Exhibit (2)
--------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
between
POTLATCH CORPORATION
and
NORTHERN HOLDINGS LLC, to be renamed Sappi Cloquet LLC
Dated as of March 18, 2002
--------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
ARTICLE I
Purchase and Sale of Acquired Assets
------------------------------------
SECTION 1.01. Purchase and Sale..................................................................-2-
SECTION 1.02. Acquired Assets and Excluded Assets; Acquired
Coating Equipment...............................................................-2-
SECTION 1.03. Assumption of Certain Liabilities.................................................-10-
SECTION 1.04. Consents of Third Parties.........................................................-16-
SECTION 1.05. Closing Net Assets Determination..................................................-17-
ARTICLE II
The Closing
-----------
SECTION 2.01. Closing Date......................................................................-20-
SECTION 2.02. Transactions To Be Effected at the Closing........................................-20-
SECTION 2.03. Hydroelectric Facility Closing....................................................-21-
SECTION 2.04. Termination of Hydroelectric Transfer.............................................-24-
SECTION 2.05. Risk of Loss......................................................................-25-
ARTICLE III
Representations and Warranties of Seller
----------------------------------------
SECTION 3.01. Organization, Standing and Power..................................................-25-
SECTION 3.02. Authority; Execution and Delivery; Enforceability.................................-25-
SECTION 3.03. No Conflicts; Consents............................................................-26-
SECTION 3.04. Financial Statements; Liabilities.................................................-26-
SECTION 3.05. Assets Other than Real Property Interests.........................................-27-
SECTION 3.06. Real Property.....................................................................-28-
SECTION 3.07. Intellectual Property.............................................................-31-
SECTION 3.08. Contracts.........................................................................-32-
SECTION 3.09. Inventory.........................................................................-36-
SECTION 3.10. Personal Property.................................................................-37-
SECTION 3.11. Receivables.......................................................................-37-
SECTION 3.12. Investments.......................................................................-37-
SECTION 3.13. Permits...........................................................................-38-
SECTION 3.14. Insurance.........................................................................-38-
SECTION 3.15. Sufficiency of Acquired Assets....................................................-38-
SECTION 3.16. Taxes.............................................................................-39-
SECTION 3.17. Proceedings.......................................................................-40-
SECTION 3.18. Employee Matters..................................................................-40-
SECTION 3.19. Absence of Changes or Events......................................................-41-
SECTION 3.20. Compliance with Applicable Laws...................................................-42-
SECTION 3.21. Employee and Labor Matters........................................................-43-
SECTION 3.22. Transactions with Affiliates......................................................-46-
SECTION 3.23. Effect of Transaction.............................................................-46-
SECTION 3.24. Suppliers.........................................................................-46-
SECTION 3.25. Customers.........................................................................-46-
SECTION 3.26. Distributors......................................................................-46-
SECTION 3.27. IRB Financings....................................................................-47-
SECTION 3.28. Cross-Border Leases...............................................................-47-
SECTION 3.29. Railroad..........................................................................-47-
SECTION 3.30. Energy Generation Facilities......................................................-48-
SECTION 3.31. Product Warranties and Liabilities................................................-49-
SECTION 3.32. Disclosure........................................................................-49-
SECTION 3.33. Disclaimer of Other Representations and Warranties................................-50-
ARTICLE IV
Representations and Warranties of Purchaser
-------------------------------------------
SECTION 4.01. Organization, Standing and Power..................................................-50-
SECTION 4.02. Authority; Execution and Delivery; and Enforceability.............................-50-
SECTION 4.03. No Conflicts; Consents............................................................-51-
SECTION 4.04. Proceedings.......................................................................-51-
SECTION 4.05. Railroad..........................................................................-52-
SECTION 4.06. Disclaimer of Other Representations and Warranties................................-52-
ARTICLE V
Covenants
---------
SECTION 5.01. Covenants of Seller Relating to Conduct of Business...............................-52-
SECTION 5.02. No Solicitation...................................................................-59-
SECTION 5.03. Access to Information, Due Diligence..............................................-59-
SECTION 5.04. Confidentiality...................................................................-60-
SECTION 5.05. Reasonable Efforts................................................................-62-
SECTION 5.06. Expenses; Transfer Taxes..........................................................-63-
SECTION 5.07. Brokers or Finders................................................................-64-
SECTION 5.08. Collection of Receivables.........................................................-64-
SECTION 5.09. Employee Matters..................................................................-64-
SECTION 5.10. Supplemental Disclosure...........................................................-68-
SECTION 5.11. Post-Closing Cooperation..........................................................-69-
SECTION 5.12. Publicity.........................................................................-70-
SECTION 5.13. Records...........................................................................-70-
SECTION 5.14. Agreement Not To Compete..........................................................-70-
SECTION 5.15. Bulk Transfer Laws................................................................-72-
SECTION 5.16. Further Assurances................................................................-72-
SECTION 5.17. Purchase Price Allocation.........................................................-73-
SECTION 5.18. Names Following Closing...........................................................-73-
SECTION 5.19. Assignments.......................................................................-74-
ii
SECTION 5.20. Insurance.........................................................................-74-
SECTION 5.21. Title Insurance and Survey........................................................-74-
SECTION 5.22. Compliance with Plant Closing Laws................................................-74-
SECTION 5.23. IRB Financings....................................................................-75-
SECTION 5.24. Cross-Border Leases...............................................................-76-
SECTION 5.25. Audited Financial Statements......................................................-77-
SECTION 5.26. Acquired Coating Equipment........................................................-77-
SECTION 5.27. Financing.........................................................................-78-
SECTION 5.28. Nursery...........................................................................-78-
SECTION 5.29. Paper Supply Agreement............................................................-79-
SECTION 5.30. Wood Supply Agreement.............................................................-79-
SECTION 5.31. Post-Closing Real Estate Work.....................................................-80-
SECTION 5.32. Sheeters..........................................................................-80-
SECTION 5.33. Power Agreements..................................................................-81-
SECTION 5.34. Energy Regulation.................................................................-83-
ARTICLE VI
Conditions Precedent
--------------------
SECTION 6.01. Conditions to Each Party's Obligation.............................................-83-
SECTION 6.02. Conditions to Obligation of Purchaser.............................................-84-
SECTION 6.03. Conditions to Obligation of Seller................................................-89-
SECTION 6.04. Failure of Closing Conditions.....................................................-90-
SECTION 6.05. Ability to Cure...................................................................-90-
SECTION 6.06. Catastrophic Events...............................................................-92-
ARTICLE VII
Termination, Amendment and Waiver
---------------------------------
SECTION 7.01. Termination.......................................................................-93-
SECTION 7.02. Effect of Termination.............................................................-93-
SECTION 7.03. Amendments and Waivers............................................................-94-
ARTICLE VIII
Indemnification
---------------
SECTION 8.01. Indemnification by Seller.........................................................-94-
SECTION 8.02. Indemnification by Purchaser......................................................-97-
SECTION 8.03. Calculation of Losses.............................................................-99-
SECTION 8.04. Termination of Indemnification...................................................-100-
SECTION 8.05. Procedures.......................................................................-100-
SECTION 8.06. Survival of Representations......................................................-103-
SECTION 8.07. INDEMNIFICATION IN CASE OF STRICT LIABILITY OR
INDEMNITEE NEGLIGENCE.........................................................-103-
SECTION 8.08. Certain to Rights of Indemnified Parties.........................................-103-
iii
SECTION 8.09. DISCLAIMER OF WARRANTIES.........................................................-104-
SECTION 8.10. Hydroelectric Facility...........................................................-104-
ARTICLE IX
General Provisions
------------------
SECTION 9.01. Assignment.......................................................................-104-
SECTION 9.02. No Third-Party Beneficiaries.....................................................-104-
SECTION 9.03. Notices..........................................................................-104-
SECTION 9.04. Interpretation; Exhibits and Schedules; Certain Definitions......................-106-
SECTION 9.05. Counterparts.....................................................................-108-
SECTION 9.06. Entire Agreement.................................................................-108-
SECTION 9.07. Severability.....................................................................-108-
SECTION 9.08. Consent to Jurisdiction..........................................................-108-
SECTION 9.09. Governing Law....................................................................-109-
SECTION 9.10. Waiver of Jury Trial.............................................................-109-
SECTION 9.11. Power of Attorney, etc...........................................................-109-
SECTION 9.12. Refunds and Remittances..........................................................-110-
SECTION 9.13. Purchaser Guarantor..............................................................-110-
SECTION 9.14. Enforcement of Agreement; Limitation on Damages..................................-110-
SECTION 9.15. Schedules; Disclosure............................................................-110-
Exhibits:
--------
Exhibit A - Transition Services Agreement
Exhibit B - Option Agreement
Exhibit C - [Reserved]
Exhibit D - License Agreement
Exhibit E - Coated Paper Products Supply Agreement
Exhibit F - Wood Supply Agreement
Exhibit G - [Reserved]
Exhibit H-1 - Cross-Border Lease Assumptions
Exhibit H-2 - Cross-Indemnity Agreement
Exhibit I-1 - Opinion of Pillsbury Winthrop LLP
Exhibit I-2 - Opinion of ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
Exhibit I-3 - Opinion of ▇▇▇▇▇ ▇. ▇▇▇▇, P.C.
Exhibit I-4 - Opinion of ▇▇▇▇▇ & ▇▇▇▇▇▇▇ L.L.P.
Exhibit I-5 - Opinion of Rudy, Gassert, ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, P.A.
Exhibit I-6 - Opinion of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Exhibit J - Form of Estoppel Certificate
Exhibit K - Opinion of Cravath, Swaine & ▇▇▇▇▇
iv
INDEX OF DEFINITIONS
Definition Section
---------- -------
Accounting Firm 1.05(b)
Accounting Principles 1.05(d)
Accrued Liability 5.09(e)(iii)
Acquired Assets 1.02(a)
Acquired Coating Equipment 1.02(c)
Acquired Entities 1.02(a)(xviii)
Acquired Interests 1.02(a)(xviii)
Acquisition 1.01
Active Employees 5.09(a)
Additional Brainerd Inventory 1.02(f)
Additional Brainerd Packaging 1.02(f)
Additional Brainerd Production Period 1.02(f)
Additional ▇▇▇▇▇ Silk Amount 1.02(e)
Additional Property Amount 1.05(d)
Additional Purchaser Document 4.06(a)
Additional Seller Document 3.32
Adjusted Accrued Liability 5.09(e)(iv)
Adjusted Purchase Price 1.05(c)
Affected Employees 5.22(a)
affiliate 9.04(b)
Affiliate Contracts 3.22
Affiliated Group 3.16(a)
Agreed Principles 1.05(d)
Ancillary Agreements 1.02(b)(vi), 2.02(c), 5.24
Anticipated Closing Date 5.05(a)
Applicable Law 3.03
Assets 1.05(d)
Assigned Contracts 1.02(a)(viii)
Assigned Intellectual Property 1.02(a)(v)
Assigned Permits 1.02(a)(vii)
Assigned Technology 1.02(a)(vi)
Assumed Liabilities 1.03(a)
Audited Financial Statements 5.25(a)
Balance Sheet 3.04(a)
Base Amount 1.05(c)
Benefit Plan 3.18(a)
Brainerd Facility 1.02(b)(ii)
Brainerd Participants 5.09(a)
Business preamble
Business Insurance Policy 5.20
Business Property 3.06(a)
Catastrophic Event 6.06
Cloquet Facility preamble
Closing 2.01
Closing Date 2.01
Closing Date Amount 2.02(b)
Closing Net Assets 1.05
Definition Section
---------- -------
Code 3.16(a)
Competing Business 5.14(b)
Competition Condition 6.01(a)
Competitive Activities 5.14(a)(i)
Confidentiality Agreement 5.04
Consent 3.03
Contingent Workers 3.21(f)
Continuance Notice 1.02(e)
Continued Employees 5.09(a)
Continuing IRB Financing 5.23
Contracts 1.02(a)(viii)
controlled affiliate 9.04(b)
Creditworthiness 6.02(p)
Cross-Border Indemnity Agreement 5.24
Cross-Border Lease Assumptions 5.24
Cross-Border Leases 1.02(a)(xviii)
Cured 6.05
Current Assets 1.05(d)
Current Liabilities 1.05(d)
Customer Contracts 1.03(a)(i)
December Balance Sheet 3.04(a)
Detrimental Activities 5.14(a)(ii)
Discontinuance Notice 1.02(e)
Distribution Center Facility 3.06(a)
DOJ 5.05(b)
Environmental Laws 3.20(b)
ERISA 3.18(b)
Escrow Agent 2.03(b)
Escrow Agreement 2.03(b)
Escrow Period 2.03(e)
Estimated ▇▇▇▇▇ Silk Amount 1.02(e)
Excluded Assets 1.02(b)
Excluded Brainerd Assets 1.02(b)(ii)
Excluded Liabilities 1.03(b)
FERC preamble
FERC Easement 2.03(b)
FERC License preamble
FERC Transfer Approval 2.03(e)
Final Order 2.03(e)
Financial Statements 3.04(a)
Financing 5.27
FMLA 5.09(a)
Force Majeure Event 6.02(p)
FPA 3.30(a)
Freight Cars 1.02(a)(xx)
FTC 5.05(b)
GAAP 1.05(d)
Governmental Entity 3.03
Greenhouse 5.28
Definition Section
---------- -------
Greenhouse Activities 5.28
Greenhouse Parcel 5.28
Hazardous Materials 3.20(b)
HSR Act 5.05(b)
Hydroelectric Base Amount 1.05(c)
Hydroelectric Facility preamble
Hydroelectric Facility Closing 2.01(b)
Hydroelectric Facility Closing Date 2.01(b)
Hydroelectric Facility Contract 3.08(a)(xxvii)
Hydroelectric Facility Notice 2.03(a)
Hydroelectric Facility Purchase Price 2.02(b)
Hydroelectric Facility Transfer Documents 2.03(b)
Hydroelectric Termination Date 2.04(a)
including 9.04(b)
Indebtedness 3.08(a)(ix)
IRB Financings 1.02(a)(xvii)
indemnified party 8.05(a)
intentional breach 9.04(b)
Insured Property 6.02(e)
Intellectual Property 1.02(a)(v)
Inventory 1.02(a)(ii)
Investments 1.02(a)(ix)
Judgment 3.03
knowledge 9.04(b)
KPMG 5.25(a)
Labor Agreements 1.02(b)(x)
Labor Contracts 1.02(b)(x)
Leased Property 3.06(a)
Liabilities 1.05(d)
License Agreement 2.02(c)
Liens 3.05(a)
Locomotives 1.02(a)(xx)
Losses 8.01(a)
MP Waiver 5.33(a)
Material Assigned Contracts 3.08(b)
▇▇▇▇▇ Silk 1.02(e)
Minor Pre-Closing On-Site Liability 8.01(c)
Net Assets 1.05(d)
Non-Continuing Participants 5.09(a)
Non-Current Assets 1.05(d)
Non-Current Asset Cap 1.05(d)
Notice of Disagreement 1.05(b)
Nursery Activities 5.28
Nursery Parcel 5.28
Nursery Property 5.28
Offer Period 5.32(b)
Offering Materials and Presentations 3.33
Operating and Maintenance Agreement 2.03(b)
operation of the Brainerd Facility 9.04(b)
Definition Section
---------- -------
Option Agreement 2.02(c)
other bid 5.02
Owned Property 3.06(a)
Paper Supply Agreement 2.02(c)
Participant 3.18(a)
PBGC 5.09(e)(i)
Pension Asset Transfer 5.09(e)(ii)
Pension Shortfall Amount 5.09(e)(iv)
Permits 3.13(a)
Permitted Goods and Services 5.14(a)(i)
Permitted Liens 3.05(a)
person 9.04(b)
Personal Property 1.02(a)(iii)
Personnel 3.07(c)
Plant Closing Laws 5.22(a)
Power Agreements 1.02(b)(xiv)
Power Generation Facilities 1.02(a)(xxii)
Pre-Closing Environmental Liability 1.03(b)
Premises 1.02(a)(i)
Proceeding 1.03(b)(iv)
Project Agreement 3.30(e)
Property Leased to a Third Party 3.06(a)
Purchase Price 1.01
Purchaser preamble
Purchaser 401(k) Plans 5.09(f)
Purchaser Guarantor preamble
Purchaser Hourly Pension Plan 5.09(e)
Purchaser Indemnified Parties 8.01(a)
Purchaser Material Adverse Effect 9.04(b)
Purchaser Pension Plans 5.09(e)
Purchaser Salaried Pension Plan 5.09(e)
Purchaser's Actuary 5.09(e)(i)
Purchaser Pension Plan 5.09(e)(i)
Purchaser's Representatives 5.03
PUHCA 3.30(f)
PURPA 3.30(a)
Rail Equipment 1.02(a)(xx)
Railroad preamble
Railroad Parcels 5.31(c)
Railroad Property 1.02(a)(xix)
Railroad Sub 1.02(d)
Receivables 1.02(a)(iv)
Records 1.02(a)(xiii)
Relationship Agreement 2.03(b)
Release 3.20(b)
Repaired 3.06(d)
Representatives 5.02
Research Center preamble
Retiree Medical Eligible Employees 5.09(e)
Definition Section
---------- -------
Revised Cloquet Power Agreements 5.33
Revised Power Agreements 5.33
Roadway Equipment 1.02(a)(xx)
ROW Parcels 3.29(b)
▇▇▇▇▇▇▇ Woodlot 5.31(b)
SEC 3.30(g)
Seller preamble
Seller bid 5.02
Seller 401(k) Plans 5.09(f)
Seller Group preamble
Seller Hourly Pension Plan 5.09(e)
Seller Material Adverse Effect 9.04(b)
Seller Salaried Pension Plan 5.09(e)
Seller's Actuary 5.09(e)
Seller Pension Plan 5.09(e)(i)
Separation Agreements 1.03(b)(xvi)
Sheeters 5.32(c)
Statement 1.05
STB 5.05(b)
Steam Turbine Facilities 3.08(a)(xxvii)
Steam Turbine Contract 1.02(a)(xxii)
subsidiary 9.04(b)
Target ▇▇▇▇▇ Silk Amount 1.02(e)
Tax 3.16(a)
Taxing Authority 3.16(a)
Technology 1.02(a)(vi)
Termination Date 7.01(a)(iv)
Third Party Claim 8.05(a)
Transfer Amount 5.09(e)(iv)
Transfer Notice 3.31(a)
Transfer Price 3.31(a)
Transfer Taxes 1.03(b)(viii)
Transition Services Agreement 2.02(c)
Unions 1.02(b)(x)
Unknown Pre-Closing On-Site Environmental
Liabilities 8.01(c)
Violation 6.05
WARN Act 5.22(a)
WLSSD 3.06(j)(i)
Wood Supply Agreement 2.02(c)
Working Capital 1.05(d)
Working Capital Limit 1.05(d)
ASSET PURCHASE AGREEMENT dated as of March 18, 2002, between
POTLATCH CORPORATION, a Delaware corporation ("Seller"), SAPPI
------
LIMITED, a corporation organized under the laws of the Republic
of South Africa ("Purchaser Guarantor"), and NORTHERN HOLDINGS
-------------------
LLC, a Delaware limited liability company ("Purchaser"), to be
---------
renamed Sappi Cloquet LLC.
Seller is engaged (a) through its Minnesota Pulp and Paper Division,
in (i) the manufacture, marketing, sale and distribution of coated and uncoated
paper manufactured at its Cloquet, Minnesota and Brainerd, Minnesota facilities
or otherwise by or through its Minnesota Pulp and Paper Division and bleached
kraft pulp manufactured at its Cloquet, Minnesota facility and related
by-products and (ii) the operation of the Hydroelectric Facility (as defined
below), (b) through its Fiber Research and Development Center, in the
development of, and research with respect to, coated paper and related
intellectual property and technology and (c) through a subsidiary, in the
operation of the Duluth & Northeastern Railroad Company (such activities of
Seller and its subsidiaries are collectively referred to herein as the
"Business").
--------
Seller desires to sell to Purchaser, and Purchaser desires to purchase
from Seller and its subsidiaries (collectively, the "Seller Group"), all of the
------------
assets primarily used in or necessary for the conduct of the Business (other
than the Excluded Brainerd Assets (as defined herein)), including (i) the paper
mill, pulp mill, staff house, general office building and certain woodyards
located in Cloquet, Minnesota (the "Cloquet Facility"), the ▇▇▇▇▇▇▇▇ located
----------------
near Scanlon, Minnesota, the Fiber Research and Development Center located in
Cloquet, Minnesota (the "Research Center"), the Cloquet Hydroelectric Project
---------------
(Federal Energy Regulatory Commission ("FERC") Project No. P-2363) (including
----
the FERC License covering the Cloquet Hydroelectric Project issued July 13, 1995
[72 FERC ?61,029], as amended (the "FERC License") and all related facilities,
------------
rights or authorizations necessary to operate and maintain the Cloquet
Hydroelectric Project) (the "Hydroelectric Facility") and the Duluth &
----------------------
Northeastern Railroad Company (the "Railroad"), (ii) the order books for the
--------
Business, including the order book associated with Seller's facility located in
Brainerd, Minnesota that Seller has determined to close and (iii) various
trademarks, tradenames and other intellectual property used in the Business,
upon the terms and subject to the conditions of this Agreement.
Purchaser Guarantor is the indirect holder of all the membership
interests in Purchaser, and will derive substantial benefits from the purchase
and sale of the Business pursuant to this Agreement. As a condition to the
execution and delivery of this Agreement by Seller, Seller has requested that
Purchaser Guarantor agree, pursuant to Section 9.13 hereof, to cause Purchaser
to comply with Purchaser's obligations hereunder until the Closing (as defined
herein).
2
Accordingly, the parties hereby agree as follows:
ARTICLE I
Purchase and Sale of Acquired Assets
------------------------------------
SECTION 1.01. Purchase and Sale. Subject in the case of the
-----------------
Hydroelectric Facility to Section 2.03 and otherwise on the terms and subject to
the conditions of this Agreement, at the Closing (as defined in Section 2.01),
Seller shall, and shall cause each other relevant member of the Seller Group to,
sell, assign, transfer, convey and deliver to Purchaser or one or more of its
designated affiliates, and Purchaser shall, or shall cause its designated
affiliates to, purchase from the Seller Group all the right, title and interest
as of the Closing of the Seller Group in, to and under the Acquired Assets (as
defined in Section 1.02(a)) and the Acquired Coating Equipment (as defined in
Section 1.02(c)), for (i) an aggregate cash purchase price of $480,000,000 (the
"Purchase Price"), payable as set forth in Section 2.02 and subject to
--------------
adjustment as set forth in Section 1.05 and (ii) the assumption of the Assumed
Liabilities (as defined in Section 1.03(a)). The purchase and sale of the
Acquired Assets and the assumption of the Assumed Liabilities is referred to in
this Agreement as the "Acquisition".
-----------
SECTION 1.02. Acquired Assets and Excluded Assets; Acquired Coating
-----------------------------------------------------
Equipment. (a) The term "Acquired Assets" means (x) all the business,
--------- ---------------
properties, assets, goodwill and rights of the Seller Group of whatever kind and
nature, real or personal, tangible or intangible, that are owned, leased or
licensed by any member of the Seller Group on the Closing Date (as defined in
Section 2.01) and primarily used, primarily held for use, intended to be
primarily used (for all purposes of defining Acquired Assets, references to
assets used, held for use or intended to be used in the operation or conduct of
the Business shall be deemed to include (qualified by "primarily" where
applicable) those previously used, held for use, or intended to be used and
still owned, leased or licensed by any member of the Seller Group but only if
(1) used, held for use or intended to be used in the operation or conduct of the
Business at any time since January 1, 2001, (2) located on the Premises on the
date of the Balance Sheet or the Closing Date or (3) reflected on any Financial
Statement (as defined in Section 3.04)) or (except with respect to the types of
assets and properties described in clauses (i), (v), (vi) and (xi) below, which
shall constitute Acquired Assets to the extent provided therein) reasonably
necessary to or required in the operation or conduct of the Business other than
the Excluded Assets (as defined in Section 1.02(b)) and (y) those assets
identified on Schedule 1.02(a), including (except to the extent that any of the
assets below are Excluded Assets and are not identified on Schedule 1.02(a)):
(i) subject to Section 5.28, all real property, leaseholds, easements
and other interests in real property of the Seller Group listed in Schedule
3.06, in each case together with the Seller Group's right, title and
interest in all buildings, improvements and fixtures thereon and all other
appurtenances thereto (together with the Railroad Property (as defined in
Section 1.02(a)(xix), the "Premises");
--------
(ii) (A) all raw materials, work-in-process, finished goods, supplies,
parts, spare parts and other inventories of the Seller Group that on the
Closing Date are located on the Premises, (B) all raw materials,
work-in-process, finished goods, supplies, parts, spare parts and other
inventories of the Seller Group
3
(including those in transit, on consignment or in the possession of any
third party or located on or at properties, other than the Brainerd
Facility, not included in the Premises) on the Closing Date that are used,
held for use, intended to be used or reasonably necessary or required in
the operation or conduct of the Business or in connection with any Acquired
Asset (other than wood fiber inventories not located on the Premises on the
Closing Date), (C) all finished goods that on the Closing Date are located
at the Brainerd Facility, (D) up to five days of average daily inventory of
packaging material that on the Closing Date is located at the Brainerd
Facility (unless Purchaser gives the notice contemplated by Section 5.29 or
Seller elects to produce Additional Brainerd Inventory as contemplated by
Section 1.02(f)) and (E) any supplies, parts, spare parts and other
inventories (other than raw materials and work-in-process) that on the
Closing Date are located at the Brainerd Facility and are primarily used,
primarily held for use, or intended to be primarily used in connection with
any Acquired Asset or the operation or conduct of the Business (other than
operation of the Brainerd Facility) (collectively, the "Inventory");
---------
(iii) all other tangible personal property and interests therein,
including all machinery, equipment, furniture, furnishings and vehicles, of
the Seller Group that (A) are primarily used, primarily held for use,
intended to be primarily used or reasonably necessary or required in the
operation or conduct of the Business or in connection with any Acquired
Asset other than such other tangible personal property and interests
therein that on the Closing Date are located at the Brainerd Facility and
are not primarily used, primarily held for use, intended to be primarily
used or reasonably necessary to or required in connection with any Acquired
Asset or the operation or conduct of any aspect of the Business (other than
operation of the Brainerd Facility) or (B) on the Closing Date are located
on the Premises, in each case whether or not paid for, or whether or not an
obligation is due or recordable as a liability (together with the Rail
Equipment (as defined in Section 1.02(a)(xx)), the "Personal Property");
-----------------
(iv) all of the Seller Group's accounts and notes receivable, deferred
charges, chattel paper and other rights to receive payments on the Closing
Date arising out of the operation or conduct of the Business (the
"Receivables");
-----------
(v) all patents (including all reissues, divisions, continuations,
continuations-in-part and extensions thereof), patent applications, patent
rights, trademarks, trademark registrations, trademark applications,
servicemarks, trade names, trade dress, business names, brand names, domain
names, copyrights, copyright registrations, designs, design registrations,
and all rights to any of the foregoing ("Intellectual Property"), of the
---------------------
Seller Group that primarily relate or pertain to or are primarily used,
primarily held for use or intended to be primarily used in the operation or
conduct of the Business or in connection with any Acquired Asset (such
Intellectual Property, as well as the right to ▇▇▇ for any pre-Closing
infringements of such Intellectual Property, being the "Assigned
--------
Intellectual Property");
---------------------
(vi) all trade secrets, confidential information, inventions,
discoveries, know-how, formulae, practices, processes, procedures, ideas,
specifications, engineering data, software, firmware, programs and source
disks, source codes, designs, composition services, research records,
records of invention, test
4
information, market surveys and marketing know-how and all media carrying
any of the aforesaid ("Technology") of the Seller Group that primarily
----------
relate or pertain to or are primarily used, primarily held for use or
intended to be primarily used in the operation or conduct of the Business
or in connection with any Acquired Asset (the "Assigned Technology");
-------------------
(vii) all assignable Permits (as defined in Section 3.13) of the
Seller Group that relate or pertain to or are used, held for use, intended
to be used or reasonably necessary or required in the operation or conduct
of the Business (other than Permits that relate or pertain solely to the
operation of the Brainerd Facility and are not used, held for use, intended
to be used or reasonably necessary or required in connection with any
Acquired Asset or the operation or conduct of the Business (other than
operation of the Brainerd Facility)) or in connection with any Acquired
Asset (the "Assigned Permits");
----------------
(viii) all contracts, leases, licenses (including licenses of
Intellectual Property and Technology), indentures, agreements, commitments
and all other legally binding arrangements, whether oral or written
("Contracts"), to which any member of the Seller Group is a party or by
---------
which any member of the Seller Group is bound that are listed in Schedule
3.06 or 3.08 and all other Contracts (including purchase orders and sales
orders) to which any member of the Seller Group is a party or by which any
member of the Seller Group is bound that primarily relate or pertain to or
are primarily used, primarily held for use, intended to be primarily used
or reasonably necessary or required in, or that primarily arise out of, the
operation or conduct of the Business or in connection with any Acquired
Asset (the "Assigned Contracts"), including, without limitation, all rights
------------------
to receive payments for products sold or shipped before the Closing Date,
to receive goods and services purchased pursuant to such Assigned Contracts
and to assert claims and take other actions in respect of breaches or other
violations thereof, in each case except to the extent related to Excluded
Liabilities (as defined in Section 1.03(b));
(ix) all partnership interests or any other equity interest in any
corporation, company, limited liability company, partnership, joint
venture, trust or other business association ("Investments") listed in
-----------
Schedule 3.12, and all other Investments that are used, held for use,
intended to be used or reasonably necessary or required in, or that arise
out of, the operation or conduct of the Business or in connection with any
Acquired Asset;
(x) all rights in and to products sold or leased (including products
returned after the Closing and rights of rescission, replevin and
reclamation) in the operation or conduct of the Business;
(xi) all credits, prepaid expenses, deferred charges, advance
payments, security deposits and prepaid items to the extent arising out of
or relating to the operation or conduct of the Business or in connection
with any Acquired Asset or any Assumed Liability;
(xii) all rights, claims and credits to the extent arising out of or
relating to the Business or any Acquired Asset or any Assumed Liability,
including claims in bankruptcy, and any such items arising under insurance
policies (whether or not
5
such insurance policies are Excluded Assets) and all guarantees,
warranties, offsets, indemnities and all other intangible property rights
or claims and similar rights in favor of any member of the Seller Group in
respect of the Business or any Acquired Asset or any Assumed Liability;
(xiii) all sales and business records, service records, warranty
records, books of account, ledgers, general, financial, tax and accounting
records, personnel records (other than records relating to persons employed
pursuant to the Labor Agreements (as defined in Section 1.02(b)(x)) and
medical records other than medical exposure records), medical exposure
records, files, invoices, inventory records, product specifications,
drawings, engineering, maintenance, operating and production records, cost
and pricing information, business plans, catalogs, quality control records,
blueprints, research and development files, records and laboratory books,
patent disclosures, patent life histories, litigation files, credit records
of customers, customers' and suppliers' lists, other distribution lists,
billing records, sales and promotional literature, manuals, MSDS sheets,
lock out/tag out procedures, customer and supplier correspondence, track
and other maps, betterment maps, surveys, track drawings, track profiles,
signal diagrams and diagrams of railroad plant and structures (in all
cases, in any form or medium), of the Seller Group that relate or pertain
to or are used, held for use, intended to be used or reasonably necessary
or required in, or that arise out of, the operation or conduct of the
Business or in connection with any Acquired Asset or any Assumed Liability
(the "Records");
-------
(xiv) all computer and automatic machinery, servers, network equipment
and connections, program documentation, tapes, manuals, forms, guides and
other materials with respect thereto and related licenses and other
agreements that (x) on the date of the Balance Sheet or the Closing Date
are located on the Premises or (y) otherwise primarily relate or pertain to
or are primarily used, primarily held for use, intended to be primarily
used or reasonably necessary or required in the operation or conduct of the
Business or any Acquired Asset;
(xv) all goodwill generated by or associated with the Business,
including the exclusive right to represent oneself as the successor of the
Business;
(xvi) all cash and cash equivalents reflected in Closing Net Assets
(as defined in Section 1.05(a));
(xvii) full ownership of all machinery, equipment and other properties
and assets subject to (or previously subject to) the debt financings
identified on Schedule 1.02(a)(xvii) (the "IRB Financings") including full
--------------
ownership of all such machinery, equipment, property and assets leased to
(or previously leased to) Seller under the IRB Financings;
(xviii) (A) to the extent assumed by and transferred to Purchaser or a
designated affiliate of Purchaser at Closing pursuant to a Cross-Border
Lease Assumption, (x) the cross-border leases and other related documents
identified on Schedule 1.02(a)(xviii) (the "Cross-Border Leases"),
-------------------
including, without limitation, all of the rights, including rights to
payment, thereunder and (y) all outstanding membership interests (the
"Acquired Interests") in BA Paper Equipment LLC, a Delaware limited
------------------
liability company, and BA Paper Equipment II, LLC, a
6
Delaware limited liability company (collectively, the "Acquired Entities"
-----------------
and each an "Acquired Entity"), along with all limited liability company or
---------------
operating agreements, minutes and membership interest record books and
seals relating to such entities and (B) full ownership of all machinery,
equipment and other properties and assets subject to (or previously subject
to) any Cross-Border Lease not assumed by and transferred to Purchaser at
Closing pursuant to a Cross-Border Lease Assumption, including full
ownership of all such machinery, equipment, property and assets leased to
(or previously leased to) Seller under such Cross-Border Lease;
(xix) all real, personal and intangible property relating to or used
by the Railroad (the "Railroad Property") including (A) the continuous rail
-----------------
line entirely within the City of Cloquet, Minnesota commencing at the
Railroad's roundhouse and shops at the ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ and
continuing to a point near the main entrance to the pulp and paper mill at
the Cloquet Facility where such rail line connects to a rail line owned by
The Burlington Northern and Santa Fe Railway Company and a rail line owned
by the Canadian Pacific Railway Company, (B) the side tracks, spur tracks,
connections and other rail properties associated therewith, including all
contiguous properties, (C) the roadbed, rail, track, connections, ties,
bridges, culverts, structures, turnouts, crossovers, wyes, pipes, conduits,
wires, communications and signal facilities, parking and storage areas,
yards, shops, buildings (and their contents) and all other fixtures and
appurtenances owned by the Railroad or primarily relating to or primarily
used by the Railroad;
(xx) all locomotives (the "Locomotives"), including those set forth on
-----------
Schedule 1.02(a)(xx), freight cars, cabooses, end of train devices and
other rolling stock (the "Freight Cars") and maintenance of way equipment,
------------
including that used for rail relay, tie insertion or other heavy project
work (the "Roadway Equipment"), owned or used by the Railroad (the
-----------------
Locomotives, Freight Cars and Roadway Equipment are collectively referred
to as the "Rail Equipment");
--------------
(xxi) all real, personal and intangible property comprising the
Hydroelectric Facility, including the dam, penstocks, powerhouse, tailrace,
turbines, generators and all land and other structures described or
depicted in FERC Exhibit A, F and G filed with FERC in Project No.
P-2363-035 by Seller on July 3, 2001, all of which are set forth in
Schedule 1.02(a)(xxi);
(xxii) all real, personal and intangible property comprising Cloquet
Pulp and Paper Mill Unit Nos. 3 and 4 Turbine/Generator Units (the "Steam
-----
Turbine Facilities" and, together with the Hydroelectric Facility, the
------------------
"Power Generation Facilities"), including the steam turbines, generators
---------------------------
and other related structures; and
(xxiii) to the extent Section 5.33 provides for the assignment to
Purchaser of Revised Cloquet Power Agreements or rights and obligations
under Power Agreements upon receipt of an MP Waiver, such Revised Cloquet
Power Agreements or rights and obligations, if any.
7
(b) The term "Excluded Assets" means:
---------------
(i) all assets identified on Schedule 1.02(b)(i);
(ii) (A) the paper mill located in Brainerd, Minnesota (the "Brainerd
--------
Facility") and (except as provided in Section 1.02(a)(ii) or Section
--------
1.02(a)(iii) or identified on Schedule 1.02(b)(ii)(A)) all other Personal
Property and Inventory located on the Closing Date at the Brainerd
Facility, (B) Assigned Contracts (other than Contracts listed in Schedule
3.06 or 3.08 and other than sales orders) that do not primarily relate or
pertain to and are not primarily used, primarily held for use, intended to
be primarily used or reasonably necessary or required in connection with,
and that do not primarily arise out of or in connection with, any Acquired
Asset or the operation or the conduct of the Business other than the
operation of the Brainerd Facility (including purchase orders and supply
contracts to the extent relating to production at the Brainerd Facility),
and (C) subject to the grant of licenses pursuant to the License Agreement
(as defined in Section 2.02(c)), Assigned Intellectual Property and
Assigned Technology that are listed in Schedule 1.02(b)(ii)(C) and do not
primarily relate or pertain to and are not primarily used, primarily held
for use or intended to be primarily used in connection with, and that do
not primarily arise out of or in connection with, any Acquired Asset or the
operation or conduct of the Business other than operation of the Brainerd
Facility (the assets described in clauses (A) through (C) being referred to
herein as the "Excluded Brainerd Assets");
------------------------
(iii) except as specifically provided in Section 1.02(a)(xviii), the
Seller Group's corporate charters, minutes and stock record books and
corporate seals;
(iv) all rights, claims and credits of any member of the Seller Group
to the extent arising out of or relating to any Excluded Asset or any
Excluded Liability (as defined in Section 1.03(b)), including tax refunds
and credits attributable to Taxes that constitute Excluded Liabilities, any
such items arising under insurance policies and all guarantees, warranties,
indemnities and all other intangible property rights or claims and similar
rights in favor of any member of the Seller Group in respect of any
Excluded Asset or any Excluded Liability;
(v) except as specifically provided in Section 5.09, all the assets of
the Seller's Pension Plans (as defined in Section 5.09(e)(i));
(vi) all rights of Seller under this Agreement and the other
agreements and instruments executed and delivered in connection with this
Agreement (the "Ancillary Agreements");
--------------------
(vii) all records prepared for the purpose of the sale of the Business
to Purchaser;
(viii) all Records relating to the Business that form part of the
Seller Group's general ledger or which do not relate primarily to the
Business;
(ix) all tax records that relate primarily to Taxes that constitute
Excluded Liabilities;
8
(x) the Settlement Agreement between Seller and United Paperworkers
International Union Locals 63, 79 and 164 and National Conference of
Firemen and Oilers Local 939, effective June 15, 1999, and Labor Agreement
2001, effective as of December 31, 2001, between Paper, Allied, Chemical &
Energy Workers International Union, affiliated with AFL-CIO-CLC, and
Potlatch Corporation, Minnesota Pulp and Paper Division (Sample Service
Department) (collectively, as in effect on the date hereof, as modified and
interpreted by the Side Agreements set forth in Schedule 3.08 on the date
hereof and specifically identified as "Side Agreements", the "Labor
-----
Agreements", and each union party to any Labor Agreement, a "Union" and,
---------- -----
collectively, the "Unions") and any other Contract (other than the
------
Settlement Agreement between the Duluth & Northeastern Railroad Company and
the National Conference of Firemen and Oilers of the Service Employees
International Union Locals 970 ("Local 970") and 939 ("Local 939") and
--------- ---------
United Transportation Union Local 1175 ("Local 1175") (Local 939 to the
----------
extent it represents employees of Duluth & Northeastern Railroad Company,
Local 970 and Local 1175 hereinafter collectively referred to as the
"Railroad Unions"), the Labor Agreement between Duluth & Northeastern
---------------
Railroad Company and United Transportation Union Local 1175, dated as of
July 1, 1999, the Labor Agreement, effective as of July 1, 1999, between
Duluth & Northeastern Railroad Company and National Firemen and Oilers
conference of the Service Employees International Union and its Local No.
970 (collectively, the "Railroad CBAs")) with any union or its locals or
-------------
any other collective bargaining representative of any employee of the
Business or the Seller Group (collectively, the "Labor Contracts");
---------------
(xi) any capital stock of and any equity interest in Duluth &
Northeastern Railroad Company, a corporation organized under the laws of
the State of Minnesota;
(xii) all amounts owed to Seller by ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ & Sons, Inc.,
pursuant to the Agency Agreement dated as of January 1, 1999;
(xiii) all of Seller's interests in NaturTek, LLC, a limited liability
company organized under the laws of the state of Delaware, and any assets
owned by NaturTek, LLC; and
(xiv) Amended and Restated Electric Service Agreement and Power
Purchase Agreement, each between Seller and Minnesota Power, and each dated
July 31, 2000 (the "Power Agreements").
----------------
(c) The term "Acquired Coating Equipment" means all assets, rights and
--------------------------
personal property, tangible or intangible (including Intellectual Property
and Technology and rights, claims and credits to the extent arising out of
or relating to the Acquired Coating Equipment of the type described in
Section 1.02(a)(xii)), of the Seller Group comprising the off-machine
coater and "coating kitchen" (together with all parts and spare parts
(including consumable parts) held for use in connection therewith) located
at the Brainerd Facility and used by the Seller Group in the production of
coated paper at the Brainerd Facility or reasonably necessary to or
required in the operation of such off-machine coater and "coating kitchen".
Purchaser acknowledges that, except as expressly set forth in this
Agreement or the Ancillary Agreements, there are no representations or
warranties
9
of any kind, express or implied, with respect to the Acquired Coating
Equipment, and that, except as expressly set forth in this Agreement,
Purchaser is purchasing the Acquired Coating Equipment "as is" and "where
is".
(d) Notwithstanding anything to the contrary in this Agreement, any
Acquired Assets that relate or pertain to or are used in the conduct or
operation of the Railroad, including, without limitation, the Railroad
Property, may, at Purchaser's determination, be purchased by an affiliate
of Purchaser (the "Railroad Sub") to be designated by Purchaser prior to
------------
the Closing, in which case such Acquired Assets shall be separately
identified and sold, assigned, transferred, conveyed and delivered by the
Seller Group to such designated affiliate at Closing.
