various Senior Secured Obligations pursuant to the provisions of this Section 5.8.
Section 5.9. Authorized Investments. Any and all funds held by the Collateral Agent in its capacity as Collateral Agent, whether pursuant to any provision of any of the Security Documents or otherwise, shall to the extent feasible within a reasonable time be invested by the Collateral Agent in Cash Equivalent Investments. Any interest earned on such funds shall be disbursed to the Creditors in accordance with Section 5.8. The Collateral Agent may hold any such funds in a common interest bearing account. The Collateral Agent shall have no duty to place funds held pursuant to this Section 5.9 in investments which provide a maximum return; provided, however, that the Collateral Agent shall to the extent feasible invest funds in Cash Equivalent Investments with reasonable promptness. In the absence of gross negligence or willful misconduct, the Collateral Agent shall not be responsible for any loss of any funds invested in accordance with this Section 5.9.
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Section 5.10. Determination of Amount of Senior Secured Obligations .
(a) In determining the amount of the Senior Secured Obligations owed to each Creditor and the portions thereof which are due on account of principal, interest, fees or expenses or otherwise, the Collateral Agent may request from each Creditor, and shall be entitled to rely upon, a statement from each Creditor setting forth the Senior Secured Obligations owed to it in such detail as shall permit the Collateral Agent to make the foregoing distributions. In the event of any dispute between any Creditors as to the Senior Secured Obligations owed to them or the amounts thereof, the Collateral Agent shall be entitled to hold such portion of the proceeds to be distributed as are subject to such dispute pending the resolution by the parties or pursuant to a judicial determination.
(b) If in connection with a Bankruptcy Proceeding of the Company any portion of the Senior Secured Obligations referred to in clauses SECOND, THIRD, FOURTH or FIFTH of Section 5.8 is determined to be unenforceable or is disallowed (such portion to be hereinafter referred to as a Disallowed Obligation ), then such Disallowed Obligation shall not be included in the calculation of amounts to be paid pursuant to clauses SECOND, THIRD, FOURTH or FIFTH of Section 5.8 but shall be included in clause SIXTH of Section 5.8; provided, that in no event shall a claim pursuant to a Guaranty or any other guaranty of a Senior Secured Obligation be included as a Disallowed Obligation unless the Senior Secured Obligation which is guaranteed by such Guaranty or other guaranty also constitutes a Disallowed Obligation. In no event shall any Creditor take any action to challenge, contest or dispute the validity, extent, enforceability or priority of the Liens or claims of any other Creditor on the Collateral, or that would have the effect of invalidating such liens, or support any person who takes any such action. Each of the Creditors agrees that it will not take any action to challenge, contest or dispute the validity, extent, enforceability or the secured status of any other Creditors claims against the Company (other than any such claim resulting from the breach of this Agreement), or that would have the effect of invalidating such claim or support any person who takes any such action. For the avoidance of doubt, a Creditors claims that constitute Senior Secured Obligations shall be included in any distribution of proceeds pursuant to Section 5.8 whether or not a Lien held by such Creditor is invalidated or set aside. This Section 5.10(b) is without prejudice to the obligation of the Credit Facility Lenders to reimburse the Credit Facility Agent for fees, expenses and other charges under the terms of the Credit Facility Agreement irrespective of the disallowance of such fees, expenses or charges.
(c) If in connection with a Bankruptcy Proceeding of Company, the fees and expenses of the Collateral Agent referred to in clause First of Section 5.8 are determined to be unenforceable or are disallowed, in whole or in part, each Creditor agrees to pay its Indemnity Share of such fees and expenses.
Section 5.11. Reinstatement. If at any time the Collateral Agent or any Creditor shall be required to restore or return, or if such Person restores or returns in good faith settlement of pending or threatened avoidance claims, to the Company or any Guarantor or to the bankruptcy estate of the Company or any Guarantor any payments or distributions theretofore applied to the Senior Secured Obligations or any portion thereof, whether by reason of the insolvency,
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bankruptcy, reorganization or other similar event in respect of the Company (a Returned Amount ), then, (a) the Collateral Agent (or Creditor, as applicable) shall promptly give notice of the Returned Amount to each Creditor and (b) each of the Creditors shall promptly transfer to the Collateral Agent (for reimbursement to the Collateral Agent or such Creditor, as the case may be) such amounts as are necessary such that each Creditor shall have received and retained the amount it would have received under Section 5.8 had the Returned Amount not previously been distributed (its Returned Amount Share ). If any Creditor (a Non-Returning Secured Creditor ) fails to tender payment of its Returned Amount Share, then the Collateral Agent is hereby expressly granted the right thereafter to, and shall, withhold from any distributions otherwise payable to such Non-Returning Secured Creditor an amount equal to its Returned Amount Share remaining unpaid at such time of receipt of such distributions and apply such amount withheld in satisfaction of such Returned Amount Share. The Collateral Agent shall also have the right to collect from such Non-Returning Secured Creditor, or withhold from any distributions under Section 5.8 to otherwise be made to such Non-Returning Secured Creditor, the Collateral Agents reasonable costs and expenses incurred in collecting such Non-Returning Secured Creditors Returned Amount Share. The agreements in this Section 5.11 shall survive the payment of the Senior Secured Obligations and the termination of the Financing Documents or this Agreement.
SECTION 6. BANKRUPTCY PROCEEDINGS.
The following provisions shall apply during any Bankruptcy Proceeding of the Company or any Affiliate of the Company:
(a) The Collateral Agent shall act on the instructions of the Majority Creditors with respect to the administration of the Collateral in such Bankruptcy Proceeding (including with respect to questions regarding adequate protection and post-petition use of Collateral) and each Creditor agrees to be bound by such instructions with respect to matters pertaining to the Collateral; provided that no such vote by the Majority Creditors shall treat the Noteholders or the Revolving Credit Facility Lenders differently with respect to rights in the Collateral.
(b) Each Creditor shall be free to act independently on any issue not directly relating solely to the Collateral. Each Creditor shall give prior notice to the Collateral Agent of any action hereunder to the extent that such notice is possible. If such prior notice is not given, such Creditor shall give prompt notice following any action taken hereunder.
(c) Any proceeds of the Collateral received by any Creditor as a result of, or during, any Bankruptcy Proceeding will be delivered promptly to the Collateral Agent for distribution in accordance with Section 5.8.
(d) No Creditor shall enter into any post-petition financing arrangements with the Company or any Affiliate of the Company in any Bankruptcy Proceeding unless authorized in writing by the Majority Creditors and unless all Creditors shall have been given the opportunity to participate ratably in such post-petition financing arrangements.
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SECTION 7. MISCELLANEOUS.
Section 7.1. Creditors; Other Collateral. The Creditors agree that all of the provisions of this Agreement shall apply to any and all properties, assets and rights of the Company and their Affiliates, including, without limitation, the Guarantors, in which the Collateral Agent at any time acquires a security interest or Lien pursuant to the Security Documents, the Note Agreement, the Credit Facility Agreement including, without limitation, real property or rights in, on or over real property, notwithstanding any provision to the contrary in any mortgage, security agreement, pledge agreement or other document purporting to grant or perfect any Lien in favor of the Creditors or any of them or the Collateral Agent for the benefit of the Creditors.
Section 7.2. Marshalling. The Collateral Agent shall not be required to marshall any present or future security for (including, without limitation, the Collateral), or guaranties of, the Senior Secured Obligations or any of them, or to resort to such security or guaranties in any particular order; and all of each of such Persons rights in respect of such security and guaranties shall be cumulative and in addition to all other rights, however existing or arising. To the extent that they lawfully may, the Creditors hereby agree that they will not invoke any law relating to the marshalling of collateral which might cause delay in or impede the enforcement of the Creditors rights under the Security Documents or under any other instrument evidencing any of the Senior Secured Obligations or under which any of the Senior Secured Obligations is outstanding or by which any of the Senior Secured Obligations is secured or guaranteed.
Section 7.3. Consents, Amendments, Waivers. All amendments, waivers or consents of any provision of this Agreement shall be effective only if the same shall be in writing and signed by the Requisite Creditors referred to in clause (a) of the definition thereof, the Credit Facility Agent and the Collateral Agent.
Section 7.4. Governing Law. This Agreement shall be deemed to be a contract under seal and shall for all purposes be governed by and construed in accordance with the laws of the State of Illinois.
Section 7.5. Parties in Interest. All terms of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, including, without limitation, any future holder of the Senior Secured Obligations; provided that no Creditor may assign or transfer its rights hereunder or under the Security Documents without such assignees or transferees agreeing, by executing an instrument in form and substance reasonably acceptable to the Collateral Agent, to be bound by the terms of this Agreement as though named herein; provided further , (a) that with respect to the Secured Lender Parties (other than the Credit Facility Agent), the requirements of this Section 7.5 shall be satisfied upon satisfaction of the assignment provisions set forth in the Credit Facility Agreement and (b) that with respect to the Credit Facility Agent, the requirements of this Section 7.5 shall be satisfied upon the satisfaction of the resignation of the Credit Facility Agent in accordance with the terms of the Credit Facility Agreement and appointment of a successor thereto in accordance with the terms of the Credit Facility Agreement.
Section 7.6. Counterparts. This Agreement and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when
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so executed and delivered shall be an original, but all of which together shall constitute one instrument. In proving this Agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. Delivery of executed counterparts of this Agreement electronically or by telecopy shall be effective as an original and shall constitute a representation that an original shall be delivered.
Section 7.7. Termination. Subject to Section 5.11, upon payment in full of the Senior Secured Obligations in accordance with their respective terms, the termination of the Commitments and the expiration or cancellation of all undrawn Letters of Credit under the Credit Facility Loan Documents, this Agreement shall terminate.
Section 7.8. Notices. Except as otherwise expressly provided herein, all notices, consents and waivers and other communications made or required to be given pursuant to this Agreement shall be in writing and shall be delivered by hand, mailed by registered or certified mail or prepaid overnight air courier, or by facsimile communications, addressed as follows:
If to the Collateral Agent, at: |
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Bank of America, N.A. |
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231 S. LaSalle Street |
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Mail Code: IL1-231-10-41 |
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Chicago, IL 60697 |
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Attention: Suzanne M. Paul |
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Telephone: 312-923-1640 |
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Telecopier: 877-206-8435 |
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Electronic Mail:
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If to any Credit Facility |
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c/o Credit Facility Agent, |
Secured Creditor, at: |
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Bank of America, N.A. |
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231 S. LaSalle Street |
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Mail Code: IL1-231-10-41 |
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Chicago, IL 60697 |
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Attention: Suzanne M. Paul |
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Telephone: 312-923-1640 |
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Telecopier: 877-206-8435 |
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Electronic Mail:
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If to any Noteholder, at: |
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Such address as set forth for such Noteholder on Schedule 1 hereto |
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If to the Company, at: |
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KapStone Kraft Paper Corporation |
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1101 Skokie Blvd., STE 300 |
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Northbrook, IL 60062 |
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Attention: |
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Telephone: |
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Telecopier: |
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or at such other address for notice as the Collateral Agent, such Creditor or the Company shall last have furnished in writing to the Person giving the notice, provided that a notice by overnight air courier shall only be effective if delivered at a street address designated for such purpose and a notice by facsimile communication shall only be effective if made by confirmed transmission at a telephone number designated for such purpose. Notwithstanding any provision of this Agreement to the contrary, all notices to the Secured Lender Parties shall be delivered to the Credit Facility Agent. The obligation of any Credit Facility Secured Creditor to give notice hereunder may be satisfied by the giving of such notice by the Credit Facility Agent.
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IN WITNESS WHEREOF, the parties hereto have caused these presents to be duly executed as an instrument under seal by their authorized representatives as of the date first written above.
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BANK OF AMERICA, N.A., as Collateral Agent |
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By |
/s/ Suzanne M. Paul |
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Name: Suzanne M. Paul |
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Title: Vice President |
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BANK OF AMERICA, N.A., as Credit Facility Agent |
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By |
/s/ Suzanne M. Paul |
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Name: Suzanne M. Paul |
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Title: Vice President |
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[Insert Signature Blocks for Noteholders] |
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Each of the undersigned hereby acknowledges (a) the terms of the foregoing Agreement, (b) that the foregoing Agreement is for the sole benefit of the Creditors and that it has no rights or benefits under such Agreement, and (c) that the provisions of the foregoing Agreement may be waived, amended or modified without its consent.
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KAPSTONE KRAFT PAPER CORPORATION |
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By |
/s/ Roger W. Stone |
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Name: Roger W. Stone |
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Title: Chief Executive Officer CEO |
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KAPSTONE PAPER AND PACKAGING |
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CORPORATION |
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By |
/s/ Roger W. Stone |
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Name: Roger W. Stone |
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Title: Chairman of the Board and CEO |
|
|
|
|
KAPSTONE CHARLESTON KRAFT LLC |
|
|
|
|
|
|
|
|
By |
/s/ Roger W. Stone |
|
|
Name: Roger W. Stone |
|
|
Title: Chief Executive Officer |
26
INFORMATION RELATING TO THE NOTEHOLDERS
(to Intercreditor and Collateral Agency Agreement)
SECURITY DOCUMENTS
(to Intercreditor and Collateral Agency Agreement)
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-124601), and on Form S-8 (No. 333-141916) of KapStone Paper and Packaging Corporation of our report dated April 7, 2008 relating to the combined financial statements of the Kraft Business of MeadWestvaco Corporation, which appears in this Current Report on Form 8-K of KapStone Paper and Packaging Corporation dated July 2, 2008.