(e) Seller shall, to the extent it does not unreasonably interfere
with the normal operation of the Business, use all commercially reasonable
efforts to maximize the amount of ▇▇▇▇▇ silk grade paper ("▇▇▇▇▇ Silk") in
----------
the Inventory constituting Acquired Assets on the Closing Date, in the
proportions of basis weights and sizes as may be specified by Purchaser
from time to time. Notwithstanding the foregoing, Seller shall not be
obligated to continue such maximization to the extent such maximization
will result in Working Capital (as defined in Section 1.05(a)) on the
Closing Date exceeding $100,000,000, except in accordance with a
Continuance Notice (as defined below) or any amendment thereto. If Seller
plans to discontinue maximizing ▇▇▇▇▇ Silk because such maximization will
result in Working Capital on the Closing Date exceeding $100,000,000,
Seller shall give Purchaser written notice of such planned discontinuance
at least five business days prior to such discontinuance (a "Discontinuance
--------------
Notice"). A Discontinuance Notice shall include an estimate of the amount
------
of ▇▇▇▇▇ Silk (including an estimate of the amounts of various basis
weights and sizes) that will be in the Inventory constituting Acquired
Assets on the Closing Date (the "Estimated ▇▇▇▇▇ Silk Amount") if such
---------------------------
discontinuance occurs. Following receipt of a Discontinuance Notice,
Purchaser shall be entitled to give Seller written notice (a "Continuance
-----------
Notice") that Purchaser desires Seller to continue maximizing the amount of
------
▇▇▇▇▇ Silk, which notice shall include the additional maximum amount of
▇▇▇▇▇ Silk that Purchaser desires Seller to produce (the "Additional ▇▇▇▇▇
----------------
Silk Amount"; and, together with the Estimated ▇▇▇▇▇ Silk Amount, the
-----------
"Target ▇▇▇▇▇ Silk Amount") in accordance with this Section 1.02(e). If
------------------------
Seller receives a Continuance Notice, Seller shall continue to maximize the
amount of ▇▇▇▇▇ Silk in accordance with the first sentence of this Section
1.02(e); provided, however, that Seller shall not be required to continue
-------- -------
maximizing the amount of ▇▇▇▇▇ Silk to the extent such maximization will
result in the amount of ▇▇▇▇▇ Silk in the Inventory that is Acquired Assets
on the Closing Date to exceed the Target ▇▇▇▇▇ Silk Amount. Purchaser shall
have the right, at any time, to give written notice to Seller amending a
Continuance Notice to increase the Additional ▇▇▇▇▇ Silk Amount. Seller
shall use commercially reasonable efforts to keep Purchaser regularly
informed as to the amount of ▇▇▇▇▇ Silk of various basis weights and sizes
expected to be in the Inventory that is Acquired Assets on the Closing
Date, and, to the extent it does not unreasonably interfere with the normal
operation of the Business, Seller shall use commercially reasonable efforts
to cause the amounts of various basis weights and sizes to be as may be
requested by Purchaser from time to time.
10
(f) If Purchaser has not provided the notice contemplated by Section
5.29 and any work-in-process inventories remain at the Brainerd Facility at
Closing, Seller shall be entitled to continue the coated paper operations
at the Brainerd Facility for up to seven days following Closing (the
"Additional Brainerd Production Period") for the sole purpose of turning
-------------------------------------
such work-in-process inventories into finished goods inventories (any such
finished goods inventories produced during such period being referred to
herein as "Additional Brainerd Inventory"). If Seller creates any
-----------------------------
Additional Brainerd Inventory, all such Additional Brainerd Inventory shall
be transferred to Purchaser as Acquired Assets and shall be deemed for all
purposes of this Agreement (including the determination of Closing Net
Assets) to have been Inventory that constituted Acquired Assets on the
Closing Date as though it had been located at the Brainerd Facility on the
Closing Date. In addition, if Seller elects to produce Additional Brainerd
Inventory, Seller shall be entitled to transfer to Purchaser as Acquired
Assets up to five days of average daily inventory of packaging material
that at the end of the Additional Brainerd Production Period is located at
the Brainerd Facility ("Additional Brainerd Packaging"), and such
-----------------------------
Additional Brainerd Packaging shall be deemed for all purposes of this
Agreement (including the determination of Closing Net Assets) to have been
Inventory that constituted Acquired Assets on the Closing Date as though it
had been located at the Brainerd Facility on the Closing Date (and no
Additional Brainerd Inventory had been produced).
SECTION 1.03. Assumption of Certain Liabilities. (a) Upon the terms
---------------------------------
and subject to the conditions of this Agreement (and (x) subject to Section 2.03
with respect to references to the Closing or Closing Date and (y) without
limiting Purchaser's rights under Section 8.01), Purchaser shall assume,
effective as of the Closing, and from and after the Closing Purchaser shall pay,
perform and discharge when due, only the following liabilities, obligations and
commitments of the Seller Group (the "Assumed Liabilities"), other than any
-------------------
Excluded Liabilities:
(i) (A) all liabilities, obligations and commitments of any member of
the Seller Group under the Assigned Contracts to the extent Purchaser
receives the benefits of such Assigned Contracts and only to the extent
such liabilities, obligations and commitments relate to the period from and
after the Closing, (B) all liabilities, obligations and commitments of any
member of the Seller Group under the Assigned Contracts that are Contracts
(including sales orders) involving the obligation of any member of the
Seller Group to deliver paper products or by-products for payment (the
"Customer Contracts") to the extent Purchaser receives the benefits of such
------------------
Assigned Contracts and (C) all liabilities, obligations and commitments
relating to pre-Closing performance (other than liabilities, obligations or
commitments relating to the Acquisition or arising from any default by any
member of the Seller Group) under the Assigned Contracts (other than
Customer Contracts) to the extent Purchaser receives the benefits of such
Assigned Contracts, and only to the extent such liabilities, obligations
and commitments are reflected in Closing Net Assets in accordance with this
Agreement (and then only up to the amount so reflected and only to the
extent of the amount of each category of liability set forth on the final
statement of Closing Net Assets);
11
(ii) all liabilities, obligations and commitments of any member of the
Seller Group payable to trade creditors of the Business, arising in the
ordinary course of business, but only to the extent and up to the amounts
that should be reflected in Closing Net Assets in accordance with the
Accounting Principles and only to the extent of the amount that should be
so reflected for each category of liability reflected in Closing Net Assets
(it being agreed that the final statement of Closing Net Assets shall be
conclusive as to the liabilities, obligations and commitments that should
be reflected therein for this purpose);
(iii) liabilities, obligations and commitments arising under Benefit
Plans (as defined in Section 3.18(a)) to the extent expressly provided in
Section 5.09;
(iv) all liabilities, obligations and commitments to the Business'
customers for products manufactured on or prior to the Closing Date by the
Business based on damage or quality claims or returns based on claims under
the "Potlatch Promise" with respect to the press performance of such
products, in each case arising in the ordinary course of business (other
than any liability, obligation or commitment that arises because of a
breach of this Agreement other than a breach of a representation or
warranty) up to an aggregate amount of $400,000 (net of any proceeds to
Purchaser from resale of any such products returned to Purchaser);
(v) any liability, obligation or commitment to any Continued Employee
based on claims made after the Closing Date but arising out of or related
in part to any injury, disability or similar condition of such Continued
Employee that exists or occurs on or prior to the Closing Date (other than
any such injury, disability or condition that constitutes a disease or
illness or arises (A) to any extent from exposure or alleged exposure on or
prior to the Closing Date to any materials or chemicals (including any
Hazardous Materials) by any Continued Employee (as defined in Section 5.09)
or any other employee heretofore employed in the Business or (B) because of
a breach by Seller of this Agreement or any Ancillary Agreement other than
a breach of a representation or warranty) but as to any claim only if the
aggregate liabilities, obligations and commitments in respect of such claim
do not exceed $5,000 and, in any event, only up to an aggregate amount of
$100,000 for all such claims and all such liabilities, obligations and
commitments;
(vi) subject to receipt of all consents from third parties necessary
to permit the assumption thereof by Purchaser, liabilities, obligations and
commitments arising under the Cross-Border Leases to the extent assumed by
Purchaser pursuant to Cross-Border Lease Assumptions (as defined in Section
5.24), other than any such liabilities, obligations and commitments (A) due
and payable (without giving effect to any grace or notice periods) on or
prior to the Closing Date or arising as a result of the Acquisition or any
other transaction contemplated by this Agreement or any Ancillary
Agreement, (B) arising due to any breach by Seller of this Agreement or any
Ancillary Agreement or (C) in respect of which Seller has agreed to provide
indemnification pursuant to this Agreement or any Ancillary Agreement; and
(vii) the specified other liabilities, obligations and commitments of
any member of the Seller Group identified in Schedule 1.03(a)(vii) but only
up to the amounts disclosed on such Schedule.
12
(b) Notwithstanding Section 1.03(a), or any other provision of this
Agreement or any Ancillary Agreement, and regardless of any disclosure to
Purchaser, Purchaser shall not assume any of the following liabilities,
obligations and commitments (the "Excluded Liabilities"), all of which Seller
--------------------
agrees shall be retained and paid, performed and discharged when due by the
applicable member of the Seller Group (in each case subject to Section 2.03 with
respect to references to the Closing or Closing Date):
(i) any liability, obligation or commitment, except as specifically
set forth in Section 1.03(a), relating to or arising out of the Business or
any Acquired Asset, whether express or implied, liquidated, absolute,
accrued, contingent or otherwise, or known or unknown, and based upon,
relating to, arising out of or resulting from any fact, circumstance,
occurrence, condition, act or omission occurring or existing, in whole or
in part, on or prior to the Closing;
(ii) any liability, obligation or commitment, whether express or
implied, liquidated, absolute, accrued, contingent or otherwise, or known
or unknown, to the extent arising out of the operation or conduct by Seller
or any of its affiliates of any business other than the Business;
(iii) any liability, obligation or commitment (A) except as
specifically set forth in Section 1.03(a)(i) or Section 1.03(a)(iv),
arising out of any actual or alleged breach of, or nonperformance under,
any Contract (including any Assigned Contract), prior to the Closing, (B)
accruing, or that should be or should have been accrued for in accordance
with GAAP (as defined in Section 1.05(d)), under any Assigned Contract with
respect to any period prior to the Closing, except to the extent and up to
the amounts that should be reflected therefor in Closing Net Assets in
accordance with the Accounting Principles and only to the extent of the
amount that should be so reflected for each category of liability reflected
in Closing Net Assets (it being agreed that the final statement of Closing
Net Assets shall be conclusive as to the liabilities, obligations and
commitments that should be reflected therein for this purpose), or (C)
arising on any Contract either (x) required to be listed under any Schedule
hereto and not so listed or (y) entered into in violation of this Agreement
or any Ancillary Agreement;
(iv) except as specifically set forth in Section 1.03(a), any
liability, obligation or commitment of any member of the Seller Group
arising out of (A) any suit, action (including regulatory action) or
proceeding (including under any alternative dispute resolution procedure)
("Proceeding") pending or threatened as of the Closing Date, (B) any
----------
Proceeding filed after the Closing to the extent based upon, relating to,
arising out of or resulting from any fact, circumstance, occurrence,
condition, act or omission occurring or existing, in whole or in part, on
or prior to the Closing or (C) any actual or alleged violation by any
member of the Seller Group or any of their affiliates of any Applicable Law
(as defined in Section 3.03) prior to or on account of the Closing;
(v) any account payable of any member of the Seller Group to the
extent of the amount not included in Closing Net Assets (or not permitted
to be included in Closing Net Assets);
13
(vi) except as specifically set forth in Section 1.03(a), any
liability, obligation or commitment that relates primarily to, or that
arises primarily out of, any Excluded Asset, or that arises out of the
distribution to, or ownership or operation by, any member of the Seller
Group or any of their affiliates or any other person of any Excluded Asset,
or that is associated with the realization of the benefits of any Excluded
Asset;
(vii) any liability, obligation or commitment for Taxes (as defined in
Section 3.16), whether or not accrued, assessed or currently due and
payable, (A) of Seller or any Affiliated Group (as defined in Section 3.16)
or (B) relating to the operation or ownership of the Business or the
Acquired Assets for any Tax period (or portion thereof) ending on or prior
to the Closing Date (for purposes of this clause (vii), all real property
Taxes, personal property Taxes and similar ad valorem obligations levied
with respect to the Acquired Assets for a Tax period that includes (but
does not end on) the Closing Date shall be apportioned between Seller and
Purchaser based upon the number of days of such period included in the
pre-Closing Tax period and the number of days of such Tax period after the
Closing Date (which period shall include the Closing Date));
(viii) any liability, obligation or commitment for transfer,
documentary, sales, use, registration, value-added and other similar Taxes
(including all applicable real estate transfer Taxes and real property
transfer gains Taxes) and related amounts (including any penalties,
interest and additions to Tax) incurred in connection with this Agreement,
the Ancillary Agreements, the Acquisition and the other transactions
contemplated hereby and thereby ("Transfer Taxes");
--------------
(ix) except as expressly provided in Section 5.09, any liability,
obligation or commitment arising under any Benefit Plan;
(x) any liability covered by any insurance policy maintained by Seller
or any of its affiliates;
(xi) except as expressly set forth in Section 1.03(a)(vi), any
Indebtedness (as defined in Section 3.08(a)(ix)) that (i) has a term of
less than one year and is owed to lenders (and not trade creditors) or (ii)
has a term of greater than one year, including any capitalized leases;
(xii) except to the extent specifically assumed by Purchaser pursuant
to Section 1.03(a)(iv), any liability, obligation or commitment that
relates to, or arises out of, products manufactured, shipped or sold by or
on behalf of the Business or any member of the Seller Group or any of their
affiliates on or prior to the Closing Date, including any liabilities
arising out of express or implied warranties, whether such liability,
obligation or commitment relates to or arises out of losses occurring on or
prior to or after the Closing Date;
(xiii) any liability, obligation or commitment relating to or arising
out of infringement or misappropriation of Intellectual Property or
Technology (other than to the extent relating to or arising out of
infringements or misappropriation after Closing relating to Purchaser's use
of any Acquired Asset), to the extent relating to or arising out of the
operation of the Business or products manufactured, shipped or sold by or
on behalf of the Business or any member of
14
the Seller Group or any of their affiliates on or prior to the Closing
Date, whether such liability, obligation or commitment relates to or arises
out of losses occurring on or prior to or after the Closing Date;
(xiv) except to the extent specifically assumed by Purchaser pursuant
to Section 1.03(a)(v), any liability, obligation or commitment, whether now
existing or hereafter arising, to the extent such liability, obligation or
commitment is in respect of claims arising out of or related to any injury,
disease (or illness), disability or any similar condition that exists or
occurs on or prior to the Closing Date, or exposure or alleged exposure on
or prior to the Closing Date to any materials or chemicals (including
Hazardous Materials) by any person (including any Continued Employee or any
other employee heretofore employed in the Business);
(xv) except as expressly provided in Section 5.09 or to the extent
specifically assumed by Purchaser pursuant to Section 1.03(a)(v), (A) any
liability, obligation or commitment to the extent such liability,
obligation or commitment relates to, or arises out of, the employment at or
prior to Closing and (B) any liability, obligation or commitment that
relates to, or arises out of, the termination of the employment at or prior
to Closing, of, in each case, any employee or former employee of the Seller
Group or any of their affiliates or the Business (including as a result of
the transactions contemplated by this Agreement);
(xvi) any liability, obligation or commitment that relates to, or that
arises out of, any separation agreements listed on Schedule 1.03(b)(xvi)
(collectively, the "Separation Agreements"), other than the payment of
---------------------
severance up to the amount that would be due under Section 5.09 in the
absence of such agreement;
(xvii) any liability, obligation or commitment to any member of the
Seller Group or to any affiliate of Seller, except those identified in
Schedule 1.03(b)(xvii);
(xviii) any liability, obligation or commitment of any member of the
Seller Group or imposed on or asserted against Purchaser (x) relating to or
arising out of the Railroad CBAs with respect to any act or omission
through the Closing or (y) relating to or arising out of the Labor
Contracts;
(xix) any liabilities, obligations and commitments in respect of costs
and expenses incurred by Seller or any of its affiliates or the Business in
respect of or relating to this Agreement, including compliance by any
member of the Seller Group with the terms hereof, or in connection with the
Acquisition and the other transactions contemplated hereby;
(xx) all other liabilities, obligations and commitments of any
affiliate of Seller other than the Acquired Entities;
(xxi) without limiting Section 8.01(c), any Pre-Closing Environmental
Liability (including Unknown Pre-Closing On-Site Environmental Liabilities
(including Minor Pre-Closing On-Site Liabilities));
15
(xxii) if the transfer of the Hydroelectric Facility does not occur on
the Closing as contemplated by Section 2.03, any liability, obligation or
commitment relating to or arising out of the ownership or operation of the
Hydroelectric Facility, after the Closing and on or prior to any
Hydroelectric Facility Closing; and
(xxiii) any liability, obligation or commitment arising out of, based
on, or resulting from any of the matters identified on Schedule
1.03(b)(xxiii).
The term "Pre-Closing Environmental Liability" means any loss, claim,
-----------------------------------
demand, requirement, lawsuit, responsibility, liability, obligation or
commitment arising out of, based on, or resulting from (1) any of the matters
disclosed on Schedule 3.13 or Schedule 3.20(b) or identified in Schedule
1.03(b)(xxi), (2) Environmental Laws (as defined in Section 3.20(b)) and in
connection with any condition of the Acquired Assets, the Acquired Coating
Equipment or Excluded Assets existing on or prior to the Closing Date, (3)
Environmental Laws and in connection with the ownership or operation of the
Business (or by any former owner or operator thereof) or the Acquired Assets or
any Excluded Asset (or any assets previously owned or operated in connection
with the Business by any former owner or operator thereof), in each case on or
prior to the Closing Date, (4) (A) personal injury, property damage or exposure
to Hazardous Materials (as defined in Section 3.20(b)) or (B) investigation,
remediation, natural resources damages or other response actions, including
claims related to Releases (as defined in Section 3.20(b)) into the St. Louis
River or Lake Superior, in each such case, arising out of, based on or resulting
from Environmental Laws or the presence or Release of Hazardous Materials and
the ownership or operation of the Business or the Acquired Assets or any
Excluded Asset (or any assets previously owned or operated in connection with
the Business or by any former owner or operator of the Business) on or prior to
the Closing Date or (5) the transportation, Release or recycling of Hazardous
Materials or the arrangement for such activities, from, at or to any off-site
location on or prior to the Closing Date. Pre-Closing Environmental Liability
includes any Unknown Pre-Closing On-Site Environmental Liability (as defined in
Section 8.01(c)).
(c) Purchaser shall acquire and Seller shall transfer, or cause to be
transferred, the Acquired Assets free and clear of all liabilities, obligations
and commitments of any member of the Seller Group or any of their affiliates,
other than the Assumed Liabilities, and free and clear of all Liens (as defined
in Section 3.05), other than Permitted Liens (as defined in Section 3.05).
(d) Seller and Purchaser acknowledge that certain expenses of the
Business are paid on a periodic basis. Accordingly, the items listed below, to
the extent not included in Closing Net Assets, shall be apportioned between
Seller and Purchaser, with Seller being responsible for all such expenses
attributable to periods on or prior to the Closing Date, and Purchaser being
responsible for all expenses attributable to periods after the Closing Date:
(i) prepaid rent, tenant utility payments and all other percentage or
additional rent, common area maintenance and sundry charges (including any
HVAC charges) and commissions paid by tenants;
(ii) utility company charges, including electricity, gas, fuel, water
and sewer charges;
16
(iii) real estate taxes, installments of general and special
assessments and other public or private charges affecting the Premises; and
(iv) other items typically apportioned in sale of assets transactions
of the type contemplated by this Agreement.
(e) The entities listed on Schedule 1.03(e) are the only affiliates of
Seller that have title to, or use, any Acquired Asset or are subject to any
obligation that is an Assumed Liability or are otherwise engaged in the
operation or conduct of the Business. Any entity listed on such Schedule is
deemed a member of the Seller Group.
(f) Notwithstanding anything to the contrary in this Agreement, any
Assumed Liabilities that relate to, or arise out of, the Railroad shall be
assumed by, and shall be enforceable by the Seller Group solely against, the
Railroad Sub.
(g) Notwithstanding anything to the contrary in this Agreement, if,
pursuant to Section 2.03, the Hydroelectric Facility is not transferred to
Purchaser at Closing, no Assumed Liability that relates to, or arises out of,
the Hydroelectric Facility (including the Hydroelectric Facility Contracts)
shall be assumed by Purchaser, and Purchaser shall not be required to assume any
such Assumed Liability, unless and until the Hydroelectric Facility is
transferred to Purchaser at the Hydroelectric Facility Closing (and then
Purchaser shall only assume such Assumed Liabilities to the extent otherwise
provided in this Agreement).
SECTION 1.04. Consents of Third Parties. (a) Notwithstanding anything
-------------------------
in this Agreement to the contrary, this Agreement shall not constitute an
agreement to assign any asset or any claim or right or any benefit arising under
or resulting from such asset if an attempted assignment thereof, without the
consent of a third party, would constitute a breach or other contravention of
the rights of such third party, would be ineffective with respect to any party
to an agreement concerning such asset, or would in any way adversely affect the
rights of any member of the Seller Group or, upon transfer, Purchaser under such
asset. If any transfer or assignment by any member of the Seller Group to, or
any assumption by Purchaser of, any interest in, or liability, obligation or
commitment under, any asset requires the consent of a third party, then such
assignment or assumption shall be made subject to such consent being obtained.
Without limiting Section 1.04(b), to the extent any Assigned Contract may not be
assigned to Purchaser by reason of the absence of any such consent, Purchaser
shall not be required to assume any Assumed Liabilities arising under such
Assigned Contract.
(b) If any such consent is not obtained prior to the Closing (and
without regard to whether Seller has Cured (as defined in Section 6.05) the
failure to obtain such consent) , Seller and Purchaser shall cooperate (at their
own expense) in any lawful and reasonable arrangement reasonably proposed by
Purchaser under which Purchaser shall obtain the economic claims, rights and
benefits under the asset, claim or right with respect to which the consent has
not been obtained in accordance with this Agreement. Such reasonable arrangement
may include (i) the subcontracting, sublicensing or subleasing to Purchaser of
any and all rights of the Seller Group against the other party to such
third-party agreement arising out of a breach or cancelation thereof by the
other party, and (ii) the enforcement by the Seller Group of such rights (at the
expense of the Seller Group but with Purchaser being obligated to reimburse the
relevant member of the Seller Group for reasonable out-of-pocket costs and
expenses directly related thereto). To
17
the extent, and only to the extent, Purchaser is able to receive the economic
claims, rights and benefits under an asset as set forth above, Purchaser shall
be responsible for the Assumed Liabilities, if any, arising under such asset.
(c) If any Consent listed on Schedule 3.03 with respect to a Contract
with a supplier to the Business shall not have been obtained, in addition to any
other obligations of Seller under this Agreement, to the extent that the
purchase price to Purchaser after the Closing for the products or services that
are the subject of any such Contract is greater than would have been the case
had such consent been obtained, then Seller shall, for the six month period
after the Closing, reimburse Purchaser for any additional cost incurred by
Purchaser in obtaining such product or service in the volumes set forth in such
Contract, but only if Purchaser shall have used commercially reasonable efforts
to obtain the best practicable price for such product or service.
(d) Subsections (a), (b) and (c) above shall not be deemed to limit
(i) the rights and remedies available to Purchaser or Seller hereunder or,
subject to the provisions hereof, otherwise in the event a consent is not
obtained prior to Closing or (ii) the obligations of Seller hereunder.
SECTION 1.05. Closing Net Assets Determination. (a) Seller and
--------------------------------
Purchaser shall cooperate on a timely basis in Purchaser's preparation and
delivery to Seller within 90 days after the Closing Date of a statement (the
"Statement"), certified by Purchaser's chief financial officer, setting forth
---------
Net Assets (as defined in Section 1.05(d)), as of the close of business on the
Closing Date ("Closing Net Assets"). The Statement shall be prepared on a basis
------------------
consistent with the Accounting Principles (as defined in Section 1.05(d)). At
Purchaser's option, a physical inventory shall be conducted by Seller for the
purpose of preparing the Statement, and Purchaser and its representatives shall
have the right to observe the taking of such physical inventory. Any costs or
expenses incurred in connection with such taking of physical inventory shall be
borne by the party incurring such costs or expenses.
(b) During the 30-day period following receipt of the Statement,
Seller shall be permitted to review the working papers relating to the
Statement. The Statement shall become final and binding upon the parties on the
30th day following delivery thereof, unless Seller gives written notice of its
disagreement with the Statement (a "Notice of Disagreement") to Purchaser prior
----------------------
to such date. Any Notice of Disagreement shall (i) specify in reasonable detail
the nature of any disagreement so asserted, (ii) only include disagreements
based on mathematical errors or based on Closing Net Assets not being calculated
in accordance with this Section 1.05 and (iii) be accompanied by a certificate
of Seller's chief financial officer that he or she concurs with each of the
positions taken by Seller in the Notice of Disagreement. If a Notice of
Disagreement is received by Purchaser in a timely manner, then the Statement (as
revised in accordance with this sentence) shall become final and binding upon
Seller and Purchaser on the earlier of (A) the date Seller and Purchaser resolve
in writing any differences they have with respect to the matters specified in
the Notice of Disagreement or (B) the date any disputed matters are finally
resolved in writing by the Accounting Firm (as defined below). During the 30-day
period following the delivery of the Notice of Disagreement, Seller and
Purchaser shall seek in good faith to resolve in writing any differences that
they may have with respect to the matters specified in the Notice of
Disagreement. At the end of such 30-day period, Seller and Purchaser shall
submit to an independent accounting firm (the "Accounting Firm") for arbitration
---------------
any and all matters that remain in
18
dispute and which were properly included in the Notice of Disagreement. The
Accounting Firm shall be Ernst & Young or, if such firm is unable or unwilling
to act, such other nationally recognized independent public accounting firm as
shall be agreed upon by the parties hereto in writing. Before referring a matter
to the Accounting Firm, the parties shall agree on procedures to be followed by
the Accounting Firm (including procedures for presentation of evidence). If the
parties are unable to agree upon procedures, the Accounting Firm shall establish
such procedures, giving due regard to the intention of the parties to resolve
disputes in a timely and cost-effective manner. The Accounting Firm's procedures
may be, but need not be, those proposed by either Purchaser or Seller; provided,
--------
however, that the Accounting Firm shall in all cases use the Accounting
-------
Principles in resolving any dispute. The parties shall give the Accounting Firm
access to their working papers and shall provide such other information as
reasonably requested by the Accounting Firm. Seller and Purchaser shall jointly
request the Accounting Firm to render a decision resolving the matters submitted
to the Accounting Firm within 30 days following submission. Judgment may be
entered upon the determination of the Accounting Firm in any court having
jurisdiction over the party against which such determination is to be enforced.
The fees and expenses of the Accounting Firm incurred pursuant to this Section
1.05 shall be borne 50% by Seller and 50% by Purchaser.
(c) The Purchase Price shall be increased by the amount by which
Closing Net Assets exceeds the Base Amount (as defined below), and the Purchase
Price shall be decreased by the amount by which Closing Net Assets is less than
the Base Amount (the Purchase Price as so increased or decreased shall
hereinafter be referred to as the "Adjusted Purchase Price"). If the Closing
-----------------------
Date Amount (as defined in Section 2.02(b)) is more than the Adjusted Purchase
Price, Seller shall, and if the Closing Date Amount is less than the Adjusted
Purchase Price, Purchaser shall, within 10 business days after the Statement
becomes final and binding on the parties, make payment by wire transfer to a
bank account designated in writing by the party to which such payment is to be
made (such designation to be made at least two business days prior to the date
such payment is due) in immediately available funds of the amount of such
difference, together with interest thereon at a rate equal to the rate of
interest from time to time announced publicly by Citibank, N.A. as its prime
rate, calculated on the basis of the actual number of days elapsed divided by
365, from the Closing Date to the date of payment. "Base Amount" means
-----------
$658,800,000 less, if transfer of the Hydroelectric Facility does not occur at
the Closing as contemplated by Section 2.03, the Hydroelectric Base Amount.
"Hydroelectric Base Amount" means the amount reflected for the Hydroelectric
-------------------------
Facility in the Balance Sheet (but not more than the Hydroelectric Facility
Purchase Price).
(d) The term "Net Assets" means Assets minus Liabilities; provided
---------- --------
however that (i) the following items shall be disregarded for purposes of
-------
calculating Net Assets: (A) Working Capital in excess of the Working Capital
Limit, (B) Non-Current Assets in excess of an amount equal to the sum of the
Non-Current Asset Cap (as defined below) plus the Additional Property Amount (as
defined below), (C) any fee title to, or ownership interest in, any real
property acquired since the date of the Balance Sheet, (D) any increase in value
of an Acquired Asset as a result of the release of Liens or the cure or removal
of imperfections in title and (E) all capital expenditures, depreciation and
amortization made or accrued since the date of the Balance Sheet and (ii) the
values of the Premises referred to in the definition of Additional Property
Amount shall be the values in such definition. The terms "Assets" and
------
"Liabilities" mean all assets, net of applicable reserves, and liabilities,
-----------
respectively, of the Business that are Acquired Assets
19
or Assumed Liabilities, respectively, calculated in accordance with United
States generally accepted accounting principles ("GAAP") applied on a basis
----
consistent with the historical accounting practices of Seller used in preparing
the Balance Sheet (but making normal, recurring period-end adjustments
consistent with the December Balance Sheet), as modified by the agreed
principles (the "Agreed Principles") set forth on Schedule 1.05(d)(1). The
-----------------
foregoing principles are referred to collectively in this Agreement as the
"Accounting Principles." The term "Working Capital" means Current Assets minus
---------------------- ---------------
Current Liabilities. The terms "Current Assets" and "Current Liabilities" mean
-------------- -------------------
the current assets, net of applicable reserves, and current liabilities,
respectively, of the Business that are Acquired Assets or Assumed Liabilities,
respectively, calculated in accordance with the Accounting Principles , provided
--------
that any Additional Brainerd Inventory in excess of 1,500 tons shall be valued
for purposes of calculating Working Capital at its "broke" value. The term
"Non-Current Assets" means all Assets other than Current Assets. The term
------------------
"Additional Property Amount" means the sum of (x) $949,555 if the Premises
described on Schedule 3.06 as the "Additional Buffer Parcel" was not reflected
on the Balance Sheet and (y) $50,445 if the Nursery Property (as defined in
Section 5.28) is an Acquired Asset on the Closing Date and was not reflected on
the Balance Sheet. "Working Capital Limit" shall mean (x) $100,000,000 plus (y)
---------------------
if a Continuance Notice has been provided, the value (on the basis used for
valuing such Inventory in Closing Net Assets) of the lesser of (A) the amount of
▇▇▇▇▇ Silk in the Inventory constituting Acquired Assets on the Closing Date in
excess of the Estimated ▇▇▇▇▇ Silk Amount and (B) the Additional ▇▇▇▇▇ Silk
Amount. "Non-Current Asset Cap" means $577,900,000 less, if transfer of the
---------------------
Hydroelectric Facility does not occur at Closing as contemplated by Section
2.03, the Hydroelectric Base Amount. In all instances, the Accounting Principles
shall be used to calculate Closing Net Assets and Working Capital, whether or
not in accordance with the historical accounting practices of Seller. To the
extent the Accounting Principles permit alternate treatments of any item
comprising Net Assets or Working Capital, the particular treatment required by
the Agreed Principles shall be used and if no particular treatment is required
by the Agreed Principles, the particular treatment used in the preparation of
the Balance Sheet (as defined in Section 3.04) shall be used in the preparation
of the Statement.
(e) Seller shall not, and shall not permit any other member of the
Seller Group to, and Purchaser shall not, and shall not permit any affiliate of
Purchaser to, take any actions with respect to the accounting books and records
of the Business on which the Statement is to be based that would obstruct or
prevent the preparation of the Statement and the determination of Closing Net
Assets as provided in this Section 1.05. During the period of time from and
after the date of delivery of the Statement through the resolution of any
adjustment to the Purchase Price contemplated by this Section 1.05, each party
shall afford to the other party and any accountants, counsel or financial
advisers retained by such other party, in connection with the calculation of
Closing Net Assets, reasonable access during normal business hours to the
personnel of such party and to the books and records of the Business (if within
the control of such other party or any of its affiliates), including all
accounting working papers, to the extent relevant to the calculations
contemplated by this Section 1.05.
20
ARTICLE II
The Closing
-----------
SECTION 2.01. Closing Date. (a) Subject to Section 2.01(b) with
------------
respect to the Hydroelectric Facility, the closing of the Acquisition (the
"Closing") shall take place at the offices of Cravath, Swaine & ▇▇▇▇▇, 825
-------
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, at 10:00 a.m. on May 20, 2002, or if
all conditions set forth in Article VI have not been satisfied (or to the extent
permitted, waived by the party entitled to the benefit thereof), as soon as
practicable (but in no event less than five business days) after all the
conditions set forth in Article VI have been satisfied (or, to the extent
permitted, waived by the parties entitled to the benefits thereof), or at such
other place, time and date as shall be agreed between Seller and Purchaser. The
date on which the Closing occurs is referred to in this Agreement as the
"Closing Date".
------------
(b) The closing of the purchase and sale of the Hydroelectric Facility
(the "Hydroelectric Facility Closing"), if applicable, shall take place at the
------------------------------
offices of Cravath, Swaine & ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
at 10:00 a.m. as soon as practicable (but in no event less than five business
days) after all the conditions set forth in Section 2.03(d) have been satisfied
(or, to the extent permitted, waived by the parties entitled to the benefits
thereof), or at such other place, time and date as shall be agreed to between
Seller and Purchaser. The date on which the Hydroelectric Facility Closing
occurs is referred to in this Agreement as the "Hydroelectric Facility Closing
------------------------------
Date".
----
SECTION 2.02. Transactions To Be Effected at the Closing. At the
------------------------------------------
Closing:
(a) Seller shall deliver to Purchaser (i) such appropriately executed
(and, to the extent required by Section 2.03, undated) general warranty
deeds (in recordable form), bills of sale, assignments and other
instruments of transfer relating to the Acquired Assets and the Acquired
Coating Equipment in form and substance reasonably satisfactory to
Purchaser and its counsel and (ii) such other documents as Purchaser or its
counsel may reasonably request to demonstrate satisfaction of the
conditions and compliance with the covenants set forth in this Agreement;
(b) Purchaser shall deliver to Seller (i) payment, by wire transfer to
a bank account designated in writing by Seller (such designation to be made
at least two business days prior to the Closing Date), of immediately
available funds in an amount equal to (A) the Purchase Price plus or minus
(B) an amount equal to an estimate prepared by Seller (and reasonably
satisfactory to Purchaser) and delivered to Purchaser at least two business
days prior to the Closing Date, of any adjustment to the Purchase Price
under Section 1.05 (the Purchase Price plus or minus such estimate of any
adjustment under Section 1.05 being herein called the "Closing Date
------------
Amount") minus (C) if, pursuant to Section 2.03, the Hydroelectric Facility
------
is not being transferred to Purchaser at Closing, $5,000,000 (the
"Hydroelectric Facility Purchase Price"), (ii) such appropriately executed
-------------------------------------
(and, to the extent required by Section 2.03, undated) assumption
agreements and other instruments of assumption providing for the assumption
of the Assumed Liabilities in form and substance reasonably satisfactory to
Seller and its counsel
21
and (iii) such other documents as Seller or its counsel may reasonably
request to demonstrate satisfaction of the conditions and compliance with
the covenants set forth in this Agreement; and
(c) Seller shall, or shall cause its relevant or designated affiliates
to, and Purchaser shall, or shall cause its relevant or designated
affiliates to, enter into each of:
(i) the Transition Services Agreement substantially on the terms
and conditions set forth in Exhibit A and otherwise in form and
substance reasonably satisfactory to Seller and Purchaser (the
"Transition Services Agreement");
-----------------------------
(ii) the Option Agreement substantially on the terms and
conditions set forth in Exhibit B and otherwise in form and substance
reasonably satisfactory to Seller and Purchaser (the "Option
------
Agreement");
---------
(iii) the License Agreement substantially on the terms and
conditions set forth in Exhibit D and otherwise in form and substance
reasonably satisfactory to Seller and Purchaser (the "License
-------
Agreement");
---------
(iv) in the event Purchaser provides the notice contemplated by
Section 5.29, the Coated Paper Products Supply Agreement substantially
on the terms and conditions set forth in Exhibit E and otherwise in
form and substance reasonably satisfactory to Seller and Purchaser
(the "Paper Supply Agreement");
----------------------
(v) the Wood Supply Agreement substantially on the terms and
conditions set forth in Exhibit F and otherwise in form and substance
reasonably satisfactory to Seller and Purchaser (the "Wood Supply
-----------
Agreement");
---------
(vi) in the event Purchaser provides the Hydroelectric Facility
Notice (as defined in Section 2.03(a)) and such notice has not been
rescinded or deemed rescinded at or prior to Closing, each of the
Escrow Agreement, the Operating and Maintenance Agreement, the
Relationship Agreement and the FERC Easement (as such terms are
defined in Section 2.03(b)); and
(vii) the engagement letter required pursuant to Section 5.25.
Each of the Transition Services Agreement, the Option Agreement, the Right of
First Offer Agreement, the License Agreement, the Paper Supply Agreement (if
applicable), the Wood Supply Agreement, the Escrow Agreement (if applicable),
the Operating and Maintenance Agreement (if applicable), the Relationship
Agreement (if applicable), the FERC Easement (if applicable) and the engagement
letter is an "Ancillary Agreement" hereunder.
-------------------
SECTION 2.03. Hydroelectric Facility Closing. (a) Notwithstanding
------------------------------
Section 2.01 and Section 2.02 and without limiting Purchaser's rights under
Article VI or the obligations of Seller and Purchaser under Section 5.05, if the
Final Order (as defined
22
in Section 2.03 (e)) has not been obtained prior to Closing, Purchaser may by
written notice to Seller at least five business days prior to Closing (the
"Hydroelectric Facility Notice") elect to delay the purchase of the
-----------------------------
Hydroelectric Facility pursuant to the arrangements set forth in this Section
2.03 and, subject to the terms and conditions of this Agreement, proceed with
the Closing with respect to the rest of the Business and Acquired Assets. Any
Hydroelectric Facility Notice (i) shall be deemed rescinded in the event the
Final Order is obtained at any time prior to Closing and (ii) may be rescinded
by Purchaser at any time prior to Closing. If the Final Order is obtained within
five business days prior to a scheduled Closing, either of Purchaser or Seller
shall have the right, by written notice to the other party, to delay the Closing
until the fifth business day following receipt of the Final Order.
(b) If Purchaser delivers a Hydroelectric Facility Notice to Seller
prior to Closing and such notice has not been rescinded or deemed rescinded,
then at Closing (i) Seller shall, or shall cause its relevant affiliates to,
transfer to Purchaser or its designated affiliate, all real property (excluding
buildings, improvements and fixtures thereon) related to the Hydroelectric
Facility pursuant to a general warranty deed and Purchaser shall, or shall cause
its designated affiliate to, grant to Seller an easement or a ground lease (the
"FERC Easement"), solely for the benefit of Seller, reasonably satisfactory to
-------------
Seller and Purchaser, sufficient for Seller to continue to operate the
Hydroelectric Facility and having a term not shorter than the term of the
Operating and Maintenance Agreement (as defined below); (ii) Seller shall, or
shall cause its relevant affiliates to, and Purchaser shall, or shall cause its
designated affiliates to, enter into an agreement in form and substance
reasonably satisfactory to each of them (the "Relationship Agreement"), pursuant
----------------------
to which (A) Seller and its relevant affiliates will be prohibited from
transferring all or any portion of the Hydroelectric Facility without the prior
written consent of Purchaser, (B) Purchaser retains the right to transfer the
real property related to the Hydroelectric Facility, subject to the ground lease
or easement referred to above, (C) Seller and its relevant affiliates shall, to
the extent permitted by applicable law, agree to transfer the Hydroelectric
Facility (other than the real property transferred to Purchaser) to any person
designated by Purchaser, subject to receipt of approval for transfer of the FERC
License to such transferee and release to Seller of the Hydroelectric Facility
Purchase Price, (D) Purchaser shall retain the right to subdivide the real
property subject to the FERC Easement in order to reduce the amount of property
subject to such easement or ground lease, provided that sufficient real property
--------
remains subject to the FERC Easement to permit Seller to comply with the FERC
License for the Hydroelectric Facility and (E) promptly following any
termination by Purchaser pursuant to Section 2.04, Purchaser or its designated
affiliate shall transfer to Seller or its relevant affiliate all real property
then subject to such easement or ground lease referred to above; Seller and
Purchaser shall execute an Escrow Agreement in form and substance reasonably
satisfactory to each of them (the "Escrow Agreement") with an Escrow Agent
----------------
reasonably satisfactory to each of them (the "Escrow Agent"); (iii) Seller
------------
shall, or shall cause its relevant affiliates to, and Purchaser shall, or shall
cause its designated affiliates to, enter into an agreement providing for the
operation and maintenance, substantially consistent with past practice, of the
Hydroelectric Facility by Purchaser on behalf of Seller during the Escrow Period
(as defined in Section 2.03(e)) in form and substance reasonably satisfactory to
each of them (the "Operating and Maintenance Agreement"), which Operating and
-----------------------------------
Maintenance Agreement (A) shall have a term of 50 years subject to automatic
(unless canceled by either party on notice to be agreed) yearly renewal, (B)
shall terminate upon the earlier to occur of a Hydroelectric Facility Closing
Date and a termination by Purchaser pursuant to Section 2.04 and (C) shall
provide that Purchaser
23
pays all costs of operating the Hydroelectric Facility and receives, at no cost,
all power generated by the Hydroelectric Facility; (iv) Seller shall deliver to
the Escrow Agent to be held in escrow pursuant to the Escrow Agreement an
appropriately executed (but undated) general warranty deed (with respect to any
real property, buildings, improvements and fixtures not transferred at the
Closing), ▇▇▇▇ of sale, assignment and other instruments of transfer relating to
the Hydroelectric Facility in form and substance reasonably satisfactory to
Purchaser and its counsel (collectively, the "Hydroelectric Facility Transfer
-------------------------------
Documents"); and (v) Purchaser shall deliver to the Escrow Agent, to be held in
---------
escrow pursuant to the Escrow Agreement, the Hydroelectric Facility Purchase
Price. Upon the Hydroelectric Facility Closing or termination of the transfer of
the Hydroelectric Facility pursuant to Section 2.04., the Relationship
Agreement, FERC Easement, Escrow Agreement and Operating and Maintenance
Agreement shall terminate, except as may otherwise be agreed by Purchaser and
Seller.
(c) On the terms and subject to the provisions of this Agreement, at
the Hydroelectric Facility Closing (if any), Seller shall, and shall cause each
other relevant member of the Seller Group to, sell, assign, transfer, convey and
deliver (including by taking all action necessary to cause the Escrow Agent to
date, as of the effective date of the FERC Transfer Approval, and release to
Purchaser the Hydroelectric Facility Documents from escrow) to Purchaser or one
or more of its designated affiliates, and Purchaser shall, or shall cause its
designated affiliates to, purchase from the Seller Group all the right, title
and interest as of the Hydroelectric Facility Closing of the Seller Group in, to
and under the Hydroelectric Facility by taking all action necessary to cause the
Escrow Agent to release the Hydroelectric Facility Purchase Price from escrow to
Seller.
(d) The obligation of Purchaser to purchase the Hydroelectric Facility
at the Hydroelectric Facility Closing and the obligation of Seller to sell the
Hydroelectric Facility at the Hydroelectric Facility Closing is subject to
receipt of the Final Order and the satisfaction or waiver on or prior to the
Hydroelectric Facility Closing Date of the conditions set forth in Sections
6.01(a) and (b) to the extent such conditions relate to the Hydroelectric
Facility. The obligation of Purchaser to purchase the Hydroelectric Facility at
the Hydroelectric Facility Closing by means of the release of the Hydroelectric
Facility Purchase Price by the Escrow Agent to Seller is subject to (i) the
satisfaction (or waiver by Purchaser) on or prior to the Hydroelectric Facility
Closing Date of the conditions set forth in Sections 6.02(a), (b), (d), (e),
(f), (g), (h), (k) and (l) to the extent such conditions relate to the
Hydroelectric Facility and (ii) the receipt by Purchaser of an opinion dated the
Closing Date of ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, energy counsel to Seller, substantially in a
form reasonably satisfactory to Purchaser and Seller and to be attached as an
exhibit to the Relationship Agreement. The obligation of Seller to sell, assign,
convey, and deliver the Hydroelectric Facility at the Hydroelectric Facility
Closing is subject to the satisfaction (or waiver by Seller) on or prior to the
Hydroelectric Facility Closing Date of the conditions set forth in Sections
6.03(a), (b), (c), (e) and (f) to the extent such conditions relate to the
Hydroelectric Facility. Neither Purchaser nor Seller may rely on the failure of
any condition set forth in this Section 2.03(d) to be satisfied (other than
receipt of the Final Order) if such failure was caused by such party's failure
to act in good faith or to use its reasonable efforts to cause the Hydroelectric
Facility Closing to occur, as required by Section 5.05. For purposes of this
Section 2.03(d), references in the conditions set forth in Article VI to the
Closing or the Closing Date shall be deemed to be references to the
Hydroelectric Closing or the Hydroelectric Closing Date, respectively.
24
(e) During the period between the Closing and the Hydroelectric
Facility Closing or termination of the transfer of the Hydroelectric Facility
pursuant to Section 2.04, as the case may be (the "Escrow Period"), and
-------------
notwithstanding any provision contained in this Agreement, Seller, its
successors, or its assigns shall have the right to perform any and all acts
required by an order of the FERC affecting the FERC License without the prior
approval of Purchaser until FERC's order approving the transfer of the FERC
License from Seller to Purchaser is issued ("FERC Transfer Approval") without
----------------------
any terms or conditions unacceptable to Purchaser and is final, in effect, and
not subject to further review or appeal (the "Final Order").
-----------
(f) Notwithstanding any other provisions of this Agreement, the
parties agree that if the Hydroelectric Facility is not transferred to Purchaser
or its designee at the Closing, then (i) the Hydroelectric Facility shall not be
deemed an Acquired Asset for purposes of Section 1.05(d) and (ii) from the
Closing through the earliest of any Hydroelectric Facility Closing or
termination of the transfer of the Hydroelectric Facility pursuant to Section
2.04 and for purposes of determining the transfer of Acquired Assets and the
allocation of Assumed Liabilities and Excluded Liabilities related to the
Hydroelectric Facility, all of the terms of this Agreement (including the date
as of which or from which certain types of liabilities, obligations or
commitments are assumed by Purchaser or as of which or through which certain
types of liabilities, obligations or commitments are retained by the Seller
Group, pursuant to Section 1.03, the date through which the covenants set forth
in Article V apply, the date of selection of Non-continuing Participants and
Continued Employees pursuant to Section 5.09, the dates on which the
representations and warranties in Article III and IV are made, the date as to
which the conditions set forth in Article VI apply and the survival periods of
representations and warranties set forth in Section 8.06) and references therein
to the Closing and the Closing Date shall apply mutatis mutandis to the
Hydroelectric Facility from Closing through the Hydroelectric Facility Closing
or termination of the transfer of the Hydroelectric Facility pursuant to Section
2.04 as if the Hydroelectric Facility Closing Date were the Closing Date and the
Hydroelectric Facility Closing were the Closing.
SECTION 2.04. Termination of Hydroelectric Transfer.
-------------------------------------
(a) Notwithstanding anything to the contrary in this Agreement, if the Closing
occurs and the purchase of the Hydroelectric Facility is delayed as contemplated
by Section 2.03, the obligation of Purchaser to purchase the Hydroelectric
Facility (and assume related Assumed Liabilities) and the obligation of Seller
to sell the Hydroelectric Facility may be terminated and the transfer of the
Hydroelectric Facility contemplated by this Agreement may be abandoned at any
time prior to the Hydroelectric Facility Closing:
(i) by mutual written consent of Seller and Purchaser; and
(ii) by Purchaser if the Hydroelectric Facility Closing does not occur
on or prior to November 20, 2002 (the "Hydroelectric Termination Date").
------------------------------
(b) In the event of termination by Purchaser pursuant to this Section
2.04, written notice thereof shall forthwith be given to Seller and the transfer
of the Hydroelectric Facility contemplated by this Agreement shall be
terminated, without further action by any party. Upon any such termination,
Purchaser and Seller (i) shall be released from their respective obligations
hereunder to purchase (and assume related Assumed Liabilities) and sell the
Hydroelectric Facility, and (ii) shall promptly take all action necessary to
terminate the FERC Easement and cause the Escrow Agent to release
25
the Hydroelectric Facility Documents to Seller and the Hydroelectric Purchase
Price (and any earnings therefrom) to Purchaser. Subject to Section 8.10 hereof,
termination of the transfer of the Hydroelectric Facility shall not be deemed to
release any party from any other obligation hereunder or any liability for any
breach by such party of the terms and provisions of this Agreement or to impair
the right of any party to compel specific performance by any other party of its
obligations under this Agreement.
SECTION 2.05. Risk of Loss. Without limiting Section 6.06, until
------------
Closing (and, in the case of the Hydroelectric Facility, until the Hydroelectric
Facility Closing, if applicable), the applicable members of the Seller Group
shall bear the risk of loss or damage to the Acquired Assets from fire, casualty
or any other occurrence.
ARTICLE III
Representations and Warranties of Seller
----------------------------------------
Seller hereby represents and warrants to Purchaser and Purchaser
Guarantor, as of the date of this Agreement and as of the Closing Date, as
follows:
SECTION 3.01. Organization, Standing and Power. Each of Seller, the
--------------------------------
Duluth & Northeastern Railroad Company, each Acquired Entity and each other
member of the Seller Group is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized and has
full corporate or limited liability company power and authority (as applicable)
and possesses all governmental franchises, licenses, permits, authorizations and
approvals necessary to enable it to own, lease or otherwise hold its properties
and assets and to conduct the Business and its other businesses as presently
conducted, other than such franchises, licenses, permits, authorizations and
approvals the lack of which, individually or in the aggregate, have not had and
could not reasonably be expected to have a Seller Material Adverse Effect (as
defined in Section 9.04(b)). Each of Seller, the Duluth & Northeastern Railroad
Company and each Acquired Entity is duly qualified to do business as a foreign
corporation or limited liability company (as applicable) in each jurisdiction
where the character of the Acquired Assets held by it or the nature of the
Business make such qualification necessary for it to conduct the Business as
currently conducted by it except where the failure to qualify would not have a
Seller Material Adverse Effect. Seller has delivered to Purchaser true and
complete copies of the respective certificates of incorporation and by-laws or
other organizational documents of Seller, the Duluth & Northeastern Railroad
Company and each Acquired Entity, in each case as amended through the date of
this Agreement.
SECTION 3.02. Authority; Execution and Delivery; Enforceability.
-------------------------------------------------
Seller has full corporate power and authority to execute this Agreement and each
member of the Seller Group has full corporate or limited liability company power
and authority (as applicable) to execute the Ancillary Agreements to which it
is, or is specified to be, a party and to consummate the Acquisition and the
other transactions contemplated hereby and thereby. The execution and delivery
by Seller of this Agreement and by each member of the Seller Group of the
Ancillary Agreements to which it is, or is specified to be, a party and the
consummation by Seller of the Acquisition and the other transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate or limited liability company action (as applicable). Seller has duly
executed and delivered
26
this Agreement and prior to the Closing each member of the Seller Group will
have duly executed and delivered each Ancillary Agreement to which it is, or is
specified to be, a party, and this Agreement constitutes, and each Ancillary
Agreement to which it is, or is specified to be, a party will after the Closing
constitute, its legal, valid and binding obligation, enforceable against it in
accordance with its terms except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and general equitable principles regardless of
whether such enforceability is considered in a proceeding at law or in equity.
SECTION 3.03. No Conflicts; Consents. The execution and delivery by
----------------------
Seller of this Agreement do not, the execution and delivery by each member of
the Seller Group of each Ancillary Agreement to which it is, or is specified to
be, a party will not, and the consummation of the Acquisition and the other
transactions contemplated hereby and thereby and compliance by each member of
the Seller Group with the terms hereof and thereof will not conflict with, or
result in any violation of or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancelation or
acceleration of any obligation or to loss of a material benefit under, or to
increased, additional, accelerated or guaranteed rights or entitlements of any
person under, or result in the creation of any Lien upon any of the properties
or assets of Seller or any of its subsidiaries under, any provision of (i) the
certificate of incorporation or by-laws or other organizational documents of
Seller or any of its subsidiaries, (ii) except as set forth on Schedule 3.03,
any Contract involving the payment by any party of at least $50,000 or affecting
the use of any asset or assets with an aggregate original cost, replacement cost
or fair market value of at least $50,000 or which is otherwise material to the
Business or the ability of any member of the Seller Group to consummate the
Acquisition or the other transactions contemplated hereby or by the Ancillary
Agreements, to which Seller or any of its subsidiaries is a party or by which
any of their respective properties or assets is bound or (iii) any judgment,
order or decree ("Judgment") or statute, law (including common law), ordinance,
--------
rule or regulation ("Applicable Law") applicable to Seller or any of its
--------------
subsidiaries or their respective properties or assets. No consent, approval,
license, permit, order or authorization ("Consent") of, or registration,
-------
declaration or filing with, any Federal, state, local or foreign government or
any court of competent jurisdiction, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign (a
"Governmental Entity") is required to be obtained or made by or with respect to
-------------------
Seller or any of its subsidiaries in connection with the execution, delivery and
performance of this Agreement or any Ancillary Agreement or the consummation of
the Acquisition or the other transactions contemplated hereby and thereby, other
than (i) those set forth on Schedule 3.03 and (ii) those that may be required
solely by reason of Purchaser's (as opposed to any other third party's)
participation in the Acquisition and the other transactions contemplated hereby
and by the Ancillary Agreements.
SECTION 3.04. Financial Statements; Liabilities. (a) Schedule 3.04(a)
---------------------------------
sets forth the unaudited statement of financial position of the Business (other
than the Excluded Brainerd Assets) (the "Balance Sheet") at November 30, 2001
-------------
and the unaudited statement of financial position and the related unaudited
statements of operations, shareholders' equity and cash flows of the Business at
December 31, 2001 and December 31, 2000 and for each of the years then ended
(collectively, with the Balance Sheet, the "Financial Statements"; the unaudited
--------------------
statement of financial position at December 31, 2001 is referred to herein as
the "December Balance Sheet"). Except as set forth in Schedule 3.04(a) with
----------------------
respect to the Balance Sheet, the
27
Financial Statements have been and the Audited Financial Statements (as defined
in Section 5.25), to the extent delivered at or prior to Closing, will be
prepared in conformity with GAAP consistently applied (except in each case as
described in the notes thereto and, in the case of the Balance Sheet, except for
the absence of notes thereto and subject to normal recurring year-end
adjustments) and on that basis fairly present the financial position and results
of operations of the Business (other than the Excluded Brainerd Assets in the
case of the Balance Sheet) as of the respective dates thereof and for the
respective periods indicated therein.
(b) The Business does not have any liabilities or obligations of any
nature (whether accrued, absolute, contingent, unasserted or otherwise), except
(i) as reflected or reserved against in the December Balance Sheet and the notes
thereto, (ii) for items set forth in Schedule 3.04(b), (iii) for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice since the date of the December Balance Sheet and not in violation of
this Agreement and which either (x) are included in the calculation of Closing
Net Assets or (y) are Excluded Liabilities that could not reasonably be expected
to have a Seller Material Adverse Effect, (iv) for Taxes, (v) for Excluded
Liabilities related solely to the operation of the Brainerd Facility or the
Excluded Brainerd Assets that could not reasonably be expected to have a Seller
Material Adverse Effect, (vi) for Excluded Liabilities incurred after the date
hereof not in violation of this Agreement that could not reasonably be expected
to have a Seller Material Adverse Effect, (vii) for liabilities and obligations
pursuant to Permitted Liens, the express terms of Material Assigned Contracts
(as defined in Section 3.08(b)) and Permits listed on Schedule 3.13 and (viii)
for liabilities and obligations incurred not in violation of this Agreement and
in an amount no greater than $25,000 for any individual liability or obligation
and no greater than $1,000,000 in the aggregate for all such liabilities and
obligations.
SECTION 3.05. Assets Other than Real Property Interests. (a) Seller or
-----------------------------------------
any other member of the Seller Group has good and valid title to all the
Acquired Assets and all the Acquired Coating Equipment and each Acquired Entity
has good and valid title to all of its assets, in each case free and clear of
all mortgages, liens, security interests, charges, easements, leases, subleases,
covenants, rights of way, options, claims, restrictions or encumbrances of any
kind (collectively, "Liens"), except (i) such as are set forth in Schedule
-----
3.05(a) or reflected on the December Balance Sheet (all of which shall be
discharged prior to the Closing other than those specifically identified on
Schedule 3.05(a) as not being discharged prior to Closing), (ii) Liens under the
Cross-Border Leases and the IRB Financings (all of which shall be discharged
prior to Closing except, in the case of Liens under Cross-Border Leases, to the
extent Purchaser assumes the related Cross-Border Lease pursuant to a
Cross-Border Lease Assumption), (iii) mechanics', carriers', workmen's,
repairmen's or other like Liens arising or incurred in the ordinary course of
business, Liens arising under original purchase price conditional sales
contracts, personal property leases and equipment leases with third parties
entered into in the ordinary course of business and liens for Taxes that are not
due and payable or that may thereafter be paid without penalty, and (iv) other
imperfections of title or encumbrances, if any, that individually or in the
aggregate, do not materially impair, and could not reasonably be expected to
materially impair, the continued use and operation of the assets to which they
relate in the conduct of the Business as presently conducted (the Liens
described in clauses (ii) (to the extent not required to be discharged prior to
Closing), (iii) and (iv) above, together with the Liens referred to in clauses
(ii) through (vi) of Section 3.06, are referred to collectively as "Permitted
---------
Liens").
-----
28
(b) Except for the Acquired Interests, there are no equity or other
membership interests in any Acquired Entity authorized, issued, reserved for
issuance or outstanding. All Acquired Interests are duly authorized and validly
issued. There are no options, warrants or other rights to acquire equity or
other membership interests or securities (or securities convertible into or
exercisable or exchangeable for equity or other membership interests or
securities) from any Acquired Entity. Other than this Agreement and the limited
liability company agreements for each Acquired Entity, the Acquired Interests
are not subject to any voting trust agreement or other Contract, including any
Contract restricting or otherwise relating to the voting, distribution rights or
disposition of such Acquired Interests.
(c) This Section 3.05 does not relate to real property or interests in
real property, such items being the subject of Section 3.06, or to Intellectual
Property, such items being the subject of Section 3.07.
SECTION 3.06. Real Property. (a) Schedule 3.06 sets forth a complete
-------------
list of all real property and interests in real property owned in fee simple or
any other form of ownership by Seller or any other member of the Seller Group
that is located in Carlton County, Minnesota or that is otherwise primarily
used, primarily held for use or intended to be primarily used in the operation
or conduct of the Business, other than any such property or interest
constituting an Excluded Asset (individually, an "Owned Property") and
--------------
identifies any material easement or operating agreements relating thereto.
Schedule 3.06 sets forth a complete list of all real property and interests in
real property leased to Seller or any other member of the Seller Group that is
located in Carlton County, Minnesota or that is otherwise primarily used,
primarily held for use or intended to be used primarily in the operation or
conduct of the Business and further identifies those properties leased to Seller
that are distribution facilities (individually, a "Distribution Center
-------------------
Facility"), other than any such property or interest constituting an Excluded
--------
Asset (each leased property so listed on Schedule 3.06 individually, a "Leased
------
Property") and identifies any material base leases, ground leases, easement
--------
agreements or operating agreements relating thereto. Schedule 3.06 sets forth a
complete list of all Owned Property and Leased Property that are leased or
subleased from any member of the Seller Group (as lessor) to or for the use or
benefit of any person other than a member of the Seller Group (individually, a
"Property Leased to a Third Party"). Seller or another member of the Seller
--------------------------------
Group has good, marketable and insurable fee title to all Owned Property and
good and valid title to the leasehold estates in all Leased Property and either
good, marketable and insurable fee title or good, marketable and valid title to
the leasehold estates in all Property Leased to a Third Party (an Owned Property
or Leased Property or Property Leased to a Third Party being sometimes referred
to herein, individually, as a "Business Property"), in each case free and clear
-----------------
of all Liens, except (i) Liens described in clause (ii) (to the extent not
required to be discharged prior to Closing), (iii) or (iv) of Section 3.05(a),
(ii) such as are set forth in Schedule 3.06, (iii) leases, subleases and similar
agreements set forth in Schedule 3.08, (iv) easements, covenants, rights-of-way
and other similar restrictions of record, (v) any conditions that may be shown
by a current, accurate survey or physical inspection of any Business Property
made prior to Closing and (vi) (A) zoning, building and other similar ordinances
and governmental regulations, (B) Liens that have been placed by any developer,
landlord or other third party on property over which Seller or any member of the
Seller Group has easement rights or on any Leased Property and subordination or
similar agreements relating thereto and (C) unrecorded easements, covenants,
rights-of-way and other similar restrictions. None of the items set forth in
clauses (ii) (to the extent any Lien set forth in
29
Schedules 3.06 is of the type described in clause (iv), (v) or (vi)), (iv), (v)
and (vi) above, individually or in the aggregate, materially impairs, or could
reasonably be expected to materially impair, the continued use and operation of
the Business Property to which they relate in the conduct of the Business as
presently conducted.
(b) Subject, in the case of Leased Properties that are sales offices,
to the express rights of the lessor under the express written terms of any such
lease in the absence of default, the Seller Group now has, and on the Closing
Date Purchaser or Purchaser's designated affiliate shall have, peaceful and
undisturbed exclusive possession under all the Seller Group's leases of Leased
Property; such leases are valid and in full force and effect and binding and
enforceable in accordance with their respective terms against the relevant
member of the Seller Group and, to Seller's knowledge, each other party thereto,
except as the same may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' right
generally and general equitable principles regardless of whether such
enforceability is considered in a proceeding at law or in equity, and such
leases have not been amended or modified; and there is not, under any of such
leases, any existing default, event of default or event which with notice or
lapse of time or both would constitute a default of any member of the Seller
Group or, to Seller's knowledge, of any other party thereto. Except to the
extent that third party approval of the transfers contemplated hereby may be
required by the terms of any such agreements, none of the rights of the Seller
Group under any of such leases will be subject to termination or modification as
a result of the consummation of the transactions contemplated by this Agreement.
(c) Except as set forth on Schedule 3.06(c), all of the leases related
to Property Leased to a Third Party are valid, binding and in full force and
effect and are enforceable in accordance with their respective terms against the
applicable member of the Seller Group and, to Seller's knowledge, each other
party thereto, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' right generally and general equitable principles regardless of
whether such enforceability is considered in a proceeding at law or in equity,
and such leases have not been amended or modified; no such lease, nor any other
agreement relating to the Business Property, contains any option or right
(conditional or otherwise) to purchase all or any part of the Business Property
or any rights therein; each applicable member of the Seller Group has performed
all material obligations required to be performed by it to date under each such
lease; and there has been no material breach or default (or event which with
notice or lapse of time or both would constitute an event of default) under any
such lease by any member of the Seller Group, or, to the knowledge of Seller,
any other party thereto.
(d) Except as set forth on Schedule 3.06(d), (i) there is adequate
access between each Business Property and public roads, and there are no pending
or, to Seller's knowledge, threatened Proceedings that could have the effect of
impairing or restricting such access, and (ii) there are no material defects in
the roof, footings, foundation, sprinkler mains, structural, mechanical and HVAC
systems and masonry walls in any of the improvements upon each Business Property
other than defects resulting from normal wear and tear that are reasonably
expected to be Repaired through the ordinary course maintenance program of the
Business prior to having any material affect on the continued conduct of the
Business or the continued use of any Acquired Asset (other than by reason of
such Repair) and all periodic maintenance has been done and is being done
consistent with past practice. Set forth on Schedule 3.06(d) are all significant
repairs or
30
replacements of or to the Business Property constituting capital expenditures
planned through December 31, 2002. As used herein, the term "Repaired" means
--------
repaired such that the item being repaired will be able to operate for its
remaining useful life in a manner consistent with past practices.
(e) Except as set forth in Schedule 3.06(e), none of the Premises
located in the state of Minnesota comprise "agricultural land" as such terms are
defined in each of Minnesota Statutes, Sections 500.221 and 500.24.
(f) There are no pending or, to the knowledge of Seller, threatened
condemnation proceedings relating to the Premises.
(g) Seller has not made, and has no knowledge that any other person
has made, any written or verbal commitments to any governmental authority,
utility company, school board, church or other religious body, or any homeowners
association, or to any other organization, group or individual, relating to the
Premises which would impose an obligation upon Purchaser or its successors or
assigns to make any contribution or dedications of money or land or to
construct, install, or maintain any improvements of a public or private nature
on or off the Premises, other than commitments to make cash contributions that
do not exceed $50,000 in the aggregate.
(h) Seller has not received written or, to Seller's knowledge, oral
notice, and has no knowledge that any governmental or quasi-governmental agency
or authority intends to commence construction of any special or off-site
improvements or impose any special or other assessment against the Premises or
any part thereof. There are no impact fees or impact fee credits attributable to
the Premises.
(i) Attached hereto as Schedule 3.06(i) are Minnesota Department of
Health Well Disclosure Certificates for every well located on the Premises in
Minnesota. This disclosure is made pursuant to Minnesota Statutes, Section
103I.235.
(j) Pursuant to Minnesota Statutes, Section 115.55, Subd. 6, Seller
hereby discloses to Purchaser, the following information on how sewage generated
at the property is managed.
(i) With respect to the Cloquet Facility, Seller hereby discloses
to Purchaser that sanitary sewage is discharged to the Western Lake
Superior Sanitary District (the "WLSSD"), a facility permitted by the
-----
Minnesota Pollution Control Agency, and that landfill leachate, some
stormwater (collected from certain process areas and building roof
drains) and process wastewater from pulp and paper-making processes
are pretreated on-site and then discharged to the WLSSD under WLSSD
Pretreatment Permit #007.
(ii) With respect to the Railroad, Seller hereby discloses to
Purchaser that sanitary sewage from the engines and the buildings are
disposed of either in the Cloquet Facility's wastewater pre-treatment
facility or the City of Cloquet's municipal wastewater treatment
facility, both of which are licensed by the Minnesota Pollution
Control Agency.
31
SECTION 3.07. Intellectual Property. (a) Schedule 3.07 sets forth a
---------------------
true and complete list of all Intellectual Property, owned, used with the
permission of the owner or licensor, filed by or licensed to any member of the
Seller Group and used, held for use, intended to be used or reasonably necessary
to or required in the operation or conduct of the Business (other than operation
of the Brainerd Facility) or the continued use of any Acquired Asset, other than
so-called "embedded technology" relating to equipment purchased from third party
manufacturers and other than unregistered trademarks, service marks, trade
names, trade dress, business names, brand names, domain names, designs, know-how
and copyrights that, individually and in the aggregate, are not material to the
conduct of the Business (other than operation of the Brainerd Facility) as
presently conducted or the continued use of any Acquired Asset. With respect to
all Assigned Intellectual Property that constitutes Acquired Assets and is
registered or subject to an application for registration, Schedule 3.07 sets
forth a list of all jurisdictions in which such Assigned Intellectual Property
that constitutes Acquired Assets is registered or registrations applied for and
all registration and application numbers. Except as set forth in Schedule 3.07,
(i) all the Assigned Intellectual Property has been duly registered in, filed in
or issued by the appropriate Governmental Entity where such registration, filing
or issuance is necessary or appropriate for the conduct of the Business as
conducted on the date of the Balance Sheet and as presently conducted, (ii) a
member of the Seller Group is (or, in the case of so-called "embedded
technology" relating to equipment purchased from third party manufacturers, is
to the knowledge of Seller), and, subject to the License Agreement, on the
Closing Date Purchaser or Purchaser's designated affiliate will be (or, in the
case of such "embedded technology", will be to the knowledge of Seller), the
sole and exclusive owner of, and such member of the Seller Group has (or, in the
case of such "embedded technology", has to the knowledge of Seller), and on the
Closing Date Purchaser or Purchaser's designated affiliate will have (or, in the
case of such "embedded technology", will have to the knowledge of Seller), in
connection with the Business, the right to use, execute, reproduce, display,
perform, modify, enhance, distribute, prepare derivative, continuation,
divisional and improvement works of and sublicense, without payment to any other
person, all such Assigned Intellectual Property and the consummation of the
Acquisition, the ownership of the Business by Purchaser and the other
transactions contemplated hereby does not and will not conflict with, alter or
impair any such rights, other than as is not known to Seller and could not
result in any material liability or have any adverse impact on the continued
conduct of the Business (other than operation of the Brainerd Facility) or the
continued use of any Acquired Asset and (iii) during the past two years no
member of the Seller Group has received any written or, to Seller's knowledge,
oral communication from any person asserting any ownership interest in any
Assigned Intellectual Property or Assigned Technology that constitute Acquired
Assets.
(b) No member of the Seller Group has granted any license of any kind
relating to any Assigned Technology or Assigned Intellectual Property that
constitutes Acquired Assets or the marketing or distribution thereof except as
set forth in Schedule 3.07. No member of the Seller Group is bound by or a party
to any option, license or similar Contract relating to the Intellectual Property
of any other person for the use of such Intellectual Property that is necessary
to the conduct of the Business or requires any payment, except as set forth in
Schedule 3.07 and except for so-called "shrink-wrap" license agreements relating
to computer software licensed in the ordinary course of business. Except as set
forth in Schedule 3.07, the conduct of the Business as conducted on the date of
the Balance Sheet and as presently conducted, to the extent it relies on or
utilizes Technology or Intellectual Property licensed or used with the
32
permission of the owner (including so-called "embedded technology" relating to
equipment purchased from third party manufacturers), does not to the knowledge
of Seller and, to the extent it otherwise relies on or utilizes Technology or
Intellectual Property, does not violate, conflict with or infringe the
Intellectual Property of any other person other than violations, conflicts and
infringements not known to Seller that could not result in any material
liability or have any adverse impact on the continued conduct of the Business
(other than operation of the Brainerd Facility) or continued use of any Acquired
Asset. Except as set forth in Schedule 3.07, (i) no claims are pending or, to
the knowledge of Seller, threatened, against any member of the Seller Group by
any person with respect to the ownership, validity, enforceability,
effectiveness or use in the Business of any Intellectual Property and (ii)
during the past two years Seller and its affiliates have not received any
written or, to the knowledge of Seller, oral communication alleging that Seller
or any of its affiliates has in the conduct of the Business violated any rights
relating to Intellectual Property or Technology of any person.
(c) No former or current member of management or key personnel of the
Business, including all former and current employees, agents, consultants and
independent contractors who have contributed to or participated in the
conception and development of material Assigned Technology that constitutes
Acquired Assets (collectively, "Personnel") has any claim against any member of
---------
the Seller Group in connection with such person's involvement in the conception
and development of any such Assigned Technology and, to the knowledge of Seller,
no such claim has been asserted or is threatened. To the knowledge of Seller,
none of the current officers and employees of any member of the Seller Group has
any patents issued or applications pending for any device, process, design or
invention of any kind now used or needed by any member of the Seller Group in
the furtherance of the Business, which patents or applications have not been
assigned to a member of the Seller Group, with such assignment duly recorded in
the United States Patent and Trademark Office.
SECTION 3.08. Contracts. (a) Except as set forth in (and, to the
---------
extent provided in Section 3.08(d), only as set forth in the relevant subsection
of) Schedule 3.08 and except for Contracts relating solely to Excluded Assets
(other than Acquired Coating Equipment) or entered into after the date hereof
not in breach of Section 5.01 or any other provision of this Agreement, no
member of the Seller Group is a party to or bound by any Contract that is
primarily used, primarily held for use, intended primarily for use, or
reasonably necessary for or required in, or that primarily arises out of, the
operation or conduct of the Business or that binds or affects any Acquired Asset
or Acquired Coating Equipment (or the use thereof) and that is:
(i) an employment agreement or employment contract other than "at
will" arrangements;
(ii) a collective bargaining agreement or other Contract with any
labor organization, union or association;
(iii) (A) a covenant not to compete (other than pursuant to any radius
restriction contained in any lease, reciprocal easement or development,
construction, operating or similar agreement) or (B) other covenant of any
member of the Seller Group restricting (x) the development, manufacture,
marketing or distribution of the products and services of the Business or
(y) the use of any Acquired Asset or Acquired Coating Equipment ;
33
(iv) a Contract with (A) any shareholder with beneficial ownership of
at least 100,000 shares of common stock of Seller or affiliate of Seller or
(B) any current or former officer, director or employee of Seller or any of
its affiliates (other than employment agreements and "at will" arrangements
covered by clause (i) above);
(v) a lease, sublease or similar Contract with any person under which
any member of the Seller Group is a lessor or sublessor of, or makes
available for use to any person, (A) any Business Property or (B) any
portion of any premises otherwise occupied by any member of the Seller
Group;
(vi) a lease, sublease or similar Contract with any person under which
(A) any member of the Seller Group is lessee of, or holds or uses, any
machinery, equipment, vehicle or other tangible personal property owned by
any person or (B) any member of the Seller Group is a lessor or sublessor
of, or makes available for use by any person, any tangible personal
property owned or leased by any member of the Seller Group, in any such
case that has an aggregate future liability or receivable, as the case may
be, in excess of $100,000 or is not terminable by such member of the Seller
Group by notice of not more than 60 days for a cost of less than $50,000;
(vii) (A) a continuing Contract (other than a purchase order) for the
future purchase of materials, supplies or equipment that has an aggregate
future liability in excess of $100,000 and is not otherwise disclosed
pursuant to clause (xvi) below or (B) a management, service, consulting or
other similar Contract that has an aggregate future liability in excess of
$50,000;
(viii) a license, sublicense, option or other Contract relating, in
whole or in part, to any Assigned Intellectual Property or any Assigned
Technology (including any license or other Contract under which any member
of the Seller Group is licensee or licensor of any Assigned Intellectual
Property or any Assigned Technology other than with respect to so-called
"embedded technology" relating to equipment purchased from third party
manufacturers and so called "shrink-wrap" license agreements relating to
computer software licensed, in each case, by a member of the Seller Group
as licensee);
(ix) (A) a Contract under which any member of the Seller Group has
borrowed any money from, or issued any note, bond, debenture or other
evidence of indebtedness to, any person or (B) any other note, bond,
debenture or other evidence of indebtedness for borrowed money issued to
any person (collectively, "Indebtedness");
------------
(x) a Contract (including any so-called take-or-pay or keepwell
agreement) under which (A) any person has directly or indirectly guaranteed
indebtedness, liabilities or obligations of any member of the Seller Group
or (B) any member of the Seller Group has directly or indirectly guaranteed
indebtedness, liabilities or obligations of any other person (in each case
other than endorsements for the purpose of collection in the ordinary
course of business);
(xi) a Contract under which any member of the Seller Group has,
directly or indirectly, made any advance, loan, extension of credit or
capital contribution
34
to, or other investment in, any person (other than any member of the Seller
Group) other than extensions of trade credit in the ordinary course of
business and advances made in the ordinary course of business to employees
of the Seller Group for travel expenses;
(xii) a Contract granting a Lien upon any Business Property or any
other Acquired Asset or any Acquired Coating Equipment other than a
Permitted Lien;
(xiii) a Contract providing for indemnification (other than for breach
thereof) of any person with respect to liabilities relating to any current
or former business of any member of the Seller Group or any predecessor
person;
(xiv) a power of attorney (other than a power of attorney given in the
ordinary course of business with respect to routine tax matters) that would
be binding on Purchaser or with respect to any Acquired Asset, Acquired
Coating Equipment or Assumed Liability after the Closing;
(xv) a confidentiality agreement (other than a confidentiality
agreement entered into in the ordinary course of business and not with any
person who (together with its affiliates) competes in any manner with the
Business);
(xvi) a purchase order (other than one-time purchase orders entered
into in the ordinary course of business that (A) except to the extent the
vendor has asserted terms and conditions that have not been expressly
agreed to by any member of the Seller Group, are subject to the Business'
standard terms and conditions and (B) do not (1) involve payment by any
member of the Seller Group of more than $100,000 or (2) extend for a term
more than 90 days from the date of this Agreement (unless terminable
without payment or penalty upon no more than 60 days' notice)) other than
any Contract disclosed pursuant to clause (vii)(A) above;
(xvii) a sales order (other than one-time sales orders entered into in
the ordinary course of business that (A) except to the extent the buyer has
asserted terms and conditions that have not been expressly agreed to by any
member of the Seller Group, are subject to the Business' standard terms and
conditions and (B) do not (1) involve the obligation of any member of the
Seller Group to deliver products or services for payment of or having a
fair market value of more than $100,000 or (2) extend for a term more than
90 days from the date of this Agreement (unless terminable without payment
or penalty upon no more than 60 days' notice));
(xviii) a Contract (A) for the sale of any Acquired Asset (other than
inventory sales in the ordinary course of business) or Acquired Coating
Equipment, (B) for the grant of any preferential rights to purchase any
Acquired Asset (other than inventory in the ordinary course of business) or
Acquired Coating Equipment or (C) requiring the consent of any party to the
transfer of any Acquired Asset or Acquired Coating Equipment and involving
the payment by any party of at least $50,000 or affecting the use of an
asset or assets with an aggregate original cost, replacement cost or fair
market value of at least $50,000 or which are otherwise material to the
Business;
35
(xix) a Contract with any Governmental Entity;
(xx) a currency exchange, interest rate exchange, commodity exchange
or similar Contract;
(xxi) a Contract for any joint venture, partnership or similar
arrangement;
(xxii) a Contract providing for the services of any dealer,
distributor, sales representative, franchisee or similar representative;
(xxiii) a Contract providing for the provision of advertising services
that has an aggregate future liability in excess of $50,000;
(xxiv) a Contract (other than a purchase order or a sales order) not
otherwise listed on Schedule 3.08 that has an aggregate future liability to
any person in excess of $100,000 or extends for a term more than one year
from the date of this Agreement (unless terminable without payment or
penalty upon no more than 60 days' notice);
(xxv) a Contract under which (A) any person has the right to use all
or any assets (including track, yards and other facilities) of the
Railroad, or (B) granting any member of the Seller Group the right to use
all or any portion of any rail line, rail yards, or other rail facilities
of any other person;
(xxvi) trackage rights, haulage, interchange, joint facility switching
and similar Contracts;
(xxvii) a Contract necessary for or relating to the use or operation
of the Hydroelectric Facility (each a "Hydroelectric Facility Contract") or
-------------------------------
necessary for or relating to the use or operation of the Steam Turbine
Facilities (each a "Steam Turbine Contract") or which relates to the supply
----------------------
of power to, or the sale of power, from the Cloquet Facility; or
(xxviii) a Contract other than as set forth above to which any member
of the Seller Group is a party or by which it or any of its assets or
businesses is bound or subject that is material to the Business or the use
or operation of the Acquired Assets or the Acquired Coating Equipment.
(b) Except as set forth in Schedule 3.08, all Contracts listed or
required to be listed in the Schedules (the "Material Assigned Contracts") are
---------------------------
valid, binding and in full force and effect and are enforceable against the
applicable member of the Seller Group and, to Seller's knowledge, the other
party thereto, in accordance with their respective terms (in each case, other
than Material Assigned Contracts that have expired or been terminated after the
date hereof pursuant to their terms other than (x) as a result of a breach by
any member of the Seller Group, (y) pursuant to any termination right arising as
a result of the Acquisition or any of the transactions contemplated hereby or
(z) as a result of any action or failure to act by any member of the Seller
Group, provided that Purchaser is given prompt notice of such termination
--------
pursuant to Section 5.10), except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and general equitable principles regardless of
whether such enforceability is considered in a proceeding at law
36
or in equity. Except as set forth in Schedule 3.08, each member of the Seller
Group has performed all material obligations required to be performed by it to
date under the Material Assigned Contracts, there are no material liabilities,
obligations or commitments accrued under any Material Assigned Contract with
respect to any period prior to Closing (other than those that will be
discharged, paid or performed prior to Closing), and no member of the Seller
Group is (with or without the lapse of time or the giving of notice, or both) in
material breach or default in any respect thereunder and, to the knowledge of
Seller, no other party to any Material Assigned Contract is (with or without the
lapse of time or the giving of notice, or both) in breach or default in any
respect thereunder. No member of the Seller Group has, except as disclosed in
the applicable Schedule, received any written or, to Seller's knowledge, oral
notice of the intention of any party to terminate any Material Assigned
Contract. Except as specifically designated to the contrary in Schedule 3.08(b),
complete and correct copies of all Material Assigned Contracts listed in the
Schedules, together with all modifications and amendments thereto, have been
delivered to Purchaser.
(c) Schedule 3.08 sets forth each Material Assigned Contract with
respect to which the Consent of the other party or parties thereto must be
obtained by virtue of the execution and delivery of this Agreement or the
consummation of the Acquisition to avoid the invalidity of the transfer of such
Contract, the termination thereof, a breach, violation or default thereunder or
any other change or modification to the terms thereof.
(d) With respect to Section 3.08(a), (i) the only Contracts deemed to
be disclosed with respect to any of clause (ii), (iii)(A), (iii)(B)(x), (v),
(vi)(B), (ix), (x), (xi), (xiv), (xviii), (xix), (xx), (xxi), (xxii) or (xxvii)
shall be the Contracts set forth on the corresponding subsection of Schedule
3.08, (ii) Contracts identified on Schedule 3.08 as having not been provided to
Purchaser prior to the date hereof shall be deemed to be disclosed with respect
to a subsection of Section 3.08(a) only if set forth on the corresponding
subsection of Schedule 3.08 and Purchaser shall not be deemed to have any
information with respect to such Contract except such information as is
expressly set forth in Schedule 3.08 and (iii) with respect to any subsection of
Section 3.08 not listed in clause (i) of this Section 3.08(d), Seller has used
all good faith efforts to identify on the corresponding subsection of Schedule
3.08 all Contracts of the type described in such subsection of Section 3.08 but,
subject to Seller having used such efforts, the Contracts set forth on Schedule
3.08 that shall be deemed disclosed with respect to such subsection will not be
limited to those set forth in the corresponding subsection of Schedule 3.08.
SECTION 3.09. Inventory. Each item of Inventory constituting Acquired
---------
Assets, whether reflected on the Balance Sheet or subsequently procured or
produced, (a) is free of any material defect or deficiency other than, in the
aggregate for all such Inventory, defects and deficiencies at levels consistent
with past experience of the Business, (b) is in good, usable and, as to finished
goods, marketable condition (as of the Closing Date) (subject, in the case of
raw materials and work-in-process, to the completion of the production process),
all on a basis consistent with past experience of the Business and (c) is
properly stated on the Balance Sheet (to the extent existing on the date
thereof) and on the books and records of the Business at the lesser of cost and
fair market value, with adequate (as determined in accordance with GAAP)
obsolescence and defective product reserves, all as determined in accordance
with GAAP. The quantities of each item of Inventory (whether raw materials,
work-in-process or finished goods) constituting Acquired Assets were procured or
produced for sale in the ordinary course of business and consistent with past
practice (giving effect to then current market
37
conditions) and the volume of production or purchases thereof and of orders
therefor have been consistent with ordinary and necessary production, purchasing
and orders. The quantities, type and quality of the Inventory constituting
Acquired Assets is sufficient for the conduct of the Business (other than
operation of the Brainerd Facility) by Purchaser following the Closing in
substantially the same manner as conducted on the date of the Balance Sheet and
as currently conducted by the Seller Group. Except as set forth in Schedule
3.09, since the date of the Balance Sheet to the date hereof, there have not
been any write-downs of the value of, or establishment of any reserves against,
any Inventory of the Business, except for write-downs and reserves in the
ordinary course of business and consistent with past practice.