/s/ PricewaterhouseCoopers LLP |
|
PricewaterhouseCoopers LLP |
|
Richmond,Virginia |
|
July 1, 2008 |
Exhibit 99.1
News Release |
|
For Immediate Release |
Investor Relations:
Andrea Tarbox, Vice President and CFO
847.239.8812
KapStone Completes Acquisition of MeadWestvacos Charleston Kraft Division
NORTHBROOK, IL July 1, 2008 KapStone Paper and Packaging Corporation (NASDAQ: KPPC) today announced it has completed the acquisition of the Charleston Kraft Division of MeadWestvaco Corporation (CKD) from MeadWestvaco Corporation (NYSE:MWV). Under the terms of the sale, KapStone acquired MWVs kraft paper mill in North Charleston, a lumber mill in Summerville, SC and chip mills located in Elgin, Hampton, Andrews and Kinards, S.C., as well as 100 percent of Cogen South, LLC, the mills on-site cogeneration facility. In 2007, the North Charleston mill produced 833,000 tons of saturating kraft, linerboard, and kraft folding carton board. MWV will continue to provide wood fiber for the North Charleston mill through a long term fiber supply agreement.
The acquisition of the Charleston Kraft Division of MeadWestvaco Corporation is an important step for our company, said Roger W. Stone, Chairman and Chief Executive Officer of KapStone. It expands our platform from which we intend to achieve our strategic vision. We are anxious to build on the success of this business while integrating it with our existing Kraft Papers Business. We will continue to explore other strategic acquisitions.
We are very excited about the acquisition of the CKD, added Matt Kaplan, President of KapStone. The Charleston mill has been successful in creating a strong global business based on long-term customer relationships resulting from outstanding quality and service. We believe the business is well positioned for the future.
The $485 million base purchase price was adjusted to reflect estimated working capital and capital expenditure adjustments. As a result, KapStone paid approximately $475 million, subject to certain post-closing adjustments. Funding for the acquisition came from borrowing under a new $515 million senior secured credit facility announced on June12, 2008 plus $40 million of borrowings from the issuance of senior notes.
KapStone expects to file a Current Report on Form 8-K in the near future that includes unaudited pro forma combined financial statements to reflect the acquisition of CKD. Based on KapStones and CKDs results for the year ended December 31, 2007, on a pro forma basis, the combined companies
1
would have had net sales of approximately $779 million, net income of approximately $26 million and Adjusted EBITDA of approximately $119 million. Pro forma combined Adjusted EBITDA represents the combined earnings before interest, income taxes, depreciation and amortization of KapStone and CKD, eliminating a one-time non-cash purchase accounting adjustment for a KapStone 2007 inventory revaluation. A reconciliation between pro forma combined net income and pro forma combined Adjusted EBITDA is provided in the table below. The pro forma combined results do not reflect anticipated cost savings and revenue synergies.
(In thousands)
(Unaudited)
|
|
Year Ended
|
|
|
|
|
|
|
|
Pro forma combined net income |
|
$ |
26,031 |
|
Interest expense |
|
30,937 |
|
|
Tax provision |
|
10,702 |
|
|
Depreciation of amortization |
|
49,644 |
|
|
|
|
|
|
|
Pro forma combined EBITDA (Non-GAAP) |
|
$ |
117,314 |
|
|
|
|
|
|
One-time non-cash charge for KapStone 2007 inventory revaluation |
|
1,526 |
|
|
|
|
|
|
|
Pro forma combined Adjusted EBITDA (Non-GAAP) |
|
$ |
118,840 |
(1) |
(1) For the year ended December 31, 2007, MWV Corporate allocated or charged to CKD costs of $23,178, which are included in cost of sales and selling, general and administrative expenses. Kapstone anticipates that the annual costs to provide similar services for CKD will be approximately $19,700 less. These savings from the elimination of corporate allocations have been excluded as pro forma adjustments. We expect all of these cost savings will be realized on an annualized basis by the earlier of one year after the closing or the early termination of MWV transition services. The pro forma combined adjusted EBITDA does not include any one-time or transitional costs that may be incurred as CKDs operations and administrative support are transitioned to KapStone. No assurance can be given that these cost savings can be achieved in the amounts or during the periods predicted.
About the Company
Headquartered in Northbrook, IL, KapStone Paper and Packaging Corporation, is a leading North American producer of unbleached kraft paper grades and converter of inflatable dunnage bags. The business employs approximately 1,750 people.
Non-GAAP Financial Measures
Investors are cautioned that pro forma combined net income, pro forma combined EBITDA and pro forma combined adjusted EBITDA information contained in this press release are not financial
2
measures under U.S. generally accepted accounting principles (GAAP). In addition, it should not be construed as an alternative to any other measures of performance determined in accordance with GAAP. These non-GAAP financial measures are provided to enhance the users overall understanding of the underlying operating performance of the KapStone and CKD business combined. KapStone believes that these non-GAAP measures provide useful information to investors because they improve the comparability of the financial results between periods and provide for greater transparency to key measures used to evaluate the performance and liquidity of the company. Management uses Adjusted EBITDA for evaluating KapStones performance against competitors and as a primary measure for employees incentive programs.
Pro Forma Combined EBITDA represents earnings before interest, income taxes, depreciation and amortization. Pro Forma Combined Adjusted EBITDA is computed by eliminating from Pro Forma Combined EBITDA a one-time non-cash purchase accounting adjustment made in connection with KapStones 2007 acquisition of KPB from International Paper Company. Pro Forma Combined adjusted EBITDA is not a measure of financial performance under GAAP and should not be considered as an alternative to earnings before income taxes (or any other performance measure under GAAP) as a measure of performance or to cash flows from operating, investing or financing activities as an indicator of cash flows or as a measure of liquidity.
Forward-Looking Statements
Statements in this news release that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can often be identified by words such as may, will, should, would, expect, project, anticipate, intend, plan, believe, estimate, potential, outlook, or continue, the negative of these terms or other similar expressions. These statements reflect managements current views and are subject to risks, uncertainties and assumptions, many of which are beyond the Companys control that could cause actual results to differ materially from those expressed or implied in these statements. Factors that could cause actual results to differ materially include, but are not limited to: (1) the ability of KapStone to successfully integrate CKDs operations and employees and KapStones ability to realize anticipated synergies and cost savings; (2) industry conditions, including changes in cost, competition, changes in the Companys product mix and demand and pricing for the Companys products; (3) market and economic factors, including changes in pension and healthcare costs and natural disasters, such as hurricanes; (4) results of legal proceedings and compliance costs, including unanticipated expenditures related to the cost of compliance with environmental and other governmental regulations; (5) the ability to achieve and effectively manage growth; (6) ability to pay the Companys debt obligations; and (7) the ability to carry out the Companys strategic initiatives and manage associated costs. Further information on these and other risks and uncertainties is provided under Item 1A Risk Factors in the Companys Annual Report on Form 10-K/A for the year ended December 31, 2007 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, which is incorporated herein by reference, and elsewhere in reports that the Company files or furnishes with the SEC. These filings can be found on KapStones Web site at www.kapstonepaper.com and the SECs Web site at www.sec.gov. Forward-looking statements included herein speak only as of the date hereof and the Company disclaims any obligation to revise or update such statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or circumstances.
3
Exhibit 99.2
The Kraft Business (A Business
of MeadWestvaco Corporation)
Combined Financial Statements
Years Ended December 31, 2007, 2006 and 2005
THE KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO
CORPORATION)
Index
Report of Independent Registered Public Accounting Firm
To MeadWestvaco Corporation:
In our opinion, the accompanying combined balance sheets and the related combined statements of operations, changes in equity and cash flows present fairly, in all material respects, the financial position of the Kraft Business of MeadWestvaco Corporation (the Business, consisting of a kraft paperboard mill, a sawmill, various chipmill operations, and a cogeneration facility) at December 31, 2007 and December 31, 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Business management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in the summary of significant accounting policies, the Business changed the manner in which it accounts for share-based compensation as of January 1, 2006.
PricewaterhouseCoopers LLP
Richmond, Virginia
April 7, 2008
THE
KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO
CORPORATION)
Combined Statements of Operations
Years Ended December 31, 2007, 2006 and 2005
(in thousands)
|
|
2007 |
|
2006 |
|
2005 |
|
|||
Net sales |
|
$ |
522,033 |
|
$ |
499,703 |
|
$ |
473,601 |
|
Cost of sales |
|
478,739 |
|
460,269 |
|
448,091 |
|
|||
Selling, general and administrative expenses |
|
26,673 |
|
26,587 |
|
25,258 |
|
|||
Interest and debt expense |
|
8,177 |
|
8,147 |
|
7,620 |
|
|||
Other (income) expense, net |
|
(7,331 |
) |
(2,812 |
) |
1,253 |
|
|||
Income (loss) before income taxes |
|
15,775 |
|
7,512 |
|
(8,621 |
) |
|||
Provision (benefit) for income taxes |
|
3,175 |
|
739 |
|
(4,675 |
) |
|||
Net income (loss) |
|
$ |
12,600 |
|
$ |
6,773 |
|
$ |
(3,946 |
) |
The accompanying notes are an integral part of these financial statements.
2
THE
KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO
CORPORATION)
December 31, 2007 and 2006
(in thousands)
|
|
2007 |
|
2006 |
|
||
Assets |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
5,470 |
|
$ |
3,101 |
|
Accounts receivable, net |
|
35,145 |
|
37,316 |
|
||
Inventories |
|
33,108 |
|
39,437 |
|
||
Deferred income taxes |
|
2,250 |
|
1,941 |
|
||
Other current assets |
|
1,243 |
|
1,580 |
|
||
Current assets |
|
77,216 |
|
83,375 |
|
||
Property, plant and equipment |
|
420,750 |
|
445,532 |
|
||
Other assets |
|
12,078 |
|
12,697 |
|
||
|
|
$ |
510,044 |
|
$ |
541,604 |
|
Liabilities and Equity |
|
|
|
|
|
||
Accounts payable |
|
$ |
18,655 |
|
$ |
12,842 |
|
Accrued liabilities |
|
28,496 |
|
26,649 |
|
||
Current maturities of long-term notes payable - related party |
|
7,847 |
|
6,799 |
|
||
Current liabilities |
|
54,998 |
|
46,290 |
|
||
Long-term debt |
|
58,040 |
|
58,040 |
|
||
Long-term notes payable - related party |
|
37,937 |
|
45,796 |
|
||
Deferred income taxes |
|
84,132 |
|
88,807 |
|
||
Other liabilities |
|
6,576 |
|
6,892 |
|
||
Commitments and contingencies |
|
|
|
|
|
||
Equity |
|
268,361 |
|
295,779 |
|
||
|
|
$ |
510,044 |
|
$ |
541,604 |
|
The accompanying notes are an integral part of these financial statements.
3
THE
KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO
CORPORATION)
Combined Statements of Changes in Equity
Years Ended December 31, 2007, 2006 and 2005
(in thousands)
|
|
|
|
Accumulated |
|
|
|
|||
|
|
|
|
Other |
|
|
|
|||
|
|
|
|
Comprehensive |
|
Total |
|
|||
|
|
Capital |
|
Loss |
|
Equity |
|
|||
|
|
|
|
|
|
|
|
|||
Balance, January 1, 2005 |
|
$ |
306,433 |
|
$ |
|
|
$ |
306,433 |
|
Comprehensive loss: |
|
|
|
|
|
|
|
|||
Net loss |
|
(3,946 |
) |
|
|
(3,946 |
) |
|||
Changes in unrealized losses on derivative instruments, net |
|
|
|
(463 |
) |
(463 |
) |
|||
Comprehensive loss |
|
|
|
|
|
(4,409 |
) |
|||
Distributions to Members of Cogen South LLC |
|
(4,835 |
) |
|
|
(4,835 |
) |
|||
Transactions with MeadWestvaco Corporation, net |
|
3,959 |
|
|
|
3,959 |
|
|||
Balance, December 31, 2005 |
|
301,611 |
|
(463) |
|
301,148 |
|
|||
Comprehensive income: |
|
|
|
|
|
|
|
|||
Net income |
|
6,773 |
|
|
|
6,773 |
|
|||
Changes in unrealized gains on derivative instruments, net |
|
|
|
393 |
|
393 |
|
|||
Comprehensive income |
|
|
|
|
|
7,166 |
|
|||
Share-based compensation |
|
517 |
|
|
|
517 |
|
|||
Distributions to Members of Cogen South LLC |
|
(4,523 |
) |
|
|
(4,523 |
) |
|||
Transactions with MeadWestvaco Corporation, net |
|
(8,529 |
) |
|
|
(8,529 |
) |
|||
Balance, December 31, 2006 |
|
295,849 |
|
(70) |
|
295,779 |
|
|||
Comprehensive income: |
|
|
|
|
|
|
|
|||
Net income |
|
12,600 |
|
|
|
12,600 |
|
|||
Changes in unrealized gains on derivative instruments, net |
|
|
|
70 |
|
70 |
|
|||
Comprehensive income |
|
|
|
|
|
12,670 |
|
|||
Share-based compensation |
|
364 |
|
|
|
364 |
|
|||
Distributions to Members of Cogen South LLC |
|
(4,361 |
) |
|
|
(4,361 |
) |
|||
Transactions with MeadWestvaco Corporation, net |
|
$ |
(36,091 |
) |
|
|
$ |
(36,091 |
) |
|
Balance, December 31, 2007 |
|
268,361 |
|
$ |
|
|
268,361 |
|
The accompanying notes are an integral part of these financial statements.
4
THE
KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO
CORPORATION)
Combined Statements of Cash Flows
Years Ended December 31, 2007, 2006 and 2005
(in thousands)
|
|
2007 |
|
2006 |
|
2005 |
|
|||
Cash flows from operating activities |
|
|
|
|
|
|
|
|||
Net income (loss) |
|
$ |
12,600 |
|
$ |
6,773 |
|
$ |
(3,946 |
) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|||
Depreciation and amortization |
|
38,293 |
|
39,098 |
|
40,175 |
|
|||
Losses (gains) on disposals of real and personal property |
|
(4,174 |
) |
37 |
|
1,225 |
|
|||
Deferred income taxes |
|
(5,028 |
) |
(4,783 |
) |
(7,843 |
) |
|||
Changes in working capital |
|
16,610 |
|
(5,763 |
) |
439 |
|
|||
Other |
|
49 |
|
1,833 |
|
(454 |
) |
|||
Net cash provided by operating activities |
|
58,350 |
|
37,195 |
|
29,596 |
|
|||
Cash flows from investing activities |
|
|
|
|
|
|
|
|||
Additions to property, plant and equipment |
|
(17,795 |
) |
(16,626 |
) |
(26,408 |
) |
|||
Proceeds from sales of assets |
|
9,077 |
|
346 |
|
|
|
|||
Net cash used in investing activities |
|
(8,718 |
) |
(16,280 |
) |
(26,408 |
) |
|||
Cash flows from financing activities |
|
|
|
|
|
|
|
|||
Repayment of long-term debt |
|
(6,811 |
) |
(6,241 |
) |
(5,710 |
) |
|||
Transactions with MeadWestvaco Corporation, net |
|
(36,091 |
) |
(8,529 |
) |
3,959 |
|
|||
Distributions to Members of Cogen South LLC |
|
(4,361 |
) |
(4,523 |
) |
(4,835 |
) |
|||
Net cash used in financing activities |
|
(47,263 |
) |
(19,293 |
) |
(6,586 |
) |
|||
Increase (decrease) in cash and cash equivalents |
|
2,369 |
|
1,622 |
|
(3,398 |
) |
|||
Cash and cash equivalents |
|
|
|
|
|
|
|
|||
Beginning of period |
|
3,101 |
|
1,479 |
|
4,877 |
|
|||
End of period |
|
$ |
5,470 |
|
$ |
3,101 |
|
$ |
1,479 |
|
Cash paid during the year for interest |
|
$ |
8,073 |
|
$ |
8,118 |
|
$ |
7,589 |
|
The accompanying notes are an integral part of these financial statements.
5
THE
KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
1. Description of Business and Basis of Presentation
These combined financial statements present the historical results of the Kraft Business (the Business or the Company), a business of MeadWestvaco Corporation (MeadWestvaco). The Business consists of a kraft paperboard mill, a sawmill, various chipmill operations and a cogeneration facility (see below), all located in South Carolina. The Business is a competitive manufacturer of unbleached kraft paperboard products sold in various markets and primarily manufactures saturating kraft, Kraftpac® and linerboard.
These combined financial statements are intended to present the historical results of the Business operations during each respective period. As such, these combined financial statements include allocations of certain expenses, as well as the attribution of certain assets and liabilities, historically maintained by MeadWestvaco and not recorded in the accounts of the Business. The Business and MeadWestvaco management believe such allocations have been made on a reasonable basis. However, these combined financial statements may not necessarily be indicative of the results of operations that would have been obtained if the Business had operated as a separate entity during the periods presented.
The combined equity of the Company is comprised of the excess of the Business combined assets over its combined liabilities. Combined equity is affected by the Business operating results, expense allocations from MeadWestvaco and cash transfers between the Business and MeadWestvaco, including settlement of intercompany transactions and amounts paid or received relating to interest and income taxes, as MeadWestvaco manages all treasury and tax activities of the Business. The combined equity of the Company is also impacted by distributions made by Cogen South LLC to MeadWestvaco and SCANA Corporation (collectively, the Members).
MeadWestvaco owns a 50% interest in Cogen South LLC (Cogen), a cogeneration facility. Due to the level of involvement by the Company in the cogeneration facilitys operations, the Business includes in its combined financial statements 100% of Cogens results of operations and financial position. See Note 13 for further discussion.
2. Summary of Significant Accounting Policies
Estimates and assumptions
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of some assets and liabilities and, in some instances, the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Concentration of credit risk
The financial instruments that potentially subject the Company to concentrations of credit risk are accounts receivable. The Company limits its credit risk by performing ongoing credit evaluations, and when necessary, requiring letters of credit, guarantees or collateral.
For the years ended December 31, 2007, 2006 and 2005, sales to the Companys largest customer were $55,785, $51,509 and $52,015, respectively. Accounts receivable related to this customer at December 31, 2007 and 2006 were $3,265 and $3,466, respectively.
6
THE
KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
Cash equivalents
Highly liquid securities with an original maturity of three months or less are considered to be cash equivalents.
Accounts receivable and allowance for doubtful accounts
Trade accounts receivable are recorded at the invoice amount and do not bear interest. The allowance for doubtful accounts is the Companys best estimate of the amount of probable credit loss in the existing accounts receivable. The Company determines the allowance based on historical write-off experience by customer. Past due balances over a specified amount are reviewed individually for collectibility. An account balance is charged off against the allowance when it is probable that the receivable will not be recovered.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method for substantially all raw materials and finished goods. Cost of stores and supplies inventories is determined by the average cost method. Cost of inventories of the cogeneration facility is determined by using standard costs which approximates the first-in, first-out (FIFO) method.
Property, plant and equipment
Owned assets are recorded at cost. Also included in the cost of these assets is interest on funds borrowed during the construction period. When assets are sold, retired or disposed of, their costs and related accumulated depreciation are removed from the accounts and any resulting gains or losses are reflected in the combined statements of operations. Costs of renewals and betterments are capitalized; costs of maintenance and repairs are charged to expense. The costs of plant and equipment are depreciated utilizing the straight-line method over the estimated useful lives of the assets, which generally range from 15 to 40 years for buildings and land improvements and 5 to 40 years for machinery and equipment.
Impairment of long-lived assets
The Company periodically evaluates whether current events or circumstances indicate that the carrying value of its long-lived assets, including intangible assets, to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether an impairment exists. If an asset is determined to be impaired, the loss is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows. The Company reports an asset to be disposed of at the lower of its carrying value or its estimated net realizable value.
Asset retirement obligations
The Company records obligations associated with the retirement of tangible long-lived assets as liabilities when incurred. Subsequent to initial measurement, the Company recognizes changes in the amounts of the obligations, as necessary, resulting from the passage of time and revisions to either the timing or amount of estimated cash flows. Effective December 31, 2005, the Company adopted FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations - an Interpretation of FASB Statement No. 143 , which clarifies that the term conditional asset retirement obligation, as used in SFAS No. 143, Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. Thus, the
7
THE
KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
timing and/or method of settlement may be conditional on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The Company has asset retirement obligations associated primarily with landfills and asbestos. Management does not have sufficient information to estimate the fair value of certain obligations related to asbestos abatement because the settlement date or range of potential settlement dates have not been specified and information is not available to apply expected present value techniques. The adoption of FIN 47 did not have a material impact on the Companys combined financial statements.
Revenue recognition
The Company recognizes revenues at the point when title and the risk of ownership passes to the customer. Substantially all of the Companys revenues are generated through product sales, and shipping terms generally indicate when title and the risk of ownership have passed. Revenue is recognized at shipment for sales where shipping terms are FOB (free on board) shipping point unless risk of loss is maintained under freight terms. For sales where shipping terms are FOB destination, revenue is recognized when the goods are received by the customer. The Company provides allowances for estimated returns and other customer credits such as discounts, returns and volume rebates, when the revenue is recognized, based on historical experience, current trends and any notification of pending returns. Revenues associated with Cogen are recognized at the time when energy (steam and shaft horsepower) is delivered.
Shipping and handling costs
Shipping and handling costs are classified as a component of cost of sales. Amounts billed to a customer in a sales transaction related to shipping and handling are classified as net sales.
Interest expense and debt costs
Included in these combined financial statements is amortization of deferred financing costs and interest expense of long-term debt specifically related to the Business. MeadWestvaco has not historically allocated general corporate interest expense to its primary business segments and none of that interest expense has been allocated to these combined financial statements.
Pension and postretirement benefits
The employees of the Company are participants in various defined benefit pension and postretirement benefit plans sponsored by MeadWestvaco and the related assets and liabilities are combined with those related to other MeadWestvaco businesses. MeadWestvaco manages its domestic pension and postretirement benefit plans on a combined basis and claims data and liability information related to the Company are aggregated and combined, by plan, with those related to other MeadWestvaco businesses. As a result, no assets or liabilities are included in the Companys combined balance sheets and pension and postretirement expense for the Company has been determined on a multiemployer plan basis.
Pension costs recorded by the Company with respect to the defined benefit pension plans for the years ended December 31, 2007, 2006 and 2005 were $4,217, $3,925 and $3,254, respectively.
The employees of the Company are also eligible to participate in defined contribution benefit plans sponsored by MeadWestvaco. Under the terms of the defined contribution benefit plans, participant contributions may be directed into a number of investment options. Matching contributions are made to a fund that invests in MeadWestvaco common stock. During the years
8
THE
KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
ended December 31, 2007, 2006 and 2005, the Company incurred expenses of $2,514, $2,372 and $2,403, respectively, for matching contributions to the defined contribution benefit plans.
Upon retirement, MeadWestvaco provides postretirement benefits for certain MeadWestvaco retirees, including certain Company employees. Certain medical benefits are funded on a current basis with retirees paying a portion of the costs. The net costs for providing these benefits to both active and retired employees of the Company were $11,192, $11,281 and $9,439 for the years ended December 31, 2007, 2006 and 2005, respectively.
Income taxes
The Company historically is not an income tax payer, as its results and related tax obligations, if any, are included in the consolidated tax returns of MeadWestvaco. The income tax provision (benefit) included in these combined financial statements was calculated on a separate return basis, as if the Business was a separate taxpayer, excluding the results of the cogeneration facility, and the resulting current tax receivable or liability, including liabilities related to uncertain tax positions, was settled with MeadWestvaco through equity. As a limited liability entity, Cogen is treated as a partnership for federal income tax purposes. Income earned by Cogen is passed through to its owners; therefore, no income taxes have been incurred or accrued for this entity.
Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax bases of assets and liabilities. Deferred tax assets and liabilities reflect the enacted tax rates in effect for the years the differences are expected to reverse. The Company evaluates the need for a deferred tax asset valuation allowance by assessing whether it is more likely than not that it will realize its deferred tax assets in the future.
The Company recognizes tax benefits from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the combined financial statements from such a position are measured based upon the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The company recognizes interest and penalties related to unrecognized tax benefits in income taxes in the combined statements of operations.
Share-based compensation
The Com pany adopted SFAS No. 123(R), Share-Based Payment , as of January 1, 2006, using the modified prospective method and, therefore, 2005 was not restated. This Statement requires the recognition of compensation expense to be measured based on the estimated fair value of the share-based awards and recognized as expense over the requisite service period, which is generally the vesting period. The Company has elected to record the expense for graded and cliff vesting awards on a straight-line basis over the requisite service period.
Prior to January 1, 2006, the Company measured compensation cost for share-based compensation awards issued to employees using the intrinsic value-based method of accounting in accordance with Accounting Principles Board Opinion No. 25. The Company applied APB Opinion No. 25, Accounting for Stock Issued to Employees , as amended, in accounting for its plans.
9
THE
KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
If compensation cost for the Companys share-based compensation awards had been determined based on the fair value method, the Companys net loss for the year ended December 31, 2005 would have changed to the pro forma amount as follows:
Net loss as reported |
|
$ |
(3,946 |
) |
Deduct: Total share-based employee compensation expense determined under fair value-based method for all awards, net of related tax effect |
|
226 |
|
|
Pro forma net loss |
|
$ |
(4,172 |
) |
The pro forma amount and fair value of each award grant were estimated on the date of grant using a binomial option pricing model with the following weighted-average assumptions used for grants in 2005: risk-free interest rate of 3.98%; expected dividend yield of 3.05%; expected life of six years, and expected volatility of 32%.
New accounting standards
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (FIN 48), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS No. 109, Accounting for Income Taxes . FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 did not have a material impact on the Companys combined financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements . SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement does not require any new fair value measurements, but applies to existing accounting pronouncements that require or permit fair value measurement as the relevant measurement attribute. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company has not yet determined the impact of adopting this standard.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities . SFAS No. 159 permits entities to choose to measure many financial assets and liabilities at fair value. Unrealized gains and losses on items for which fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company has not yet determined the impact of adopting this standard.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB No. 108 requires that companies utilize a dual-approach to assessing the quantitative effects of financial misstatements. This dual approach includes both an income statement focused assessment and a balance sheet focused assessment. The adoption of SAB No. 108 at December 31, 2006 did not have an impact on the Companys combined financial statements.