SECTION 3.10. Personal Property. Schedule 3.10 sets forth a list of
-----------------
certain Personal Property constituting Acquired Assets and includes an accurate
description of each item of Personal Property listed thereon. Each item of
material Personal Property constituting Acquired Assets is in all material
respects in good working order, is free from any material defect (other than
defects resulting from normal wear and tear that are reasonably expected to be
Repaired through the ordinary course maintenance program of the Business prior
to having any material affect on the continued conduct of the Business or the
continued use of any Acquired Asset (other than by reason of such Repair) and
has been well maintained in all material respects in accordance with the past
practice of the Business, any applicable requirements of insurance policies
maintained by the Seller Group and, with respect to pressure vessels (including
digesters), boilers (including recovery boilers), turbine generators and fire
control or suppression systems, generally accepted industry practice or
generally accepted insurance requirements. Set forth on Schedule 3.10 are all
significant repairs or replacements of or to Personal Property constituting
capital expenditures planned through December 31, 2002. The pulp equipment,
paper machines, coating machines and converting equipment are capable of
functioning and producing salable and usable products at the average daily and
annual capacities and utilization rates set forth in Schedule 3.10 if managed or
operated in accordance with current operating practices of the Business.
SECTION 3.11. Receivables. All the Receivables constituting Acquired
-----------
Assets (a) represent actual indebtedness incurred by the applicable account
debtors, (b) have arisen from bona fide transactions in the ordinary course of
business, (c) are adequately reserved and properly stated on the books and
records of the Business in accordance with GAAP and (d) have terms of payment
and age consistent with the historical practice of the Business. Except as set
forth on Schedule 3.11, to the knowledge of Seller, all the Receivables that
constitute Acquired Assets are not factored or subject to any setoff or
counterclaim and are good and collectible at the aggregate recorded amounts
thereof, net of any applicable reserves for doubtful accounts reflected on the
Balance Sheet. Except as set forth on Schedule 3.11, since the date of the
Balance Sheet to the date hereof, there have not been any write-offs as
uncollectible of any Receivables, except for write-offs in the ordinary course
of business and consistent with past practice. As of the date hereof, Seller has
not received any written or, to Seller's knowledge, oral notice or complaint
regarding any products sold or serviced for which Receivables that constitute
Acquired Assets are currently due, other than notices and complaints received in
the ordinary course of business and of a quantity, magnitude and type consistent
with past experience of the Business.
SECTION 3.12. Investments. Schedule 3.12 sets forth all Investments
-----------
(other than Investments that are Excluded Assets) owned by any member of the
Seller
38
Group on the date of this Agreement that are primarily used, held primarily for
use or intended to be used primarily in, or arise primarily out of, or are
reasonably necessary to or required for the operation or conduct of the
Business.
SECTION 3.13. Permits. (a) Schedule 3.13 sets forth all certificates,
-------
licenses, permits, registrations, water rights, authorizations, applications,
notices, filings, exemptions and approvals ("Permits") issued or granted to, or
-------
made by, any member of the Seller Group by or to Governmental Entities that are
necessary for the conduct of the Business (other than operation of the Brainerd
Facility), as conducted on the date of the Balance Sheet or as currently
conducted, or the continued use of any Acquired Asset immediately following
Closing (including under Environmental Laws). Except as set forth in Schedule
3.13, (i) all such Permits are validly held by a member of the Seller Group, and
the Seller Group is, and has been during the past three years, in compliance in
all material respects with all terms and conditions thereof, and (ii) during the
past two years, no member of the Seller Group has received written or, to
Seller's knowledge, oral notice of any Proceedings relating to the revocation or
modification of any such Permits the loss of which, individually or in the
aggregate, has had or could reasonably be expected to have a Seller Material
Adverse Effect.
(b) The Seller Group possesses all Permits necessary to own or hold
under lease and operate the Acquired Assets and to conduct the Business as
currently conducted.
(c) All Permits which are held in the name of any employee, officer,
director or stockholder of, or otherwise on behalf of, any member of the Seller
Group shall be deemed included under the representations and warranties
contained in this Section 3.13.
SECTION 3.14. Insurance. Members of the Seller Group maintain policies
---------
of fire and casualty, liability and other forms of insurance with respect to the
Business in such amounts, with such deductibles and against such risks and
losses as are, in Seller's judgment, reasonable for the Business. The insurance
policies maintained by members of the Seller Group with respect to the Business
are listed in Schedule 3.14. All such policies are in full force and effect, all
premiums due and payable thereon have been paid (other than retroactive or
retrospective premium adjustments that are not yet, but may be, required to be
paid with respect to any period ending prior to the Closing Date under
comprehensive general liability and workmen's compensation insurance policies),
and no written or, to Seller's knowledge, oral notice of cancelation or
termination has been received with respect to any such policy which has not been
replaced on substantially similar terms prior to the date of such cancelation.
No member of the Seller Group has received (i) any refusal of coverage under any
policy described in Schedule 3.14, (ii) any written or, to Seller's knowledge,
oral notice that any issuer of any such policy has filed for protection under
applicable bankruptcy laws or is otherwise in the process of liquidating or has
been liquidated, or (iii) any written or, to Seller's knowledge, oral notice
that such policies are no longer in full force or effect or that the issuer of
any such policy is no longer willing or able to perform its obligations
thereunder. To the knowledge of Seller, the Business has been conducted in a
manner so as to conform in all material respects to all applicable provisions of
such insurance policies.
SECTION 3.15. Sufficiency of Acquired Assets. The Acquired Assets
------------------------------
include (i) except as set forth in Schedule 3.15, all the assets reflected on
the Financial
39
Statements (other than (A) finished Inventory sold, (B) receivables collected,
(C) "broke" disposed of, (D) cash disposed of and prepaid expenses realized and
(E) other consumable assets used, in each case, in the ordinary course of
business) and (ii) all the assets primarily relating to, or primarily used or
primarily held for use in connection with, the Business (including operation,
maintenance and repair of the Cloquet Facility, the Research Center, the Power
Generation Facilities and the Railroad but excluding operation, maintenance and
repair of the Brainerd Facility) during the past 12 months (other than the
assets described in (A) through (E) above). The Acquired Assets (together with
(x) the services to be provided pursuant to the Transition Services Agreement
and the Wood Supply Agreement, (y) the Excluded Assets identified on Schedule
1.02(b)(i) as being Contracts specifically rejected by Purchaser and the
Excluded Assets identified on Schedule 3.15 and (z) if the Closing occurs and
the purchase of the Hydroelectric Facility is delayed as contemplated by Section
2.03 or a transfer of the Hydroelectric Facility is terminated pursuant to
Section 2.04, the Hydroelectric Facility) are sufficient for the conduct of the
Business (including operation, maintenance and repair of the Cloquet Facility,
the Research Center, the Power Generation Facilities and the Railroad but
excluding operation, maintenance and repair of the Brainerd Facility) by
Purchaser immediately following the Closing in substantially the same manner as
conducted on the date of the Balance Sheet and as currently conducted by the
Seller Group.
SECTION 3.16. Taxes. (a) For purposes of this Agreement:
-----
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Tax" or "Taxes" means all (i) Federal, state, local, foreign and
--- -----
other taxes, assessments, duties or similar charges of any kind whatsoever,
including all corporate franchise, income, sales, use, ad valorem, receipts,
value added, profits, license, withholding, payroll, employment, excise,
property, net worth, capital gains, transfer, stamp, documentary, social
security, payroll, environmental, alternative minimum, occupation, recapture and
other taxes, and including any interest, penalties and additions imposed with
respect to such amounts; (ii) liability for the payment of any amounts of the
type described in clause (i) as a result of being a member of an affiliated,
consolidated, combined, unitary or aggregate group (an "Affiliated Group") and
----------------
(iii) liability for the payment of any amounts as a result of an express or
implied obligation to indemnify any other person with respect to the payment of
any amounts of the type described in clause (i) or (ii).
"Taxing Authority" means any Federal, state, local or foreign
----------------
government, any subdivision, agency, commission or authority thereof, or any
quasi-governmental body exercising any taxing authority or any other authority
exercising tax regulatory authority.
(b) No material Liens for Taxes exist with respect to any of the
Acquired Assets except for statutory Liens for Taxes not yet due or payable.
(c) Seller is not a "foreign person" within the meaning of Section
1445 of the Code.
(d) Each member of the Seller Group has filed all sales Tax returns
and paid all sales and use Taxes required to be so filed and paid.
40
(e) The Acquired Entities and any affiliated, consolidated or unitary
group of which they are or have ever been a member have (i) timely filed or
caused to be filed all material Tax returns that they are required to file
(taking into account applicable extensions) and all such Tax returns were true,
correct and complete in all material respects and (ii) paid or accrued all Taxes
with respect to taxable periods covered by such tax returns, and all other
material Taxes for which the Acquired Entities are liable.
SECTION 3.17. Proceedings. (a) Schedule 3.17(a) sets forth a list of
-----------
each pending or, to the knowledge of Seller, threatened Proceeding or claim with
respect to which any member of the Seller Group has been contacted by counsel
for or a representative of the plaintiff or claimant, arising out of the conduct
of the Business or against or affecting any Acquired Asset and that (i) relates
to or involves more than $50,000, (ii) presents in large degree the same legal
and factual issues as other actions or claims and, together with such actions
and claims, relates to or involves more than $250,000 or (iii) seeks any
material injunctive relief, other than Proceedings or claims promptly disclosed
to Purchaser pursuant to Section 5.10 that (x) are not required to be disclosed
on Schedule 3.17(a) as of the date hereof, (y) relate and would give rise solely
to Excluded Liabilities and (z) in the aggregate could not reasonably be
expected to have a Seller Material Adverse Effect. Except as set forth in
Schedule 3.17(a), none of the Proceedings or claims listed in Schedule 3.17(a)
as to which there is at least a reasonable possibility of adverse determination
would have, if so determined, individually or in the aggregate, a Seller
Material Adverse Effect. Except as set forth in Schedule 3.17(a), to the
knowledge of Seller, there are no unasserted claims (other than trade payables
that in the ordinary course of business have not yet been paid) of the type that
would be required to be disclosed in Schedule 3.17(a) if counsel for or a
representative of the claimant had contacted Seller that, if asserted, would
have at least a reasonable possibility of an adverse determination other than
any claims promptly disclosed to Purchaser pursuant to Section 5.10 that (x) are
not known to Seller on the date hereof, (y) relate and would give rise solely to
Excluded Liabilities and (z) in the aggregate could not reasonably be expected
to have a Seller Material Adverse Effect. To the knowledge of Seller, except as
set forth in Schedule 3.17(a), no member of the Seller Group is a party or
subject to or in default under any Judgment applicable to the conduct of the
Business or any Acquired Asset or Assumed Liability. Except as set forth in
Schedule 3.17(a), as of the date hereof there is not any Proceeding or claim by
any member of the Seller Group pending, or which any member of the Seller Group
intends to initiate, against any other person arising out of the conduct of the
Business which involves an amount greater than $250,000. Except as set forth in
Schedule 3.17(a), no member of the Seller Group has received any written or, to
the knowledge of Seller, oral notice of the commencement of any investigation by
any Governmental Entity of or affecting the conduct of the Business or any
Acquired Asset or Assumed Liability.
(b) Schedule 3.17(b) sets forth a list, as of the date hereof, of each
pending or, to the knowledge of Seller, threatened Proceeding against any member
of the Seller Group or any of their affiliates by or before any Governmental
Entity that relates to or otherwise may give rise to any legal restraint on, or
prohibition against, the transactions contemplated by this Agreement.
SECTION 3.18. Employee Matters. (a) Schedule 3.18(a) contains a true,
----------------
current and complete list of each benefit, employment, personal services,
collective bargaining, compensation, incentive, stock option, restricted stock,
stock appreciation right, phantom equity, change in control, severance,
vacation, time-off, perquisite and
41
other similar agreement, plan, policy and other arrangement (and any amendments
thereto), (i) currently in effect and covering one or more current or former
employees of, or current or former independent contractors with respect to,
Seller or any of its affiliates, who principally works (or worked), or provides
(or provided) services, for or with respect to the Business (each, a
"Participant"), and maintained by Seller or any of its affiliates, or (ii) with
-----------
respect to which Seller or any of its affiliates has or could have any liability
(each, a "Benefit Plan").
------------
(b) Each Benefit Plan complies with and has at all times been
administered in all material respects, in accordance with all applicable laws,
including the Employee Retirement Income Security Act of 1974, as amended, and
the regulations promulgated thereunder ("ERISA"), and, to obtain taxation
-----
advantages, the Code and the regulations promulgated thereunder. All benefits,
contributions and premiums relating to each Benefit Plan have been timely paid
or made in all material respects, in accordance with the terms of such Benefit
Plan and the terms of all applicable laws.
(c) Except as disclosed in Schedule 3.18(c) or, for purposes of clause
(ii)(D)(I) below, Schedule 3.21(d), (i) no Benefit Plan (A) provides for defined
benefit pension benefits, or deferred compensation, (B) provides any benefits
(other than on a self-pay basis or pursuant to the terms of an individual
agreement) following termination of service or employment, (C) is a
"multiemployer plan" (as defined in Section 3(37) of ERISA), or a "multiple
employer welfare arrangement" (as defined in Section 3(40) of ERISA), (D) covers
any Participant who resides or works outside the United States, (E) is a
collective bargaining or similar agreement, or (F) has been administered in a
manner contrary to its terms in any material respect, and (ii) no Participant
(A) is represented by any union, (B) is currently receiving any disability
benefits, (C) has received any loan from Seller or any of its affiliates, not
including any loans under the salaried and hourly 401(k) plans of Seller secured
by such Participants' interest in such plans, (D) has a right (I) as of the date
of Schedule 3.21(d) to take more than four weeks of vacation (exclusive of
"block" week) per year, or (II) to receive from Seller, or any of its affiliates
a base annual salary along with any guaranteed bonus, or target or discretionary
bonus (with respect to any single year) in excess of $125,000, (E) has received
from Seller or any of its affiliates any discretionary severance or any
severance under any formal or informal policy or practice, (F) has received or
could reasonably be expected to receive any payment or benefit from Seller, or
any of its affiliates which would not be deductible to such entity, or (G) is,
or at any time will become, entitled to any payment, benefit or right, or any
increased and/or accelerated payment, benefit or right, as a result of (I) such
Participant's termination of employment with, or services to, Seller or any of
its affiliates, or (II) the execution of this Agreement or the consummation of
the transactions contemplated hereby.
SECTION 3.19. Absence of Changes or Events. Except as set forth in
----------------------------
Schedule 3.19, since the date of the Balance Sheet, there has not been any
Seller Material Adverse Effect, except for changes after the date hereof
proximately caused by (i) changes to the United States or global economic
conditions or financial markets in general and not affecting the Business
disproportionally to others in the paper industry in similar lines of business,
(ii) changes affecting the paper industry generally and not affecting the
Business disproportionally to others in the paper industry in similar lines of
business or (iii) the effect of the announcement of the transactions
contemplated hereby on customer relationships of the Business but only if the
effect on the customer relationship is caused by an action or failure to act of
Purchaser. Except as set forth in
42
Schedule 3.19, since the date of the Balance Sheet to the date hereof, Seller
has caused the Business to be conducted in the ordinary course and in
substantially the same manner as previously conducted (including with respect to
work-force reductions, collections of accounts receivable, payments of accounts
payable, research and development efforts, advertising, sales practices
(including promotions, discounts and concessions), legal defense efforts and
legal expenditures, maintenance and repair expenditures, product quality and
product specifications, capital expenditures, environmental expenditures and
inventory levels) and has made all commercially reasonable efforts consistent
with past practices to preserve the relationships of the Business with material
customers, suppliers and distributors. Except as set forth in Schedule 3.19,
since the date of the Balance Sheet, no member of the Seller Group has taken any
action that, if taken after the date of this Agreement, would constitute a
breach of any of subclauses (iii), (iv), (vi), (vii), (viii), (xi) an (xxii) of
Section 5.01(a).
SECTION 3.20. Compliance with Applicable Laws. (a) Except as set forth
-------------------------------
in Schedule 3.20, (i) the Business has at all times been (except for any past
non-compliance that is not known to Seller and (together with its direct and
indirect effects) (x) relates and would give rise solely to Excluded Liabilities
and (y) could not reasonably be expected to have a Seller Material Adverse
Effect) and is in compliance in all material respects with all Applicable Laws
including those relating to occupational health and safety and (ii) the current
use by the Seller Group of the plants, offices and other facilities located on
the Business Properties does not violate any local zoning or similar land use or
government regulation in any material respect. Except as set forth in Schedule
3.20, in the past two years no member of the Seller Group has received any
written or, to the knowledge of Seller, oral communication from any person that
alleges that the Business is not in compliance in any material respect with any
Applicable Law. This Section 3.20(a) does not relate to matters with respect to
(i) possession of and compliance with Permits, which are the subject of Section
3.13, (ii) Taxes, which are the subject of Section 3.16, (iii) ERISA and other
laws applicable to the Benefit Plans, which are the subject of Section 3.18,
(iv) environmental matters, which are the subject of Section 3.20(b) and (v)
laws regarding employment and employment practices, which are the subject of
Section 3.21.
(b) Except as set forth in Schedule 3.20(b) and in connection with the
Business (other than with respect to matters that (x) relate solely to the
operation of the Brainerd Facility, (y) relate and would give rise solely to
Excluded Liabilities and (z) could not reasonably be expected to have a Seller
Material Adverse Effect) and the Acquired Assets: (i) no member of the Seller
Group has received any written or, to the knowledge of Seller, oral
communication within the past five years that alleges any violation of, or claim
under, any Environmental Law, that has not been fully and finally resolved
through the appropriate judicial, administrative or other claims resolution
process and that alleges any violation of, or claim under, any Environmental
Law, or arising out of, based on or resulting from the presence or Release of
Hazardous Materials; (ii) members of the Seller Group are in compliance with all
Environmental Laws; (iii) members of the Seller Group have not entered into or
agreed to and are not bound by or subject to any contract, decree, order or
Judgment relating to claims, liability under or compliance with any
Environmental Law or to investigation or remediation of Hazardous Materials;
(iv) to the knowledge of Seller, there has been no treatment, storage, Release
or threatened Release of any Hazardous Materials on or from any property
(including any property included in the Acquired Assets); (v) no member of the
Seller Group has received an information request regarding, nor has been named a
potentially responsible
43
party for, any National Priorities List or CERCLIS site (as those terms are
defined under Environmental Law) or any other site under analogous state law;
(vi) to the knowledge of Seller, there are not now and never have been any
underground or above ground storage tanks on or under the Acquired Assets; and
(vii) neither Seller nor any member of the Seller Group has knowledge of facts,
conditions or circumstances that could reasonably be expected to lead to
responsibility or liability under Environmental Laws.
The term "Environmental Laws" means all requirements of Applicable
------------------
Laws and Judgments issued, promulgated, recognized or entered into by any
Governmental Entity, relating to the environment, pollution, health, safety,
natural resources, or to the management, Release or threatened Release of, or
exposure to, Hazardous Materials.
The term "Hazardous Materials" means all explosive or radioactive
-------------------
materials or substances, hazardous or toxic substances, wastes or chemicals,
petroleum (including crude oil or any fraction thereof) and all other materials
or chemicals regulated pursuant to any Environmental Law.
The term "Release" means any spill, emission, leaking, pumping,
-------
injection, deposit, disposal, discharge, dispersal, leaching, emanation or
migration in, into, onto, or through the environment (including ambient air,
surface water, groundwater, soils, sediments of any surface water body,
including the St. Louis River or Lake Superior, land surface, subsurface strata
or workplace).
(c) The occupancies and uses of the Business Properties, as well as
the development, construction, management, maintenance, servicing and operation
of the Business Properties, comply in all material respects with all Applicable
Laws and are not in violation of any thereof; and all certificate(s) of
occupancy and all other Permits required by Applicable Law for the proper use
and operation of the Business Properties are in full force and effect. All
material approvals, consents, Permits, utility installations and connections
required for the development, construction, maintenance, operation and servicing
of the Business Properties have been granted, effected, or performed and
completed (as the case may be), and all fees and charges therefor have been
fully paid. No member of the Seller Group has received written or, to the
knowledge of Seller, oral notice of, or otherwise has knowledge of, any
violations, Proceedings or Judgments (as to which any member of the Seller Group
or any Business Property is a party or is bound) relating to zoning, building
use and occupancy, traffic, fire, health, sanitation or other laws or
regulations, against, or with respect to, the Business Properties. This Section
3.20(c) does not relate to matters with respect to (i) Taxes, which are the
subject of Section 3.16, (ii) ERISA and other laws applicable to the Benefit
Plans, which are the subject of Section 3.18, (iii) environmental matters, which
are the subject of Section 3.20(b) and (iv) laws regarding employment and
employment practices, which are the subject of Section 3.21.
SECTION 3.21. Employee and Labor Matters. (a) Except (x) as set forth
--------------------------
in Schedule 3.21 or (y) in the case of clauses (i), (ii), (vii), (viii) or (xii)
only, except for any matter promptly disclosed to Purchaser pursuant to Section
5.10 that (A) is not required to be disclosed on Schedule 3.21 as of the date
hereof, (B) does not result from any action or failure to act by any member of
the Seller Group or any of its employees, representatives or agents (including
the entering into of any Labor Contract, other than the Labor Agreements), and
(C) could not reasonably be expected to have a Seller
44
Material Adverse Effect or (z) in the case of clause (iv) only, for any practice
promptly disclosed to Purchaser pursuant to Section 5.10 that (A) is not
required to be disclosed on Schedule 3.21 as of the date hereof, (B) relates and
would give rise solely to the Excluded Liabilities and (C) could not reasonably
be expected to have a Seller Material Adverse Effect, (i) there is no, and
during the past three years there has not been any, labor strike, picketing of
any nature, significant labor dispute, slowdown or any other concerted
interference with normal operations, stoppage or lockout pending, or, to the
knowledge of Seller, threatened against or affecting the Business; (ii) there
are no union claims or demands to represent or organizational campaigns in
progress with respect to the employees of the Seller Group related to the
Business or Contingent Workers (as defined in Section 3.21(f)) and no question
concerning representation of such individuals exists; (iii) with the sole
exception of the Labor Agreements and the Railroad CBAs, there is no collective
bargaining or similar agreement or any arrangement with any labor organization,
or work rules or practices agreed to with any labor organization or employee
association, applicable to employees or Contingent Workers related to the
Business; (iv) no member of the Seller Group is engaged in any unfair labor
practice in connection with the conduct of the Business; (v) the Business is in
compliance in all material respects with all applicable laws and regulations
respecting labor, employment, fair employment practices, work place safety and
health, terms and conditions of employment, and wages and hours; (vi) no member
of the Seller Group is delinquent in any payments to any of the employees or
Contingent Workers related to the Business for any wages, salaries, commissions,
bonuses, fees or other direct compensation due with respect to any services
performed for it to the date hereof or amounts required to be reimbursed to such
employees or Contingent Workers; (vii) there are no formal or informal
grievances, complaints or charges with respect to employment or labor matters
(including, without limitation, charges of employment discrimination,
retaliation or unfair labor practices) related to the Business pending or, to
Seller's knowledge, threatened in any judicial, regulatory or administrative
forum, or under any dispute resolution procedure (including, but not limited to,
any proceedings under any dispute resolution procedure under any Labor Contract
or Railroad CBA), provided that Seller shall not be obligated to list grievances
--------
on Schedule 3.21 unless and until such grievances have been brought for
resolution to Seller's Human Resources personnel or to a manager at the level of
a mill department manager or above; (viii) to the knowledge of Seller, none of
the Business' employment policies or practices is currently being audited or
investigated or subject to imminent audit or investigation by any Federal, state
or local government agency; (ix) the Business is not subject to any consent
decree, court order or settlement in respect of any labor or employment matters;
(x) the Business is, and at all times since November 6, 1986, has been, in
material compliance with the requirements of the Immigration Reform Control Act
of 1986; (xi) all employees related to the Business are employed at-will or
pursuant to the Labor Agreements or Railroad CBAs; and (xii) no arbitration or
similar proceeding with respect to employment matters with respect to the
Business is pending or, to the knowledge of Seller, threatened and no claim
therefor has been asserted.
(b) Except as set forth on Schedule 3.21(b), during the past year, the
Business has not experienced a "plant closing," "business closing," or "mass
layoff" (as defined in the WARN Act (as defined in Section 5.22(a)) or any
similar state, local or foreign law or regulation) affecting any site of
employment of the Business (other than the Brainerd Facility) or one or more
facilities or operating units within any site of employment or facility of the
Business (other than the Brainerd Facility), without complying with the WARN Act
and any similar state, local or foreign law or regulation,
45
and, during the 90-day period preceding the date hereof, none of the employees
of the Business has suffered an "employment loss" (as defined in the WARN Act or
any similar state, local or foreign law or regulation). Schedule 3.21(b) sets
forth for each employee who has suffered an "employment loss" during the 90-day
period preceding the date hereof (i) the name of such employee (ii) the date of
hire of such employee, (iii) such employee's regularly scheduled hours over the
six month period prior to such "employment loss", and (iv) such employee's last
job title(s), assignment(s) and department(s).
(c) Except as set forth on Schedule 3.21(c), the Labor Agreements and
the Railroad CBAs set forth the entire and complete understanding of and
agreement between any member of the Seller Group and any Union or Railroad Union
including, without limitation, concerning economic and non-economic terms and
conditions of employment and related to the assignment of any contractual
obligation by any member of the Seller Group to any other entity.
(d) Schedule 3.21(d) sets forth the name and address of each full-time
and part-time employee related to the Business (other than employees whose
duties are related primarily to the operation of the Brainerd Facility), their
respective positions, their annual rate of compensation (and current rate of
accrual of paid time off and the level of bonus, if any, to which they may be
entitled expressed as a percentage of base annual salary), and a description of
their status (i.e., whether active or on leave of absence) as of the date of
----
Schedule 3.21(d) (except address information which may be as of the month ended
prior to the date of this Agreement), and contains a list of all Contingent
Workers of the Business (other than Contingent Workers whose duties are related
principally to the operation of the Brainerd Facility), except with respect to
officers, the terms of whose employment is governed by a Contract listed in
Schedule 3.08. To the extent any employee or Contingent Worker listed on
Schedule 3.21(d) is on leave of absence, Schedule 3.21(d) further describes the
type of leave, the date it commenced and the expected duration of leave. Except
as set forth on Schedule 3.21(d), there are no employees on layoff, and there
are no individuals not currently listed as employees on Schedule 3.21(d) with
recall or preferential rehire rights and no employees listed on Schedule 3.21(d)
have any such rights except pursuant to the express terms of the Labor
Agreements.
(e) As of the date hereof, the Business generally enjoys good employer
employee relationships. Except as set forth on Schedule 3.21(e), there is no
policy, plan or program of paying severance pay or any form of severance
compensation in connection with the termination of any employee of the Business.
Except as set forth on Schedule 3.21(e), no employee of the Business is, to the
knowledge of any member of the Seller Group, a party to or bound by any Contract
or subject to any Judgment that may materially interfere with the use of such
person's best efforts to promote the interests of the Business, or, other than
as set forth on Schedule 3.21(e), that has had or could reasonably be expected
to have a Seller Material Adverse Effect; provided that this Section 3.21(e)
--------
shall not require Seller to make any inquiry to any of its employees as to
whether such employee is bound by any Contract or subject to any Judgment.
(f) Except as set forth on Schedule 3.21(f), no independent
contractors, temporary employees, leased employees or any other servants or
agents employed or used with respect to the Business is compensated other than
through reportable wages paid by a member of the Seller Group (collectively,
"Contingent Workers"). To the extent that
------------------
46
any Contingent Workers are used with respect to the Business, they are properly
classified and treated in accordance with applicable laws and for purposes of
all benefit plans and perquisites.
SECTION 3.22. Transactions with Affiliates. Except as set forth in
----------------------------
Schedule 3.22, none of the Contracts set forth in Schedule 3.08 between the
Business, on the one hand, and Seller or any of its affiliates, on the other
hand ("Affiliate Contracts"), will continue in effect subsequent to the Closing.
-------------------
Except as set forth in Schedule 3.22, after the Closing neither Seller nor any
of its affiliates will have any interest in any property (real or personal,
tangible or intangible) or Contract used in or necessary to conduct the Business
(other than operation of the Brainerd Facility) as conducted on the date of the
Balance Sheet or as currently conducted (other than Excluded Assets). Except as
set forth in Schedule 3.22, neither Seller nor any affiliate of Seller provides
any material services to the Business.
SECTION 3.23. Effect of Transaction. Except as set forth in Schedule
---------------------
3.23, no member of the Seller Group has received written or, to the knowledge of
Seller, oral notice that any creditor, employee, client, customer or other
person having a material business relationship with the Business intends to
change such relationship because of the purchase and sale of the Business, the
ownership of the Business by Purchaser, the entering into of this Agreement or
the Ancillary Agreements or the consummation of any other transaction
contemplated hereby or thereby, other than any notice received after the date
hereof of such a change in a relationship with a client or customer caused by
any action or failure to act by Purchaser.
SECTION 3.24. Suppliers. Except for the suppliers named in Schedule
---------
3.24, the Business has not purchased, from any single supplier, goods or
services for which the aggregate purchase price exceeds 5% of the total value of
goods and services purchased by the Business during its most recent full fiscal
year. Except as set forth in Schedule 3.24 since the date of the Balance Sheet
there has not been (i) to the knowledge of Seller, any material adverse change
in the business relationship of the Business with any supplier of merchandise
named in Schedule 3.24 or (ii) except for changes in volumes and prices in the
ordinary course of business, any change in any material term (including credit
terms) of the supply agreements or related arrangements with any such supplier.
SECTION 3.25. Customers. Except for the customers named in Schedule
---------
3.25, the Business does not have any customer to whom it made more than 5% of
its sales during its most recent full fiscal year. Except as set forth in
Schedule 3.25, since the date of the Balance Sheet, there has not been (i) to
the knowledge of Seller, any material adverse change in the business
relationship of the Business with any customer named in Schedule 3.25, other
than any change after the date hereof resulting from the effect of the
announcement of the transaction but only if caused by any action or failure to
act by Purchaser, or (ii) except for changes in volumes and prices in the
ordinary course of business, any change in any material term (including credit
terms) of the sales agreements or related agreements with any such customer.
SECTION 3.26. Distributors. Schedule 3.26 sets forth a list of each
------------
distributor or sales representative of the products of the Business and (i)
indicates whether such distributor or sales representative has a written
contract or oral
47
arrangement with the Business, (ii) contains a description of the terms of such
contract or oral arrangement with the Business with respect to territory,
exclusivity and the term of the contract or arrangement and (iii) indicates the
amount of notice, and any payments, required to terminate such distributor
arrangement with the Business. Neither Seller nor any of its affiliates has
entered into any arrangements that would adversely effect Purchaser's ability to
distribute or sell any products in any jurisdiction.
SECTION 3.27. IRB Financings. Schedule 3.27 lists all of the debt
--------------
financings outstanding with respect to the Acquired Assets, and the principal
financing documents pertaining thereto. Except as described in Schedule 3.27,
Seller has the right to cause the immediate repayment, redemption or defeasance
of all such financings and obtain the release of all related Liens on Acquired
Assets and full ownership of all Acquired Assets subject to such financings.
Neither the Acquisition nor any other transaction contemplated by this Agreement
or any Ancillary Agreement will adversely affect the tax-exempt status of, or
result in a taxable event pursuant to Section 1001 of the Code to holders of,
the IRB Financings.
SECTION 3.28. Cross-Border Leases. Schedule 3.28 lists all of the
-------------------
cross-border lease arrangements affecting any Acquired Assets, including the
Cross-Border Leases, and the principal documents pertaining thereto.
SECTION 3.29. Railroad. (a) Except for (i) the railroad right-of-ways,
--------
and (ii) property contiguous to the railroad right-of-way (including trackage
rights), identified on Schedule 3.29(a), none of the Seller Group or any
Acquired Entity owns any other real property relating to the Railroad and leases
no real property from others relating to the Railroad.
(b) (i) Collectively, the real estate used by the Seller Group and the
Acquired Entities for railroad track right-of-way (collectively, the "ROW
---
Parcels") comprise an uninterrupted railroad right-of-way. All railroad tracks
-------
used by the Seller Group and the Acquired Entities as part of such uninterrupted
railroad right-of-way are located within the boundaries of the ROW Parcels.
(ii) The Seller Group owns, fee simple, easement, leasehold, or other
interests in the ROW Parcels which, collectively, will immediately after the
Closing be sufficient to permit the continuous operation by the Railroad Company
of a railroad right-of-way consistent with present use along the ROW Parcels.
The Seller Group owns and has good and valid title to all Railroad Equipment,
including all Railroad Equipment identified on Schedule 3.10, free and clear of
all Liens. All outstanding shares of capital stock of or other equity interests
in Duluth & Northeastern Railroad Company are owned by Seller free and clear of
all Liens (other than Liens that will be discharged on or prior to Closing).
(c) Except as provided in Schedule 3.29(c), none of the Railroad's
real property interest (including yards, locomotive facilities, or other similar
properties) include leaseholds, easements, or other interests that terminate or
are terminable by third parties in less than twenty (20) years from the date
hereof.
(d) Each Locomotive is in operating condition and is in compliance in
all material respects with all Federal Railroad Administration Requirements.
Each Freight Car satisfies all Association of American Railroads requirements
for interchange of such
48
freight cars. On the Closing Date, all of the Rail Equipment will be located at
the Premises in Cloquet, Minnesota.
(e) Since January 1, 1997, the Railroad has not received any
inspection report or communication from the Federal Railroad Administration or
any state or local agency identifying any failure of the Railroad Property or
the Rail Equipment to comply in any respect with Applicable Law.
SECTION 3.30. Energy Generation Facilities. (a) The Hydroelectric
----------------------------
Facility (i) is duly licensed by FERC in accordance with the Federal Power Act
("FPA") and (ii) is a "qualifying small power production facility" as such term
---
is defined in the FPA and the Public Utilities Regulatory Policies Act of 1978
("PURPA") and under 18 C.F.R. Part 292, Subpart B of the FERC regulations, and
-----
is entitled to exemption from regulation pursuant to 18 C.F.R. Part 292, Subpart
F of the FERC regulations. The FERC License is valid and in full force and
effect and there are no actions pending to rescind, modify or amend the FERC
License. Except as set forth in Schedule 3.13, all documents filed and required
to be filed with FERC with respect to the license of the Hydroelectric Facility
have been so filed, and no documents filed by or on behalf of Seller with FERC
in connection with such license contained any untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements contained in such document not misleading under the circumstances in
which they were made, and, subject to necessary FERC approval for the transfer
of the license, the execution, delivery and performance of this Agreement will
not contravene such license. Except as set forth in Schedule 3.13, Seller has
operated the Hydroelectric Facility in compliance with the FERC license. The
information contained in the Notice of Self Certification of Qualifying Status
As a Small Power Production Facility or Application for Certification of
Qualifying Status As a Small Power Production Facility filed with FERC in Docket
No. QF 85-704 on September 17, 1985 is true and correct. All documents filed and
required to be filed with FERC with respect to the Hydroelectric Facility's
status as a qualifying small power producer have been so filed, and no documents
filed by or on behalf of Seller with FERC in connection with such status
contained any untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements contained in such document not
misleading under the circumstances in which they were made. Seller has operated
the Hydroelectric Facility in all ways necessary to maintain its status as a
qualifying small power production facility under PURPA.
(b) Each of the Steam Turbine Facilities is a "qualifying cogeneration
facility" as such term is defined in the FPA and PURPA and under 18 C.F.R. Part
292, Subpart B of the FERC regulations, and entitled to exemption from
regulation pursuant to 18 C.F.R. Part 292, Subpart F of the FERC regulations. As
of the Closing Date, all documents required to be filed with FERC with respect
to the status of each Steam Turbine Facility as a qualifying cogeneration
facility will have been so filed, and no documents filed by or on behalf of
Seller with FERC in connection with such status contained any untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statements contained in such document not misleading under the
circumstances in which they were made, and the execution, delivery and
performance of this Agreement will not contravene such status. Seller has
continued to operate the Steam Turbine Facilities in all ways necessary to
maintain their status as a qualifying cogeneration facility.
(c) The services to be performed, the materials to be supplied and the
49
interests, easements and other rights granted pursuant to the Hydroelectric
Facility Contracts will enable Purchaser and its contractors and agents to
operate the Hydroelectric Facility.
(d) The services to be performed, the materials to be supplied and the
interests, easements and other rights granted pursuant to the Steam Turbine
Contracts will enable Purchaser and its contractors and agents to operate the
Steam Turbine Facilities.
SECTION 3.31. Product Warranties and Liabilities. (a) Except as set
----------------------------------
forth in Schedule 3.31, each product manufactured, shipped or sold by the
Business has been in conformity with all applicable contractual commitments and
all express and implied warranties, and the Business does not have any liability
(and, to Seller's knowledge, there is no basis for any present or future
Proceeding, hearing, investigation, charge, complaint, claim or demand against
it giving rise to any liability) for replacement or return or discounts for
inferior quality thereof or other damages in connection therewith, except for
nonconformities and liabilities that could not reasonably be expected to have a
material adverse effect on the Business' relationship with any customer or
distributor. All liabilities for replacement or return or discounts for inferior
quality of any product manufactured, shipped or sold by the Business or other
damages in connection therewith are adequately reserved and properly stated on
the books and records of the Business in accordance with GAAP. No product
manufactured, shipped or sold by the Business is subject to any guaranty,
warranty or other indemnity beyond the applicable standard terms and conditions
of sale or beyond that implied or imposed by Applicable Law. Schedule 3.31
includes copies of the Business' standard terms and conditions of sale.
(b) Except as set forth in Schedule 3.31, since January 1, 1999, there
has been no recall ordered by any Governmental Entity or, to Seller's knowledge,
threatened recall or investigation by any Governmental Entity of any product
manufactured, shipped or sold by the Business.
(c) For each of the years ended December 31, 2001 and December 31,
2000, the settlement cost (net of salvage value) arising out of the defective
products provided by the Business (pulp and paper inclusive) has not exceeded
1.0% of sales for such year.
SECTION 3.32. Disclosure. No representation or warranty of Seller
----------
contained in this Agreement or in any Ancillary Agreement, and no statement
contained in any document delivered or to be delivered pursuant to Section 2.02
or 6.02 (each an "Additional Seller Document") or in any Schedule furnished or
--------------------------
to be furnished pursuant to this Agreement, in each case by or on behalf of
Seller to Purchaser or any of its representatives, contains or will contain (or,
to the extent the relevant representation or warranty is qualified by knowledge,
contains or will contain to the knowledge of Seller) any untrue statement of a
material fact, or, to the knowledge of Seller, omits or will omit to state any
material fact necessary, in light of the circumstances under which it was or
will be made, in order to make the statements herein or therein not misleading
or necessary in order to fully and fairly provide the information required to be
provided in any such document, certificate or Schedule except, in each case,
with respect to changes in customers relationships of the Business resulting
from the effect of the announcement of the transactions contemplated hereby but
only if caused by an action or failure to act by Purchaser.
50
SECTION 3.33. Disclaimer of Other Representations and Warranties.
--------------------------------------------------
(a) No member of the Seller Group makes or has made any representations or
warranties relating to the Business, either Acquired Entity or any member of the
Seller Group or otherwise in connection with the transactions contemplated
hereby other than those expressly made by Seller herein, in any Ancillary
Agreement or in any Additional Seller Document delivered or to be delivered by
or on behalf of Seller in connection herewith. Without limiting the generality
of the foregoing, except as expressly provided in Section 5.17, no member of the
Seller Group has made, or shall be deemed to have made, any representations or
warranties in the management presentations relating to the businesses of Seller
prepared in consultation with ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. on behalf of Seller and
presented to Purchaser in May, 2001 or in any other presentation of the Business
in connection with the transactions contemplated hereby, or in any other written
materials delivered to Purchaser in connection with any other presentation
(collectively, the "Offering Materials and Presentations"), and no statement
------------------------------------
contained in the Offering Materials and Presentations shall be deemed a
representation or warranty hereunder or otherwise. No person has been authorized
by any member of the Seller Group to make any representation or warranty
relating to Seller, any member of the Seller Group or otherwise in connection
with the transactions contemplated hereby and, if made, such representation or
warranty must not be relied upon as having been authorized by any member of the
Seller Group.
(b) The disclosure of any information in any schedule hereto shall not
be deemed to constitute an acknowledgment that such information is required to
be disclosed in connection with the representations and warranties made by
Seller in this Agreement or is material, nor shall such information be deemed to
establish a standard of materiality.
ARTICLE IV
Representations and Warranties of Purchaser
-------------------------------------------
Each of Purchaser and Purchaser Guarantor (each as to itself only)
hereby represents and warrants to Seller as of the date of this Agreement and as
of the Closing Date, as follows:
SECTION 4.01. Organization, Standing and Power. Purchaser is duly
--------------------------------
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has full limited liability company
power and authority and possesses all governmental franchises, licenses,
permits, authorizations and approvals necessary to enable it to own, lease or
otherwise hold its properties and assets and to carry on its business as
presently conducted, other than such franchises, licenses, permits,
authorizations and approvals the lack of which, individually or in the
aggregate, have not had and could not reasonably be expected to have a Purchaser
Material Adverse Effect (as defined in section 9.04(b)). Purchaser Guarantor is
a corporation duly organized and validly existing under the laws of the Republic
of South Africa. Purchaser has delivered to Seller true and complete copies of
the limited liability company agreement of Purchaser, as amended through the
date of this Agreement.
SECTION 4.02. Authority; Execution and Delivery; and Enforceability.
-----------------------------------------------------
Each of Purchaser and Purchaser Guarantor has full power and authority to
execute this Agreement and the Ancillary Agreements to which it is, or is
specified to be, a party and
51
to consummate the Acquisition and the other transactions contemplated hereby and
thereby. The execution and delivery by each of Purchaser and Purchaser Guarantor
of this Agreement and the Ancillary Agreements to which it is, or is specified
to be, a party and the consummation by Purchaser of the Acquisition and the
other transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action. Each of Purchaser and Purchaser Guarantor has
duly executed and delivered this Agreement and prior to the Closing will have
duly executed and delivered each Ancillary Agreement to which it is, or is
specified to be, a party, and this Agreement constitutes, and each Ancillary
Agreement to which it is, or is specified to be, a party will after the Closing
constitute, its legal, valid and binding obligation, enforceable against it in
accordance with its terms except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and general equitable principles regardless of
whether such enforceability is considered in a proceeding at law or in equity.
SECTION 4.03. No Conflicts; Consents. The execution and delivery by
----------------------
each of Purchaser and Purchaser Guarantor of this Agreement do not, the
execution and delivery by Purchaser of each Ancillary Agreement to which it is,
or is specified to be, a party will not, and the consummation of the Acquisition
and the other transactions contemplated hereby and thereby and compliance by
each of Purchaser and Purchaser Guarantor with the terms hereof and thereof will
not conflict with, or result in any violation of or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancelation or acceleration of any obligation or to loss of a material benefit
under, or to increased, additional, accelerated or guaranteed rights or
entitlements of any person under, or result in the creation of any Lien upon any
of the properties or assets of Purchaser or Purchaser Guarantor or any of their
respective subsidiaries under, any provision of (i) the certificate of
incorporation or by-laws or other organizational documents of Purchaser or
Purchaser Guarantor or any of their respective subsidiaries, (ii) any Contract
material to the ability of Purchaser to consummate the Acquisition or the other
transactions contemplated hereby or by the Ancillary Agreements, or of Purchaser
Guarantor to perform its obligations hereunder, to which Purchaser or Purchaser
Guarantor or any of their respective subsidiaries is a party or by which any of
their respective properties or assets is bound or (iii) any Judgment or
Applicable Law applicable to Purchaser or Purchaser Guarantor or any of their
respective subsidiaries or their respective properties or assets. No Consent of
or registration, declaration or filing with any Governmental Entity is required
to be obtained or made by or with respect to Purchaser or Purchaser Guarantor or
any of their respective subsidiaries in connection with the execution, delivery
and performance of this Agreement or any Ancillary Agreement or the consummation
of the Acquisition or the other transactions contemplated hereby and thereby,
other than (i) those set forth on Schedule 4.03 and (ii) those that may be
required by reason of the terms or nature of the Acquired Assets or the
participation of the Seller Group (as opposed to those required solely by reason
of the participation by Purchaser or Purchaser Guarantor as opposed to any other
third party, including any other third party organized outside, or controlled by
a person organized outside, the United States) in the Acquisition and other
transactions contemplated hereby and by the Ancillary Agreements.
SECTION 4.04. Proceedings. Schedule 4.04 sets forth a list, as of the
-----------
date hereof, of each pending or, to the knowledge of Purchaser, threatened
Proceeding against Purchaser or any of its affiliates by or before any
Governmental Entity that relates to or otherwise may give rise to any legal
restraint on or prohibition against, the transactions
52
contemplated by this Agreement.
SECTION 4.05. Railroad. Other than in connection with the transactions
--------
contemplated by this Agreement and the Ancillary Agreements, the Railroad Sub is
not, and has at no time been, engaged in any business or activity and has no
liabilities or obligations of any nature. As of the date hereof, neither
Purchaser nor any person in control of Purchaser is a railroad subject to STB
jurisdiction or in control of a railroad subject to STB jurisdiction.
SECTION 4.06. Disclaimer of Other Representations and Warranties.
--------------------------------------------------
(a) None of Purchaser, Purchaser Guarantor or any of their respective affiliates
makes or has made any representations or warranties relating to Purchaser,
Purchaser Guarantor or any of their respective affiliates or otherwise in
connection with the transactions contemplated hereby other than those expressly
made by Purchaser or Purchaser Guarantor herein, in any Ancillary Agreement or
in any document delivered or to be delivered pursuant to Section 2.02 or 6.03
(each an "Additional Purchaser Document") by or on behalf of Purchaser to Seller
-----------------------------
or any of its representatives. No person has been authorized by Purchaser,
Purchaser Guarantor or any of their respective affiliates or otherwise in
connection with the transactions contemplated hereby and, if made, such
representation or warranty must not be relied upon as having been authorized by
Purchaser, Purchaser Guarantor or any of their respective affiliates.
(b) The disclosure of any information in any schedule hereto shall not
be deemed to constitute an acknowledgment that such information is required to
be disclosed in connection with the representations and warranties made by
Purchaser or Purchaser Guarantor in this Agreement or is material, nor shall
such information be deemed to establish a standard of materiality.
ARTICLE V
Covenants
---------
SECTION 5.01. Covenants of Seller Relating to Conduct of Business.
---------------------------------------------------
(a) Except for matters set forth in Schedule 5.01 or as otherwise expressly
permitted, required or prohibited (other than pursuant to any ability to Cure
(as defined in Section 6.05)) by the terms of this Agreement, from the date of
this Agreement to the Closing Seller shall, and shall cause each member of the
Seller Group to, conduct the Business in the usual, regular and ordinary course
in substantially the same manner as previously conducted (including with respect
to work-force reductions, collections of accounts receivable, payments of
accounts payable, research and development efforts, sales practices (including
promotions, discounts, concessions and payment terms), legal defense efforts and
legal expenditures, maintenance and repair expenditures, product quality and
product specifications, capital expenditures, environmental expenditures and
inventory levels) and use all commercially reasonable efforts to keep intact the
Business, keep available the services of the current employees of the Business
and preserve the relationships of the Business with material customers,
suppliers, licensors, licensees, distributors and others with whom the Business
deals. In addition (and without limiting the generality of the foregoing),
except as set forth in Schedule 5.01 or otherwise expressly permitted or
required by the terms of this Agreement (other than pursuant to any ability to
Cure (as defined in Section 6.05)), Seller shall not, and shall not permit any
53
other member of the Seller Group to, do any of the following in connection with
the Business (except any action relating solely to Excluded Assets (other than
the Acquired Coating Equipment) or Excluded Liabilities that could not
reasonably be expected to have any affect on any Acquired Asset or Assumed
Liability or Acquired Coating Equipment, on the conduct of the Business (other
than operation of the Brainerd Facility) by Purchaser following the Closing or
on the ability of Seller to perform its obligations (without giving effect to
any ability to Cure) under this Agreement and the Ancillary Agreements) without
the prior written consent of Purchaser:
(i) (A) adopt or amend any Benefit Plan (or any plan that would be a
Benefit Plan if adopted) or enter into, adopt, extend (beyond the Closing
Date), renew or amend any collective bargaining agreement or other Contract
with any labor organization, union or association, except in each case as
required by Applicable Law;
(ii) grant to any officer, director, employee or independent
contractor any increase in compensation or benefits, except in the ordinary
course of business and consistent with past practice or as may be required
under existing agreements and except for any increases for which Seller
shall be solely obligated;
(iii) terminate the employment of any of the personnel of the Seller
Group who principally works for or provides services to the Business;
provided that the consent of Purchaser to any such action shall not be
--------
unreasonably withheld or delayed;
(iv) incur or assume any liabilities, obligations or indebtedness for
borrowed money or guarantee any such liabilities, obligations or
indebtedness or otherwise take any action to incur or assume, or fail to
take any action required by any obligation or duty that results in the
incurrence of, any other material liabilities or obligations of any nature,
other than in the ordinary course of business and consistent with past
practice or which will be an Excluded Liability; provided, however, that in
-------- -------
no event shall the Business incur, assume or guarantee any long-term
indebtedness for borrowed money;
(v) permit, allow or suffer any Acquired Asset or Acquired Coating
Equipment to become subjected to any Lien of any nature whatsoever that
would have been required to be set forth in Schedule 3.05 or 3.06 if
existing on the date of this Agreement;
(vi) cancel any material indebtedness (individually or in the
aggregate) or waive any claims or rights of substantial value;
(vii) except for dividends and distributions in cash to a member of
the Seller Group or as required by the Affiliate Contracts, pay, loan or
advance any amount to, or sell, transfer or lease any of its assets that
would be Acquired Assets to, or enter into or amend or otherwise modify any
agreement (including any Affiliate Contract) or arrangement with, Seller or
any of its affiliates;
(viii) make any change in any method of accounting or accounting
practice or policy other than those required by GAAP;
54
(ix) acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business organization
or division thereof or otherwise acquire any assets (other than inventory)
that are material, individually or in the aggregate, to the Business and
that would be Acquired Assets;
(x) sell, lease, license or otherwise dispose of any of its assets
that would be Acquired Assets, except inventory of finished goods sold,
"broke" disposed of and other consumable assets used, in each case, in the
ordinary course of business and consistent with past practice;
(xi) acquire fee title to, or an ownership interest in, any real
property that would be an Acquired Asset or enter into any lease (or
renewal of any lease) of real property that would be an Acquired Asset,
except (A) any renewals of existing leases in the ordinary course of
business and consistent with past practice (including in respect of term),
with respect to which Purchaser shall have the right to participate and (B)
to cure or remove imperfections in title;
(xii) modify, amend, terminate or permit the lapse (other than lapses
of leases of sales offices in accordance with the terms thereof) of any
lease of, or reciprocal easement agreement, operating agreement or other
material agreement relating to, real property that would be an Acquired
Asset (except modifications or amendments associated with renewals of
existing leases in the ordinary course of business and consistent with past
practice with respect to which Purchaser shall have the right to
participate);
(xiii) enter into any transaction (including any employment agreement
or contract but excluding the payment of wages and provision of benefits in
accordance with existing Contracts and ordinary travel advances) with any
current or former shareholder with beneficial ownership of at least 100,000
shares of the common stock of Seller, officer, director or employee of
Seller or any affiliate of Seller (or member of their families or trusts
for their benefit);
(xiv) enter into or amend any covenant not to compete, or enter into
or amend any other covenant restricting the development, manufacture,
marketing or distribution of the products and services of the Business;
(xv) with respect to any Acquired Entity, declare or pay a dividend or
make a distribution or redeem or otherwise acquire any of its equity or
other interests or any other security;
(xvi) with respect to any Acquired Entity, issue, deliver, sell, or
dispose of, or authorize or propose the issuance, sale or disposition of,
any equity or other interests or any other security or any option, warrant
or right relating thereto, or any securities convertible into or
exchangeable for any equity or other interests or any other security;
(xvii) make any purchase commitment for the Business in excess of the
normal, ordinary and usual requirements or at any price in excess of the
then current market price or for a period of greater than 90 days;
55
(xviii) enter into or amend in any material respect any continuing
agreement or Contract for the distribution of any products manufactured by
the Business (unless such agreement or Contract will be terminable by
Purchaser following Closing without payment or penalty upon no more than 60
days' notice and any terms relating to exclusivity will be terminable by
Purchaser immediately following Closing and at all times thereafter without
prior notice, payment or penalty); provided that the consent of Purchaser
--------
to any such agreement or amendment shall not be unreasonably withheld or
delayed;
(xix) enter into or amend any continuing agreement or Contract for the
so-called "toll manufacture" of products by the Business on behalf of
parties other than any member of the Seller Group;
(xx) enter into or amend any Contract that would be an Assigned
Contract for the placement of advertising or other promotional activities,
in any such case which has an aggregate future liability in excess of
$50,000 or which, together with all other such agreements, contracts or
arrangements, has an aggregate future liability in excess of $500,000;
(xxi) institute, settle or agree to settle any litigation, action or
proceeding before any court or governmental body or waive or surrender any
rights related to any pending or threatened litigation, action or
proceeding except for any settlement, waiver or surrender that could not
impair the use of any Acquired Asset or the operation or conduct of the
Business; provided that the consent of Purchaser to any such action shall
--------
not be unreasonably withheld or delayed;
(xxii) enter into any license, option or other material agreement
relating or pertaining to Assigned Intellectual Property or Assigned
Technology that would constitute Acquired Assets or to the Intellectual
Property or Technology of any third party except in respect of so-called
"embedded technology" relating to equipment purchased from third party
manufacturers or for so called "shrink-wrap" license agreements relating to
computer software licensed in the ordinary course of business;
(xxiii) enter into or amend any trackage rights, haulage rights,
marketing agreements, joint facility agreements or other agreements
affecting the operation of the Railroad;
(xxiv) abandon any part of the rail lines of the Railroad;
(xxv) take any action that limits or precludes Purchaser from (A)
rejecting any Labor Contract or (B) setting any initial term or condition
of employment for any Continued Employees;
(xxvi) enter into any lease, sublease or similar Contract with any
person under which (A) any member of the Seller Group is lessee of, or
holds or uses, any machinery, equipment, vehicle or other tangible personal
property owned by any person in connection with the Business or (B) any
member of the Seller Group is a lessor or sublessor of, or makes available
for use by any person, any tangible personal property owned or leased by
any member of the Seller Group that would be an Acquired Asset, in any such
case that has an aggregate future
56
liability or receivable, as the case may be, in excess of $100,000 or is
not terminable by such member of the Seller Group by notice of not more
than 60 days for a cost of less than $50,000;
(xxvii) enter into any (A) continuing Contract that would be an
Assigned Contract (other than a purchase order) for the future purchase of
materials, supplies or equipment that has an aggregate future liability in
excess of $100,000 or (B) management, service, consulting or other similar
Contract that has an aggregate future liability in excess of $50,000;
(xxviii) enter into any Contract under which any member of the Seller
Group has, directly or indirectly, made any advance, loan, extension of
credit or capital contribution to, or other investment in, any person
(other than any member of the Seller Group) other than extensions of trade
credit in the ordinary course of business and advances made in the ordinary
course of business to employees of the Seller Group of the Seller Group for
travel expenses;
(xxix) enter into any Contract that would be an Assigned Contract
providing for indemnification of any person with respect to liabilities
relating to any current or former business of any member of the Seller
Group or any predecessor person;
(xxx) enter into any power of attorney (other than a power of attorney
given in the ordinary course of business with respect to routine tax
matters) that would be binding on Purchaser or with respect to any Acquired
Asset or Assumed Liability after the Closing;
(xxxi) enter into any confidentiality agreement that would be an
Assigned Contract (other than a confidentiality agreement entered into in
the ordinary course of business and not with any person who (together with
its affiliates) competes in any manner with the Business);
(xxxii) enter into any sales order (other than one-time sales orders
entered into in the ordinary course of business that (A) except to the
extent the buyer has asserted terms and conditions that have not been
expressly agreed to by any member of the Seller Group, are subject to the
Business' standard terms and conditions and (B) do not extend for a term
more than 120 days from the date of this Agreement (unless terminable
without payment or penalty upon no more than 60 days' notice));
(xxxiii) enter into any Contract (A) for the sale of any Acquired
Asset (other than inventory sales in the ordinary course of business) or
Acquired Coating Equipment, (B) for the grant of any preferential rights to
purchase any Acquired Asset (other than inventory in the ordinary course of
business) or Acquired Coating Equipment or (C) requiring the consent of any
party to the transfer of any Acquired Asset or Acquired Coating Equipment
and involving the payment by any party of at least $50,000 or affecting the
use of an asset or assets with an aggregate original cost, replacement cost
or fair market value of at least $50,000 or which are otherwise material to
the Business;
(xxxiv) enter into any Contract with any Governmental Entity or any
57
Contract with any person that would impose affirmative action obligations
on Purchaser if assigned to Purchaser;
(xxxv) enter into any currency exchange, interest rate exchange,
commodity exchange or similar Contract that would be an Assigned Contract;
(xxxvi) enter into any other Contract that would be an Assigned
Contract or would affect any Acquired Asset or Acquired Coating Equipment
and is for any joint venture, partnership or similar arrangement;
(xxxvii) enter into any other Contract that would be an Assigned
Contract (other than a purchase order or a sales order) that has an
aggregate future liability to any person in excess of $100,000 or extends
for a term more than one year from the date of this Agreement (unless
terminable without payment or penalty upon no more than 60 days' notice);
(xxxviii) enter into any Contract under which (A) any person has the
right to use all or any assets (including track, yards and other
facilities) of the Railroad, or (B) granting any member of the Seller Group
the right to use all or any portion of any rail line, rail yards, or other
rail facilities of any other person;
(xxxix) enter into any trackage rights, haulage, interchange, joint
facility switching and similar Contracts; or
(xxxx) commit or agree to take, in a legally binding manner, whether
in writing or otherwise, to do any of, the foregoing actions.
(b) Advise of Changes. Seller shall advise Purchaser in writing of the
-----------------
occurrence of any matter or event that is or could reasonably be expected to be
material to the business, assets, condition (financial or otherwise), working
capital, liabilities or results of operations of the Business promptly upon
acquiring knowledge of any such matter or event.
(c) Affirmative Covenants. Until the Closing, Seller shall, and Seller
---------------------
shall cause its affiliates to:
(i) use commercially reasonable efforts to maintain the Acquired
Assets in all material respects in good working order, free from any
material defects (other than defects resulting from normal wear and tear
that are reasonably expected to be Repaired through the ordinary course
maintenance program of the Business prior to having any material affect on
the continued conduct of the Business or the continued use of any Acquired
Asset (other than by reason of such Repair)) and in accordance with the
past practice of the Business, any applicable requirements of insurance
policies maintained by the Seller Group and with respect to pressure
vessels (including digesters), boilers (including recovery boilers),
turbine generators and fire control or suppression systems, generally
accepted industry practice or generally accepted insurance requirements,
and not defer or delay any repairs, replacements or regularly scheduled
maintenance relating to any Acquired Asset except to the extent consistent
with past practice;
(ii) upon any damage, destruction or loss to, or condemnation of, any
58
Acquired Asset with a value (together with all other Acquired Assets
damaged, destroyed, suffering a loss or condemned in the same or any
related occurrence) in excess of $100,000, (A) promptly notify Purchaser
and (B) consult with Purchaser as to the application of any and all
insurance proceeds with respect thereto to repair, replace or restore such
Acquired Asset;
(iii) use commercially reasonable efforts to maintain its level and
quality of Receivables, Inventory and supplies, raw materials and spare
parts in the ordinary course (A) in approximately the same proportions as
reflected on the Balance Sheet, subject to normal seasonality, (B) in a
manner consistent with its past practices and (C) so as to be sufficient
for the conduct of the Business (other than operation of the Brainerd
Facility) by Purchaser following Closing in a manner consistent with past
practices and the performance by Seller of its obligations under the
Ancillary Agreements;
(iv) promptly notify Purchaser in writing of any written or, to
Seller's knowledge, oral notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with the execution, delivery or performance of this Agreement or
any Ancillary Agreement or the consummation of the Acquisition or the other
transactions contemplated hereby and thereby;
(v) promptly after receiving any request for effects bargaining by any
Union or Railroad Union, bargain in good faith, subject to and in
accordance with Applicable Law, with such Union or Railroad Union the
effects of the Acquisition or any other transaction contemplated by this
Agreement or any Ancillary Agreement;
(vi) promptly notify Purchaser in writing of (A) any write-downs of
the value of, or establishment of any reserves against, any Inventory or
Receivables of the Business and (B) any written or, to the extent Seller
has knowledge, oral notice or complaint regarding any products sold or
services rendered for which Receivables that constitute Acquired Assets are
currently due (other than notices and complaints received in the ordinary
course of business and of a quantity, magnitude and type consistent with
the past experience of the Business unless such notice or complaint could
reasonably be expected to give rise to a liability of (including a return
of products having an aggregate sale price of) $100,000 or more); and
(vii) not take any action that would, or could reasonably be expected
to, result in any of the representations or warranties of Seller in this
Agreement becoming untrue or incorrect in any material respect.
(d) Consultation. In connection with the continuing operation of the
------------
Business between the date of this Agreement and the Closing, Seller shall use
reasonable efforts to consult in good faith on a regular and frequent basis with
the representatives for Purchaser to report material operational developments
and the general status of ongoing operations pursuant to procedures reasonably
requested by Purchaser or such representatives. Seller acknowledges that any
such consultation shall not constitute a waiver by Purchaser of any rights it
may have under this Agreement, and that Purchaser shall not have any liability
or responsibility for any actions of Seller or any of its officers
59
or directors with respect to matters that are the subject of such consultations
unless Purchaser expressly consents to such action in writing.
SECTION 5.02. No Solicitation. Seller shall not, nor shall it
---------------
authorize or permit any of its affiliates or any officer, director, employee,
accountant, counsel, investment banker, financial advisor or other
representative of Seller or any of its affiliates or any affiliate of any such
person (collectively "Representatives") to, directly or indirectly, solicit,
---------------
initiate or encourage (including by way of furnishing information) or take any
other action to facilitate knowingly any inquiries or the making of any proposal
which constitutes or may reasonably be expected to lead to an "other bid" (as
defined below) from any person, or engage in any discussion or negotiations
relating thereto or accept any "other bid" other than a "Seller bid" (as defined
below). Seller shall instruct each of its Representatives to observe the terms
of this Section 5.02. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the first two sentences of this
Section 5.02 by any Representative, whether or not such person is purporting to
act on behalf of Seller or otherwise, shall be deemed to be a breach of this
Section 5.02 by Seller. Seller promptly shall advise Purchaser orally and in
writing of any written proposal with respect to any "other bid" or which could
lead to any "other bid" and, unless such "other bid" is a "Seller bid", the
identity of the person making any such written proposal. Seller shall not be
required to comply with requirements of the foregoing sentence in any instance
to the extent that Seller's Board of Directors determines in good faith, based
on the opinion of outside counsel, that such compliance would in such instance
be inconsistent with their fiduciary duties; provided, however, that Seller
-------- -------
shall promptly notify Purchaser of the fact of such determination (except to the
extent the Board of Directors determines in good faith, based on the opinion of
outside counsel, that such notice would in such instance be inconsistent with
their fiduciary duties). Seller shall not disclose to any person in connection
with a Seller bid, and shall keep confidential and cause its affiliates and each
of their respective officers, directors, employees and advisers not to disclose
and to keep confidential, all information with respect to the Business, the
Acquired Assets and the Assumed Liabilities that Seller would be required to
keep confidential after Closing pursuant to Section 5.04(b). As used in this
Section 5.02, (i) "other bid" shall mean any inquiry, proposal or offer from any
---------
person relating to the direct or indirect acquisition of the Business or all or
any of the assets of the Business, other than (A) the transactions contemplated
by this Agreement, (B) the acquisition of finished products, surplus equipment
and Inventory in the ordinary course of business other than any acquisition that
would be inconsistent with Seller's obligations under this Agreement or any
Ancillary Agreement and (C) the acquisition of any Excluded Asset described in
Section 1.02(b) and (ii) "Seller Bid" shall mean any proposal or offer from any
----------
person relating to (i) the acquisition by any person of Seller by virtue of a
merger or similar business combination transaction, (ii) the acquisition by any
person of capital stock of Seller or (iii) the acquisition by any person of all
or substantially all of Seller's assets (but not any assets of the Business or
any asset that would be an Acquired Asset), provided that, in each case, such
--------
acquisition in no event could interfere, directly or indirectly, with the
ability of Purchaser and Seller to consummate the Acquisition and the other
transactions contemplated hereby and by the Ancillary Agreements on the terms
contemplated by this Agreement and the Ancillary Agreements or the ability of
Seller to perform its obligations under this Agreement or any Ancillary
Agreement.
SECTION 5.03. Access to Information, Due Diligence. Seller shall
------------------------------------
afford, and shall cause each other member of the Seller Group to afford, to
Purchaser, its
60
affiliates, their respective lenders and the respective accountants, counsel,
environmental consultants and other representatives of any of the foregoing
(such entities and representatives other than Purchaser being referred to as
"Purchaser's Representatives") reasonable and timely access in a manner that
---------------------------
does not unreasonably interfere with the normal operations of the Business,
during the period prior to the Closing, to all the employees, advisors
(including environmental consultants), attorneys, accountants, managers,
properties, books, contracts, commitments, information systems, Tax returns and
Records of the Business, and, during such period shall furnish promptly to
Purchaser and Purchaser's Representatives any information (including, with
respect to environmental matters, all relevant records, audits, assessments,
field notes, monitoring well data and other documents or information in
possession of the Seller Group or its representatives or advisors) concerning
the Business, the Acquired Assets, the Excluded Assets, the Assumed Liabilities
and the Excluded Liabilities as Purchaser (or any Purchaser's Representative)
may reasonably request. Access to employees and managers shall include, without
limitation, such access as Purchaser may reasonably request, giving due regard
to Seller's interest in maintaining the stability of its work force prior to the
Closing, in order to communicate initial terms and conditions of employment to
be offered, take applications for employment with Purchaser, make determinations
regarding which employees should be Continued Employees and Non-Continuing
Employees and, when applicable, negotiate terms and conditions of employment.
Seller will permit, and will cause each other member of the Seller Group to
permit, Purchaser and Purchaser's Representatives to conduct such studies as
Purchaser may reasonably request, to establish the current environmental status
of the Business, the Acquired Assets and to assess Assumed Liabilities and
Excluded Liabilities arising from or related to Environmental Laws.
SECTION 5.04. Confidentiality. (a) Purchaser acknowledges that the
---------------
information being provided to it in connection with the Acquisition and the
consummation of the other transactions contemplated hereby is subject to the
terms of a confidentiality agreement dated May 10, 2001 between Purchaser and
Seller (the "Confidentiality Agreement"), the terms of which are incorporated
-------------------------
herein by reference except that the provisions contained therein with respect to
the solicitation of Seller's employees are hereby extended for an additional
year. Notwithstanding anything to the contrary herein or in the Confidentiality
Agreement, Purchaser shall be permitted to use and disclose such information to
the extent necessary or appropriate in order to consummate the transactions
contemplated by this Agreement (including in connection with making any filing
or obtaining any consent or approval and as necessary to defend or prosecute any
litigation or dispute). Effective upon the Closing, the Confidentiality
Agreement (other than the provisions contained therein with respect to the
solicitation of Seller's employees) shall terminate.
(b) (x) Seller shall keep confidential, and use reasonable efforts to
cause its affiliates and each of their respective officers, directors, employees
and advisors to keep confidential, (i) all information that is known by Seller
to be confidential information regarding Purchaser, any of its affiliates or any
of its or their businesses, products, processes or financings, being provided to
it in connection with the Acquisition and the other transactions contemplated
hereby or by the Ancillary Agreements and (ii) after the Closing (and prior to
the Closing in connection with any Seller bid), all information relating to the
Business, the Acquired Assets or the Assumed Liabilities and (y) Purchaser shall
keep confidential, and use reasonable efforts to cause its affiliates and each
of their respective officers, directors, employees and advisors to keep
confidential all
61
information that is contained in any Record constituting an Acquired Asset that
is known by Purchaser to be confidential information relating to any business of
Seller or any of its affiliates other than the Business and not relating to the
Business, except (A) as required by law or administrative process (to the extent
so required) (in which case the party required to disclose confidential
information shall promptly notify the other party and give the other party an
opportunity to oppose such disclosure), (B) as necessary to defend or prosecute
any litigation or dispute, (C) as permitted by the License Agreement, (D) for
information that is available to the public on the Closing Date, or thereafter
becomes available to the public other than as a result of a breach of this
Section 5.04(b), (E) with respect to the obligations of Seller, (x) with respect
to any Excluded Liability or Excluded Assets or (y) as reasonably necessary in
connection with any claim of Seller hereunder against Purchaser or any claim of
Purchaser hereunder against Seller or Seller's pursuit of remedies against any
third party with respect to any such claim or (F) with respect to the obligation
of Purchaser, as reasonably necessary in connection with any claim of Purchaser
hereunder against Seller or any claim of Seller hereunder against Purchaser or
Purchaser's pursuit of remedies against any third party with respect to any such
claim. The covenant set forth in this Section 5.04(b) shall terminate three
years after the Closing Date or such later date as may be required by Seller's
obligation to a third party regarding confidentiality. On and after the Closing
Date, Seller shall grant Purchaser the right (at Purchaser's expense) to enforce
the confidentiality provisions of any existing agreements with persons employed
in, or holding any confidential information with respect to, the Business on or
prior to the Closing Date (to the extent not expressly prohibited thereby).
Seller agrees to use reasonable efforts to assist Purchaser in enforcing such
provisions and agreements, irrespective of whether such employees shall have
been terminated at such time and, if Seller is unable to grant Purchaser the
right to enforce any such provision or agreement, as and to the extent requested
by Purchaser to enforce it on Purchaser's behalf, with Purchaser responsible for
all reasonable out of pocket expenses incurred by Seller in connection with such
enforcement.
(c) On the Closing Date, Seller shall assign to Purchaser its rights
under all confidentiality agreements entered into with any person in connection
with any proposed sale of the Business or any of the Acquired Assets to the
extent such rights are assignable and relate to the Business. Copies of such
confidentiality agreements shall be provided to Purchaser immediately following
the Closing, except to the extent expressly prohibited by the terms of such
confidentiality agreements. Promptly following the date hereof, Seller shall use
all reasonable efforts, under such confidentiality agreements, to secure the
return or destruction of all information and materials relating to the Business,
the Acquired Assets and the Assumed Liabilities provided to any such person or
otherwise covered by such confidentiality agreements prior to the Closing Date.
Seller shall, except to the extent expressly prohibited by the terms of such
confidentiality agreements, provide Purchaser with all information reasonably
requested by Purchaser regarding the status of such process, including details
as to the information provided, the persons to which it was provided and what
information has not been returned.
(d) Each party providing any information in connection with this
Agreement is not waiving, and will not be deemed to have waived or diminished,
any of its attorney work product protections, attorney-client privileges or
similar protections and privileges as a result of disclosing such information
(including information related to pending or threatened litigation) to the other
party, regardless of whether such disclosing party has asserted, or is or may be
entitled to assert, such privileges and protections. The parties (a) share a
common legal and commercial interest in all of such information that is
62
subject to such privileges and protections; (b) may become joint defendants in
Proceedings to which such information covered by such protections and privileges
relates; (c) intend that such privileges and protections remain intact should
any party become subject to any actual or threatened Proceeding to which such
information covered by such protections and privileges relates; and (d) intend
that after the Closing the receiving party shall have the right to assert such
protections and privileges. No receiving party shall admit, claim or contend, in
Proceedings involving either party or otherwise, that any party disclosing such
information waived any of its attorney work-product protections, attorney-client
privileges or similar protections and privileges with respect to any
information, documents or other material disclosed to a party due to a
disclosing party disclosing information (including information related to
pending or threatened litigation) to such receiving party.
SECTION 5.05. Reasonable Efforts. (a) On the terms and subject to the
------------------
conditions of this Agreement, each party shall use its reasonable efforts to
cause the Closing to occur, including taking all reasonable actions necessary to
comply promptly with all legal requirements that may be imposed on it or any of
its affiliates with respect to the Closing and to cause all other conditions to
be satisfied. Without limiting the foregoing or the provisions set forth in
Section 5.05(b), each party shall use its reasonable efforts to cause the
Closing to occur on or prior to May 20, 2002 (the "Anticipated Closing Date").
------------------------
(b) Each of Seller and Purchaser shall (i) as promptly as practicable,
but in no event later than five business days following the execution and
delivery of this Agreement, file with the United States Federal Trade Commission
(the "FTC") and the United States Department of Justice (the "DOJ") the
--- ---
notification and report form, if any, required for the transactions contemplated
hereby and any supplemental information requested in connection therewith
pursuant to the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976 (the "HSR
---
Act"), (ii) as promptly as practicable make all filings under applicable
---
competition laws and regulations of any other applicable foreign jurisdiction
and (iii) as promptly as practicable make all required filings and notices to
the Surface Transportation Board (the "STB") and FERC, including jointly filing
---
with FERC for approval to transfer the Hydroelectric Facility (including the
FERC License) to Purchaser. Any such notification and report form or filing and
supplemental information shall be in substantial compliance with the
requirements of the HSR Act or the applicable competition laws and regulations
of any other applicable foreign jurisdiction, as the case may be. Each of
Purchaser and Seller shall furnish to the other such necessary information and
reasonable assistance as the other may request in connection with its
preparation of any filing or submission that is necessary under the HSR Act or
applicable competition laws and regulations of any other applicable foreign
jurisdiction and in connection with any filing with the STB and FERC, as the
case may be. Seller and Purchaser shall keep each other appraised of the status
of any communications with, and any inquiries or requests for additional
information from, the FTC, the DOJ and other foreign competition regulators and
the STB and FERC and shall comply promptly with any such inquiry or request.
Each of Seller and Purchaser shall use its reasonable efforts to obtain any
clearance required under the HSR Act or competition laws and regulations of any
other applicable foreign jurisdiction and to obtain any necessary approvals or
exceptions from the STB and FERC for the consummation of the transactions
contemplated by this Agreement.
63
(c) Each of Seller and Purchaser shall as promptly as practicable
following the execution and delivery of this Agreement cooperate to make all
filings necessary to be made with the government agencies listed in Schedule
5.05(c).
(d) Seller shall, and shall cause its affiliates to, use (and to
continue to use after Closing) its reasonable efforts (at its own expense) to
obtain, and Purchaser shall, and shall cause its affiliates to, cooperate (at
its own expense) with Seller in obtaining, all consents from third parties
including estoppel certificates from the landlords under the leases for the
Distribution Center Facilities, necessary or appropriate to permit the transfer
of the Acquired Assets to, and the assumption of the Assumed Liabilities by,
Purchaser; provided, however, that the parties shall not be required to pay or
-------- -------
commit to pay any amount to (or incur any obligation in favor of) any person
from whom any such consent may be required (other than nominal filing or
application fees).
(e) For purposes of this Section 5.05, the "reasonable efforts" of
Purchaser shall not require Purchaser to agree to any prohibition, limitation or
other requirement described in Section 6.02(d) (whether or not relating to any
Proceeding).
SECTION 5.06. Expenses; Transfer Taxes. (a) Whether or not the Closing
------------------------
takes place, and except as otherwise specified in this Agreement, all costs and
expenses incurred in connection with this Agreement and the Ancillary Agreements
and the transactions contemplated hereby and thereby shall be paid by the party
incurring such expense, including all costs and expenses incurred pursuant to
Sections 1.04 and 5.05.
(b) All Transfer Taxes applicable to the conveyance and transfer from
Seller to Purchaser of the Acquired Assets and any other transfer or documentary
Taxes or any filing or recording fees applicable to such conveyance and transfer
shall be paid by Seller. Each party shall use reasonable efforts to avail itself
of any available exemptions from any such Taxes or fees, and to cooperate with
the other parties in providing any information and documentation that may be
necessary to obtain such exemptions.
(c) The costs of preparing the land title surveys covering any or all
of the Premises shall be shared as follows: Seller shall pay for the preparation
of the surveys with the minimum standard details required by the most current
ALTA/ACSM guidelines; and Purchaser shall pay for the extra cost of optional
details requested by Purchaser. Purchaser shall select and supervise the
surveyor.
(d) The cost of title insurance covering any or all of the Premises
shall be shared as follows: Seller shall pay for providing current abstracts of
title for all abstract parcels and current registered property abstracts for all
Torrens parcels, including name searches and special assessment searches, and
Purchaser shall pay all premiums and surcharges for title insurance policies and
endorsements. Purchaser shall select and supervise the title insurance company.
(e) The costs of obtaining and recording title clearance documents
(including Lien releases, easement releases and Torrens orders) covering any or
all of the Premises shall be borne by Seller. Seller shall pay the fees of
escrow agents hired to hold escrows for title clearance.
(f) The costs of recording documents conveying title from Seller to
Purchaser (including deeds and assignments) covering any or all of the Premises
shall be
64
borne by Purchaser, except that Seller shall pay all Transfer Taxes as provided
in Section 5.06(b).
(g) Seller and Purchaser shall share equally the closing fee charged
by the title insurance company.
SECTION 5.07. Brokers or Finders. Each of Purchaser and Seller
------------------
represent, as to itself and its affiliates, that no agent, broker, investment
banker or other firm or person is or will be entitled to any broker's or
finder's fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement as a result of any actions by
such party, except (i) as to Purchaser and its affiliates, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co.
Incorporated, whose fees and expenses will be paid by Purchaser and (ii) as to
Seller and its affiliates, ▇▇▇▇▇▇▇, Sachs & Co., whose fees and expenses will be
paid by Seller.
SECTION 5.08. Collection of Receivables. From and after the Closing,
-------------------------
Purchaser shall have the right and authority to collect for its own account all
Receivables and other related items that are included in the Acquired Assets and
to endorse with the name of Seller any checks or drafts received with respect to
any Receivables or such other related items. Seller shall promptly deliver to
Purchaser any cash or other property received directly or indirectly by it with
respect to the Receivables and such other related items, including any amounts
payable as interest. With respect to any Receivables included in the Acquired
Assets, each party shall have the rights and obligations set forth in Schedule
1.05(d)(1) under "Trade Receivables."
SECTION 5.09. Employee Matters. (a) Purchaser shall offer employment
----------------
to all Participants who are Active Employees, except (i) Participants ("Brainerd
--------
Participants") whose employment as determined in Purchaser's sole discretion
------------
relates principally to the operation of the Brainerd Facility or Excluded
Brainerd Assets, and (ii) any other Participants ("Non-Continuing Participants")
---------------------------
who are identified by Purchaser to Seller prior to the Closing (or, in the case
of a Participant who as of Closing is on an approved leave of absence (other
than long-term disability), and who within 90 days following the Closing Date
presents himself or herself to Purchaser as ready, willing and able to commence
active employment with Purchaser, identified by Purchaser to Seller following
Purchaser's decision not to offer employment to such Participant) as
Participants to whom Purchaser shall not offer employment. Purchaser shall
determine in its sole discretion the terms and conditions of employment to be
offered to Participants who accept such offer (collectively, the "Continued
---------
Employees"). "Active Employees" means each employee of or with respect to the
--------- ----------------
Business who is actively at work as of the Closing, or on vacation, holiday,
jury duty or bereavement leave. In addition, each other employee of or with
respect to the Business who as of the Closing is on an approved leave of absence
(other than long-term disability), and who within 90 days following the Closing
Date presents himself or herself to Purchaser as ready, willing and able to
commence active employment with Purchaser, shall be deemed to be an Active
Employee. For the avoidance of doubt, "Active Employees" excludes each employee
of or with respect to the Business who is on long-term disability as of the
Closing.
(b) Seller shall retain (i) sole sponsorship of, and exclusive
responsibility for all liabilities and obligations under, arising out of, or
relating to, each Benefit Plan except as provided in Section 5.09(e), and (ii)
sole responsibility for all liabilities and obligations under, arising out of,
or relating to, the employment or termination of
65
employment of each employee of, or with respect to, the Business on or prior to
the Closing (including all liabilities and obligations arising from effects
bargaining with any Union) except that Purchaser shall reimburse Seller for any
payments for severance or separation pay made by Seller to any Non-Continuing
Participant but only up to the amounts set forth on Schedule 5.09 (with Seller
retaining sole responsibility for (x) any excess amounts due under the
Separation Agreements, (y) any amounts due to any Brainerd Participants or (z)
any other payments). Seller shall use commercially reasonable efforts to require
each employee of the Business receiving any severance or separation pay or
benefits in excess of the amounts Seller is contractually obligated to provide
as of the date hereof (which shall be deemed not to include any obligations
arising from effects bargaining with any Union) to sign a release and
confidentiality agreement, including a general release of claims (including
release of claims under the WARN Act), in form and substance reasonably
acceptable to Purchaser, releasing Seller, the Seller Group, the Business and
Purchaser (and their respective affiliates, shareholders, officers, directors,
employees and agents) from all claims arising from such employee's employment or
termination of employment ("Release"). Notwithstanding anything herein to the
-------
contrary, Purchaser's obligation to reimburse Seller for any payments for
severance or separation pay made by Seller to any Non-Continuing Participant who
Seller must use commercially reasonable efforts to require to sign a Release
shall be conditioned (whether or not Seller uses such efforts) on Seller
obtaining from such Non-Continuing Participant a fully-executed Release with
respect to which all revocation and rescission rights have expired. Seller shall
cause each Continued Employee to fully vest in respect of any benefits accrued
under the Seller 401(k) Plans (as defined in Section 5.09(f)) effective
immediately prior to the Closing.
(c) With respect to any "employee benefit plan" (as defined in Section
3(3) of ERISA) maintained by Purchaser, to the extent such plan is made
available to a Continued Employee, solely for purposes of determining
eligibility to participate and vesting, service with Seller or any other member
of the Seller Group shall be treated as service with Purchaser with respect to
such Continued Employee; provided, that a Continued Employee's service with
Seller or any other member of the Seller Group shall be treated as service with
Purchaser for purposes of Purchaser's severance, vacation and other paid time
off policies that apply to such Continued Employee; provided, further, that
-------- -------
Retiree Medical Eligible Employees (as defined in Section 5.09(g)) will not be
eligible for Purchaser's post-retirement health and life insurance program.
(d) Purchaser shall waive, or cause to be waived, any pre-existing
condition limitation under any welfare benefit plan maintained by Purchaser in
which Continued Employees (and their eligible dependents) will be eligible to
participate after the Closing. Purchaser shall recognize, or cause to be
recognized, the dollar amount of all expenses incurred by each Continued
Employee (and his or her eligible dependents) during the calendar year in which
the Closing occurs for purposes of satisfying such year's deductible and
co-payment limitations and out-of-pocket maximums under the relevant welfare
benefit plans in which they will be eligible to participate from and after the
Closing.
(e) (i) As soon as practicable following the Closing Date, an enrolled
actuary designated by Seller ("Seller's Actuary") and an enrolled actuary
----------------
designated by Purchaser ("Purchaser's Actuary") shall mutually determine the
-------------------
Accrued Liability (as defined below) of the Continued Employees under the
Potlatch Corporation Salaried Employees' Retirement Plan (the "Seller Salaried
---------------
Pension Plan") and the Potlatch
------------
66
Corporation Hourly Employees' Retirement Plan (the "Seller Hourly Pension Plan"
--------------------------
and, together with the Seller Salaried Pension Plan, the "Seller Pension
--------------
Plans"), in each case as of the end of the month that includes the Closing Date.