10
THE
KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
There were no other accounting standards issued in 2007 that had or are expected to have a material impact on the Companys combined financial statements.
3. Current Assets
Trade receivables have been reduced by an allowance for doubtful accounts of $779 and $579 at December 31, 2007 and 2006, respectively. Receivables also include $2,814 and $3,298 from sources other than trade at December 31, 2007 and 2006, respectively.
Inventories consist of the following:
|
|
December 31, |
|
||||
|
|
2007 |
|
2006 |
|
||
Raw materials |
|
$ |
6,713 |
|
$ |
7,374 |
|
Production materials, stores and supplies |
|
11,835 |
|
13,176 |
|
||
Finished and in-process goods |
|
14,560 |
|
18,887 |
|
||
|
|
$ |
33,108 |
|
$ |
39,437 |
|
Approximately 71% and 70% of inventories at December 31, 2007 and 2006, respectively, were valued using the LIFO method. If inventories had been valued at current cost, they would have been $49,021 and $55,169 at December 31, 2007 and 2006, respectively. There was no LIFO layer decrement for the year ended December 31, 2007. The effects of LIFO layer decrements for the years ended December 31, 2006 and 2005 were not material to the Companys combined results of operations.
4. Property, Plant and Equipment
Property, plant and equipment consist of the following:
|
|
December 31, |
|
||||
|
|
2007 |
|
2006 |
|
||
Land and land improvements |
|
$ |
19,329 |
|
$ |
22,452 |
|
Buildings |
|
158,641 |
|
158,975 |
|
||
Machinery and equipment |
|
908,830 |
|
898,076 |
|
||
Construction in progress |
|
9,284 |
|
12,363 |
|
||
|
|
1,096,084 |
|
1,091,866 |
|
||
Less accumulated depreciation |
|
(675,334 |
) |
(646,334 |
) |
||
|
|
$ |
420,750 |
|
$ |
445,532 |
|
Depreciation expense was $37,657, $38,536 and $39,611 for the years ended December 31, 2007, 2006 and 2005, respectively. Capitalized interest included in property, plant and equipment was $16,175 and $17,917 at December 31, 2007 and 2006, respectively.
11
THE
KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
5. Other Assets
Other assets consist of the following:
|
|
December 31, |
|
||||
|
|
2007 |
|
2006 |
|
||
Identifiable intangible air rights |
|
$ |
11,000 |
|
$ |
11,518 |
|
Deferred financing costs |
|
453 |
|
554 |
|
||
Restricted cash debt service |
|
595 |
|
595 |
|
||
Purchased software |
|
30 |
|
30 |
|
||
|
|
$ |
12,078 |
|
$ |
12,697 |
|
Included in other assets is the carrying value of air rights for Cogen with a gross balance of $15,530 at December 31, 2007 and 2006. At the formation of Cogen, MeadWestvaco contributed the air rights and the other Member contributed an agreed-upon amount of cash. The air rights are being amortized on a straight-line basis over 30 years, the period estimated to be benefited. Amortization expense related to the air rights for the years ended December 31, 2007, 2006 and 2005 was $518 for each year. Accumulated amortization at December 31, 2007 and 2006 was $4,530 and $4,012, respectively. Amortization expense for the air rights for the next five years is estimated to be approximately $518 per year. The Company annually reviews this intangible asset to assess recoverability from estimated future results of operations and cash flows.
Other assets also include deferred financing costs and cash restricted in connection with a required debt service reserve. Deferred financing costs are being amortized on a straight-line basis over the term of the loan agreement, which approximates amortization under the effective interest method.
6. Accounts Payable and Accrued Expenses
Accounts payable consists of amounts due to vendors in the normal course of business.
Accrued expenses consist of the following:
|
|
December 31, |
|
||||
|
|
2007 |
|
2006 |
|
||
Payroll and employee benefit costs |
|
$ |
12,739 |
|
$ |
13,131 |
|
Taxes other than income |
|
4,209 |
|
4,123 |
|
||
Accrued energy |
|
4,643 |
|
3,195 |
|
||
Accrued freight |
|
3,125 |
|
1,177 |
|
||
Accrued rebates and allowances |
|
420 |
|
1,018 |
|
||
Accrued restructuring |
|
687 |
|
1,620 |
|
||
Accrued litigation |
|
750 |
|
250 |
|
||
Other |
|
1,923 |
|
2,135 |
|
||
|
|
$ |
28,496 |
|
$ |
26,649 |
|
12
THE
KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
7. Long-Term Debt
The Company has a long-term debt agreement with a major institutional lender with an outstanding balance of $58,040 at December 31, 2007 and 2006. Interest only payments are being made on a quarterly basis. Principal payments are scheduled to begin in December 2014 semi-annually as a percentage of outstanding principal ranging from 12% to 14%, to be paid in full by December 31, 2016. For the original balance of $50,000, there is a fixed interest rate of 8.17%. The fixed interest rate on the remaining balance of $8,040 is 8.39%. Substantially all assets of Cogen with carrying values of $128,379 and $131,588 at December 31, 2007 and 2006, respectively, were assigned as collateral. Under the loan agreement, the Company maintains a debt service reserve account in the amount of $595 at December 31, 2007 and 2006 included in other assets in the combined balance sheets.
The loan is non-recourse to the Members; however, the Members are required to periodically provide financial and other information to the lenders who, under the terms of the restated loan agreement, have the right to call the loan upon any continuing material adverse event, beyond a specified cure period, occurring at Cogen, the Member organizations, or any other party to the project agreements, which would inhibit the Members or participants ability to comply with the various project agreements which have been assigned to the lenders.
The Company has two notes payable to MeadWestvaco. The first note in the amount of $41,000 and $47,000 at December 2007 and 2006, respectively, bears interest at the 6-month LIBOR rate plus 1% per annum (5.72% and 6.36% at December 31, 2007 and 2006, respectively). Semi-annual interest and principal installments are required with a final maturity date of December 31, 2012. The required principal payments are as follows: 2008 $7,000; 2009 $7,000; 2010 $8,000; 2011 $9,000; and 2012 $10,000.
The second note in the amount of $4,784 and $5,595 at December 31, 2007 and 2006, respectively, bears interest at a fixed rate of 6% per annum. Payments are due on a semi-annual basis through December 31, 2012 with total annual payments as follows: 2008 $847; 2009 $898; 2010 $954; 2011 $1,013; and 2012 $1,072.
At December 31, 2007, the book value of financial instruments included in long-term debt was $58,040 and the fair value was estimated to be $64,771. At December 31, 2006, the book value of financial instruments included in long-term debt was $58,040 and the fair value was estimated to be $65,606. The difference between book value and fair value is derived from the difference between the period-end market interest rate and the stated rate for the Companys fixed-rate, long-term debt. The Company has estimated the fair value of financial instruments based on quoted market prices for the same or similar issues or on the current interest rates available to the Company for debt of similar terms and maturities.
13
THE
KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
8. Lease Commitments
The Company leases a variety of assets for use in its operations. Certain leases provide for escalation of the lease payments as maintenance costs and taxes increase. Minimum rental payments under operating leases that have noncancellable lease terms in excess of 12 months are as follows:
2008 |
|
$ |
3,484 |
|
2009 |
|
3,315 |
|
|
2010 |
|
3,073 |
|
|
2011 |
|
2,837 |
|
|
2012 |
|
2,235 |
|
|
Thereafter |
|
3,193 |
|
|
Minimum lease payments |
|
$ |
18,137 |
|
Rent expense under operating leases was $5,502, $6,179 and $5,872 for the years ended December 31, 2007, 2006 and 2005, respectively.
9. Share-Based Compensation
Certain employees of the Business participate in MeadWestvacos various share-based compensation plans. At December 31, 2007, MeadWestvaco had five such plans under which shares are available for grant. The exercise price of all stock options equals the market price of MeadWestvacos common stock on the date of grant. Stock options are exercisable after a period of three years and expire no later than 10 years from the date of grant. Under certain employee plans, stock options may be granted with or without stock appreciation rights or limited stock appreciation rights, which are exercisable upon the occurrence of certain events related to changes in corporate control.
The Company adopted SFAS No. 123(R) as of January 1, 2006, using the modified prospective method and, therefore, 2005 was not restated. This Statement requires the recognition of compensation expense when an entity obtains employee services in share-based payment transactions. Under this standard, pre-tax share-based compensation for the years ended December 31, 2007 and 2006 was $364 and $517, respectively. Of these amounts, $208 and $156 for the year ended December 31, 2007, and $141 and $376 for the year ended December 31, 2006, were included in cost of sales and selling, general and administrative expenses, respectively. The cumulative effect of a change in accounting principle associated with the adoption of SFAS No. 123(R) was not material to the combined financial statements. For all awards granted, compensation expense is recognized on a straight-line basis over the vesting period, generally three years. MeadWestvaco has used the long-haul method to determine the pool of tax benefits or deficiencies resulting from tax deductions related to awards of equity instruments that exceed or are less than the cumulative compensation cost for those instruments recognized for financial reporting.
Stock options
MeadWestvaco has estimated the fair value of its stock options granted after January 1, 2006, using a lattice-based option valuation model. Lattice-based option valuation models utilize ranges of assumptions over the expected term of the options. Expected volatilities are based on the historical and implied volatility of MeadWestvacos common stock. MeadWestvaco uses
14
THE
KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
historical data to estimate option exercises and employee terminations within the valuation model. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for the period within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.
The following table summarizes activity in the plans as it relates to employees of the Business:
|
|
|
|
|
|
Weighted |
|
|
|
||
|
|
|
|
Weighted |
|
average |
|
Aggregate |
|
||
|
|
|
|
average |
|
remaining |
|
intrinsic |
|
||
|
|
|
|
exercise |
|
contractual |
|
value (in |
|
||
|
|
Options |
|
price |
|
term |
|
thousands) |
|
||
Outstanding at January 1, 2005 |
|
330,074 |
|
$ |
29.27 |
|
|
|
|
|
|
Granted |
|
55,400 |
|
30.21 |
|
|
|
|
|
||
Exercised |
|
(6,305 |
) |
26.39 |
|
|
|
|
|
||
Cancelled |
|
(436 |
) |
25.84 |
|
|
|
|
|
||
Outstanding at December 31, 2005 |
|
378,733 |
|
29.46 |
|
|
|
|
|
||
Granted |
|
17,060 |
|
28.18 |
|
|
|
|
|
||
Exercised |
|
(50,998 |
) |
24.47 |
|
|
|
|
|
||
Cancelled |
|
(30 |
) |
28.29 |
|
|
|
|
|
||
Outstanding at December 31, 2006 |
|
344,765 |
|
30.12 |
|
|
|
|
|
||
Granted |
|
8,110 |
|
32.11 |
|
|
|
|
|
||
Exercised |
|
(208,856 |
) |
30.13 |
|
|
|
|
|
||
Cancelled |
|
(727 |
) |
29.74 |
|
|
|
|
|
||
Outstanding at December 31, 2007 |
|
143,292 |
|
30.19 |
|
3.8 years |
|
$ |
223 |
|
|
Exercisable at December 31, 2007 |
|
123,385 |
|
30.07 |
|
3.1 years |
|
203 |
|
||
Exercisable at December 31, 2006 |
|
319,503 |
|
30.12 |
|
3.8 years |
|
209 |
|
||
Exercisable at December 31, 2005 |
|
293,339 |
|
29.66 |
|
4.2 years |
|
132 |
|
||
At December 31, 2007 and 2006, there was $60 and $116, respectively, of unrecognized compensation cost related to nonvested stock options, which is expected to be recognized over a weighted-average period of 2.3 and 0.4 years, respectively. Pre-tax compensation expense for stock options was $126 for the year ended December 31, 2007, and the tax benefit associated with this expense was $48. Pre-tax compensation expense for stock options was $416 for the year ended December 31, 2006, and the tax benefit associated with this expense was $159.
Restricted stock units and restricted stock
A restricted stock unit is the right to receive a share of MeadWestvaco common stock. Restricted stock and restricted stock units granted vest over three years. The fair value of each share of restricted stock and restricted stock unit is the market price of the MeadWestvacos common stock on the date of grant, and is charged to operations over the vesting period.
15
THE
KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
The following table summarizes activity in the plans as it relates to employees of the Business:
|
|
|
|
Average |
|
|
|
|
|
|
grant date |
|
|
|
|
|
|
fair market |
|
|
|
|
Shares |
|
value |
|
|
Outstanding at January 1, 2005 |
|
5,000 |
|
$ |
28.00 |
|
Granted |
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
Released |
|
|
|
|
|
|
Outstanding at December 31, 2005 |
|
5,000 |
|
28.00 |
|
|
Granted |
|
21,324 |
|
28.20 |
|
|
Forfeited |
|
(8,430 |
) |
28.20 |
|
|
Released |
|
(5,000 |
) |
28.00 |
|
|
Outstanding at December 31, 2006 |
|
12,894 |
|
28.20 |
|
|
Granted |
|
13,110 |
|
32.11 |
|
|
Forfeited |
|
|
|
|
|
|
Released |
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
26,004 |
|
30.17 |
|
|
As of December 31, 2007 and 2006, there was $445 and $263, respectively, of unrecognized compensation cost related to nonvested restricted stock units, which is expected to be recognized over a weighted-average period of 2.2 years. Pre-tax compensation expense for restricted stock and restricted stock units was $238 for the year ended December 31, 2007, and the tax benefit associated with this expense was $90. Pre-tax compensation expense for restricted stock and restricted stock units was $101 for the year ended December 31, 2006, and the tax benefit associated with this expense was $39.
10. Restructuring Charges
Year ended December 31, 2007
Restructuring charges were $109 for the year ended December 31, 2007 associated with adjustments to prior year estimates of employee separation costs. These charges are included in cost of sales and selling, general and administrative expenses in the amounts of $16 and $93, respectively.
Year ended December 31, 2006
Restructuring charges were $1,676 for the year ended December 31, 2006 and consisted of $1,158 in costs associated with a ceased-use facility and $518 in employee separation costs related to eight employees. All of the affected employees were separated by the end of 2007. These charges are included in cost of sales and selling, general and administrative expenses in the amounts of $328 and $1,348, respectively.
16
THE KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
Year ended December 31, 2005
Restructuring charges were $72 for the year ended December 31, 2005 associated with employee separation costs related to five employees. All of the affected employees were separated by the end of 2006. These charges are included in cost of sales and selling, general and administrative expenses in the amounts of $58 and $14, respectively.
Summary of restructuring charges
The activity in the accrued restructuring balances was as follows:
|
|
Employee |
|
Other |
|
|
|
|||
|
|
Costs |
|
Costs |
|
Total |
|
|||
|
|
|
|
|
|
|
|
|||
Balance of related accruals at January 1, 2005 |
|
$ |
137 |
|
$ |
|
|
$ |
137 |
|
Charges in 2005 |
|
72 |
|
|
|
72 |
|
|||
Payments in 2005 |
|
(44 |
) |
|
|
(44 |
) |
|||
Balance of related accruals at December 31, 2005 |
|
165 |
|
|
|
165 |
|
|||
Charges in 2006 |
|
518 |
|
1,158 |
|
1,676 |
|
|||
Payments in 2006 |
|
(221 |
) |
|
|
(221 |
) |
|||
Balance of related accruals at December 31, 2006 |
|
462 |
|
1,158 |
|
1,620 |
|
|||
Charges in 2007 |
|
93 |
|
16 |
|
109 |
|
|||
Payments in 2007 |
|
(273 |
) |
(769 |
) |
(1,042 |
) |
|||
Balance of related accruals at December 31, 2007 |
|
$ |
282 |
|
$ |
405 |
|
$ |
687 |
|
11. Other (Income) Expense, net
Components of other (income) expense, net, consist of the following:
|
|
Years Ended December 31, |
|
|||||||
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
Net (gains) losses from sales of real property |
|
$ |
(5,183 |
) |
$ |
(326 |
) |
$ |
121 |
|
Foreign currency exchange (gains) losses |
|
(1,682 |
) |
(1,025 |
) |
1,650 |
|
|||
Interest income |
|
(457 |
) |
(502 |
) |
(168 |
) |
|||
Other, net |
|
(9 |
) |
(959 |
) |
(350 |
) |
|||
|
|
$ |
(7,331 |
) |
$ |
(2,812 |
) |
$ |
1,253 |
|
17
THE KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
12. Income Taxes
The significant components of the income tax provision (benefit) consist of the following:
|
|
Years Ended December 31, |
|
|||||||
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
Current: |
|
|
|
|
|
|
|
|||
U. S. federal |
|
$ |
7,062 |
|
$ |
4,773 |
|
$ |
2,735 |
|
State and local |
|
1,141 |
|
749 |
|
433 |
|
|||
|
|
8,203 |
|
5,522 |
|
3,168 |
|
|||
|
|
|
|
|
|
|
|
|||
Deferred: |
|
|
|
|
|
|
|
|||
U. S. federal |
|
(4,371 |
) |
(4,158 |
) |
(6,818 |
) |
|||
State and local |
|
(657 |
) |
(625 |
) |
(1,025 |
) |
|||
|
|
(5,028 |
) |
(4,783 |
) |
(7,843 |
) |
|||
Income tax provision (benefit) |
|
$ |
3,175 |
|
$ |
739 |
|
$ |
(4,675 |
) |
The principal current and noncurrent deferred tax assets and liabilities consist of the following:
|
|
December 31, |
|
||||
|
|
2007 |
|
2006 |
|
||
Deferred tax assets |
|
|
|
|
|
||
Employee benefits |
|
$ |
5,040 |
|
$ |
5,236 |
|
Accruals and reserves |
|
2,354 |
|
3,076 |
|
||
Total deferred tax assets |
|
7,394 |
|
8,312 |
|
||
Deferred tax liabilities |
|
|
|
|
|
||
Employee benefits |
|
(769 |
) |
(831 |
) |
||
Accruals and reserves |
|
(1,678 |
) |
(2,730 |
) |
||
Depreciation |
|
(86,829 |
) |
(91,617 |
) |
||
Total deferred tax liabilities |
|
(89,276 |
) |
(95,178 |
) |
||
Net deferred tax liability |
|
$ |
(81,882 |
) |
$ |
(86,866 |
) |
Included in the combined balance sheet |
|
|
|
|
|
||
Current deferred tax asset |
|
$ |
2,250 |
|
$ |
1,941 |
|
Noncurrent deferred tax liability |
|
(84,132 |
) |
(88,807 |
) |
||
Net deferred tax liability |
|
$ |
(81,882 |
) |
$ |
(86,866 |
) |
18
THE KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
The following table summarizes the major differences between the actual tax provision (benefit) computed at the U.S. federal statutory rate:
|
|
Years Ended December 31, |
|
|||||||
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
Income tax provision (benefit) computed at U.S. federal statutory rate of 35% |
|
$ |
5,521 |
|
$ |
2,629 |
|
$ |
(3,017 |
) |
State taxes, net of federal benefit |
|
314 |
|
77 |
|
(386 |
) |
|||
Cogen income |
|
(1,978 |
) |
(1,452 |
) |
(1,060 |
) |
|||
Savings and investment plan dividends and research credits |
|
(261 |
) |
(375 |
) |
(135 |
) |
|||
Section 199 benefit |
|
(476 |
) |
(156 |
) |
(90 |
) |
|||
Other permanent differences |
|
55 |
|
16 |
|
13 |
|
|||
Income tax provision (benefit) |
|
$ |
3,175 |
|
$ |
739 |
|
$ |
(4,675 |
) |
Effective tax rate |
|
20 |
% |
10 |
% |
54% |
|
13. Cogen South LLC
Cogen was formed in June 1996 as a Delaware limited liability company by MeadWestvaco and the SCANA Corporation (SCANA), a South Carolina corporation, each of which owns a 50 percent interest in Cogen. Cogen was formed to develop, finance, own and operate a cogeneration facility in Charleston, South Carolina. The cogeneration facility provides steam to the Business and shaft horsepower to the South Carolina Electric and Gas Company (SCE&G) generator located adjacent to the site of the Business. SCE&G is a wholly-owned subsidiary of SCANA.
MeadWestvaco has contracted to purchase the steam requirements of the Business from Cogen for a term of 20 years, commencing in 1999 pursuant to the Energy Conversion Agreement (EC Agreement). The payment for steam under the EC Agreement is comprised of (i) a facility fee that covers return to the Members, (ii) a debt service fee that covers debt service or any outstanding loans, (iii) a reimbursement cost fee that covers cash operating costs, and (iv) a capital expenditure fee to build funds for future capital expenditures. MeadWestvaco also provides day-to-day management of the facility under an Operations and Maintenance Agreement for the same 20-year period.
SCE&G has contracted to purchase any shaft horsepower produced by Cogen for a term of 20 years, commencing in 1999, pursuant to the Shaft Horsepower Agreement (SHP Agreement). The payment for shaft horsepower under the SHP Agreement is comprised of (i) a capacity payment, (ii) an energy payment, and (iii) an excess energy payment. Sales of shaft horsepower included in the combined statements of operations were $27,711,012, $26,881,352 and $24,025,518 for the years ended December 31, 2007, 2006 and 2005, respectively.
The Company purchases natural gas from SCE&G at market prices. Purchases of natural gas from SCE&G amounted to $4,117, $3,764 and $1,695 for the years ended December 31, 2007, 2006 and 2005, respectively.
19
THE KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
The Members shall not be liable for any responsibility, indebtedness or obligation of any other Member unless such responsibility, indebtedness or obligation is expressly assumed in writing by such Member. The term of the LLC will continue in full force and effect until December 31, 2050 or until terminated in accordance with the provisions of the LLC agreement.
The carrying value of equity in Cogen owned by SCANA included in the combined equity of the Business was $9,443, $8,798 and $8,985 at December 31, 2007, 2006 and 2005, respectively. All significant intercompany activity and balances related to transactions between Cogen and the Company have been eliminated in combination.
14. Related-Party Transactions
Transactions between the Company and other businesses of MeadWestvaco commonly occur in the normal course of business. Sales to other MeadWestvaco businesses were $1,191, $1,935 and $1,250 for the years ended December 31, 2007, 2006 and 2005, respectively. Purchases from other MeadWestvaco business segments at market prices were $17,096, $16,744 and $16,611 for the years ended December 31, 2007, 2006 and 2005, respectively.
During the years ended December 31, 2007, 2006 and 2005, the Company had sales at market prices with various third parties affiliated with certain members of MeadWestvacos board of directors in the amounts of $55,785, $51,509 and $52,015, respectively.
The Business combined financial statements include expense allocations for certain corporate functions provided by MeadWestvaco, such as human resources, legal, finance, information systems, purchasing, executive management and other corporate staff. Allocations were based on relative headcount for people-related costs, the Business assets as a percentage of total MeadWestvaco assets, the Business sales as a percentage of total MeadWestvaco sales, or by specific identification of costs directly associated with the Business operations. The Company and MeadWestvaco management believe such allocations have been made on a reasonable basis. These costs are included in cost of sales or selling, general and administrative expenses, consistent with MeadWestvacos classification, in the accompanying combined statements of operations. Costs allocated or charged by MeadWestvaco to the Company for services performed by MeadWestvaco on behalf of the Business totaled $23,178, $19,669 and $19,532 for the years ended December 31, 2007, 2006 and 2005, respectively.
The Company receives cash rebates on certain transportation costs if it meets a specified volume agreement. The rebate amounts are based upon the actual transportation costs of a related-party mill. Rebates of $739 and $845 were recorded as reductions to cost of goods sold for the years ended December 31, 2007 and 2006, respectively. No rebates were recorded for the year ended December 31, 2005.
Total interest expense related to the two notes with MeadWestvaco was $3,220, $3,509 and $2,787 for the years ended December 31, 2007, 2006 and 2005, respectively. See Note 7 for further discussion.
20
THE KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
15. Financial Instruments
During 2006 and 2005, and early in 2007, the Company used foreign currency forward contracts to manage its foreign currency risks. There were no foreign currency forward contracts outstanding at December 31, 2007. Using such forward contracts, the Company received or paid the difference between the contracted forward rate and the exchange rate at the settlement date. These contracts were used to hedge the variability of exchange rates on the Companys cash flows and were designated as cash-flow hedges under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities . Information related to the Companys foreign currency sales with hedge accounting is as follows:
|
|
December 31, |
|
||||
|
|
2007 |
|
2006 |
|
||
Notional amount |
|
$ |
|
|
$ |
16,823 |
|
Estimated amount to be recognized in operations within the next year |
|
|
|
(70 |
) |
||
Maximum remaining term (in years) of existing hedges |
|
|
|
1 |
|
||
|
|
December 31, |
|
|||||||
|
|
2007 |
|
2006 |
|
2005 |
|
|||
Net unrealized losses included in accumulated other comprehensive income |
|
$ |
|
|
$ |
(70 |
) |
$ |
(463 |
) |
Net gains (losses) reclassified to operations during the year |
|
70 |
|
(100 |
) |
1,161 |
|
|||
The derivative instruments were recorded in the combined balance sheets within accrued liabilities measured at fair value. The effective portion of the change in the fair value of the instruments was recorded in other comprehensive income and was recognized in the combined statements of operations when the hedged item affected earnings.
16. Legal Matters
For the year ended December 31, 2005, the pre-tax earnings include a $2,000 charge related to an employee personal injury case. In 2006, the case was settled for $198 resulting in a reversal of the reserve and an increase in combined pre-tax earnings of $1,802 for the year ended December 31, 2006.
At December 31, 2007 and 2006, the Company had reserves of $750 and $250, respectively. The 2007 reserve primarily represents estimated potential litigation costs related to a breach of contract event, and the 2006 reserve represents estimated potential litigation costs for an asbestos-related personal injury. After consulting with legal counsel, it is the Companys judgment that the resolution of pending litigation and proceedings is not expected to have a material adverse affect on the Business combined financial condition or liquidity.