-----
In accordance with this Section 5.09(e), Seller shall cause to be transferred
from the Seller Salaried Pension Plan and the Seller Hourly Pension Plan to a
trust established as part of a defined benefit pension plan maintained by
Purchaser or its affiliates intended to satisfy the qualification requirements
of Section 401(a) of the Code and which has received a favorable determination
letter from the Internal Revenue Service (the S.D. ▇▇▇▇▇▇ Company Retirement
Plan for Salaried Employees or such other plan as may be designated by Purchaser
(the "Purchaser Salaried Pension Plan") and the S.D. ▇▇▇▇▇▇ Company Central
-------------------------------
▇▇▇▇▇ Employees' Retirement plan, Plan #036, or such other plan as may be
designated by Purchaser (the "Purchaser Hourly Pension Plan", and together with
-----------------------------
the Purchaser Salaried Pension Plan, the "Purchaser Pension Plans"),
-----------------------
respectively), cash or other assets (or a combination thereof) equal to the
Accrued Liability for all Continued Employees participating in the relevant
Seller Pension Plan, as determined as of the end of the month that includes the
Closing Date; provided, that any transfer of assets in a form other than cash
--------
shall be subject to approval of Purchaser in its sole discretion.
Notwithstanding anything to the contrary in this Agreement, the transfers
contemplated by this Section 5.09(e) shall be in any event not less than the
amount determined in accordance with section 414(l) of the Code and the related
regulations (including the safe harbor Pension Benefit Guaranty Corporation
("PBGC") assumptions and methodology as of the end of the month that includes
----
the Closing Date), and the amount expressly called for to be transferred
pursuant to this Section 5.09(e) shall be adjusted to the extent necessary for
any governmental approval (including the IRS and the PBGC) and to satisfy
Section 414(l) of the Code and the related regulations as well as Section 4044
of ERISA and the related regulations. The amount finally determined in
accordance with the foregoing to be transferred from the Seller Pension Plans to
the Purchaser Pension Plans shall be adjusted, as mutually determined by
Seller's Actuary and Purchaser's Actuary, to reflect an assumed investment
return on the assets of the applicable Seller Pension Plan from the end of the
month in which the Closing Date occurs until the date of transfer equal to the
average rate of the 90-day Treasury ▇▇▇▇ on the auction date coincident with the
first day of the calendar month in which the transfer occurs or, if there is no
auction on such first day, on the next immediately preceding auction date, and
shall be decreased by any benefit payments made to Continued Employees under the
applicable Seller's Pension Plan during such period.
(ii) The transfer of assets from the applicable Seller's Pension Plan
to the applicable Purchaser Pension Plan (as applicable, the "Pension Asset
-------------
Transfer") shall be made as soon as practicable following the determination of
--------
the applicable amount to be transferred, but not later than 120 days following
the Closing Date. Unless Seller and Purchaser agree otherwise, all transfers
shall occur on the last business day of a month. Seller's Actuary shall be
responsible for the required actuarial certification under Section 414(l) of the
Code. The applicable Purchaser Pension Plan as of the date of the applicable
Pension Asset Transfer shall assume all liabilities and obligations of Seller
and its affiliates and the applicable Seller Pension Plan with respect to the
Continued Employees under such Seller Pension Plan in respect of the applicable
transferred assets and liabilities; provided, that Seller shall indemnify and
--------
hold harmless Purchaser and its subsidiaries and affiliates from any Losses (as
defined in Section 8.01) attributable to any acts or omissions with respect to
such Seller Pension Plan of Seller or its subsidiaries and affiliates, or any
trustee or recordkeeper of such Seller Pension Plan, to the extent such acts or
omissions occur prior to the date of the applicable Pension Asset Transfer or
67
otherwise constitute a breach of fiduciary duty under Title I of ERISA in
respect of such Seller Pension Plan; provided, further, that Seller agrees that
-------- -------
prior to the date of the applicable Pension Asset Transfer, Seller shall remain
solely responsible for making any benefit payments required to be made under
such Seller Pension Plan for Continued Employees after the Closing Date.
(iii) The term "Accrued Liability" shall mean the projected benefit
-----------------
obligation (as defined in Statement of Financial Accounting Standards No. 87)
under each Seller Pension Plan for each Continued Employee on the basis of
mutually agreed actuarial assumptions set forth in Schedule 5.09(e). The Accrued
Liability shall be mutually agreed between Seller's Actuary and Purchaser's
Actuary, and Seller shall provide Purchaser's Actuary with all information
reasonably necessary to calculate the Accrued Liability (including any
adjustments to the Accrued Liability required for any governmental approval or
to satisfy Section 414(l) of the Code and the related regulations or Section
4044 of ERISA and the related regulations). If there is a good faith dispute
between Seller's Actuary and Purchaser's Actuary as to the amount to be
transferred to Purchaser's Pension Plan under this Agreement and such dispute
remains unresolved for 14 days, the chief financial officers of Seller and
Purchaser shall endeavor to resolve the dispute. If such dispute remains
unresolved for 30 days, Seller and Purchaser shall select and appoint a third
actuary who is mutually satisfactory to both Seller and Purchaser. The reasoned
written decision of such third party actuary shall be rendered within 60 days
and shall be conclusive as to any dispute for which such actuary was appointed.
The cost of such third party actuary shall be divided equally between Seller and
Purchaser. Each of Purchaser and Seller shall be responsible for the cost of its
own actuary. Purchaser and Seller shall reasonably cooperate to make any and all
filings and submissions to the appropriate governmental agencies required to be
made by Seller or Purchaser as are appropriate in effectuating the provisions of
this Section 5.09(e).
(iv) The actual amount of assets transferred from the Seller Pension
Plans to the Purchaser Pension Plans hereunder as determined in accordance with
Section 5.09(e)(i) after taking into account all adjustments required thereunder
shall be referred to herein as the "Transfer Amount". The term "Adjusted Accrued
--------------- ----------------
Liability" shall mean the Accrued Liability, as originally determined in
---------
accordance with Section 5.09(e)(iii) (without regard to any adjustments required
for any governmental approval or to satisfy Section 414(l) of the Code and the
related regulations or Section 4044 of ERISA and the related regulations) as of
the end of the month in which the Closing Date occurs and adjusted, for
investment return and benefit payments, in accordance with the methodology
provided in the last sentence of Section 5.09(e)(i), through the date on which
the Transfer Amount is actually transferred to the Purchaser Pension Plans. To
the extent that (x) the sum of the aggregate Adjusted Accrued Liability plus
$6,600,000 exceeds (y) the Transfer Amount for Continued Employees (such excess,
the "Pension Shortfall Amount"), Seller shall pay to Purchaser, as an adjustment
------------------------
to the Purchase Price, within five days following the transfer of assets from
the Seller Pension Plans to Purchaser Pension Plans, an amount in immediately
available funds equal to the Pension Shortfall Amount.
(f) As soon as practicable following the Closing Date, Seller agrees
to permit each Continued Employee to effect a "direct rollover" (within the
meaning of Section 401(a)(31) of the Code) of his or her account balances under
the Potlatch Corporation Salaried Employees' Savings Plan or the Potlatch
Corporation Hourly Employees' Savings Plan (collectively, the "Seller 401(k)
-------------
Plans") if such rollover is
-----
68
elected in accordance with Applicable Law by such Continued Employee. Without
limiting the generality of the foregoing, each Continued Employee may elect to
effect, and Purchaser agrees to cause the S.D. ▇▇▇▇▇▇ Company Salaried
Investment Plan and the S.D. ▇▇▇▇▇▇ Company Hourly Investment Plan or such other
plans as may be designated by Purchaser (collectively, the "Purchaser 401(k)
----------------
Plans"), as applicable, to accept, a "direct rollover" of his or her account
-----
balances (in the form of cash or other assets acceptable to Purchaser),
including promissory notes evidencing all outstanding loans, under the
applicable Seller 401(k) Plan if such rollover is elected in accordance with
Applicable Law by such Continued Employee; provided, that Seller is reasonably
satisfied (consistent with the regulations promulgated under Section 401(a)(31)
of the Code) that the applicable Purchaser 401(k) Plan meets the requirements
for qualification under Section 401(a) of the Code and Purchaser is reasonably
satisfied (consistent with the regulations promulgated under Section 401(a)(31)
of the Code) that the applicable Seller 401(k) Plan meets the requirements for
qualification under Section 401(a) of the Code.
(g) Without limiting the generality of Section 5.09(b), with respect
to each Continued Employee who, as of the Closing Date, has satisfied the
eligibility requirements (including as to age and service) to receive retiree
health and life insurance benefits from Seller or any other member of the Seller
Group under a Benefit Plan or otherwise (a "Retiree Medical Eligible Employee"),
---------------------------------
Seller shall retain the sole liability and obligation to provide retiree health
and life insurance benefits to such Continued Employee under the terms of the
applicable retiree health and life insurance program, as made available to
employees of Seller or any other member of the Seller Group generally from time
to time. With respect to Continued Employees (other than Retiree Medical
Eligible Employees), Purchaser shall provide retiree health and life insurance
benefits to such employees to the extent such employees satisfy the eligibility
requirements to receive such benefits under Purchaser's retiree health and life
insurance program, as made available to Purchaser's employees generally from
time to time.
(h) Purchaser rejects and declines to accept or assume any liability,
obligation or commitment of any member of the Seller Group relating to or
arising out of the Labor Agreements and all other Labor Contracts. Purchaser
will notify the Unions prior to the Closing of its decision to reject the Labor
Agreements. Purchaser will establish in its sole discretion initial terms and
conditions of employment for Continued Employees who are covered by the Labor
Agreements immediately prior to the Closing. To the extent required by law,
Purchaser will bargain in good faith with the Unions.
(i) Nothing contained in this Section 5.09 or elsewhere in this
Agreement shall be construed to prevent the termination by Purchaser of
employment of any individual Participant or any change by Purchaser in the
employee benefits available to any individual Participant.
SECTION 5.10. Supplemental Disclosure. Seller shall have the
-----------------------
continuing obligation until the Closing promptly to supplement or amend the
Schedules with respect to any matter hereafter arising or discovered that, if
existing or known at the date of this Agreement, would have been required to be
set forth or described in the Schedules; provided, however, that no supplement
-------- -------
or amendment to any Schedule shall have any effect for the purpose of
determining the satisfaction of the conditions set forth in Section 6.02(a) or
for purposes of determining whether any person is entitled to indemnification
pursuant to Article VIII.
69
SECTION 5.11. Post-Closing Cooperation. (a) Purchaser and Seller shall
------------------------
cooperate with each other, and shall cause their officers, employees, agents,
auditors and representatives to cooperate with each other after the Closing to
ensure the orderly transition of the Business from the Seller Group to Purchaser
and to minimize any disruption to the Business and the other respective
businesses of the Seller Group and Purchaser that might result from the
transactions contemplated hereby. After the Closing, upon reasonable notice,
Purchaser and Seller shall furnish or cause to be furnished to each other and
their employees, counsel, auditors and representatives access (including the
ability to make copies), during normal business hours, to such information and
assistance relating to the Business (to the extent within the control of such
party or any of its affiliates (including the case of Seller, any member of the
Seller Group) as is contained in any Record constituting an Excluded Asset, or
is reasonably necessary for (i) financial reporting, tax and accounting matters
and (ii) defense or prosecution of litigation and disputes.
(b) After the Closing, upon reasonable written notice, Purchaser and
Seller shall furnish or cause to be furnished to each other, as promptly as
practicable, such information and assistance (to the extent within the control
of such party) relating to the Acquired Assets (including, access to books and
records) as is reasonably necessary for compliance with accounting and reporting
requirements, filing of all Tax returns, and making of any election related to
Taxes, the preparation for any audit by any Taxing Authority, and the
prosecution or defense of any claim, suit or proceeding related to any Tax
return. Seller and Purchaser shall cooperate with each other in the conduct of
any audit or other proceeding relating to Taxes involving the Business. In the
event that any member of the Seller Group or Purchaser shall after the Closing
take any position in any Tax return, or reach any settlement or agreement on
audit, which is in any manner inconsistent with any position taken by any member
of the Seller Group in any filing, settlement or agreement made by any member of
the Seller Group prior to the Closing and such inconsistent position (i) might
require the payment by Purchaser or Seller of more Tax than would have been
required to be paid had such position not been taken or such settlement or
agreement not been reached, (ii) affects the determination of useful life, basis
or method of depreciation, amortization or accounting of any of the Acquired
Assets or any of the properties, assets or rights of Purchaser or (iii) might
accelerate the time at which any Tax must be paid by Purchaser or Seller, then
Purchaser or Seller, as the case may be, shall provide timely and reasonable
notice to the other party hereto of such position.
(c) Each of Purchaser and each member of the Seller Group will retain
all Records and other documents pertaining to the Business in existence on the
Closing Date for a period of seven years following the Closing. No such Records
or other documents shall be destroyed or disposed of by any retaining party
during such seven year period without first advising the other party in writing
and giving such party a reasonable opportunity to obtain possession thereof for
the purposes permitted by this Section 5.11.
(d) Each party shall reimburse the other for reasonable out-of-pocket
costs and expenses incurred in assisting the other pursuant to this Section
5.11. Neither party shall be required by this Section 5.11 to take any action
that would unreasonably interfere with the conduct of its business or
unreasonably disrupt its normal operations (or, in the case of Purchaser, the
Business). Any information relating to the Business received by Seller pursuant
to this Section 5.11 shall be subject to Section 5.04(b).
70
SECTION 5.12. Publicity. No public release or announcement concerning
---------
the transactions contemplated hereby shall be issued by any party without the
prior consent of the other party (which consent shall not be unreasonably
withheld), except as such release or announcement may be required by law or the
rules or regulations of any United States or foreign securities exchange, in
which case the party required to make the release or announcement shall allow
the other party reasonable time to comment on such release or announcement in
advance of such issuance. In addition, neither Purchaser nor Seller shall make
any general communication to suppliers, lenders, creditors, distributors,
employees, customers or others having business or financial relationships with
the Business pertaining to this Agreement and the transactions contemplated
hereby, without the prior written approval of the other party.
SECTION 5.13. Records. Purchaser recognizes that certain Records may
-------
contain incidental information relating primarily to subsidiaries or divisions
of Seller other than the Business and that Seller may retain copies of the
relevant portions thereof. Seller agrees that it will, and will cause its
affiliates to, provide Purchaser at Closing with copies of any portions of
Records that are Excluded Assets relating to the Business and, if any such
Records are discovered after Closing, promptly upon such discovery.
SECTION 5.14. Agreement Not To Compete. (a) Seller understands that
------------------------
Purchaser shall be entitled to protect and preserve the going concern value of
the Business to the extent permitted by law and that Purchaser would not have
entered into this Agreement absent the provisions of this Section 5.14 and,
therefore, for a period of seven years from the Closing, Seller shall not, and
shall cause each of its controlled affiliates (defined as any affiliate
controlled directly or indirectly by Seller but exclusive of (i) any direct or
indirect parent of Seller or (ii) any direct or indirect subsidiary of any such
parent in which Seller does not have any direct or indirect equity interest or
other investment) not to, directly or indirectly:
(i) engage in activities or businesses, or establish any new
businesses, anywhere in the world that are substantially in competition
with the Business ("Competitive Activities"), including (A) manufacturing,
----------------------
marketing, selling or distributing coated paper or any goods or services of
the type sold by the Business, except that Seller and its affiliates may
manufacture, sell, market and distribute northern bleached kraft pulp,
coated paperboard, uncoated paper and any goods or services (other than
coated paper) not sold by the Business during the period of time that it
was owned by Seller (collectively, "Permitted Goods and Services"), (B)
----------------------------
soliciting any customer or prospective customer of the Business anywhere in
the world to purchase coated paper or any goods or services sold by the
Business, other than Permitted Goods and Services, from anyone other than
Purchaser and its affiliates, and (C) assisting any person in any way to
do, or attempt to do, anything prohibited by clause (A) or (B) above; and
(ii) perform any of the following actions, activities or courses of
conduct or any other action, activity or course of conduct that is
substantially detrimental to the business reputation of the Business
(collectively, "Detrimental Activities"), including (A) soliciting,
----------------------
recruiting or hiring any employees of the Business or persons who have
worked for the Business (other than through general solicitation of open
positions), (B) soliciting or encouraging any employee of the Business to
leave the employment of the Business and (C) disclosing or furnishing to
anyone any confidential information relating to the Business or otherwise
using such
71
confidential information for its own benefit or the benefit of any other
person (except as permitted by Section 5.04).
(b) Section 5.14(a) shall be deemed not to be breached as a result of
(i) Seller continuing the production of coated paper at the Brainerd Facility
(x) during any Additional Brainerd Production Period, provided that all
--------
Additional Brainerd Inventory is transferred to Purchaser or (y) to the extent
necessary to comply with its obligations or as otherwise expressly permitted
under the Paper Supply Agreement, provided that Seller hereby agrees that it
--------
shall, immediately following the later to occur of Closing, the end of any
Additional Brainerd Production Period and the fulfillment of Seller's
obligations (and any "Additional Production Period" permitted) under the Paper
Supply Agreement with respect to the production of coated paper, permanently
cease the production of coated paper at the Brainerd Facility, (ii) the
ownership by Seller or any of its controlled affiliates of less than an
aggregate of 5% of any class of stock of a person engaged, directly or
indirectly, in Competitive Activities, provided that such stock is listed on a
--------
national securities exchange, (iii) the acquisition and ownership after the date
hereof by Seller or any of its controlled affiliates of any person that is
engaged primarily in activities other than Competitive Activities but also
engages in Competitive Activities, provided that Seller and its affiliates begin
--------
using all reasonable efforts to divest all of the business (the "Competing
---------
Business") engaged in Competitive Activities as soon as practicable, but in no
--------
event later than three months, after such acquisition, and complete such
divestment as soon as practicable, but in no event later than one year after
such acquisition (after which time, such Competitive Activities, if continuing,
will be a breach of this Section 5.14) or (iv) an acquiror of Seller, or any
affiliate of any such acquiror existing as of the time immediately prior to such
acquiror's acquisition of Seller, engaging in Competitive Activities other than
through Seller or any member of the Seller Group and other than as prohibited by
Section 5.14(e).
(c) Seller may not sell, transfer or divest any Competing Business
except pursuant to the third and fourth sentences of this clause (c). Prior to
any sale, transfer or other divestiture of a Competing Business (i) Seller shall
give notice to Purchaser in writing of its or its affiliate's, as the case may
be, intention to effect such a sale, transfer or other divestiture, and (ii)
Purchaser may within 90 days after receipt of Seller's notice, make a proposal
to purchase or cause its designee to make a proposal to purchase all of the
Competing Business by delivering to Seller a notice specifying the proposed
manner of purchase and other material terms (including price and the period, if
any, during which Purchaser's proposal will remain open for acceptance). If
requested by Purchaser, during such 90-day period Seller shall permit Purchaser
to conduct a customary due diligence investigation of the Competing Business and
shall negotiate in good faith and on an exclusive basis with Purchaser regarding
the purchase by Purchaser of the Competing Business. Seller or its designee, as
the case may be, shall be free following the date of Purchaser's proposal (or if
Purchaser does not make a proposal, the expiration of the 90-day period
following receipt of Seller's notice) to sell, transfer or otherwise divest the
Competing Business at a price not less than the price specified in Purchaser's
proposal, and on other terms no less favorable to Seller than the terms
specified in Purchaser's proposal. If during the period, if any, specified in
Purchaser's proposal that such proposal will be open for consideration, Seller
agrees to proceed on the basis of Purchaser's proposal, Seller and Purchaser,
and their affiliates or designees, as the case may be, shall be legally
obligated to continue in good faith to consummate the purchase upon the terms
set forth in Purchaser's proposal and shall use their commercially reasonable
efforts to
72
secure any approvals required and to comply with all Applicable Laws in
connection therewith.
(d) Notwithstanding any other provision of this Agreement, it is
understood and agreed that the remedy of indemnity payments pursuant to Article
VIII and other remedies at law would be inadequate in the case of any breach of
the covenants contained in Section 5.14(a) or (d). Purchaser shall be entitled
to equitable relief, including the remedy of specific performance or injunctive
relief, with respect to any breach or attempted breach of such covenants.
(e) So long as Seller's obligations pursuant to this Section 5.14 are
in effect, Seller agrees that it will not, and will not permit any of its
affiliates to, in a single transaction or through a series of related
transactions, sell, convey, assign, transfer, lease or otherwise dispose of or
permit the use of the Brainerd Facility to any person or group of persons
unless, prior to or concurrently with such disposition, such person or group of
persons agrees, in writing reasonably satisfactory to and for the express
benefit of Purchaser, to be bound by Seller's obligations under and pursuant to
this Section 5.14 with respect to the use and any subsequent disposition of the
Brainerd Facility and Purchaser is provided with an original executed copy of
such agreement. For purposes of this Section 5.14(d), any acquisition by any
person of, or merger or combination with, an entity owning, directly or
indirectly, the Brainerd Facility shall be deemed to be a transfer of the
Brainerd Facility, as the case may be, and such person shall be deemed a
transferee hereunder. Any purported sale, transfer, lease or other disposition
or use of the Brainerd Facility in violation of this Section 5.14 shall be null
and void.
(f) If a final Judgment of a court or tribunal of competent
jurisdiction determines that any term or provision contained in this Section
5.14 is invalid or unenforceable, then the parties agree that the court or
tribunal will have the power (but without affecting the right of Purchaser to
obtain the relief provided for in this Section 5.14 in any jurisdiction other
than such court's or tribunal's jurisdiction) to reduce the scope, duration or
geographic area of the term or provision, to delete specific words or phrases or
to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision. This Section 5.14
is reasonable and necessary to protect and preserve Purchaser's legitimate
business interests and the value of the Business and the Acquired Assets and to
prevent any unfair advantage conferred on Seller and its successor. To the
extent it may effectively do so under Applicable Law, Seller hereby waives on
its own behalf and on behalf of its successors, any provision of law which
renders any provision of this Section 5.14 invalid, void or unenforceable in any
respect.
SECTION 5.15. Bulk Transfer Laws. Purchaser hereby waives compliance
------------------
by members of the Seller Group with the provisions of any so-called "bulk
transfer law" or "bulk sales law" of any jurisdiction in connection with the
sale of the Acquired Assets to Purchaser.
SECTION 5.16. Further Assurances. (a) From time to time, as and when
------------------
requested by the other party, each party shall execute and deliver, or cause to
be executed and delivered, all such documents and instruments and shall take, or
cause to be taken, all such further or other actions (subject to Section 5.05),
as such other party may reasonably deem necessary or desirable to consummate the
transactions contemplated by this
73
Agreement, including executing and delivering such assignments, deeds, bills of
sale, assumption agreements, consents, licenses and other instruments as the
other party or its counsel may reasonably request as necessary or desirable for
such purpose.
(b) Seller shall, at Closing, ship in a commercially reasonable manner
to the Premises specified by Purchaser, at Seller's sole cost and risk, all the
tangible Acquired Assets not located at the Premises except for (i) Inventory
(other than packaging material) located at the Brainerd Facility, which shall
remain at the Brainerd Facility (at no cost to Purchaser) for a period of no
longer than 90 days following the Closing Date (or, if Purchaser has given the
notice contemplated by Section 5.29, 90 days following the final delivery of
Inventory pursuant to the Paper Supply Agreement) and be maintained by Seller as
set forth in the Transition Services Agreement, and (ii) consigned Inventory,
which shall be delivered where located.
SECTION 5.17. Purchase Price Allocation. (a) Purchaser and Seller
-------------------------
agree that $48,000,000 of the Purchase Price and the Assumed Liabilities shall
be allocated to the Real Property located in the State of Minnesota and, within
120 days following the Closing Date, Purchaser shall propose to Seller for
approval an allocation of the remaining Purchase Price and the Assumed
Liabilities (which allocation shall assume that no adjustment to the Purchase
Price is made pursuant to Section 1.05) among the Acquired Assets according to
the relative fair market values of such assets on the Closing Date (which
approval shall not be unreasonably withheld). If Seller and Purchaser are unable
to agree on such allocation of the remaining Purchase Price and Assumed
Liabilities, Seller and Purchaser shall elect an independent appraisal firm to
determine such values. The conclusions of such appraisal firm shall be final and
non-appealable. The fees and expenses of such appraisal firm shall be shared
equally by Seller and Purchaser. In the event an adjustment to the Purchase
Price is made pursuant to Section 1.05, the allocation of the Purchase Price and
the Assumed Liabilities (other than with respect to the Real Property located in
the State of Minnesota) shall be revised accordingly by Purchaser and presented
to Seller for approval (which approval shall not be unreasonably withheld).
(b) Seller and Purchaser shall be bound by such allocation of the
Purchase Price and the Assumed Liabilities in preparing all Tax returns, IRS
Form 8594 and any other Tax forms or filings, as well as in preparing any
published financial statements in accordance with GAAP and neither Purchaser nor
Seller shall take a position inconsistent therewith upon examination of any Tax
return, in any Tax refund claim, or in any Tax litigation or investigation,
without the prior written consent of the other party, except as required by
applicable law.
SECTION 5.18. Names Following Closing. (a) Immediately following the
-----------------------
Closing, Seller shall amend or terminate any certificate of assumed name or
d/b/a filings so as to eliminate its right to use the names set forth on
Schedule 5.18(a) or any name that is confusingly similar to or includes any such
names, and none of Seller or any of its affiliates shall thereafter use those
names or other names acquired by Purchaser hereunder or names confusingly
similar thereto.
(b) As soon as reasonably practicable (and in any event within two
months) after the Closing Date, Purchaser shall cease to use any written
materials, including without limitation, labels, packing materials, letterhead,
advertising materials and forms, which include the word "Potlatch"; provided,
--------
however, that Purchaser may,
-------
74
without modification, use inventory, product literature and sales literature
(but not including letterhead, business cards, invoices or the like) in
existence as of the Closing Date until the earlier of the exhaustion of such
materials or a date six months from the Closing Date.
(c) Immediately following the Closing, Seller shall cease all use of
the names, trade names and trademarks set forth on Schedule 5.18(c) or any name
that is confusingly similar to or includes any such names, and none of Seller or
any of its affiliates shall thereafter use those names, or combinations or
variations thereof, or names confusingly similar thereto.
SECTION 5.19. Assignments. Seller shall prepare all assignments of
-----------
Assigned Intellectual Property required hereunder and provide such assignments
to Purchaser in recordable form. Seller shall reimburse Purchaser for all filing
or recordation fees and similar expenses incurred in connection with such
assignments.
SECTION 5.20. Insurance. Seller shall use its reasonable efforts (a)
---------
to cause each insurance policy maintained by any member of the Seller Group with
respect to the Business (including business interruption insurance or insurance
otherwise covering loss of profits) or covering any Acquired Asset or Acquired
Coating Equipment (each, a "Business Insurance Policy") to be amended prior to
-------------------------
Closing to name Purchaser or Purchaser's designated affiliate as an additional
insured, and (b) to pursue (including, after Closing, on Purchaser's behalf),
and, after Closing, assist Purchaser in pursuing, any claims relating to or
arising out of any Catastrophic Event. Seller shall, and shall cause each other
member of the Seller Group to, maintain its current insurance coverage under
each Business Insurance Policy (x) until the Closing Date, provided that if any
Catastrophic Event has occurred and the Closing occurs pursuant to Section 6.06
despite such Catastrophic Event, Seller shall, and shall cause each other member
of the Seller Group to, maintain such insurance with respect to such
Catastrophic Event until all claims relating to or arising out of such
Catastrophic Event can be finalized and, as applicable, paid and (y) in the case
of any Business Insurance Policy covering or relating to any Acquired Coating
Equipment, until all production of coated paper at the Brainerd Facility during
any Additional Brainerd Production Period or pursuant to the Paper Supply
Agreement has ceased. Purchaser acknowledges that, except as set forth in this
Section 5.20, after the Closing Date Seller and its affiliates shall have no
responsibility for obtaining or maintaining any insurance relating to the
Business, whether relating to or arising out of occurrences prior to, at or
subsequent to the Closing.
SECTION 5.21. Title Insurance and Survey. Seller agrees that it will,
--------------------------
and it will cause each other member of the Seller Group to, provide all
assistance to Purchaser as Purchaser may reasonably request in connection with
the issuance to Purchaser of the title insurance policy described in Section
6.02(e) as well as any similar title insurance policy covering any of the
Premises, including the preparation, at Seller's expense, of the survey
described in Section 6.02(e) as well as any similar survey with respect to any
of the Premises.
SECTION 5.22. Compliance with Plant Closing Laws. (a) Seller shall be
----------------------------------
responsible for complying with the Worker Adjustment and Retraining Act of 1988
(the "WARN Act") or any other applicable similar Federal, state or local law or
--------
regulation (collectively, the "Plant Closing Laws") with respect to any employee
------------------
employed in connection with the Business (including Brainerd Participants),
other than a Continued
75
Employee, who suffers an "employment loss" (as that term is defined under the
WARN Act) or a separation from employment or a reduction in hours of employment
that with the passage of time reasonably can be expected to constitute an
"employment loss" (hereinafter, "Affected Employees") prior to and through the
------------------
later of the Closing Date and the final closing of the Brainerd Facility as
contemplated by Section 5.14. Seller shall provide Purchaser with periodic
reports (not less than bi-weekly) between the date hereof and the later of such
dates, listing all individuals who, within 90 days preceding such report, became
Affected Employees and shall describe with respect to each such Affected
Employee the date on which such individual became an Affected Employee, the
individual's date of hire and regularly scheduled hours over the preceding six
months, the Affected Employee's last job title, department and job assignment,
and the reason for such employment loss.
(b) Purchaser shall be responsible for complying with the Plant
Closing Laws with respect to the Continued Employees following the Closing Date.
(c) Purchaser shall cooperate with Seller to provide advance notice of
each anticipated employment loss as far in advance of such employment loss as
practical under the circumstances to Participants who become Brainerd
Participants and Non-Continuing Participants and are identified by Purchaser to
Seller prior to the Closing Date.
SECTION 5.23. IRB Financings. (a) Seller shall, at the sole cost of
--------------
Seller, cause (a) each IRB Financing (other than the IRB Financing listed on
Schedule 5.23(a) (the "Continuing IRB Financing")) to be terminated and all
------------------------
bonds and other obligations thereunder repaid, redeemed or fully and irrevocably
defeased for redemption (on the earliest permissible redemption date following
the Closing Date), in each case on or before the Closing Date, (b) any related
Liens on Acquired Assets (including any related to the Continuing IRB Financing)
to be released not later than the Closing Date and (c) title to all Acquired
Assets leased thereunder to be transferred to Purchaser in accordance herewith
not later than the Closing Date, provided that, with respect to the IRB
--------
Financing listed on Schedule 5.23(b) (the "Sale/Leaseback IRB Financing"),
----------------------------
Seller shall be deemed to have complied with this clause (c) if as of the
Closing (i) Seller has an absolute and unconditional right to receive fee simple
title to the Acquired Assets leased thereunder free and clear of any Lien within
30 days following the Closing Date, (ii) the owner of such Acquired Assets has
an absolute and unconditional obligation to transfer such title to Seller within
such period, (iii) such owner has not given any notice or taken any action
denying or disaffirming such obligation, and (iv) immediately following Closing
and until such title is transferred to Purchaser, Purchaser shall have the right
to use and operate such Acquired Assets substantially as used and operated by
Seller on the date hereof.
(b) Seller agrees to use all commercially reasonable efforts to
arrange for title to the Acquired Assets leased under the Sale/Leaseback IRB
Financing to be transferred to Purchaser in accordance herewith not later than
the Closing Date (it being understood and agreed that this obligation shall not
require Seller to repay, redeem or defease the Sale/Leaseback IRB Financing
prior to the Closing Date). In addition, if the Acquired Assets leased under the
Sale/Leaseback IRB Financing are not delivered by the earlier of (i) the date
required under the Sale/Leaseback IRB Financing and (ii) the 30th day following
the Closing Date, Seller shall take all legal action (at Seller's expense) to
enforce its rights under the Sale/Leaseback IRB Financing (including bringing
and
76
pursuing actions against the other parties to such financing) or otherwise
obtain and transfer to Purchaser such title to such Acquired Assets as soon as
practicable.
(c) Seller acknowledges and agrees that Purchaser shall not be subject
to, or responsible for complying with, or have any liability in respect of, any
restrictions, limitations, covenants or obligations imposed on Seller in
connection with any IRB Financing (including the Continuing IRB Financing) or
with respect to the operation or use of any Acquired Asset related thereto.
(d) Upon the written request of Purchaser at any time, Seller shall,
as promptly as reasonably practicable and in any event within 30 days following
such notice (at the sole cost of Seller), cause (i) the Continuing IRB Financing
to be terminated and all bonds and other obligations thereunder repaid, redeemed
or fully and irrevocably defeased for redemption (on the earliest practicable
redemption date following such notice, but not earlier than the Closing Date);
provided, however, that Purchaser shall not be entitled to deliver any such
-------- -------
notice prior to the Closing Date unless Purchaser has determined in good faith
that it may change the use of the Acquired Assets related to the Continuing IRB
Financing within 30 days following the Closing Date or that it may have any
liability in respect of any restrictions, limitations, covenants or obligations
imposed on Seller in connection with the Continuing IRB Financing or with
respect to the operation or use of any Acquired Asset related thereto. Following
the Closing, Purchaser shall, upon the written inquiry of Seller (but not more
often than once per calendar quarter), use good faith efforts to provide
specific information requested by Seller regarding the use of the Acquired
Assets related to the Continuing IRB Financing to the extent such information is
reasonably necessary in order for Seller to determine whether such assets are
being used in a manner consistent with maintaining the tax exempt status of the
Continuing IRB Financing; provided that Purchaser shall not have any liability
--------
in connection with providing, or failing to provide, such information and shall
be under no obligation to monitor or inform Seller of any change in use of such
Acquired Assets except in response to such a quarterly inquiry.
SECTION 5.24. Cross-Border Leases. With respect to all Cross-Border
-------------------
Leases with respect to which all necessary consents for their assignment have
been delivered, at Closing Purchaser shall assume Seller's obligations, and
Seller shall assign to Purchaser all of Seller's rights (including security
interests) pursuant to assignment agreements (the "Cross-Border Lease
------------------
Assumptions") on substantially the terms and conditions attached hereto as
-----------
Exhibit H-1 and otherwise in form and substance reasonably satisfactory to
Seller and Purchaser. In connection with each Cross-Border Lease Assumption,
Seller shall, or shall cause its relevant affiliates to, and Purchase shall, or
shall cause its designated affiliates to, enter into a Cross-Indemnity Agreement
substantially on the terms and conditions set forth in Exhibit H-2 and otherwise
in form and substance reasonably satisfactory to Seller and Purchaser (a
"Cross-Border Indemnity Agreement"). Each Cross-Border Lease Assumption and
--------------------------------
Cross-Border Indemnity Agreement is an "Ancillary Agreement" hereunder. Seller
-------------------
shall (at its own expense) either cause all necessary consents for the
assignment of each Cross-Border Lease to Purchaser (with no additional
obligations or restrictions arising as a result of such transfer) or terminate
such Cross-Border Lease and cause title to the subject assets to be transferred
to Purchaser at Closing in accordance herewith, not subject to any Liens.
Purchaser will (at its own expense), to the extent reasonably requested by
Seller, cooperate with Seller in obtaining the necessary consents to the
assignment.
77
SECTION 5.25. Audited Financial Statements. (a) Seller shall use its
----------------------------
commercially reasonable efforts to deliver to Purchaser prior to Closing or, if
not delivered prior to Closing, as soon thereafter as practicable (i) the
audited statement of financial position and the related statements of
operations, shareholders' equity and cash flows of the Business (other than the
Excluded Assets) at December 31, 2001 and for the year then ended (the "Audited
-------
Financial Statements"), in each case, meeting the requirements of Regulation S-X
--------------------
(part 210 of the Code of Federal Regulations) and (ii) an unqualified report of
KPMG LLP ("KPMG") on each of the financial statements described in the preceding
----
clause (i). Seller shall also use its commercially reasonable efforts to cause
KPMG to be engaged by Purchaser, pursuant to an engagement letter in form and
substance reasonably satisfactory to Purchaser, prior to Closing to consent to
the use of such report as contemplated by Section 5.25(b). The first $50,000 of
the cost of such audit will be borne by Purchaser, with the remainder (if any)
of the cost borne by Seller.
(b) Seller shall, and shall cause each other member of the Seller
Group, and its and their respective officers, directors and employees and shall
use commercially reasonable efforts to cause each of their respective
accountants and advisors to, give to Purchaser and any of its affiliates and
their respective professional advisors such assistance as shall reasonably be
requested by Purchaser or any of its affiliates or professional advisors in the
preparation of documentation, comfort letters and opinions in connection with
any private placement or any registration or registered offering of any security
or any periodic report required by Applicable Law and shall use commercially
reasonable efforts to cause the consent of KPMG to the inclusion of their audit
reports in any registration statement, prospectus or circular issued in
connection with such private placement, registration or registered offering or
in any such periodic report and such other consents as shall be reasonably
required by Purchaser or any of its affiliates or professional advisors. For
purposes of this Section 5.25, "commercially reasonable efforts" of Seller shall
not include any requirement that Seller make any payments to KPMG or any of
Seller's other advisors (except for any payments with respect to which Purchaser
agrees to reimburse Seller), or dismiss or not retain KPMG or any of Purchaser's
other advisors. Seller shall not have any liability under this Section 5.25 if,
despite its commercially reasonably efforts, KPMG or any of Seller's other
advisors fails to cooperate or provide any comfort letter, consent, opinion or
other document.
SECTION 5.26. Acquired Coating Equipment. (a) From the date hereof
--------------------------
until the removal of the Acquired Coating Equipment in accordance with clause
(b) below, Seller shall maintain the Acquired Coating Equipment in a manner
sufficient to allow Seller to fulfill its obligations under the Paper Supply
Agreement. From Closing until the removal of the Acquired Coating Equipment in
accordance with clause (b) below, Seller shall (i) take such actions (which,
except during any Additional Brainerd Production Period or any "Additional
Production Period" under the Paper Supply Agreement or as otherwise set forth in
the Paper Supply Agreement shall be at Purchaser's cost and expense) with
respect to the Acquired Coating Equipment as Purchaser may reasonably request
and (ii) permit Purchaser and its employees, representatives, designees and
agents access to the Acquired Coating Equipment at such times during regular
business hours as Purchaser may reasonably request. Except as reasonably
necessary to comply with the foregoing obligations and the terms of the Paper
Supply Agreement, Seller shall not use or permit any other person to use the
Acquired Coating Equipment and shall not permit any person access to the
Acquired Coating
78
Equipment (and shall use reasonable efforts to ensure no person gains access).
Seller shall not move the Acquired Coating Equipment without Purchaser's written
consent.
(b) Purchaser shall, as soon as reasonably practicable after the
latest of (i) the Closing Date, (ii) the end of any Additional Brainerd
Production Period and (iii) the last date of production of coated paper at the
Brainerd Facility pursuant to the Paper Supply Agreement, at no cost to Seller,
remove, or cause to be removed, the Acquired Coating Equipment from the Brainerd
Facility. Seller shall provide Purchaser or its designees with such access to
the Brainerd Facility as Purchaser or its designees may reasonably request to
effectuate the removal of the Acquired Coating Equipment and shall otherwise
cooperate with Purchaser in connection with such removal. Purchaser shall not be
obligated to restore, or be liable for restoration of, the former site of the
Acquired Coating Equipment (including repair of foundation or filling of holes).
SECTION 5.27. Financing. Purchaser shall use all commercially
---------
reasonable efforts to ensure that it has, at Closing, cash available or
available credit facilities or other financing that together are sufficient to
enable it to consummate the Acquisition (collectively, "Financing"). If, on the
---------
Anticipated Closing Date, a condition set forth in Section 6.02(a), (b), clause
(v) of (d), (g) or (o) would not be satisfied if the Closing were to occur on
the Anticipated Closing Date, Purchaser shall, if it is not in material breach
of the covenant contained in the first sentence of Section 5.27, at all times
have the right to delay the Closing by a reasonable period (but, in any event,
not later than the Termination Date) if it does not receive or believes in good
faith that it may not have or receive sufficient funds on any scheduled Closing
Date to enable it to consummate the Acquisition. In the event Purchaser would
have the right to terminate this Agreement solely on the basis that the
conditions set forth in Section 6.02(p) shall have become incapable of
fulfillment, the Closing shall be delayed until the earlier of (x) the earliest
date on which such condition (and all other conditions) can be fulfilled (or are
waived) and (y) the Termination Date, and Purchaser shall continue to be
obligated under this Section 5.27. Purchaser shall promptly notify Seller if and
when it becomes aware that a Force Majeure will cause a failure of the condition
set forth in 6.02(p).