21
THE KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
17. Cash Flows
Changes in working capital were as follows:
|
|
December 31, |
|
|||||||
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
Decrease (increase) in: |
|
|
|
|
|
|
|
|||
Accounts receivable |
|
$ |
2,171 |
|
$ |
(7,119 |
) |
$ |
537 |
|
Inventories |
|
6,329 |
|
1,209 |
|
(1,505 |
) |
|||
Other current assets |
|
337 |
|
5 |
|
(19 |
) |
|||
|
|
|
|
|
|
|
|
|||
Increase (decrease) in: |
|
|
|
|
|
|
|
|||
Accounts payable |
|
5,813 |
|
(116 |
) |
(2,354 |
) |
|||
Accrued liabilities |
|
1,960 |
|
258 |
|
3,780 |
|
|||
|
|
$ |
16,610 |
|
$ |
(5,763 |
) |
$ |
439 |
|
22
Exhibit 99.3
The Kraft Business (A Business of MeadWestvaco Corporation)
Combined Financial Statements (Unaudited)
Three Months Ended March 31, 2008 and 2007
THE KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO CORPORATION)
Combined Financial Statements (Unaudited)
Index
|
Page |
|
|
Combined Statements of Operations for the Three Months Ended March 31, 2008 and 2007 |
1 |
|
|
Combined Balance Sheets as of March 31, 2008 and December 31, 2007 |
2 |
|
|
Combined Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007 |
3 |
|
|
Notes to Combined Financial Statements |
4 |
THE KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO CORPORATION)
Combined Statements of Operations (Unaudited)
(in thousands)
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
|
|
2008 |
|
2007 |
|
||
|
|
|
|
|
|
||
Net sales |
|
$ |
130,797 |
|
$ |
129,349 |
|
Cost of sales |
|
121,824 |
|
115,611 |
|
||
Selling, general and administrative expenses |
|
7,405 |
|
5,840 |
|
||
Interest and debt expense |
|
1,856 |
|
2,061 |
|
||
Other income, net |
|
(1,100 |
) |
(379 |
) |
||
Income before income taxes |
|
812 |
|
6,216 |
|
||
Provision (benefit) for income taxes |
|
(130 |
) |
1,665 |
|
||
Net income |
|
$ |
942 |
|
$ |
4,551 |
|
The accompanying notes are an integral part of these financial statements.
1
THE KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO CORPORATION)
Combined Balance Sheets (Unaudited)
(in thousands)
|
|
March 31, |
|
December 31, |
|
||
|
|
2008 |
|
2007 |
|
||
Assets |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
9,102 |
|
$ |
5,470 |
|
Accounts receivable, net |
|
37,561 |
|
35,145 |
|
||
Inventories |
|
35,949 |
|
33,108 |
|
||
Deferred income taxes |
|
2,278 |
|
2,250 |
|
||
Other current assets |
|
1,933 |
|
1,243 |
|
||
Current assets |
|
86,823 |
|
77,216 |
|
||
Property, plant and equipment |
|
415,570 |
|
420,750 |
|
||
Other assets |
|
11,930 |
|
12,078 |
|
||
|
|
$ |
514,323 |
|
$ |
510,044 |
|
|
|
|
|
|
|
||
Liabilities and Equity |
|
|
|
|
|
||
Accounts payable |
|
$ |
22,790 |
|
$ |
18,655 |
|
Accrued liabilities |
|
20,912 |
|
28,496 |
|
||
Current maturities of long-term notes payable - related party |
|
7,847 |
|
7,847 |
|
||
Current liabilities |
|
51,549 |
|
54,998 |
|
||
Long-term debt |
|
58,040 |
|
58,040 |
|
||
Long-term notes payable - related party |
|
37,937 |
|
37,937 |
|
||
Deferred income taxes |
|
83,884 |
|
84,132 |
|
||
Other liabilities |
|
7,073 |
|
6,576 |
|
||
Commitments and contingencies |
|
|
|
|
|
||
Equity |
|
275,840 |
|
268,361 |
|
||
|
|
$ |
514,323 |
|
$ |
510,044 |
|
The accompanying notes are an integral part of these financial statements.
2
THE KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO CORPORATION)
Combined Statements of Cash Flows (Unaudited)
(in thousands)
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
|
|
2008 |
|
2007 |
|
||
Cash flows from operating activities |
|
|
|
|
|
||
Net income |
|
$ |
942 |
|
$ |
4,551 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
||
Depreciation and amortization |
|
9,345 |
|
9,670 |
|
||
Losses on disposals of real and personal property |
|
1 |
|
66 |
|
||
Deferred income taxes |
|
(276 |
) |
(2,669 |
) |
||
Changes in working capital |
|
(9,396 |
) |
(949 |
) |
||
Other |
|
576 |
|
(706 |
) |
||
Net cash provided by operating activities |
|
1,192 |
|
9,963 |
|
||
Cash flows from investing activities |
|
|
|
|
|
||
Additions to property, plant and equipment |
|
(4,018 |
) |
(4,204 |
) |
||
Proceeds from sales of assets |
|
|
|
155 |
|
||
Net cash used in investing activities |
|
(4,018 |
) |
(4,049 |
) |
||
Cash flows from financing activities |
|
|
|
|
|
||
Transactions with MeadWestvaco Corporation, net |
|
6,458 |
|
(2,487 |
) |
||
Net cash provided by (used in) financing activities |
|
6,458 |
|
(2,487 |
) |
||
Increase in cash and cash equivalents |
|
3,632 |
|
3,427 |
|
||
Cash and cash equivalents |
|
|
|
|
|
||
Beginning of period |
|
5,470 |
|
3,101 |
|
||
End of period |
|
$ |
9,102 |
|
$ |
6,528 |
|
The accompanying notes are an integral part of these financial statements.
3
THE KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)
(dollars in thousands)
1. Description of Business and Basis of Presentation
These combined financial statements present the historical results of the Kraft Business (the Business or the Company), a business of MeadWestvaco Corporation (MeadWestvaco). The Business consists of a kraft paperboard mill, a sawmill, various chipmill operations and a cogeneration facility (see below), all located in South Carolina. The Business is a competitive manufacturer of unbleached kraft paperboard products sold in various markets and primarily manufactures saturating kraft, Kraftpac® and linerboard.
These combined financial statements are intended to present the historical results of the Business operations during each respective period. As such, these combined financial statements include allocations of certain expenses, as well as the attribution of certain assets and liabilities, historically maintained by MeadWestvaco and not recorded in the accounts of the Business. The Business and MeadWestvaco management believe such allocations have been made on a reasonable basis. However, these combined financial statements may not necessarily be indicative of the results of operations that would have been obtained if the Business had operated as a separate entity during the periods presented.
These interim combined financial statements have not been audited. However, in the opinion of management, all normal recurring adjustments necessary to present fairly the financial position and the results of operations for the interim periods presented have been made. These interim combined financial statements have been prepared on the basis of accounting principles and practices generally accepted in the United States (GAAP) applied consistently with those used in the preparation of the combined financial statements for the year ended December 31, 2007. Certain information and footnote disclosures normally included in annual financial statements presented in accordance with GAAP have been condensed or omitted. The accompanying combined financial statements should be read in conjunction with the combined financial statements and notes thereto for the year ended December 31, 2007.
The combined equity of the Company is comprised of the excess of the Business combined assets over its combined liabilities. Combined equity is affected by the Business operating results, expense allocations from MeadWestvaco and cash transfers between the Business and MeadWestvaco, including settlement of intercompany transactions and amounts paid or received relating to interest and income taxes, as MeadWestvaco manages all treasury and tax activities of the Business. The combined equity of the Company is also impacted by distributions made by Cogen South LLC to MeadWestvaco and SCANA Corporation (collectively, the Members).
MeadWestvaco owns a 50% interest in Cogen South LLC (Cogen), a cogeneration facility. Due to the level of involvement by the Company in the cogeneration facilitys operations, the Business includes in its combined financial statements 100% of Cogens results of operations and financial position. See Note 7 for further discussion.
New accounting standard
As permitted under transition rules by the FASB, the Company partially adopted the provisions of SFAS No. 157, Fair Value Measurements, as of January 1, 2008. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement does not require any new fair value measurements, but applies to existing accounting pronouncements that require or permit fair value measurement as the relevant measurement attribute. As permitted by FASB Staff Position FAS 157-2, Effective Date of FASB Statement No. 157, the Company delayed the adoption of SFAS No. 157 for all non-financial
4
THE KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited), Continued
(dollars in thousands)
assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until January 1, 2009. The initial adoption of SFAS No. 157 did not have an impact on the Companys combined financial position or results of operations as of and for the three months ended March 31, 2008. The full adoption of SFAS No. 157 is not expected to have a material effect on the Companys combined financial position or results of operations in 2009.
Subsequent event
On April 7, 2008, MeadWestvaco entered into an agreement to sell the Business to an affiliate of KapStone Paper and Packaging Corporation for $485 million in cash, subject to certain closing adjustments. The sale is expected to close in the third quarter of 2008. MeadWestvaco will retain certain assets and liabilities related to the Business which are included within these combined financial statements.
2. Inventories
Inventories consist of the following:
|
|
March 31, |
|
December 31, |
|
||
|
|
2008 |
|
2007 |
|
||
Raw materials |
|
$ |
7,359 |
|
$ |
6,713 |
|
Production materials, stores and supplies |
|
12,210 |
|
11,835 |
|
||
Finished and in-process goods |
|
16,380 |
|
14,560 |
|
||
|
|
$ |
35,949 |
|
$ |
33,108 |
|
3. Property, Plant and Equipment
Property, plant and equipment consist of the following:
|
|
March 31, |
|
December 31, |
|
||
|
|
2008 |
|
2007 |
|
||
Land and land improvements |
|
$ |
19,444 |
|
$ |
19,329 |
|
Buildings |
|
159,044 |
|
158,641 |
|
||
Machinery and equipment |
|
912,353 |
|
908,830 |
|
||
Construction in progress |
|
9,090 |
|
9,284 |
|
||
|
|
1,099,931 |
|
1,096,084 |
|
||
Less accumulated depreciation |
|
(684,361 |
) |
(675,334 |
) |
||
|
|
$ |
415,570 |
|
$ |
420,750 |
|
Depreciation expense was $9,197 and $9,512 for the three months ended March 31, 2008 and 2007, respectively.
5
THE KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited), Continued
(dollars in thousands)
4. Accrued Expenses
Accrued expenses consist of the following:
|
|
March 31, |
|
December 31, |
|
||
|
|
2008 |
|
2007 |
|
||
Payroll and employee benefit costs |
|
$ |
10,574 |
|
$ |
12,739 |
|
Taxes other than income |
|
1,157 |
|
4,209 |
|
||
Accrued energy |
|
3,275 |
|
4,643 |
|
||
Accrued freight |
|
2,238 |
|
3,125 |
|
||
Accrued rebates and allowances |
|
181 |
|
420 |
|
||
Accrued restructuring |
|
772 |
|
687 |
|
||
Accrued litigation |
|
750 |
|
750 |
|
||
Other |
|
1,965 |
|
1,923 |
|
||
|
|
$ |
20,912 |
|
$ |
28,496 |
|
5. Other Income, net
Components of other income, net, consist of the following:
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
|
|
2008 |
|
2007 |
|
||
Foreign currency exchange gains |
|
$ |
(642 |
) |
$ |
(29 |
) |
Interest income |
|
(54 |
) |
(41 |
) |
||
Other, net |
|
(404 |
) |
(309 |
) |
||
|
|
$ |
(1,100 |
) |
$ |
(379 |
) |
6. Income Taxes
The Company historically is not an income tax payer, as its results and related tax obligations, if any, are included in the consolidated tax returns of MeadWestvaco. The income tax (benefit) provision included in these combined financial statements was calculated on a separate return basis, as if the Business was a separate tax paper, excluding the results of Cogen, and the resulting current tax receivable or liability, including liabilities related to uncertain tax positions, was settled with MeadWestvaco through equity. Cogen is treated as a partnership for federal income tax purposes. Income earned by Cogen is passed through to its owners; therefore, no income taxes have been incurred by or accrued for this entity.
The effective tax rates were (16.0%) and 26.8% for the three months ended March 31, 2008 and 2007, respectively. The differences in the effective tax rates compared to the U.S. federal statutory rate of 35% were primarily attributable to the exclusion of Cogens income in each period, and the effects of certain permanent differences between reported income and taxable income.
6
THE KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited), Continued
(dollars in thousands)
7. Cogen South LLC
Cogen was formed in June 1996 as a Delaware limited liability company by MeadWestvaco and the SCANA Corporation (SCANA), a South Carolina corporation, each of which owns a 50 percent interest in Cogen. Cogen was formed to develop, finance, own and operate a cogeneration facility in Charleston, South Carolina. The cogeneration facility provides steam to the Business and shaft horsepower to the South Carolina Electric and Gas Company (SCE&G) generator located adjacent to the site of the Business. SCE&G is a wholly-owned subsidiary of SCANA.
MeadWestvaco has contracted to purchase the steam requirements of the Business from Cogen for a term of 20 years, commencing in 1999 pursuant to the Energy Conversion Agreement (EC Agreement). The payment for steam under the EC Agreement is comprised of (i) a facility fee that covers return to the Members, (ii) a debt service fee that covers debt service or any outstanding loans, (iii) a reimbursement cost fee that covers cash operating costs, and (iv) a capital expenditure fee to build funds for future capital expenditures. MeadWestvaco also provides day-to-day management of the facility under an Operations and Maintenance Agreement for the same 20-year period.
SCE&G has contracted to purchase any shaft horsepower produced by Cogen for a term of 20 years, commencing in 1999, pursuant to the Shaft Horsepower Agreement (SHP Agreement). The payment for shaft horsepower under the SHP Agreement is comprised of (i) a capacity payment, (ii) an energy payment, and (iii) an excess energy payment. Sales of shaft horsepower included in the combined statements of operations were $7,737 and $7,261 for the three months ended March 31, 2008 and 2007, respectively.
The Company purchases natural gas from SCE&G at market prices. Purchases of natural gas from SCE&G amounted to $944 and $846 for the three months ended March 31, 2008 and 2007, respectively.
The Members shall not be liable for any responsibility, indebtedness or obligation of any other Member unless such responsibility, indebtedness or obligation is expressly assumed in writing by such Member. The term of the LLC will continue in full force and effect until December 31, 2050 or until terminated in accordance with the provisions of the LLC agreement.
The carrying value of equity in Cogen owned by SCANA included in the combined equity of the Business was $10,076 and $9,443 at March 31, 2008 and December 31, 2007, respectively. All significant intercompany activity and balances related to transactions between Cogen and the Company have been eliminated in combination.
8. Related-Party Transactions
Transactions between the Company and other businesses of MeadWestvaco commonly occur in the normal course of business. Sales to other MeadWestvaco businesses were $222 and $536 for the three months ended March 31, 2008 and 2007, respectively. Purchases from other MeadWestvaco business segments at market prices were $2,762 and $5,323 for the three months ended March 31, 2008 and 2007, respectively.
7
THE KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited), Continued
(dollars in thousands)
The Business combined financial statements include expense allocations for certain corporate functions provided by MeadWestvaco, such as human resources, legal, finance, information systems, purchasing, executive management and other corporate staff. Allocations were based on relative headcount for people-related costs, the Business assets as a percentage of total MeadWestvaco assets, the Business sales as a percentage of total MeadWestvaco sales, or by specific identification of costs directly associated with the Business operations. The Company and MeadWestvaco management believe such allocations have been made on a reasonable basis. These costs are included in cost of sales or selling, general and administrative expenses, consistent with MeadWestvacos classification, in the accompanying combined statements of operations. Costs allocated or charged by MeadWestvaco to the Company for services performed by MeadWestvaco on behalf of the Business totaled $7,471 and $5,752 for the three months ended March 31, 2008 and 2007, respectively.
Interest expense related to the two notes with MeadWestvaco was $681 and $839 for the three months ended March 31, 2008 and 2007, respectively.
Net transactions with MeadWestvaco included as a component of combined equity of the Business for the three months ended March 31, 2008 and 2007 totaled $6,458 and $(2,487), respectively.
9. Cash Flows
Changes in working capital were as follows:
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
|
|
2008 |
|
2007 |
|
||
Decrease (increase) in: |
|
|
|
|
|
||
Accounts receivable |
|
$ |
(2,416 |
) |
$ |
(1,527 |
) |
Inventories |
|
(2,841 |
) |
(1,112 |
) |
||
Other current assets |
|
(690 |
) |
(474 |
) |
||
Increase (decrease) in: |
|
|
|
|
|
||
Accounts payable |
|
4,135 |
|
9,087 |
|
||
Accrued liabilities |
|
(7,584 |
) |
(6,923 |
) |
||
|
|
$ |
(9,396 |
) |
$ |
(949 |
) |
8
THE KRAFT BUSINESS (A BUSINESS OF MEADWESTVACO CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited), Continued
(dollars in thousands)
10. Comprehensive Income
Comprehensive income for the three months ended March 31, 2008 and 2007 was $942 and $4,597, respectively. The changes in the components of comprehensive income, net of tax, for the three months ended March 31, 2008 and 2007 were as follows:
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
|
|
2008 |
|
2007 |
|
||
|
|
|
|
|
|
||
Net income |
|
$ |
942 |
|
$ |
4,551 |
|
Changes in unrealized losses on derivative instruments, net |
|
|
|
46 |
|
||
Comprehensive income |
|
$ |
942 |
|
$ |
4,597 |
|
9
Exhibit 99.4
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined balance sheet as of March 31, 2008 and the unaudited pro forma condensed combined statements of income for the year ended December 31, 2007, and the three months ended March 31, 2008, and the accompanying notes thereto, have been prepared to illustrate the effects of the acquisition by KapStone Paper and Packaging Corporation (KapStone) of the Charleston Kraft Division (A Business of MeadWestvaco Corporation) (CKD), including the financing of the acquisition (collectively the Acquisition), on our historical balance sheet and results of operations. At the closing of the Acquisition, we used the proceeds from borrowings under a new senior secured $515 million credit facility (the Senior Credit Facilities) and the issuance of $40 million of 8.30% senior secured notes due July 1, 2015 (the Senior Notes) together with cash on hand, to finance the net cash purchase price of $475 million, pay transaction costs and repay existing current and long-term debt.
The unaudited pro forma condensed combined balance sheet gives effect to the Acquisition as if it had occurred on March 31, 2008. The unaudited pro forma condensed combined statements of income for the year ended December 31, 2007 and the three months ended March 31, 2008 give effect to the Acquisition as if it had occurred on January 1, 2007. The unaudited pro forma condensed combined balance sheet is presented for informational purposes only and does not purport to represent our financial condition had the Acquisition occurred as of the date indicated above. In addition, the unaudited pro forma condensed combined balance sheet information does not purport to project our future financial position or operating results as of any future date or for any future period.
The unaudited pro forma condensed combined balance sheet information has been derived by the application of pro forma adjustments to our unaudited historical consolidated balance sheet combined with the CKD unaudited combined balance sheet as of March 31, 2008. The pro forma adjustments and certain assumptions underlying these adjustments, using the purchase method of accounting, are described in the accompanying notes. The pro forma adjustments are based on the preliminary purchase price allocation and are subject to change as additional information becomes available. These pro forma adjustments do not include any cost savings resulting from elimination of redundant overhead costs, benefits from operating synergies, costs incurred for integration of the acquisition or other one-time adjustments.
This information should be read in conjunction with (i) the accompanying notes to the unaudited pro forma condensed combined financial statements, (ii) the Companys historical audited financial statements as of and for the year ended December 31, 2007 included in its Annual Report on Form 10-K/A for the year ended December 31, 2007, (iii) the Companys historical unaudited financial statements as of March 31, 2008 and for the three months ended March 31, 2008 included in its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008, and (iv) the audited and unaudited financial statements of CKD included in this Current Report on Form 8-K attached as Exhibits.
Unaudited
Pro Forma Condensed Combined Balance Sheet
At March 31, 2008
(amounts in thousands except share data)
|
|
KapStone |
|
CKD |
|
Pro Forma
|
|
|
Pro Forma |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
60,260 |
|
$ |
9,102 |
|
$ |
455,000 |
|
C |
$ |
|
|
|
|
|
|
|
|
(9,102 |
) |
A |
|
|
||||
|
|
|
|
|
|
(475,369 |
) |
A |
|
|
||||
|
|
|
|
|
|
22,175 |
|
C |
|
|
||||
|
|
|
|
|
|
(13,105 |
) |
D |
|
|
||||
|
|
|
|
|
|
(48,961 |
) |
C |
|
|
||||
Trade accounts receivables |
|
29,419 |
|
37,561 |
|
|
|
|
66,980 |
|
||||
Inventories |
|
14,458 |
|
35,949 |
|
17,124 |
|
A |
67,531 |
|
||||
Inventories consigned to third parties |
|
3,516 |
|
|
|
|
|
|
3,516 |
|
||||
Deferred income taxes |
|
1,155 |
|
2,278 |
|
(2,278 |
) |
A |
1,155 |
|
||||
Prepaid expenses and other current assets |
|
2,948 |
|
1,933 |
|
(1,038 |
) |
A |
3,843 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
Total current assets |
|
111,756 |
|
86,823 |
|
(55,554 |
) |
|
143,025 |
|
||||
Plant, property and equipment, net |
|
104,612 |
|
415,570 |
|
|
|
|
520,182 |
|
||||
Deferred income taxes |
|
|
|
|
|
2,603 |
|
A |
2,603 |
|
||||
Other assets |
|
5,243
|
|
11,930
|
|
(605 (2,948 (11,905 |
) ) ) |
B E A |
1,715
|
|
||||
Intangible assets |
|
5,829 |
|
|
|
6,655 |
|
A |
12,484 |
|
||||
Goodwill |
|
2,295 |
|
|
|
13,269 |
|
F |
15,564 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
Total assets |
|
$ |
229,735 |
|
$ |
514,323 |
|
$ |
(48,485 |
) |
|
$ |
695,573 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
||||
Revolver |
|
$ |
|
|
$ |
|
|
$ |
22,175 |
|
C |
$ |
22,175 |
|
Current portion of long term debt |
|
17,611 |
|
7,847 |
|
(7,847 |
) |
A |
31,875 |
|
||||
|
|
|
|
|
|
31,875 |
|
C |
|
|
||||
|
|
|
|
|
|
(17,611 |
) |
C |
|
|
||||
Accounts payable |
|
11,498 |
|
22,790 |
|
|
|
|
34,288 |
|
||||
|
|
|
|
|
|
(10,574 |
) |
M |
|
|
||||
Accrued expenses |
|
4,407 |
|
20,912 |
|
(1,522 |
) |
A |
13,223 |
|
||||
Accrued compensation |
|
4,754 |
|
|
|
10,574 |
|
M |
15,328 |
|
||||
Accrued income taxes |
|
2,045 |
|
|
|
|
|
|
2,045 |
|
Total current liabilities |
|
40,315 |
|
51,549 |
|
27,070 |
|
|
118,934 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
Long-term debt |
|
31,350 |
|
95,977 |
|
(95,977 |
) |
A |
410,020 |
|
||||
|
|
|
|
|
|
(31,350 |
) |
C |
|
|
||||
|
|
|
|
|
|
423,125 |
|
C |
|
|
||||
|
|
|
|
|
|
(13,105 |
) |
D |
|
|
||||
Accrued pension and post retirement |
|
3,769 |
|
|
|
|
|
|
3,769 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
Deferred income taxes |
|
2,350 |
|
83,884 |
|
(83,884 |
) |
A |
4,431 |
|
||||
|
|
|
|
|
|
2,081 |
|
A |
|
|
||||
Other liabilities |
|
282 |
|
7,073 |
|
|
|
|
7,355 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
||||
Preferred stock $.0001 par value; 1,000,000 shares authorized; 0 shares issued and outstanding |
|
|
|
|
|
|
|
|
|
|
||||
Common stock $.0001 par value, 175,000,000 shares authorized; 25,283,897 shares issued and outstanding (including 40,000 shares in treasury) |
|
3 |
|
|
|
|
|
|
3 |
|
||||
Additional paid-in capital |
|
115,256 |
|
|
|
|
|
|
115,256 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
Accumulated other comprehensive income |
|
79 |
|
|
|
|
|
|
79 |
|
||||
CKD equity |
|
|
|
275,840 |
|
(275,840 |
) |
E |
|
|
||||
Retained earnings |
|
36,331 |
|
|
|
(605 |
) |
B |
35,726 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
Total stockholders equity |
|
151,669 |
|
275,840 |
|
(276,445 |
) |
|
151,064 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
Total liabilities and stockholders equity |
|
$ |
229,735 |
|
$ |
514,323 |
|
$ |
(48,485 |
) |
|
$ |
695,573 |
|
See notes to unaudited pro forma condensed combined financial statements.
Unaudited
Pro Forma Condensed Combined Statement of Income
For the Year Ended December 31, 2007
(amounts in thousands except share data and per share data)
|
|
KapStone |
|
CKD |
|
Pro Forma
|
|
|
Pro Forma |
|
||||
Net Sales |
|
$ |
256,795 |
|
$ |
522,033 |
|
$ |
|
|
|
$ |
778,828 |
|
Cost and expenses: |
|
|
|
|
|
|
|
|
|
|
||||
Cost of sales (exclusive of depreciation and amortization) |
|
162,429 |
|
478,739 |
|
(49,633 (38,184 |
) ) |
M,H M |
553,351 |
|
||||
Freight and distribution expenses |
|
23,581 |
|
|
|
49,633 |
|
M |
73,214 |
|
||||
Depreciation and amortization |
|
11,327 |
|
|
|
38,317 |
|
G,M |
49,644 |
|
||||
Selling, general, and administrative expenses |
|
16,482 |
|
26,673 |
|
(8 |
) |
H,M |
43,147 |
|
||||
Other Operating income |
|
1,324 |
|
|
|
|
|
|
1,324 |
|
||||
Operating income |
|
44,300 |
|
16,621 |
|
(125 |
) |
|
60,796 |
|
||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
7,331 |
|
(457 |
) |
M |
6,874 |
|
||||
Interest income |
|
2,096 |
|
|
|
(2,096 |
) |
I,M |
|
|
||||
Interest expense
|
|
(4,295
|
)
|
(8,177
|
)
|
12,472 (30,937 |
) |
J D |
(30,937
|
)
|
||||
Income before provision for income taxes |
|
42,101 |
|
15,775 |
|
(21,143 |
) |
|
36,733 |
|
||||
Provision for income taxes |
|
15,138 |
|
3,175 |
|
(7,611 |
) |
K |
10,702 |
|
||||
Net income |
|
26,963 |
|
12,600 |
|
(13,532 |
) |
|
26,031 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
1.08 |
|
|
|
|
|
|
$ |
1.04 |
|
||
Diluted |
|
$ |
0.75 |
|
|
|
|
|
|
$ |
0.72 |
|
||
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average number of shares outstanding: |
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
25,010,057 |
|
|
|
|
|
|
25,010,057 |
|
||||
Diluted |
|
36,134,488 |
|
|
|
|
|
|
36,134,488 |
|
||||
See notes to unaudited pro forma condensed combined financial statements.