SECTION 5.28. Nursery. If Seller notifies Purchaser at least 10
-------
business days prior to the Closing Date that Seller intends to continue using
the Premises identified as the nursery property on Schedule 5.28 (the "Nursery
-------
Property") for the propagation of trees ("Nursery Activities") and the
-------- ------------------
greenhouse located on the Nursery Property (the "Greenhouse") for the nurturing
----------
of seedlings ("Greenhouse Activities") then (i) the Nursery Property shall not
---------------------
be deemed to be an Acquired Asset in a Premises for any purpose hereunder, and
(ii) prior to the Closing Date Seller shall take all action reasonably necessary
or requested by Purchaser in order to impose on the Nursery Property and record
on the Carlton County land records, for the sole benefit of Purchaser and its
successors and assigns, a recordable restrictive covenant limiting the use of
the Nursery Property to Nursery Activities and Greenhouse Activities and
reflecting Purchase's option right hereunder. Seller also agrees that, if it
elects to so exclude the Nursery Property from the Acquired Assets, Purchaser
shall have the irrevocable right to purchase the Nursery Property from Seller
for a purchase price of $50,445 if Seller determines to cease using the Nursery
Property for Nursery Activities and Greenhouse Activities or to use the Nursery
Property for any activities other than Nursery Activities and Greenhouse
Activities or to transfer all or any portion of the Nursery Property or grant to
any person (other than a member of the Seller Group) any right to use the
Nursery Property. Seller shall promptly notify Purchaser in writing of any such
79
determination and Purchaser shall have 120 days from receipt of such notice to
give a written notice to Seller electing to exercise such purchase right. If
Purchaser elects to exercise such purchase right, Purchaser and Seller shall use
commercially reasonable efforts to complete such purchase as promptly as
reasonably practicable. If Purchaser does not exercise such Purchase right,
Seller shall be entitled to remove, and Purchaser shall cooperate with Seller in
removing, such restrictive covenant. The terms of such purchase shall be on
substantially the terms of this Agreement as they would have applied to the
Nursery Property if it had been included in the Premises on the Closing Date
(and otherwise on terms and conditions reasonably satisfactory to Purchaser and
Seller) and upon any such purchase the Nursery Property shall be deemed to be an
Acquired Asset hereunder for all purposes. If Purchaser fails to timely exercise
its option to purchase the Nursery Property, then Purchaser's option to purchase
shall expire automatically and Purchaser shall execute and deliver to Seller a
recordable instrument extinguishing the option and the restrictive covenant. If
Purchaser fails to do so, Seller may file in the Carlton County land records an
affidavit establishing that Purchaser's option and the restrictive covenant has
expired. Seller shall, in consultation with Purchaser, use commercially
reasonable efforts to subdivide the Nursery Property into two parcels as
indicated on Schedule 5.28, consisting of one parcel of approximately five acres
which will include the Greenhouse (the "Greenhouse Parcel") and a second parcel
-----------------
of approximately 12 acres (the "Nursery Parcel"). Appropriate easements will be
--------------
provided such that there is adequate access to each parcel. Following any such
subdivision, the provisions of this Section 5.28 and, if such subdivision is
completed prior to the Closing Date, the provisions of Section 1.05(d) as they
relate to the Nursery Property) shall apply mutatis mutandi to each parcel
separately with the option price of the Greenhouse Parcel being $14,837 and the
option price of the Nursery Parcel being $35,608.
SECTION 5.29. Paper Supply Agreement. At least 10 days prior to
----------------------
Closing, Seller will provide Purchaser with an estimate of the quantity and
product type (including basis weights and sizes) at Closing of the finished
goods Inventory that will constitute Acquired Assets. In the event that
Purchaser desires to purchase from Seller after Closing coated paper products
manufactured by Seller at the Brainerd Facility, Purchaser shall, on or prior to
the later of seven days prior to Closing and three business days after receipt
of such notice, provide Seller with a written notice thereof. The notice will
set forth a non-binding forecast of the quantity (both in terms of total tons
and tons per product type) and types of coated paper products that Purchaser
expects to order for delivery during the term of the Paper Supply Agreement.
Such notice will not commit Purchaser to purchase any specific volume or type of
coated paper products.
SECTION 5.30. Wood Supply Agreement. At any time prior to Closing,
---------------------
Purchaser may provide to Seller a binding forecast of the quantity and type
(including the species mix) of the Wood Products (as defined in the Wood Supply
Agreement) that Purchaser expects to order from Seller pursuant to the Wood
Supply Agreement from the Closing Date until the end of the then current
calendar quarter. To the extent it does not unreasonably interfere with the
normal operations of the Business, prior to Closing Seller shall use
commercially reasonable efforts to accommodate Purchaser's post-Closing wood
procurement requirements in Seller's quarterly wood procurement planning. If,
following Closing, Purchaser requests Seller to enter into longer-term wood
supply arrangements, Seller agrees to negotiate in good faith with Purchaser
with respect to establishing such arrangements (and Seller agrees that any such
arrangements would provide Purchaser with invoicing and payment terms no less
favorable to Purchaser than semi-monthly invoices payable in 30 days)
80
SECTION 5.31. Post-Closing Real Estate Work. (a) If at any time before
-----------------------------
July 1, 2002, Purchaser discovers that any parcel comprising the Premises
contains a well that has been abandoned but not sealed in accordance with
Minnesota laws, Seller shall seal the well in accordance with Minnesota laws by
October 1, 2002.
(b) Seller shall use all commercially reasonable efforts to obtain (at
Seller's expense) easements, licenses or permits assuring the perpetual right to
use the access roads now used between the ▇▇▇▇▇▇▇ Woodlot (Parcels WL-1 and
WL-2 identified on Schedule 3.06, the "▇▇▇▇▇▇▇ Woodlot") and State Highway 45
---------------
as soon as reasonably practicable.
(c) The parties acknowledge that titles to the railroad parcels
(Parcels RR-1 through RR-5 identified in Schedule 3.06, the "Railroad Parcels")
----------------
may be unmarketable due to the uncertainty of the locations of boundaries and
right-of-way lines. Promptly after the Closing, Purchaser shall hire real estate
counsel reasonably satisfactory to Seller (it being agreed that ▇▇▇▇ ▇▇▇▇▇▇▇,
Esq., of Cloquet, Minnesota shall be satisfactory), to promptly commence and
promptly complete a title registration proceeding (at Seller's expense) to
establish marketable title of record for the Railroad Parcels. The proceeding
shall include the judicial determination of boundaries and right-of-way lines
with the placement of judicial landmarks.
SECTION 5.32. Sheeters. (a) Seller agrees that it shall not sell,
--------
transfer, lease or otherwise dispose of any Sheeter except in compliance with
this Section 5.32. Seller shall provide to Purchaser a notice (the "Transfer
---------
Notice") setting forth for each Sheeter the proposed price at which Seller is
------
willing to sell such Sheeter to Purchaser (the "Transfer Price"), which price
--------------
shall be set forth separately for each Sheeter and shall be payable solely in
cash, and all other material terms and conditions on which Seller desires to
sell each Sheeter, including, without limitation, that each Sheeter shall be
sold or transferred free and clear of all liabilities, obligations or
commitments of Seller or any of its affiliates and free and clear of all Liens.
(b) If requested by Purchaser, Seller shall negotiate in good faith
and on an exclusive basis until the later of (x) 90 days following delivery of
the Transfer Notice and (y) 30 days following the Closing Date (such period
being referred to herein as the "Offer Period") to reach an agreement for the
------------
sale or transfer to Purchaser or its designee, as the case may be, of any
Sheeter or Sheeters set forth in the Transfer Notice and shall permit Purchaser
to conduct during the Offer Period a customary due diligence investigation of
each such Sheeter. If no agreement is reached by Seller and Purchaser by the end
of the Offer Period with respect to any Sheeter set forth in the Transfer Notice
(or if Purchaser notifies Seller in writing that it is not interested in
discussing the purchase of any such Sheeter), Seller or its subsidiary, as the
case may be, may, thereafter, sell such Sheeter only for a cash consideration
greater than 97% of the Transfer Price for such Sheeter and on other terms and
conditions no less favorable, taken as a whole, to Seller or its subsidiary, as
the case may be, than the terms and conditions set forth in the Transfer Notice.
If Seller wishes to sell a Sheeter on any other terms, it must first deliver a
new Transfer Notice setting forth the terms specified in Section 5.32(a) and
follow the procedures set forth in this Section 5.32(b).
(c) The term "Sheeters" shall mean all the assets, rights and personal
--------
property, tangible or intangible, of the Seller Group comprising the sheeters
and cutters located at the Brainerd Facility, as described on Schedule 5.32(c)
hereto.
81
(d) Notwithstanding anything to the contrary in this Section 5.32, (i)
Seller may negotiate for a sale of substantially all of the Brainerd Facility
(including the Sheeters) as an entirety, (ii) may revoke any Transfer Notice
with respect to a Sheeter at any time prior to execution of a definitive
agreement being reached with respect to a sale of such Sheeter to Purchaser if a
definitive agreement for the sale of such Sheeter as part of such a sale of the
Brainerd Facility has been executed and (iii) may sell a Sheeter as part of such
a sale of the Brainerd Facility without regard to the requirements of Section
5.32(b) regarding the terms of such sale.
SECTION 5.33. Power Agreements. (a) Purchaser and Seller acknowledge
----------------
and agree that the Power Agreements are integral and essential to the continued
economic operation of the Cloquet Facility by Purchaser, but that the Power
Agreements currently have application to multiple facilities owned and operated
by Seller. Because the Power Agreements combine and blend for various purposes:
(i) multiple and separate electrical loads; (ii) billing characteristics
associated with multiple loads, and (iii) various liabilities and obligations of
multiple industrial facilities, Purchaser and Seller agree that, as currently
stated, neither the rights nor the obligations contained in the Power Agreements
are directly assignable to Purchaser in conjunction with the transactions
envisioned in this Agreement. In lieu of such contractual assignments, Seller
shall use all commercially reasonable efforts, in consultation with Purchaser,
to ensure that it has by no later than Closing either (i) obtained a waiver, in
writing, from Minnesota Power of certain of Minnesota Power's contractual rights
under the Power Agreements so as to permit a partial assignment from Seller to
Purchaser at Closing of only those portions of Seller's rights and obligations
under the Power Agreements which relate to the Cloquet Facility and the Power
Generation Facilities and a retention by Seller of all other rights and
obligations under the Power Agreements ("MP Waiver"); or (ii) renegotiated the
---------
Power Agreements with Minnesota Power and obtained the execution and delivery by
Minnesota Power of a revised set of contracts covering the same subject matter
as the Power Agreements, but which revised Power Agreements segregate the rights
and obligations of Seller with respect to the Cloquet Facility and the Power
Generation Facilities from the rights and obligations of Seller with respect to
its other facilities (the "Revised Power Agreements"). If Seller obtains the MP
------------------------
Waiver and all requisite Consents of Governmental Entities (if any) with respect
to the MP Waiver and the assignment of rights and obligations under the Power
Agreements to Purchaser prior to Closing, the rights and obligations under the
Power Agreements which relate to the Cloquet Facility and the Power Generation
Facilities shall be assigned to Purchaser by Seller as, and shall be deemed to
be, Acquired Assets. If Seller renegotiates Revised Power Agreements pertinent
only to the Cloquet Facility and the Power Generation Facilities (the "Revised
-------
Cloquet Power Agreements") and obtains all requisite Consents of Governmental
------------------------
Entities with respect to such Revised Cloquet Power Agreements and assignment
thereof to Purchaser, both prior to Closing, such Revised Cloquet Power
Agreements shall be assigned to Purchaser by Seller as, and shall be deemed to
be, Acquired Assets. Seller further agrees to use all commercially reasonable
efforts, in consultation with Purchaser, to ensure that by no later than
Closing, either the MP Waiver has become effective and the rights and
obligations of Seller Power Agreements which relate to the Cloquet Facility and
the Power Generation Facilities are assigned to Purchaser, or the Revised
Cloquet Power Agreements have become effective and are assigned to Purchaser,
all requisite Consents of Governmental Entities (if any) with respect to the MP
Waiver or the Revised Cloquet Power Agreements and the related
82
assignment to Purchaser have been obtained and such assignment provides
Purchaser from the Closing through December 31, 2008, not less than the
following:
(A) a net cost of electricity per kilowatt hour at the Cloquet Facility
equal to the average net cost of electricity at the Cloquet Facility
during calendar year 2001, adjusted for any differences in the level
of the adjustment applicable during the period pursuant to Minnesota
Power's "Fuel Adjustment Clause", and further adjusted for any
increase in the level of base rates charged by Minnesota Power
pursuant to any rate change permitted by the Minnesota Public
Utilities Commission pursuant to Minnesota law between calendar year
2001 and the time periods covered by this covenant;
(B) a supply of firm power for the Cloquet Facility that, when combined
with the capacity of the Power Generation Facilities being transferred
to Purchaser, is at least sufficient to operate the Cloquet Facility,
as configured at the time of Closing, at full capacity;
(C) contractual terms and conditions with respect to increases and
reductions in electrical demand by Purchaser no less favorable to
Purchaser than those contained in the contractual terms and conditions
of the Power Agreements;
(D) a take-or-pay obligation to Minnesota Power that is limited to an
obligation to pay only for the contract demand associated with the
Cloquet Facility and not any other facilities of Seller; and
(E) replacement firm power service for periods when the operation of the
Power Generation Facilities are either unavailable, impracticable or
uneconomic on terms no less favorable to Purchaser than those
contained in the Power Agreements.
In the event that Consents of any kind are required in order to achieve the
foregoing, Seller agrees to bear the entire cost of obtaining such Consents. In
the event that Seller is unable (whether or not Seller has used all commercially
reasonable efforts) to satisfy any of the requirements of this covenant (being
either to negotiate and obtain the MP Waiver and assign to Purchaser at Closing
rights and obligations under the Power Agreements or negotiate and assign to
Purchaser at Closing the Revised Cloquet Power Agreements having all the terms
and conditions specified in this Section 5.33 and to obtain all requisite
Consents of Governmental Entities contemplated by this Section 5.33 on or prior
to Closing), Seller agrees that from Closing through December 31, 2003,
Purchaser shall be entitled to invoice Seller on a monthly basis, and Seller
will be obligated to pay such invoices, in an amount sufficient to restore to
Purchaser the cost of purchasing power from Minnesota Power that it would have
experienced had all such requirements of this covenant been fulfilled in their
entirety provided, however, that in no event shall this obligation of Seller to
make Purchaser whole exceed the sum of (i) the difference between the
application of Minnesota Power's Large Light and Power rate schedule to the
average monthly 2001 billing parameters (including billing demand, energy usage,
load factor, power factor and other similar factors) of the Cloquet Facility and
the application of Minnesota Power's Large Power rate schedule to those same
average monthly billing parameters, multiplied by the number of months between
Closing and December 31,
83
2003; and (ii) the difference between that portion of the Minnesota Power
monthly charges for standby and backup services invoiced to Seller during
calendar year 2001 that have been allocated to the Cloquet Facility and Power
Generation Facilities for internal budgeting and accounting purposes by Seller,
and the monthly charges for standby and backup services invoiced by Minnesota
Power to Purchaser for the Cloquet Facility and Power Generation Facilities
during the period between Closing and December 31, 2003. Furthermore, in the
event that Seller is unable (whether or not Seller has used all commercially
reasonable efforts) to satisfy any of the requirements of this covenant by
Closing, Purchaser shall have no obligation to accept from Seller either a
partial assignment of the Power Agreements or an assignment of any Revised
Cloquet Power Agreement, and Purchaser shall be free to use its sole discretion
to determine how to contract for the power supply required by the Cloquet
Facility subsequent to the Closing without impairing or reducing its right to be
made whole by Seller pursuant to this paragraph.
(b) To the extent reasonably requested by Seller, Purchaser will
consult with Seller in its efforts to satisfy the requirements of this Section
5.33. In addition, to the extent reasonably requested by Purchaser, Seller shall
permit Purchaser to participate in the negotiations regarding an MP Waiver or
Revised Cloquet Power Agreements. Notwithstanding the foregoing, any such
consultation or participation shall not be deemed to limit the requirements of,
or Seller's obligations under, this Section 5.33 (or Purchaser's right to
strictly enforce such requirement) or be deemed to impose any obligations on
Purchaser.
(c) For purposes of this Section 5.33, "commercially reasonable
efforts" shall not require Seller to pay or commit to pay any amount to (or
incur any obligation in favor of) Minnesota Power other than in respect of
existing obligations (including being required to perform and remain liable for
existing obligations under the Power Agreements) or the payment or reimbursement
of ordinary transaction costs and expenses.
SECTION 5.34. Energy Regulation. Seller shall, prior to the Closing
-----------------
Date, take all action necessary to ensure that by acquiring the Hydroelectric
Facility and the Steam Turbine Facilities and assuming under this Agreement the
Project Agreement between Potlach Corporation and Minnesota Power, Inc. dated
July 31, 2000 (including attachments) ("Project Agreement") or any rights and
-----------------
obligations under Power Agreements or any Revised Power Agreements, and
performing under the Hydroelectric Facility Contracts and the Steam Turbine
Contracts, Purchaser shall not become subject to regulation by the FERC under
Part II of the FPA, except as provided in 18 C.F.R. Part 292, Subpart F of the
FERC regulations, or subject to regulation by the Securities and Exchange
Commission ("SEC") as an "electric utility company", "holding company" or
---
"subsidiary company" under PUHCA, 15 U.S.C. Section 79 et seq.
ARTICLE VI
Conditions Precedent
--------------------
SECTION 6.01. Conditions to Each Party's Obligation. The obligation of
-------------------------------------
Purchaser to purchase and pay for the Acquired Assets and the obligation of
Seller to sell
84
the Acquired Assets to Purchaser is subject to the satisfaction or waiver on or
prior to the Closing of the following conditions:
(a) Governmental Approvals. (i) The waiting period under the HSR Act,
----------------------
if applicable to the consummation of the Acquisition, shall have expired or
been terminated, (ii) all necessary consents and approvals under or
relating to the applicable competition laws of any other applicable foreign
jurisdiction shall have been received and all relevant waiting periods
shall have expired or been terminated (collectively, the "Competition
-----------
Condition"). All other authorizations, consents, orders or approvals of, or
---------
declarations or filings with, or expirations of waiting periods imposed by,
any Governmental Entity listed on Schedule 6.01(a) or otherwise necessary
for the consummation of the Acquisition shall have been obtained or filed
or shall have occurred, including the filing and effectiveness of a notice
of exemption with, or otherwise obtaining the approval of, the STB and all
required filings with and approvals of FERC (including the Final Order);
provided, however, that (x) receipt of the Final Order from FERC shall not
-------- -------
be a condition to the Closing in the event Purchaser provides the
Hydroelectric Facility Notice and such notice has not been rescinded or
deemed rescinded at or prior to Closing and (y) receipt of approval of the
Minnesota Public Utilities Commission to any MP Waiver or Revised Cloquet
Power Agreements or any related assignment to Purchaser as contemplated by
Section 5.33 shall not be a condition to Closing.
(b) No Injunctions or Restraints. No Applicable Law or injunction
----------------------------
enacted, entered, promulgated, enforced or issued by any Governmental
Entity or other legal restraint or prohibition preventing the consummation
of the Acquisition shall be in effect.
SECTION 6.02. Conditions to Obligation of Purchaser. The obligation of
-------------------------------------
Purchaser to purchase and pay for the Acquired Assets is subject to the
satisfaction (or waiver by Purchaser) on or prior to the Closing Date of the
following conditions:
(a) Representations and Warranties. The representations and warranties
------------------------------
of Seller in this Agreement and the Ancillary Agreements that are qualified
as to materiality shall be true and correct, and those not so qualified
shall be true and correct in all material respects, as of the date hereof
and as of the Closing Date as though made on the Closing Date, except to
the extent such representations and warranties expressly relate to an
earlier date (in which case such representations and warranties qualified
as to materiality shall be true and correct, and those not so qualified
shall be true and correct in all material respects, on and as of such
earlier date) and Purchaser shall have received a certificate signed by an
authorized officer of Seller to such effect; provided, however, that the
-------- -------
failure of a representation or warranty to be true and correct at any time
(other than a failure resulting from fraud or intentional breach) shall not
constitute a failure of the condition contained in this Section 6.02(a) if
such failure shall have been Cured as of the Closing.
(b) Performance of Obligations of Seller. Seller shall have performed
------------------------------------
or complied in all material respects with all obligations and covenants
required by this Agreement to be performed or complied with by Seller by
the time of the Closing, and Purchaser shall have received a certificate
signed by an authorized
85
officer of Seller to such effect; provided, however, that the
-------- -------
non-performance or non-compliance with an undertaking or agreement at any
time (other than non-performance or non-compliance representing fraud or
intentional breach) shall not constitute a failure of the condition
contained in this Section 6.02(b) if such non-performance or non-compliance
shall have been Cured as of the Closing.
(c) Opinion of Seller's Counsel. Purchaser shall have received an
---------------------------
opinion dated the Closing Date of each of (i) Pillsbury Winthrop LLP,
counsel to Seller, substantially in the form of Exhibit I-1, (ii)
▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, energy regulatory counsel to Seller substantially in
the form of Exhibit I-2, (iii) ▇▇▇▇▇ ▇. ▇▇▇▇, P.C., railroad counsel to
Seller, substantially in the form of Exhibit I-3, (iv) ▇▇▇▇▇ & ▇▇▇▇▇▇▇
L.L.P., industrial revenue bonds counsel to Seller, substantially in the
form of Exhibit I-4, and (iv) Rudy, Gassert, ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, P.A.,
Minnesota counsel to Seller, substantially in the form of Exhibit I-5, and
(v) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq., general counsel of Seller, substantially in the
form of Exhibit I-6.
(d) Absence of Proceedings. There shall not be pending or threatened
----------------------
by any Governmental Entity any Proceeding (or by any other person any
Proceeding that has a reasonable likelihood of success) (i) challenging or
seeking to restrain or prohibit the Acquisition or any other transaction or
the inclusion or enforcement of any covenant (including any covenant
contained in Section 5.14) contemplated by this Agreement or the Ancillary
Agreements or seeking to obtain from Purchaser or any of its affiliates in
connection with the Acquisition any damages that are material in relation
to Purchaser and its subsidiaries taken as a whole, (ii) seeking to
prohibit or limit the ownership or operation by Purchaser or any of its
affiliates of any portion of the business or assets of Purchaser (excluding
the Business) or any of its affiliates or any material portion of the
Business or any material Acquired Asset or prohibit or limit the ownership
of any Acquired Coating Equipment, or to compel Purchaser or any of its
affiliates to dispose of or hold separate any portion of the business or
assets of Purchaser (excluding the Business) or any of its affiliates or
any material portion of the Business or any material Acquired Asset or
prohibit or limit the ownership of any Acquired Coating Equipment, in each
case as a result of the Acquisition or any of the other transactions
contemplated by this Agreement, (iii) seeking to impose limitations on the
ability of Purchaser to acquire or hold, or exercise full rights of
ownership of, any material Acquired Asset or to acquire or hold any
Acquired Coating Equipment or the ability of Purchaser to enforce any
material rights (including those set forth in Section 5.14) contemplated by
this Agreement or any Ancillary Agreement, (iv) seeking to prohibit
Purchaser or any of its affiliates from effectively controlling in any
material respect the Business, (v) seeking to require Purchaser or any of
its affiliates to assume, or seeking to impose on Purchaser or any of its
affiliates, any material Excluded Liability (other than any Labor Contract)
or seeking to impose a Lien on any Acquired Assets or any other assets of
Purchaser or any of its affiliates in respect of any material Excluded
Liability (provided that the existence of any Proceeding or threatened
Proceeding of the type described in this clause (v) by any person other
than a Governmental Entity shall not constitute a failure of the condition
contained in this Section 6.02(d) if it shall have been Cured as of the
Closing) or (vi) seeking to cause Purchaser to assume a Labor Contract or
any term or condition thereof if such Proceeding is based on any action or
failure to act (whether prior to, on or after the date hereof)
86
by a member of the Seller Group or any of its employees, representatives or
agents (including the entering into of any Labor Contract, other than any
Labor Agreement).
(e) Title Insurance and Survey. Purchaser shall have received an ALTA
--------------------------
Owner's Extended Coverage Title Insurance Policy with respect to each Owned
Property listed on Schedule 6.02(e) (each an "Insured Property"), issued by
----------------
an internationally recognized title insurance company, written and
marked-up as of the Closing Date, insuring Purchaser in such amounts as
Purchaser shall reasonably require and including such endorsements as are
listed on Schedule 6.02(e) (as modified in the manner set forth on such
Schedule). Such title insurance policy shall insure fee simple title,
equitable title, easement or leasehold title (as the case may be) to each
Insured Property, free and clear of all Liens and other matters other than
those permitted by Section 3.06. Purchaser shall have received from Seller
an appropriately certified ALTA/ACSM Land Title Survey, for each of the
Insured Properties, that shall not reveal any condition not permitted by
Section 3.06.
(f) Transfer Taxes. Seller shall have prepared, executed and filed all
--------------
material returns, questionnaires, applications or other documents regarding
any Transfer Tax that is required to be filed.
(g) Consents. Seller shall have delivered to Purchaser (i) written
--------
consents from all third parties listed on Schedule 6.02(g) (including, to
the extent indicated on Schedule 6.02(g), consents to partial assignments
of Contracts), (ii) written consents from all other parties not set forth
on Schedule 3.03 as of the date hereof that are reasonably necessary to
consummate the transactions contemplated hereby or to permit Purchaser to
continue to conduct the Business (other than operation of the Brainerd
Facility) substantially as it is being conducted on the date hereof and
(iii) estoppel certificates from the landlords under the leases for the
Distribution Center Facilities in substantially the form attached hereto as
Exhibit J; provided, however, that the failure of Seller to deliver a
-------- -------
consent shall not constitute a failure of the condition contained in this
Section 6.02(g) if Seller is not in material breach of its obligations
under Section 5.05(d) and such failure is Cured as of the Closing. This
Agreement and the Acquisition shall have been approved by the South African
Reserve Bank. The STB shall not have (i) imposed any conditions or
requirements or denied any portion of the notice filed with it in
connection with the Acquisition or (ii) imposed any labor protective
conditions for the benefit of employees of the Railroad that have had or
could reasonably be expected to have a Seller Material Adverse Effect.
(h) Other Documents. Seller shall have furnished to Purchaser such
---------------
other customary documents relating to Seller's corporate existence and
authority (including copies of resolutions of the board of directors of
Seller), absence of Liens other than Permitted Liens, and such other
matters as Purchaser or its counsel may reasonably request.
(i) Affiliate Contracts. The Affiliate Contracts listed on Schedule
-------------------
3.22 will be in full force and effect with Purchaser substituted for Seller
as a party thereto.
87
(j) Ancillary Agreements. All the Ancillary Agreements listed on
--------------------
Schedule 6.02(j) (excluding (x) the Coated Paper Products Supply Agreement
unless Purchaser has delivered the notice contemplated by Section 5.29 and
(y) the Escrow Agreement and the Operating and Maintenance Agreement unless
Purchaser has delivered the Hydroelectric Facility Notice and such notice
has not been rescinded or deemed rescinded) shall have been executed and
delivered by all parties thereto (other than Purchaser and its affiliates)
in the form contemplated by this Agreement and shall be in full force and
effect. No state of facts, change, development, effect, condition or
occurrence that has, or could reasonably be expected to have, an adverse
effect on the ability of any party to any Ancillary Agreement (other than
Purchaser) to perform in all material respects its respective obligations
thereunder shall have occurred or shall exist.
(k) Permits. Purchaser shall have obtained or be reasonably satisfied
-------
with its ability to obtain promptly following the Closing all Permits
reasonably necessary for it to conduct the Business (other than operation
of the Brainerd Facility) substantially as conducted by Seller at the date
hereof.
(l) Tax Certificates. Seller shall deliver to Purchaser at the Closing
----------------
a certificate in form and substance satisfactory to Purchaser, duly
executed and acknowledged, certifying all facts necessary to exempt the
transactions contemplated hereby from withholding pursuant to the
provisions of the Foreign Investment in Real Property Tax Act.
(m) Cross-Border Leases. Each Cross-Border Lease shall have been
-------------------
transferred to Purchaser or terminated in each case as set forth in Section
5.24. In the case of transfer, (i) Seller and each other member of the
Seller Group shall have provided all notices required under each
Cross-Border Lease Assumption for the transfer to become effective, and
Purchaser shall have received written confirmation, in form and substance
reasonably satisfactory to Purchaser, from each other party to each
Cross-Border Lease Assumption confirming the effectiveness of such transfer
and (ii) Purchaser shall have an ownership interest in all machinery,
equipment and other property and assets subject to such Cross-Border Lease
together with a first priority perfected security interest in all of the
lessor's interest in such machinery, equipment and other property and
assets, and such machinery, equipment and other property and assets shall
be free of any Liens other than such Cross-Border Lease and such Liens in
favor of Purchaser or its affiliates. In the case of termination, full
ownership of all machinery, equipment and other property and assets
previously subject to each terminated Cross-Border Lease shall have been
transferred at closing by Seller to Purchaser in fee simple as an Acquired
Asset free from any Liens other than Permitted Liens and otherwise pursuant
to the terms of this Agreement.
(n) IRB Financings. Each IRB Financing, other than the Continuing IRB
--------------
Financing except to the extent required by Section 5.23, shall have been
repaid, redeemed or fully defeased, in each case as set forth in Section
5.23, and full ownership of all machinery, equipment and other property and
assets previously subject to any IRB Financing shall have been transferred
at Closing by Seller to Purchaser in fee simple as an Acquired Asset free
from any Liens other than Permitted Liens and otherwise pursuant to the
terms of this Agreement (except to the extent permitted otherwise pursuant
to Section 5.23 with respect to the
88
Sale/Leaseback IRB Financing, provided that Seller has complied with its
obligations under Section 5.23).
(o) Seller Material Adverse Effect. There shall not have occurred any
------------------------------
Seller Material Adverse Effect during the period from the date hereof to
Closing, other than any Seller Material Adverse Effect due to changes after
the date hereof proximately caused by (i) United States or global economic
conditions or financial markets in general and not affecting the Business
disproportionally to others in the paper industry in similar lines of
business, (ii) conditions affecting the paper industry generally and not
affecting the Business disproportionally to others in the paper industry in
similar lines of business or (iii) the effect of the announcement of the
transactions contemplated hereby on customer relationships of the Business
but only if the effect on the customer relationship is caused by an action
or failure to act of Purchaser; provided, however, that the occurrence of
-------- -------
any Seller Material Adverse Effect shall not constitute a failure of the
condition contained in this Section 6.02(o) if such Seller Material Adverse
Effect has been Cured as of the Closing.
(p) Force Majeure Events Affecting Financing. There shall not have
----------------------------------------
occurred, after the date hereof, any Force Majeure Event (as defined below)
having a direct or indirect continuing effect, that (i) does not relate
primarily to Purchaser or any of its affiliates or Seller or any of its
affiliates or the Business or the paper industry generally or the economy
generally and (ii) does not result directly or indirectly from any action
or failure to act by Purchaser or any of its affiliates and (iii)
individually, or when aggregated with other Force Majeure Events occurring
after the date hereof and having a direct or indirect continuing effect, is
of such major significance that Purchaser and its affiliates, for reasons
other than (a) the Creditworthiness of Purchaser or any of its affiliates
(other than to the extent affected directly or indirectly by such Force
Majeure Events) or the Business or (b) the ability of Purchaser or any of
its affiliates to satisfy any term or condition under its credit facilities
related to Purchaser or any of its affiliates or their Creditworthiness
(other than to the extent affected directly or indirectly by such Force
Majeure Events) or the Business or its Creditworthiness, or (c) the lack of
availability under, any of its credit facilities (other than to the extent
affected directly or indirectly by such Force Majeure Events), are unable
to borrow on the Closing Date funds sufficient to permit it to consummate
the Acquisition, and (iv) has had, or could reasonably be expected to have,
a similar impact on other similarly situated borrowers (and such impact is
not limited to or primarily of relevance to paper industry participants or
coated paper industry participants or the Business); provided, however,
-------- -------
that the condition set forth in this clause (p) shall be deemed satisfied
if Purchaser, at Closing (x) has, or has received pursuant to the
Financing, funds sufficient to permit it to consummate the Acquisition or
(y) is in material breach of Section 5.27.
As used herein, the term "Force Majeure Event" shall mean any major
event (or the acceleration, escalation or worsening of any major event
existing on the date hereof) beyond the reasonable control of Purchaser or
any of its affiliates (other than cyclicality or seasonality in the paper
industry generally, the coated paper industry generally or the economy
generally), of the type which is any of the following: any order, decree,
law, regulation or other action of any nature whatsoever of any court or
Government Authority; war (whether or not declared)
89
or hostilities, national emergency, terrorist action or any other national
or international calamity or crisis; explosion; act of God; civil
commotion; earthquake; flood; failure or disruption of service involving
public utilities, communication facilities, funds transfer systems or
commercial transport; unavailability of, or material reduction in the
supply of, essential raw materials or intermediates; or any other similar
or otherwise extraordinary event. As used herein, the term
"Creditworthiness" shall mean, with respect to the Business or any person,
the creditworthiness, the financial condition or the availability, quality
or amount of collateral of the Business or such person, as the case may be.
(q) Acquired Coating Equipment. In addition to transferring to
--------------------------
Purchaser or its designees good and marketable title to the Acquired
Assets, free and clear of all Liens other than Permitted Liens, Seller
shall have transferred to Purchaser good and marketable title to the
Acquired Coating Equipment, free and clear of all Liens other than
Permitted Liens.
(r) Energy Regulation. Purchaser shall be reasonably satisfied that
-----------------
Seller shall have taken all necessary action to ensure that by acquiring
the Hydroelectric Facility and the Steam Turbine Facilities and assuming
under this Agreement the Project Agreements or any rights and obligations
under Power Agreements or any Revised Power Agreements, and performing
under the Hydroelectric Facility Contracts and the Steam Turbine Contracts,
Purchaser shall not become subject to regulation by the FERC under Part II
of the FPA, except as provided in 18 C.F.R. Part 292, Subpart F of the FERC
regulation, or subject to regulation by the SEC as an "electric utility
company", "holding company" or "subsidiary company" under PUHCA, 15 U.S.C.
Section 79 et seq.
-- ---
SECTION 6.03. Conditions to Obligation of Seller. The obligation of
----------------------------------
Seller to sell, assign, convey, and deliver the Acquired Assets is subject to
the satisfaction (or waiver by Seller) on or prior to the Closing Date of the
following conditions:
(a) Representations and Warranties. The representations and warranties
------------------------------
of Purchaser made in this Agreement and the Ancillary Agreement that are
qualified as to materiality shall be true and correct, and those not so
qualified shall be true and correct in all material respects, as of the
date hereof and as of the Closing Date as though made on the Closing Date,
except to the extent such representations and warranties expressly relate
to an earlier date (in which case such representations and warranties
qualified as to materiality shall be true and correct, and those not so
qualified shall be true and correct in all material respects, on and as of
such earlier date). Seller shall have received a certificate signed by an
authorized officer of Purchaser to such effect.
(b) Performance of Obligations of Purchaser. Purchaser shall have
---------------------------------------
performed or complied in all material respects with all obligations and
covenants required by this Agreement to be performed or complied with by
Purchaser by the time of the Closing, and Seller shall have received a
certificate signed by an authorized officer of Purchaser to such effect.
(c) Transfer Taxes. Purchaser shall have prepared, executed and filed
--------------
all material returns, questionnaires, applications or other documents
regarding any Transfer Tax that is required to be filed by Purchaser prior
to Closing.
90
(d) Opinion of Purchaser's Counsel. Seller shall have received an
------------------------------
opinion dated the Closing Date of Cravath, Swaine & ▇▇▇▇▇, counsel to
Purchaser, substantially in the form of Exhibit K.
(e) Absence of Proceedings. There shall not be pending or threatened
----------------------
by any Governmental Authority, any Proceeding (or by any other person any
Proceeding that has a reasonable likelihood of success) challenging or
seeking to restrain or prohibit the Acquisition or any other transaction
contemplated by this Agreement or the Ancillary Agreements or seeking to
obtain from Seller or any of its subsidiaries in connection with the
Acquisition any damages that are material in relation to Seller and its
subsidiaries taken as whole.
(f) Other Documents. Purchaser shall have furnished to Seller such
---------------
other customary documents relating to Purchaser's corporate existence and
authority (including copies of resolutions of Purchaser's board of
directors) and such other matters as Seller or its counsel may reasonably
request.
(g) Affiliate Contracts. The Affiliate Contracts listed on Schedule
-------------------
3.22 will be in full force and effect with Purchaser substituted for Seller
as a party thereto.
(h) Ancillary Agreements. All the Ancillary Agreements listed on
--------------------
Schedule 6.02(j) (excluding (x) the Coated Paper Products Supply Agreement
unless Purchaser has delivered the notice contemplated by Section 5.29 and
(y) the Escrow Agreement and the Operating and Maintenance Agreement unless
Purchaser has delivered the Hydroelectric Facility Notice and such notice
has not been rescinded or deemed rescinded) shall have been executed and
delivered by Purchaser in the form contemplated by this Agreement and shall
be in full force and effect.
SECTION 6.04. Failure of Closing Conditions. Neither Purchaser nor
-----------------------------
Seller may rely on the failure of any condition set forth in this Article VI to
be satisfied if such failure was caused by such party's failure to act in good
faith or to use its reasonable efforts to cause the Closing to occur, as
required by Section 5.05. If Purchaser has delivered a Hydroelectric Facility
Notice and such notice has not been rescinded or deemed rescinded, neither
Purchaser nor Seller may rely (for purposes of the Closing) on the failure of
any condition set forth in this Article VI to be satisfied if the sole cause of
such failure was the failure to obtain the Final Order prior to Closing.
SECTION 6.05. Ability to Cure. (a) A failure of a representation or
---------------
warranty of Seller to be true and correct, any non-performance or non-compliance
by Seller with an undertaking or agreement, the existence of a pending or
threatened Proceeding, any failure by Seller to deliver a consent or the
occurrence of a Seller Material Adverse Effect (each, a "Violation") shall be
---------
deemed "Cured" to the extent permitted by and for purposes of Section 6.02 only
-----
if Seller shall have, in consultation with Purchaser, subject to paragraph (b)
below, paid in full all such amounts and taken all such other actions as are
necessary to ensure (or, if all Violations (in the aggregate) have had or could
reasonably be expected to have a Seller Material Adverse Effect, to ensure to
the reasonable satisfaction of Purchaser) that after giving effect to such Cure
(i) Purchaser Indemnified Parties have not suffered and will not suffer any
direct or indirect Losses (including such as are or may be suffered indirectly
as a current or future adverse effect
91
on the business, assets, financial condition, or results of operation of the
Business) or be in violation of or non-compliance with any Applicable Law by
reason of such Violation (or such action by Seller to cure such Violation) or,
in the case of a Violation of a representation or warranty, the facts and
circumstances giving rise to such Violation, (ii) such Violation has not and
will not result in any of the prohibitions, limitations or other requirements or
consequences of the type described in Section 6.02(d) (whether or not relating
to any Proceeding), and (iii) such Violation (or such action by Seller to cure
such Violation), alone or together with all other Violations, has not impaired
and will not impair (and, in the case of a Violation of a representation or
warranty, the facts and circumstances giving rise to such Violation do not
represent, as compared to the facts and circumstances disclosed pursuant to such
representation or warranty on the date hereof, an impairment of) (A) the ability
of Seller to perform its obligations under this Agreement or the Ancillary
Agreements, (B) the ability of Purchaser to conduct the Business (other than the
operation of the Brainerd Facility) substantially as conducted by Seller on the
date of the Balance Sheet and the Closing Date (including Purchaser's ability to
(x) continue uninterrupted and timely customer supply of products of the
Business of the same quality as previously supplied and (y) transition
production at the Brainerd Facility to other facilities), (C) the ability of
Purchaser to continue to operate and use any material Acquired Asset, (D) the
ability of Purchaser to establish in its sole discretion the terms and
conditions of employment of the Continued Employees or (E) any material customer
relationship of the Business.
(b) For purposes of determining whether a Violation has been Cured, if
on the Closing Date there are any Violations (or the facts and circumstances
giving rise to such Violations) that have resulted or could reasonably be
expected to result in Losses to any Purchaser Indemnified Parties, then to the
extent such Violations can be completely Cured by a monetary payment, such
Violations shall be deemed Cured if (and only if):
(i) where the maximum possible aggregate amount of such Losses arising
from all such Violations is less than $10,000,000, Seller either (A) pays
to Purchaser at Closing the full amount of all such possible Losses through
an adjustment to the Purchase Price or (B) fully indemnifies Purchaser
Indemnified Parties for all such Losses pursuant to Section 8.01(a)(xiii);
and
(ii) where the maximum possible aggregate amount of such Losses
arising from all such Violations is equal to or greater than $10,000,000,
Seller either (A) pays to Purchaser at Closing the full amount of all such
possible Losses through an adjustment to the Purchase Price or (B)
otherwise fully protects the Purchaser Indemnified Parties from all such
Losses pursuant to arrangements reasonably satisfactory to Purchaser.
(c) For purposes of determining whether a Violation has been Cured,
Purchaser's rights under Section 1.04(b) to obtain economic claims, rights and
benefits and under Article VIII or otherwise to seek remedies against Seller or
any other person shall not be taken into account. It is understood and agreed
that, in the case of a Violation of a representation or warranty, providing
information that corrects or supplements the representation or warranty to which
such Violation relates shall not constitute a Cure of such Violation. The Cure
of any Violation (including Purchaser's explicit or implicit satisfaction with
any such Cure) shall not be deemed to limit (i) any right of Purchaser hereunder
(including its rights under Article VIII if Losses are sustained) or otherwise
(subject to the provisions hereof) other than Purchaser's rights under Section
6.02 or
92
(ii) the obligations of Seller hereunder. To the extent any Cure involves any
payment or indemnification (including, without limitation, pursuant to Section
6.05(b)), such payment or indemnification shall not be subject to, or applied in
determining the applicability of, any limitation set forth in Article VIII
(including, without limitation, Section 8.01(b)). To the extent reasonably
requested by Seller, Purchaser will consult with Seller in any efforts by Seller
to Cure a Violation; provided, however, that any such consultation shall not be
-------- -------
deemed to limit the requirements of this Section 6.05 with respect to whether a
Violation is Cured (or Purchaser's right to strictly enforce such requirements)
or be deemed to impose any obligations on Purchaser.
(d) If a Violation exists with respect to a condition set forth in
Section 6.02(a), (b), clause (v) of (d), (g) or (o) that, individually or in
aggregate with other Violations, would result in such condition not being
satisfied, Seller shall give written notice of all such Violations to Purchaser
as promptly as practicable and, in any event, at least five business days prior
to the Closing Date (which notice shall describe in reasonable detail the
Violation as well as any intended Cure) and shall have the right to delay the
Closing by a reasonable period (but, in any event, not later than the
Termination Date) if such Violation can reasonably be expected to be Cured
during such period.