Unaudited Pro Forma Condensed Combined Statement of Income
For the Three
Months Ended March 31, 2008
(amounts in thousands except share data and per share data)
|
|
KapStone |
|
CKD |
|
Pro Forma
|
|
|
Pro Forma |
|
||||
Net Sales |
|
$ |
67,129 |
|
$ |
130,797 |
|
$ |
|
|
|
$ |
197,926 |
|
Cost and expenses: |
|
|
|
|
|
|
|
|
|
|
||||
Cost of sales (exclusive of depreciation and amortization) |
|
41,558 |
|
121,824 |
|
(14,738 (9,330 |
) ) |
M M,H |
139,314 |
|
||||
Freight and distribution expenses |
|
6,587 |
|
|
|
14,738 |
|
M |
21,325 |
|
||||
Depreciation and amortization |
|
2,593 |
|
|
|
9,362 |
|
M,G |
11,955 |
|
||||
Selling, general, and administrative expenses |
|
4,930 |
|
7,405 |
|
(1 |
) |
M,H |
12,334 |
|
||||
Other operating income |
|
184 |
|
|
|
|
|
|
184 |
|
||||
Operating income (loss) |
|
11,645 |
|
1,568 |
|
(31 |
) |
|
13,182 |
|
||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
1,100 |
|
(54 |
) |
M |
1,046 |
|
||||
Interest income |
|
547 |
|
|
|
(547 |
) |
M,I |
|
|
||||
Interest expense |
|
(753 |
) |
(1,856 |
) |
(7,734 |
) |
D |
(7,734 |
) |
||||
|
|
|
|
|
|
2,609 |
|
J |
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
Income before provision for income taxes |
|
11,439 |
|
812 |
|
(5,757 |
) |
|
6,494 |
|
||||
Provision for income taxes |
|
4,209 |
|
(130 |
) |
(2,119 |
) |
K |
1,960 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
7,230 |
|
942 |
|
(3,638 |
) |
|
4,534 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.29 |
|
|
|
|
|
|
$ |
0.18 |
|
||
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted |
|
$ |
0.21 |
|
|
|
|
|
|
$ |
0.13 |
|
||
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average number of shares outstanding: |
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
25,282,047 |
|
|
|
|
|
|
25,282,047 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted |
|
34,557,324 |
|
|
|
|
|
|
34,557,324 |
|
||||
See notes to unaudited pro forma condensed combined financial statements.
Notes to
Unaudited Pro Forma Condensed Combined Financial Statements
(amounts in thousands except share data and per share data)
Descriptions of the adjustments included in the unaudited pro forma condensed combined balance sheet and statements of income are as follows:
Note A
To record the payment for the acquisition of CKD, the estimated working capital adjustment, and the allocation of the acquisition consideration to the assets acquired and liabilities assumed, as follows:
Calculation of Allocable Acquisition Consideration: |
|
|
|
Purchase price |
|
$ |
485,000 |
|
Estimated working capital and other adjustments |
|
(9,631 |
) |
|
Net cash purchase price |
|
475,369 |
|
|
Transaction costs |
|
2,948 |
|
|
|
|
|
|
|
Total allocable acquisition consideration |
|
$ |
478,317 |
|
Estimated Allocation of Acquisition Consideration: |
|
|
|
Trade accounts receivable |
|
$ |
37,561 |
|
Inventories |
|
53,073 |
|
|
Prepaid expenses |
|
895 |
|
|
Plant, property and equipment |
|
415,570 |
|
|
Other assets |
|
25 |
|
|
Intangible assets |
|
6,655 |
|
|
Goodwill |
|
13,269 |
|
|
Deferred income taxes |
|
2,603 |
|
|
Accounts payable |
|
(22,790 |
) |
|
Accrued expenses |
|
(8,816 |
) |
|
Accrued compensation |
|
(10,574 |
) |
|
Deferred income taxes |
|
(2,081 |
) |
|
Other liabilities |
|
(7,073 |
) |
|
|
|
|
|
|
CKD net assets acquired |
|
$ |
478,317 |
|
· The pro forma combined financial statements have been presented using the estimated acquisition consideration for the net assets of CKD of $478,317, the components of which are reflected above.
· The purchase price allocation has not been finalized and is subject to change upon recording of actual transaction costs, finalization of the working capital adjustment, and completion of appraisals of tangible and intangible assets. The purchase price allocation will be finalized when all necessary information is obtained which is expected to occur within one year of the consummation of the transaction.
|
|
CKD |
|
Adjustments |
|
|
Adjusted
|
|
|||
Assets |
|
|
|
|
|
|
|
|
|||
Current assets: |
|
|
|
|
|
|
|
|
|||
Cash and cash equivalents |
|
$ |
9,102 |
|
$ |
(9,102 |
) |
(i) |
$ |
|
|
Accounts receivable, net |
|
37,561 |
|
|
|
(ii) |
37,561 |
|
|||
Inventories, net |
|
35,949 |
|
17,124 |
|
(iii) |
53,073 |
|
|||
Deferred income taxes |
|
2,278 |
|
(2,278 |
) |
(i) |
|
|
|||
Prepaid expenses |
|
1,933 |
|
(1,038 |
) |
(i) |
895 |
|
|||
|
|
|
|
|
|
|
|
|
|||
Total current assets |
|
86,823 |
|
4,706 |
|
|
91,529 |
|
|||
Plant, property and equipment, net |
|
415,570 |
|
|
|
|
415,570 |
|
|||
Deferred income taxes |
|
|
|
2,603 |
|
(v) |
2,603 |
|
|||
Intangible assets |
|
|
|
6,655 |
|
(iv) |
6,655 |
|
|||
Goodwill |
|
|
|
13,269 |
|
(vi) |
13,269 |
|
|||
Other assets |
|
11,930 |
|
(11,905 |
) |
(i) |
25 |
|
|||
|
|
|
|
|
|
|
|
|
|||
Total assets |
|
$ |
514,323 |
|
$ |
15,328 |
|
|
$ |
529,651 |
|
|
|
|
|
|
|
|
|
|
|||
Liabilities and equity |
|
|
|
|
|
|
|
|
|||
Current liabilities: |
|
|
|
|
|
|
|
|
|||
Accounts payable |
|
$ |
22,790 |
|
$ |
|
|
|
$ |
22,790 |
|
Accrued expenses |
|
20,912 |
|
(1,522 |
) |
(i) |
19,390 |
|
|||
Current maturities of long-term notes payable |
|
7,847 |
|
(7,847 |
) |
(i) |
|
|
|||
|
|
|
|
|
|
|
|
|
|||
Total current liabilities |
|
51,549 |
|
(9,369 |
) |
|
42,180 |
|
|||
Long-term debt and notes |
|
95,977 |
|
(95,977 |
) |
(i) |
|
|
|||
Other liabilities |
|
7,073 |
|
|
|
(v) |
7,073 |
|
|||
Deferred income taxes |
|
83,884 |
|
(81,803 |
) |
(i)(iv) |
2,081 |
|
|||
|
|
|
|
|
|
|
|
|
|||
Total liabilities |
|
238,483 |
|
(187,149 |
) |
|
51,334 |
|
|||
Equity |
|
275,840 |
|
202,477 |
|
|
478,317 |
|
|||
|
|
|
|
|
|
|
|
|
|||
Total liabilities and equity |
|
$ |
514,323 |
|
$ |
15,328 |
|
|
$ |
529,651 |
|
(i) Adjusted for CKD assets not acquired or liabilities not assumed.
(ii) Estimated by KapStone to represent fair value.
(iii) Adjusted by KapStone to estimate fair value less costs to sell.
(iv) Recorded $6,655 based on KapStone managements estimate of fair value for intangible assets consisting of $1,000 for customer lists and relationships amortized over 8 years and $5,655 for a trademark. The trademark is not amortizable as it is deemed to have an indefinite life. As a result, the trademark will be reviewed annually for any impairment. These estimates are managements best estimates and are subject to change pending completion of appraisals upon completion of the purchase. Deferred income taxes of $2,081 related to the trademark have been estimated based on KapStones effective tax rate of 36.8%
(v) Adjusted for deferred income taxes related to other liabilities, primarily consisting of workers compensation claims, assumed by KapStone. Deferred income taxes based on KapStones effective tax rate of 36.8%.
(vi) Recorded excess purchase price over estimated fair value of net CKD assets acquired, pending completion of appraisals of tangible and intangible assets.
Note B
To adjust for deferred financing costs for the term loan being paid off with proceeds from the Senior Credit Facilities.
Note C
The following tables summarizes the estimated sources and uses of funds relating to the Acquisition, which reflects the financing of the Acquisition by using proceeds from borrowings under the Senior Credit Facilities and the issuance of the Senior Notes and retiring amounts due under KapStones existing senior secured credit facility, assuming the Acquisition occurred on March 31, 2008:
Sources and Uses of Proceeds
(In thousands) |
|
|
|
|
Cash |
|
$ |
60,260 |
|
Senior Credit Facilities: |
|
|
|
|
Term A loan |
|
390,000 |
|
|
Term B loan |
|
25,000 |
|
|
Borrowing from $100 million revolving credit line |
|
22,175 |
|
|
Senior Notes |
|
40,000 |
|
|
|
|
|
|
|
Total sources |
|
$ |
537,435 |
|
|
|
|
|
|
Retirement of existing KapStone debt: |
|
|
|
|
Current portion of long-term debt |
|
$ |
17,611 |
|
Long-term debt |
|
31,350 |
|
|
Financing fees paid for Senior Credit Facilities |
|
13,105 |
|
|
|
|
|
|
|
CKD purchase price ($485,000 less working capital adjustment of $9,631) |
|
475,369 |
|
|
Total uses |
|
$ |
537,435 |
|
The unaudited pro forma condensed combined balance sheet reflects $31,875 of current portion of long-term debt and $423,125 long-term debt from the borrowings under the Senior Credit Facilities and the issuance of the Senior Notes, based on the scheduled loan and notes amortization.
Note D
To record interest expense and amortization of deferred financing costs on the Senior Credit Facilities and Senior Notes:
|
|
|
|
Three Months |
|
||
|
|
Year Ended |
|
Ended |
|
||
|
|
December 31, 2007 |
|
March 31, 2008 |
|
||
|
|
|
|
|
|
||
Pro forma interest expense: |
|
|
|
|
|
||
Term A loan of $390 million at LIBOR plus 3.0% |
|
$ |
21,840 |
|
$ |
5,460 |
|
Term B loan of $25 million at LIBOR plus 3.5% |
|
1,525 |
|
381 |
|
||
Borrowing under revolving credit line |
|
1,631 |
|
407 |
|
||
Senior Notes of $40 million at 8.30% |
|
3,320 |
|
830 |
|
||
Amortization of deferred financing costs |
|
2,621 |
|
656 |
|
||
Total pro forma interest expense |
|
$ |
30,937 |
|
$ |
7,734 |
|
If interest rates had changed by 0.125%, interest expense would change by $0.6 million for the year ended December 31, 2007 and would have an immaterial impact for the three months ended March 31, 2008.
The March 31, 2008, condensed combined balance sheet reflects $13,105 of deferred financing costs for the Senior Credit facilities and is recorded as a discount to long-term debt.
Note E
To eliminate prepaid transaction costs ($2,948) and CKD equity account ($275,840).
Note F
To record excess purchase price over the estimated fair value of the net CKD assets acquired, pending completion of tangible and intangible asset appraisals.
Note G
Amortization of intangible assets is recorded using an estimated useful life of 8 years, or $125 for the year ended December 31, 2007 and $31 for the three months ended March 31, 2008.
Note H
Certain corporate services were performed and allocated or charged by MWV Corporate to the CKD business including human resources, legal, finance, information systems, purchasing, executive management and other corporate staff. For the year ended December 31, 2007, and the three months ended March 31, 2008, amounts allocated or charged by MWV Corporate to CKD were $23,178 and $7,471, respectively, and are included in cost of sales and selling, general and administrative expenses. Kapstone anticipates that the annual costs to provide similar services for CKD will be approximately $19,700 less. These savings from the elimination of corporate allocations have been excluded as pro forma adjustments. KapStone expects all of these cost savings will be realized on an annualized basis by the earlier of one year after the closing or the early termination of MWV transitional services.
The pro-forma adjustments also exclude any one-time or transitional costs that may be incurred as CKDs operations and administrative support are combined with KapStones. No assurance can be given that these cost savings can be acheived in the amounts or during the time period predicted.
KapStone is anticipating relocation expenses of less than $100 for employees relocation from the MWV corporate headquarters in Richmond, VA to North Charleston, SC.
Note I
To eliminate interest income earned on cash and cash equivalents.
Note J
To eliminate interest expense on long-term debt and intercompany notes.
Note K
To adjust income taxes due to pro forma income adjustments using KapStones effective tax rate of 36.0% for the year ended December 31, 2007 and 36.8% for the three months ended March 31, 2008.
Note L
Pro forma net income per share was calculated by dividing pro forma net income by the weighted average number of shares.
Note M
To reclassify CKD balances to conform to KapStone financial statement presentation.