(e) Except with the consent of Purchaser, a Violation constituting a
failure to obtain a Consent reasonably necessary to consummate the transactions
contemplated hereby or to permit Purchaser to continue to conduct the Business
(other than operation of the Brainerd Facility) substantially as conducted on
the date of the Balance Sheet or as currently conducted or a breach of a
representation or warranty with respect to title to Acquired Assets reasonably
necessary to consummate the transactions contemplated hereby or to permit
Purchasers to continue to conduct the Business (other than operation of the
Brainerd Facility) as conducted on the date of the Balance Sheet or as currently
conducted or to Acquired Coating Equipment shall not be deemed Cured by any
means other than obtaining such Consent or causing such representation or
warranty to be correct (i) in the case of a Consent, if Seller is in material
breach of its obligation hereunder to obtain such Consent or (ii) at any time
prior to the 30th day prior to the Termination Date (after which ▇▇▇▇ ▇▇▇▇▇▇,
shall, subject to clause (i), have the right to Cure such Violation to the
extent permitted by this Section 6.05).
SECTION 6.06. Catastrophic Events. If there occurs after the date
-------------------
hereof, a catastrophic event resulting in material damage or destruction to the
physical Acquired Assets (a "Catastrophic Event") that (i) cannot reasonably be
------------------
cured through repair, replacement or restoration prior to the Termination Date,
(ii) would have a material adverse effect on the Business and (iii) does not
arise from Seller's intentional or grossly negligent breach of any obligation
hereunder, and promptly following such Catastrophic Event Seller provides
Purchaser with written notice of such Catastrophic Event (including a reasonably
detailed description of the extent of such damage or destruction) acknowledging
that Purchaser has an immediate and continuing right to terminate this
Agreement, then Purchaser shall have until the date (in no event later than 90
days after the date of such notice) that is the later of the next scheduled
Closing Date (or, if no Closing Date has been scheduled, the Anticipated Closing
Date) and 30 days after such notice to decide if it wishes to terminate this
Agreement. If Purchaser decides to terminate this Agreement on the basis of such
damage or destruction, neither party shall have any liability arising from such
Catastrophic Event or any breach of this Agreement resulting from such
Catastrophic Event or Purchaser's election to terminate this Agreement. If
Purchaser determines not to exercise such termination right and the
93
Closing occurs, Purchaser's right to be indemnified under Article VIII for
Losses in respect of breaches resulting from such Catastrophic Event, shall be
limited to the amount recoverable under Seller's Business Insurance Policies
relating thereto.
ARTICLE VII
Termination, Amendment and Waiver
---------------------------------
SECTION 7.01. Termination. (a) Notwithstanding anything to the
-----------
contrary in this Agreement, this Agreement may be terminated and the Acquisition
and the other transactions contemplated by this Agreement abandoned at any time
prior to the Closing:
(i) by mutual written consent of Seller and Purchaser;
(ii) by Seller if any of the conditions set forth in Section 6.01 or
6.03 shall have become incapable of fulfillment on or prior to the
Termination Date (as defined below) and shall not have been waived by
Seller, unless the failure of such condition is the result of a material
breach of this Agreement by Seller;
(iii) by Purchaser if any of the conditions set forth in Section 6.01
or 6.02 shall have become incapable of fulfillment on or prior to the
Termination Date and shall not have been waived by Purchaser, unless the
failure of such condition is the result of a material breach of this
Agreement by Purchaser; and
(iv) by Seller or Purchaser, if the Closing does not occur on or prior
to September 20, 2002 (the "Termination Date"), for any reason other than a
----------------
breach of this Agreement by the terminating party, including failure to
fulfill any of the closing conditions.
(b) In the event of termination by Seller or Purchaser pursuant to
this Section 7.01, written notice thereof shall forthwith be given to the other
and the transactions contemplated by this Agreement shall be terminated, without
further action by any party. If the transactions contemplated by this Agreement
are terminated as provided herein, Purchaser shall return all documents and
other material received from Seller relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to Seller.
SECTION 7.02. Effect of Termination. If this Agreement is terminated
---------------------
and the transactions contemplated hereby are abandoned as described in Section
7.01, this Agreement shall become null and void and of no further force and
effect, except for the provisions of (i) Section 5.04 relating to the obligation
of Purchaser and Seller to keep confidential certain information and data
obtained by it from the other party, (ii) Section 5.06 relating to certain
expenses, (iii) Section 5.07 relating to finder's fees and broker's fees, (iv)
Section 7.01 and this Section 7.02 and (v) Section 5.12 relating to publicity,
which shall survive such termination. Subject to Section 9.14, nothing in this
Section 7.02 shall be deemed to release any party from any liability for any
breach by such party of the terms and provisions of this Agreement or to impair
the right of any party to compel specific performance by any other party of its
obligations under this Agreement.
94
SECTION 7.03. Amendments and Waivers. This Agreement may not be
----------------------
amended except by an instrument in writing signed on behalf of each of the
parties hereto. By an instrument in writing Purchaser, on the one hand, or
Seller, on the other hand, may waive compliance by the other party with any term
or provision of this Agreement that such other party was or is obligated to
comply with or perform.
ARTICLE VIII
Indemnification
---------------
SECTION 8.01. Indemnification by Seller. (a) Seller shall indemnify
-------------------------
Purchaser and its affiliates and each of their respective officers, directors,
employees, stockholders, agents and representatives ("Purchaser Indemnified
---------------------
Parties") against, and hold them harmless from, any loss, liability, claim,
-------
diminution in value, damage or expense (including reasonable legal fees and
expenses and including reasonable expenses incurred by an indemnified party by
reason of the enforcement and protection of its rights under this Agreement)
("Losses"), arising from, in connection with or otherwise with respect to:
------
(i) any breach of any representation or warranty of Seller contained
in this Agreement, in any Ancillary Agreement or in any document delivered
in connection herewith (it being agreed and acknowledged by the parties
that for purposes of Purchaser's right to indemnification pursuant to this
Section 8.01 the representations and warranties of Seller (other than the
representations and warranties contained in Sections 3.03, 3.05(a)
(including to the extent referred to in Section 3.06(a)), the last sentence
of 3.06(a), 3.06(d), the first sentence of 3.07(a), 3.08(a), 3.16(e), 3.19,
3.23, 3.24, 3.25 and 3.31) shall be deemed not qualified by any references
therein to materiality generally or to whether or not any breach results or
may result in a Seller Material Adverse Effect);
(ii) any breach of any covenant of Seller contained in this Agreement
or in any Ancillary Agreement;
(iii) any Excluded Liability (including any Pre-Closing Environmental
Liability and Unknown Pre-Closing On-Site Environmental Liability, except
to the extent provided in Section 8.01(c) with respect to Minor Pre-Closing
On-Site Environmental Liabilities), regardless of whether there has been
any disclosure to Purchaser or a breach of any related representation or
warranty;
(iv) fraudulent transfer laws or the failure to comply with statutory
provisions relating to bulk sales and transfers;
(v) any fees, expenses or other payments incurred or owed by Seller to
any brokers, financial advisors or other comparable persons retained or
employed by it in connection with the transactions contemplated by this
Agreement or by any Ancillary Agreement;
(vi) claims by officers and directors of any member of the Seller
Group in connection with their service as officers and directors and their
resignation or removal from office in connection with the Acquisition;
95
(vii) the grant, issuance, cancelation, termination or settlement of
any stock appreciation rights, stock options, restricted stock, performance
shares or units or other incentive compensation involving capital stock of
Seller or any of its affiliates or the performance or value of Seller or
any of its affiliates or their capital stock granted to employees of any
member of the Seller Group;
(viii) any Cross-Border Lease or the assignment, novation, termination
or continuation of any Cross-Border Lease (including in respect of any
obligation, including any payment obligation (including any termination
payment or indemnification payment) under, or any breach by any party of
its obligations under, any Cross-Border Lease) except to the extent
specifically provided otherwise in a Cross-Border Lease Assumption with
respect to such Cross-Border Lease;
(ix) the termination, redemption, repayment or defeasance by Seller of
any tax-exempt bond financing arrangement;
(x) any shutdown or discontinuance of operations by Seller involving
the Brainerd Facility;
(xi) any employee protective conditions, whether imposed by the STB or
predicated on the Railway Labor Act or the Labor Agreements;
(xii) any IRB Financing (whether due to any action or failure to act
by Purchaser, Seller or any other person or otherwise);
(xiii) subject to Section 8.03(b), any Violation that is Cured, or
deemed to be Cured, pursuant to Section 6.05;
(xiv) the absence of a documented right of access to the ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ assuring a perpetual right to use the access roads used on the
date hereof between the ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇;
(xvi) uncertainty of the locations of boundaries and right-of-way
lines with respect to the Railroad Parcels;
(xvii) the matters described in the letter dated March 13, 2002, from
Seller to FERC, included on Schedule 3.13; or
(xviii) any failure by Seller to transfer to Purchaser title to any
Acquired Asset related to the Sale/Leaseback IRB Financing within 30 days
following the Closing Date in accordance with Section 5.23 or any inability
of Purchaser to use or operate any such Acquired Asset prior to such
transfer substantially as used and operated by Seller on the date hereof.
(b) Seller shall not have any liability:
(i) under clause (i) of Section 8.01(a) (or under clause (ii) of
Section 8.01(a) in respect of any breach of the covenant contained in
Section 5.01(b), 5.01(c)(vii)(A), or Section 5.10) unless the aggregate of
all Losses for which it would, but for this clause (i), be liable exceeds
on a
96
cumulative basis an amount equal to $5,000,000, and then only to the extent
of such excess;
(ii) under clause (i) of Section 8.01(a) (or under clause (ii) of
Section 8.01(a) in respect of any breach of the covenant contained in
Section 5.01(b), 5.01(c)(vii)(A), or Section 5.10) for any individual items
where the Loss relating thereto is less than $20,000 on an individual basis
(or as part of a group of related claims, or claims that, although
unrelated, originate from a common set of facts), unless the aggregate of
all such Losses exceeds on a cumulative basis $1,000,000, and then only to
the extent of such excess;
(iii) under clause (i) of Section 8.01(a) (or under clause (ii) of
Section 8.01(a) in respect of any breach of the covenant contained in
Section 5.01(b), 5.01(c)(vii)(A), or Section 5.10) in excess of
$150,000,000; or
(iv) under Section 8.01(a)(iii) for any Losses arising out of any
required assumption or any imposition of a Labor Contract or any term or
condition thereof on Purchaser unless such assumption or imposition was
caused by any action or failure to act (whether prior to, on or after the
date hereof) by any member of the Seller Group or any of its employees,
representatives or agents (including the entering into of any Labor
Contract, other than the Labor Agreements);
provided that (x) the foregoing limitations shall not be applicable to indemnity
--------
claims relating to representations or warranties relating to title to the
Acquired Assets in Sections 3.05, 3.06, 3.07, 3.10 or 3.29 or in any Ancillary
Agreement or any other transfer document delivered in connection herewith or
relating to breaches under Section 3.16 (or Section 5.10, to the extent relating
to Section 3.16) or Section 9(a) of the Wood Supply Agreement or Section 8(a) of
the Paper Supply Agreement or Clause 9.1(i) of the Cross-Border Indemnity
Agreement and (y) the limitation in clause (iii) shall not be applicable to
indemnity claims relating to breaches under Section 3.15 or 3.20(b) (or Section
5.10 to the extent relating to Section 3.15 or 3.20(b); provided, further, that,
-------- -------
anything herein to the contrary notwithstanding, Seller shall have no liability
under Section 8.01(a)(i) or (a)(ii) for any breach of an Ancillary Agreement to
the extent such Ancillary Agreement expressly limits Seller's liability for such
breach (and then only to the extent of such limitation).
(c) Without limiting any liability of Seller under clause (i) of
Section 8.01(a), Seller shall not have any liability under clause (iii) of
Section 8.01(a) for an Unknown Pre-Closing On-Site Environmental Liability if
the aggregate of all Losses relating to such Unknown Pre-Closing On-Site
Environmental Liability is less than $50,000 on an individual basis (or as part
of a group of related claims or claims that, although unrelated, originate from
a common set of facts) (a "Minor Pre-Closing On-Site Liability") unless the
-----------------------------------
aggregate for all such Losses relating to all such Minor Pre-Closing On-Site
Liabilities exceeds on a cumulative basis $250,000 and then Seller shall have
liability for all Losses (other than such initial $250,000) relating to Unknown
Pre-Closing On-Site Liabilities. The term "Unknown Pre-Closing On-Site
---------------------------
Environmental Liabilities" shall mean any cost or expense of investigation or
-------------------------
cleanup of the Premises after the Closing Date as a result of any loss, claim,
demand, requirement, lawsuit, responsibility, liability, obligation or
commitment arising out of Environmental Laws (other than with respect to any of
the matters disclosed on Schedule 1.03(b)(xxi), Schedule 3.13 or Schedule
3.20(b) and related to any condition of the Premises existing on or prior to the
97
Closing Date which condition at any time requires investigation or cleanup, but
only if such loss, claim, demand, requirement, lawsuit, responsibility,
liability, obligation or commitment relates solely to investigation or cleanup
of the Premises. In the event Seller would be required under any Environmental
Law to undertake investigation or cleanup of the Premises in respect of a Minor
Pre-Closing On-Site Liability for which Seller would not, pursuant to this
Section 8.01(c), have liability, Purchaser shall, to the extent requested in
writing by Seller, undertake such investigation or cleanup (at its own cost and
expense provided that the aggregate Losses relating to such Minor Pre-Closing
On-Site Liability do not exceed $50,000 and subject to such $250,000 limit). For
the avoidance of doubt, the aggregate Losses excluded from clause (iii) of
Section 8.01(a) shall not exceed $250,000 and no Losses shall be excluded from
clause (iii) of Section 8.01(a) in respect of any Unknown Pre-Closing On-Site
Liability if the aggregate of all Losses related thereto exceed $50,000.
(d) Except as otherwise specifically provided in this Agreement, in
any Ancillary Agreement or in any Additional Seller Document, Purchaser
acknowledges that its sole and exclusive monetary remedy after the Closing with
respect to any and all claims relating to this Agreement and the Ancillary
Agreements, the Acquisition and the other transactions contemplated hereby and
thereby, the Business and its assets and liabilities (other than claims of, or
causes of action arising from, fraud or intentional breach) shall be pursuant to
the indemnification provisions set forth in this Article VIII or in any
Ancillary Agreement. In furtherance of the foregoing, Purchaser hereby waives,
from and after the Closing, any and all rights, claims and causes of action
(other than claims of, or causes of action arising from, fraud or intentional
breach) for damages it may have against Seller arising under or based upon this
Agreement, any Ancillary Agreement, any Additional Seller Document, any
Applicable Law (including any relating to environmental matters) or otherwise
(except pursuant to the indemnification provisions set forth in this Section
8.01 or in any Ancillary Agreement).
(e) The right to indemnification under this Section 8.01 shall not be
affected by any investigation (including any environmental investigation or
assessment) conducted with respect to, or any knowledge acquired (or capable of
being acquired) by Purchaser at any time, whether before or after the execution
and delivery of the Agreement or the Closing Date with respect to the accuracy
or inaccuracy of or compliance with any representation, warranty, covenant or
obligation.
SECTION 8.02. Indemnification by Purchaser. (a) Purchaser shall
----------------------------
indemnify Seller, its affiliates and each of their respective officers,
directors, employees, stockholders, agents and representatives against, and
agrees to hold them harmless from, any Loss, for or on account of or arising
from or in connection with or otherwise with respect to:
(i) any breach of any representation or warranty of Purchaser
contained in this Agreement, in any Ancillary Agreement or in any document
delivered in connection herewith (it being agreed and acknowledged by the
parties that for purposes of Seller's right to indemnification pursuant to
this Section 8.02 the representations and warranties of Purchaser shall be
deemed not qualified by any references therein to materiality generally or
to whether or not any breach results or may result in a Purchaser Material
Adverse Effect);
98
(ii) any breach of any covenant of Purchaser contained in this
Agreement or in any Ancillary Agreement;
(iii) any failure by Purchaser to pay or otherwise discharge when due
and payable any Assumed Liability;
(iv) any fees, expenses or other payments incurred or owed by
Purchaser to any brokers, financial advisors or other comparable persons
retained or employed by it in connection with the transactions contemplated
by this Agreement or by any Ancillary Agreement;
(v) Purchaser's selection of Non-Continuing Employees but only to the
extent related to such selection being in violation of, or being alleged to
be in violation of, Applicable Law and such Loss is not a direct result of
any act by any member of the Seller Group or any of its employees,
representatives or agents; and
(vi) liability under the WARN Act with respect to Affected Employees
(excluding Brainerd Participants) whose "employment loss" (as defined under
the WARN Act) (y) occurs on or within 90 days prior to the Closing Date and
(z) is deemed to be part of a "plant closing" or "mass layoff" (as those
terms are defined under the WARN Act).
(b) Purchaser shall not have any liability:
(i) under clause (i) of Section 8.02(a) unless the aggregate of all
Losses for which it would, but for this clause (i), be liable exceeds on a
cumulative basis an amount equal to $5,000,000, and then only to the extent
of such excess;
(ii) under clause (i) of Section 8.02(a) for any individual items
where the Loss relating thereto is less than $20,000 on an individual basis
(or as part of a group of related claims, or claims that, although
unrelated, originate from a common set of facts), unless the aggregate of
all such Losses exceeds on a cumulative basis of $1,000,000, and then only
to the extent of such excess;
(iii) under clause (i) of Section 8.02(a) in excess of $150,000,000;
(iv) under clause (v) of Section 8.02(a) for (x) any amounts or other
benefits Seller or any member of the Seller Group agrees to pay or provide
pursuant to effects bargaining or otherwise or (y) any Losses resulting
from any failure by Seller or any member of the Seller Group to comply with
Applicable Law or the terms of any Contract or any breach of this Agreement
by Seller;
(v) under clause (vi) of Section 8.02 (a), (x) unless Seller has
complied fully with its obligation to notify Purchaser of employment losses
pursuant to Section 5.22 and its covenant under Section 5.01(a)(iii), but
only to the extent liability under or as a result of the WARN Act is
greater than it would have been had (I) Seller complied fully with such
obligations and covenant and (II) the actual number of "employment losses"
had been limited to those notified to Purchaser and made in compliance with
Section 5.01(a)(iii) and 5.22, (y) if the number of individuals who become
Affected Employees (excluding Brainerd Participants)
99
prior to the Closing Date is sufficient, without aggregation with the
number of individuals who become Affected Employees on the Closing Date or
Continued Employees who suffer employment losses after the Closing Date, to
constitute a "plant closing" or "mass layoff" under the WARN Act, in which
case Seller solely shall be responsible for complying with the WARN Act or
(z) if Seller fails to promptly deliver to any Affected Employee or such
Affected Employee's collective bargaining representative a notice of
anticipated employment loss providing as much advance notice to such
Affected Employee as practical upon the request of Purchaser; or
(vi) under clause (i) or (ii) of Section 8.02(a) for any breach of an
Ancillary Agreement to the extent such Ancillary Agreement expressly limits
Purchaser's liability for such breach (and then only to the extent of such
limitation).
(c) Except as otherwise specifically provided in this Agreement, in
any Ancillary Agreement or in any Additional Purchaser Document, Seller
acknowledges that its sole and exclusive monetary remedy after the Closing with
respect to any and all claims relating to this Agreement and the Ancillary
Agreements, the Acquisition and the other transactions contemplated hereby and
thereby, the Business and its assets and liabilities (other than claims of, or
causes of action arising from, fraud or intentional breach) shall be pursuant to
the indemnification provisions set forth in this Article VIII or in any
Ancillary Agreement. In furtherance of the foregoing, Seller hereby waives, from
and after the Closing, any and all rights, claims and causes of action (other
than claims of, or causes of action arising from, fraud or intentional breach)
for damages it may have against Purchaser arising under or based upon this
Agreement, any Ancillary Agreement, any Additional Purchaser Document, any
Applicable Law (including any relating to environmental matters) or otherwise
(except pursuant to the indemnification provisions set forth in this Section
8.02 or in any Ancillary Agreement).
(d) The right to indemnification under this Section 8.02 shall not be
affected by any investigation (including any environmental investigation or
assessment) conducted with respect to, or any knowledge acquired (or capable of
being acquired) by Seller at any time, whether before or after the execution and
delivery of the Agreement or the Closing Date with respect to the accuracy or
inaccuracy of or compliance with any representation, warranty, covenant or
obligation.
SECTION 8.03. Calculation of Losses. (a) The amount of any Loss for
---------------------
which indemnification is provided under this Article VIII shall be (i) increased
to take account of any net Tax cost incurred by the indemnified party arising
from the receipt of indemnity payments hereunder (grossed up for such increase)
and (ii) reduced to take account of any net Tax benefit realized by the
indemnified party arising from the incurrence or payment of any such Loss. In
computing the amount of any such Tax cost or Tax benefit, the indemnified party
shall be deemed to recognize all other items of income, gain, loss deduction or
credit before recognizing any item arising from the receipt of any indemnity
payment hereunder or the incurrence or payment of any indemnified Loss. Any
indemnification payment hereunder shall initially be made without regard to this
paragraph and shall be increased or reduced to reflect any such net Tax cost
(including gross-up) or net Tax benefit only after the indemnified party has
actually realized such cost or benefit. For purposes of this Agreement, an
indemnified party shall be deemed to have "actually realized" a net Tax cost or
a net Tax benefit to the
100
extent that, and at such time as, the amount of Taxes payable by such
indemnified party is increased above or reduced below, as the case may be, the
amount of Taxes that such indemnified party would be required to pay but for the
receipt of the indemnity payment or the incurrence or payment of such Loss. Any
offset made against any Receivable based upon or arising from any liability of
Seller that Purchaser has not expressly agreed to assume pursuant to Section
1.03(a) shall be a Loss for which indemnification is provided hereunder.
(b) Neither the provisions of Section 1.05 or 6.05 relating to
adjustments of the Purchase Price nor the provisions of Article VI relating to
Seller's ability to Cure shall be deemed to limit the rights of Purchaser under
this Article VIII or, subject to the provisions hereof, otherwise to seek
recovery of Losses from Seller; provided, however, that in calculating the
amount of any Loss for which indemnification is provided under this Article VIII
there shall be taken into account amounts received by Purchaser under such other
provisions in respect of such Loss.
SECTION 8.04. Termination of Indemnification. The obligations to
------------------------------
indemnify and hold harmless any party, (i) pursuant to Section 8.01(a)(i),
8.01(a)(ii) with respect to Section 5.10, or 8.02(i), shall terminate when the
applicable representation or warranty (or, in the case of a breach of Section
5.10, the representation or warranty to which such breach relates) terminates
pursuant to Section 8.06 and (ii) pursuant to the other clauses of Sections 8.01
and 8.02 shall not terminate; provided, however, that such obligations to
-------- -------
indemnify and hold harmless shall not terminate with respect to any item as to
which the person to be indemnified shall have, before the expiration of the
applicable period, previously made a claim by delivering a notice of such claim
pursuant to Section 8.05 to the party to be providing the indemnification.
SECTION 8.05. Procedures. (a) Third Party Claims. A party entitled to
---------- ------------------
any indemnification provided for under this Agreement (the "indemnified party")
-----------------
in respect of, arising out of or involving a claim made by any person against
the indemnified party (a "Third Party Claim"), shall notify the indemnifying
-----------------
party in writing of the Third Party Claim, and include with such notice copies
of all notices and documents (including court papers) received by the
indemnified party relating to the Third Party Claim, promptly after receipt by
such indemnified party of written notice of the Third Party Claim; provided,
--------
however, that failure to give such notification, or to include copies of all
-------
such notices and documents, shall not affect the indemnification provided
hereunder except to the extent the indemnifying party shall have been actually
prejudiced as a result of such failure (except that the indemnifying party shall
not be liable for any expenses incurred by the indemnified party during the
period in which the indemnified party failed to give such notice).
Notwithstanding the foregoing, claims of the type covered by Section 8.05(e) and
claims relating to the replacement or return of products manufactured on or
prior to the Closing Date by the Business shall not be considered Third Party
Claims.
(b) Participation; Assumption. If a Third Party Claim is made against
-------------------------
an indemnified party, the indemnifying party may participate in the defense
thereof, but the indemnified party shall control such defense and shall be
entitled to select the counsel for the defense. The indemnifying party shall be
responsible for paying all fees and expenses incurred in connection with the
defense.
101
Notwithstanding the foregoing, if the indemnifying party acknowledges
in writing its obligation to indemnify the indemnified party hereunder against
any Losses that may result from such Third Party Claim, then the indemnifying
party shall at any time be entitled to assume and control the defense of such
Third Party Claim at its expense and through counsel of its choice reasonably
acceptable to the indemnified party; provided, however, that if there exists or
-------- -------
is reasonably likely to exist a conflict of interest that would make it
inappropriate in the reasonable judgment of the indemnified party for the same
counsel to represent both the indemnified party and the indemnifying party, then
the indemnified party shall be entitled to retain its own counsel, at the
expense of the indemnifying party, provided that in any case the indemnifying
--------
party shall not be obligated to pay the expenses of more than one separate
counsel (together with local counsel) for all indemnified parties, taken
together. In addition, subject to Section 8.05(a) hereof, the indemnifying party
shall be liable for the fees and expenses of counsel employed by the indemnified
party for any period during which the indemnifying party has failed to assume
the defense thereof. In case the indemnifying party assumes control of the
defense of a Third Party Claim the indemnified party may still participate in
such defense at its own expense.
In the event the indemnifying party exercises the right to undertake
any such defense against any such Third Party Claim as provided above, the
indemnified party shall cooperate with the indemnifying party in such defense
and make available to the indemnifying party, all pertinent records, materials
and information in the indemnified party's possession or under the indemnified
party's control relating thereto as is reasonably required by the indemnifying
party and shall make employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder, with the indemnifying party being obligated to reimburse the
indemnified party for out-of-pocket costs and expenses directly related thereto.
Similarly, in the event the indemnified party is, directly or indirectly,
conducting the defense against any such Third Party Claim, the indemnifying
party shall cooperate with the indemnified party in such defense and make
available to the indemnified party (at the expense of the indemnifying party)
all such records, materials and information in the indemnifying party's
possession or under the indemnifying party's control relating thereto as is
reasonably required by the indemnified party and shall make employees available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. The indemnifying party, if it shall have
assumed the defense of a Third Party Claim, or the indemnified party, if the
indemnifying party shall not have assumed such control, shall not settle or
compromise such Third Party Claim without the indemnified party's or
indemnifying party's, as the case may be, prior written consent (which consent
shall not be unreasonably withheld or delayed). If the indemnifying party
assumes the defense of a Third Party Claim, the indemnified party shall agree to
any settlement or compromise of a Third Party Claim that the indemnifying party
may recommend and that by its terms obligates the indemnifying party to pay the
full amount of the liability in connection with such Third Party Claim, which
releases the indemnified party completely in connection with such Third Party
Claim and that would not otherwise adversely affect the indemnified party.
Notwithstanding the foregoing, the indemnifying party shall not be
entitled to assume the defense of any Third Party Claim (and shall be liable for
the fees and expenses of counsel incurred by the indemnified party in defending
such Third Party Claim) if the Third Party Claim seeks an order, injunction or
other equitable relief or relief for other than money damages against the
indemnified party that the indemnified
102
party reasonably determines, after conferring with its outside counsel, cannot
be separated from any related claim for money damages. If such equitable relief
or other relief portion of the Third Party Claim can be so separated from that
for money damages, the indemnifying party shall be entitled to assume the
defense of the portion relating to money damages.
(c) Payments. The indemnification required by Sections 8.01 and 8.02
--------
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills are received or Loss is
incurred. All claims under Sections 8.01 and 8.02 other than Third Party Claims
shall be governed by Section 8.05(d).
(d) Other Claims. In the event any indemnified party should have a
------------
claim against any indemnifying party under Section 8.01 or 8.02 that does not
involve a Third Party Claim being asserted against or sought to be collected
from such indemnified party, the indemnified party shall deliver notice of such
claim with reasonable promptness to the indemnifying party. Subject to Sections
8.04 and 8.06, the failure by any indemnified party so to notify the
indemnifying party shall not relieve the indemnifying party from any liability
that it may have to such indemnified party under Section 8.01 or 8.02, except to
the extent that the indemnifying party demonstrates that it has been actually
prejudiced by such failure. The indemnifying party shall notify the indemnified
party with reasonable promptness following its receipt of such notice whether it
disputes its liability to the indemnified party under Section 8.01 or 8.02, and
the indemnifying party shall pay any undisputed amount of such liability to the
indemnified party on demand or, in the case of any notice in which the amount of
the claim (or any portion thereof) is estimated, on such later date when the
amount of such claim (or such portion thereof) becomes finally determined.
(e) Environmental Procedures. To the extent any indemnified party has
------------------------
a claim for Pre-Closing Environmental Liability that will require investigation
or cleanup of contamination from Hazardous Materials or for Unknown Pre-Closing
On-Site Environmental Liabilities and the indemnifying party has acknowledged in
writing its obligation to indemnify the indemnified party hereunder, such
indemnifying party shall have a reasonable right to review and comment upon any
investigation or cleanup plan or report before it is submitted to any
Governmental Entity for approval. The indemnified party shall review such
comments in good faith and shall provide to the indemnifying party copies of all
correspondence with any Governmental Entity relating to the proposed
investigation or cleanup. Any investigation or cleanup proposed or to be
performed pursuant to this paragraph shall be performed in accordance with the
requirements of the applicable Governmental Entity and, provided that the
indemnifying party has acknowledged in writing its obligation to the indemnified
party, the indemnified party shall not agree to any order or implement any
cleanup plan without the prior written consent of the indemnifying party, which
consent shall not be unreasonably withheld, conditioned or delayed. The
indemnifying party's obligation hereunder with respect to any particular claim
shall terminate upon the earlier of (i) the receipt of a notice from the
applicable Governmental Entity that the remedial activities are complete and
that no further action is required or (iii) receipt of sampling results
reasonably acceptable to the indemnified party indicating that the Hazardous
Materials being addressed are below applicable regulatory cleanup levels.
103
SECTION 8.06. Survival of Representations. The representations and
---------------------------
warranties contained in this Agreement and in any document delivered in
connection herewith shall survive the Closing solely for purposes of Article
VIII and shall terminate at the close of business on the second anniversary of
the Closing Date, except for (i) the representations and warranties contained in
Section 3.16, which shall survive until 60 days after the expiration of the
statute of limitations (giving effect to extensions thereof) for the relevant
Tax, (ii) the representations and warranties contained in Sections 3.07 (other
than as to title to Assigned Intellectual Property and Assigned Technology),
3.17, 3.18, 3.20(a) and 3.20(c), which shall survive for six years after the
Closing Date, (iii) the representations and warranties contained in Section
3.20(b) which shall survive for ten years after the Closing Date and (iv) the
representations and warranties in Sections 3.01, 3.02, 4.01, 4.02, 5.07 and the
representations and warranties relating to title to the Acquired Assets in
Sections 3.05, 3.06, 3.07, 3.10 and 3.29 and in any transfer document delivered
in connection herewith, each of which shall survive as long as Applicable Law
permits the underlying claim.
SECTION 8.07. INDEMNIFICATION IN CASE OF STRICT LIABILITY OR
----------------------------------------------
INDEMNITEE NEGLIGENCE. THE INDEMNIFICATION PROVISIONS IN THIS ARTICLE VIII SHALL
---------------------
BE ENFORCEABLE REGARDLESS OF WHETHER THE LIABILITY IS BASED UPON PAST, PRESENT
OR FUTURE ACTS, CLAIMS OR LEGAL REQUIREMENTS (INCLUDING ANY PAST, PRESENT OR
FUTURE BULK SALES LAW, ENVIRONMENTAL LAW, FRAUDULENT TRANSFER ACT, OCCUPATIONAL
SAFETY AND HEALTH LAW OR PRODUCTS LIABILITY, SECURITIES OR OTHER LEGAL
REQUIREMENT) AND REGARDLESS OF WHETHER ANY PERSON (INCLUDING THE PERSON FROM
WHOM INDEMNIFICATION IS SOUGHT) ALLEGES OR PROVES THE SOLE, CONCURRENT,
CONTRIBUTORY OR COMPARATIVE NEGLIGENCE OF THE PERSON SEEKING INDEMNIFICATION OR
THE SOLE OR CONCURRENT STRICT LIABILITY IMPOSED UPON THE PERSON SEEKING
INDEMNIFICATION.
SECTION 8.08. Certain to Rights of Indemnified Parties. In the event
----------------------------------------
Seller shall have paid an indemnity claim asserted by Purchaser under Section
8.01 and Purchaser possesses any claim, demand or right in respect of such
indemnity claim against a vendor or supplier of the Business, Seller shall be
fully subrogated to the rights of the Purchaser against such vendor or supplier
in respect of such indemnity claim (to the extent of such payment). In the event
Seller shall have paid an indemnity claim asserted by Purchaser under Section
8.01 and Purchaser was assigned as an Acquired Asset any right, claim or credit
in respect of such indemnity claim arising under an insurance policy maintained
by any member of the Seller Group, Purchaser shall, at the request of Seller,
assign to Seller Purchaser's rights under such insurance policy in respect of
such indemnity claim (to the extent of such payment). In the event any
indemnifying party shall have paid a claim asserted by any indemnified party
under Section 8.01 or 8.02, the indemnified party will use good faith efforts to
provide information reasonably requested by the indemnifying party to the
indemnifying party in connection with such claim. Except as specifically set
forth in this Section 8.08, no indemnifying party shall be subrogated to the
rights of any indemnified party in respect of any claim except to the extent
provided by Applicable Law (and the indemnified party shall have no obligation
in respect of any such subrogation except as provided in the preceding
sentence).
104
SECTION 8.09. DISCLAIMER OF WARRANTIES. PURCHASER ACKNOWLEDGES THAT,
------------------------
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR THE ANCILLARY AGREEMENTS OR
ANY ADDITIONAL SELLER DOCUMENT, THERE ARE NO REPRESENTATIONS OR WARRANTIES OF
ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO THE BUSINESS OR ACQUIRED ASSETS.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT AS EXPRESSLY SET FORTH
IN THIS AGREEMENT OR THE ANCILLARY AGREEMENTS, THERE ARE NO EXPRESS OR IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. SELLER
ACKNOWLEDGES THAT, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR THE
ANCILLARY AGREEMENT OR ANY ADDITIONAL PURCHASER DOCUMENT, THERE ARE NO
REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, MADE BY
PURCHASER.
SECTION 8.10. Hydroelectric Facility. Anything herein to the contrary
----------------------
notwithstanding, if the obligation of Seller to sell the Hydroelectric Facility
is terminated in accordance with Section 2.04 hereof, then Seller shall not have
any liability under Section 8.01(a)(i) hereunder in respect of any breach of a
representation or warranty hereunder to the extent relating to the Hydroelectric
Facility.
ARTICLE IX
General Provisions
------------------
SECTION 9.01. Assignment. This Agreement and the rights and
----------
obligations hereunder shall not be assignable or transferable by Purchaser or
Seller (including by operation of law in connection with a merger or
consolidation of Purchaser or Seller) without the prior written consent of the
other parties hereto. Notwithstanding the foregoing, (a) Purchaser may assign
its right to purchase the Acquired Assets (including separately assigning its
right to purchase the Railroad Property, Rail Equipment and other Acquired
Assets relating to the Railroad) or any of its other rights or any portion
thereof hereunder to one or more affiliates of Purchaser without the prior
written consent of Seller, provided such affiliate agrees in form and substance
reasonably satisfactory to Seller to assume the obligations of Purchaser
hereunder following the Closing, and (b) Purchaser may assign its rights
hereunder by way of security and such secured party may assign such rights by
way of exercise of remedies and (c) Purchaser may assign its rights to
indemnity, in whole or in part, to any purchaser of all or any of the Acquired
Assets; provided, however, that no assignment shall limit or affect the
-------- -------
assignor's obligations hereunder. Any attempted assignment in violation of this
Section 9.01 shall be void.
SECTION 9.02. No Third-Party Beneficiaries. Except as provided in
----------------------------
Article VIII, this Agreement is for the sole benefit of the parties hereto and
their permitted assigns and nothing herein expressed or implied shall give or be
construed to give to any person, other than the parties hereto and such assigns,
any legal or equitable rights hereunder.
SECTION 9.03. Notices. All notices or other communications required or
-------
permitted to be given hereunder shall be in writing and shall be delivered by
hand or sent
105
by facsimile or sent, postage prepaid, by overnight or express courier service
and shall be deemed given when so delivered by hand or facsimile, or if sent by
overnight or express courier service, three business days after being sent, as
follows:
(i) if to Purchaser,
Northern Holdings LLC/Sappi Cloquet LLC
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President
with a concurrent copy to:
Sappi Fine Paper North America
S.D. ▇▇▇▇▇▇ Company
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
with a concurrent copy to:
Sappi Limited
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
Telephone: ▇▇▇ (▇▇) ▇▇▇-▇▇▇▇
Telecopy: ▇▇▇ (▇▇) ▇▇▇-▇▇▇▇
Attention: Corporate Counsel
with a concurrent copy to:
Cravath, Swaine & ▇▇▇▇▇
Worldwide Plaza
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.; and
106
(ii) if to Seller,
Potlatch Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
with a concurrent copy to:
Pillsbury Winthrop LLP
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
with a concurrent copy to:
Pillsbury Winthrop LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
SECTION 9.04. Interpretation; Exhibits and Schedules; Certain
-----------------------------------------------
Definitions. (a) The headings contained in this Agreement, in any Exhibit or
-----------
Schedule hereto and in the table of contents to this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. All Exhibits and Schedules annexed hereto or referred to herein
are hereby incorporated in and made a part of this Agreement as if set forth in
full herein. Any capitalized terms used in any Schedule or Exhibit but not
otherwise defined therein, shall have the meaning as defined in this Agreement.
When a reference is made in this Agreement to a Section, Exhibit or Schedule,
such reference shall be to a Section of, or an Exhibit or Schedule to, this
Agreement unless otherwise indicated.
(b) For all purposes hereof:
"affiliate" but not a "controlled affiliate" of any person means
--------- --------------------
another person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such first person.
"including" means including, without limitation.
---------
107
"intentional breach" means a breach arising out of or resulting from
------------------
an intentional act (or an intentional failure to act) entered into (or not
taken) with the intent to breach or with actual knowledge (of the person
entering into or not taking the action or of any other person having actual
knowledge that such action is to be taken or not taken) that a breach will
occur.
"knowledge" of Seller, or the Seller Group, means the knowledge, after
---------
due investigation (which shall not require any consultation with or review of
any documents at or with any third party other than employees, officers,
directors, advisors, counsel, accountants, representatives and agents of Seller
and all other members of the Seller Group) of any of any of the persons listed
on Schedule 9.04(b).
"operation of the Brainerd Facility" means the physical operation of
----------------------------------
the Brainerd Facility and not the conduct of the Business as carried on at the
Brainerd Facility.
"or" is not exclusive.
--
"person" means any individual, firm, corporation, partnership, limited
------
liability company, trust, joint venture, Governmental Entity or other entity.
"Purchaser Material Adverse Effect" means any state of facts, change,
---------------------------------
development, effect, condition or circumstance that has been or could reasonably
be expected to be material and adverse to the ability of Purchaser to perform
its obligations under this Agreement and the Ancillary Agreements or on the
ability of Purchaser to consummate the Acquisition and the other transactions
contemplated hereby.
"Seller Material Adverse Effect" means any state of facts, change,
------------------------------
development, effect, condition or circumstance that (a) has been or could
reasonably be expected to be material and adverse to (i) the (A) business, (B)
assets, (C) financial condition, or (D) results of operations of the Business
(other than operation of the Brainerd Facility) taken as a whole, (ii) the
ability of Seller to consummate the Acquisition and the other transactions
contemplated hereby, (iii) the ability of Seller to perform its obligations
under this Agreement or any Ancillary Agreement, (iv) the ability of Purchaser
to conduct the Business (other than operation of the Brainerd Facility)
substantially as conducted by Seller on the date of the Balance Sheet or the
Closing Date (including Purchaser's ability to (x) continue uninterrupted and
timely customer supply of products of the Business of the same quality as
previously supplied and (y) transition production at the Brainerd Facility to
other facilities), (v) the ability of Purchaser to continue to operate and use
any material Acquired Asset, (vi) the ability of Purchaser to establish in its
sole discretion the terms and conditions of employment of the Continued
Employees, but only to the extent the adverse effect on such ability was caused
by any action or failure to act (whether prior to, on or after the date hereof)
by a member of the Seller Group or any of its employees, representatives or
agents (including the entering into of any Labor Contract, other than any Labor
Agreement, or the failure to comply with any Applicable Law or Labor Contract)
or (vii) any material customer relationship of the Business or (b) has resulted
or could reasonably be expected to result in any of the prohibitions,
limitations or other requirements or consequences of the type described in
Section 6.02(d) (whether or not relating to any Proceeding). For purposes of
analyzing whether any state of facts, change, development, effect, condition or
occurrence is "material" or constitutes a "material adverse effect" or "material
adverse change" for any
108
purpose under this Agreement, (x) the analysis of materiality shall not be
limited to a long-term perspective (and whether any state of facts, change,
development, effect, condition or occurrence is or might be short-term,
temporary or cyclical in nature shall not be dispositive of its materiality),
(y) each of the matters contained in (a)(i)(A) through (a)(i)(E) above are
intended to be separate and distinct but shall be considered in light of their
impact on the ongoing Business and (z) Section 9.15(c) shall be given effect.
"subsidiary" of any person means another person, an amount of the
----------
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
person or by another subsidiary of such person.
SECTION 9.05. Counterparts. This Agreement may be executed in one or
------------
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more such counterparts have been signed
by each of the parties and delivered to the other parties.
SECTION 9.06. Entire Agreement. This Agreement, the Ancillary
----------------
Agreements and the Confidentiality Agreement, along with the Schedules and
Exhibits thereto, contain the entire agreement and understanding between the
parties hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings relating to such subject matter. Neither party
shall be liable or bound to any other party in any manner by any
representations, warranties or covenants relating to such subject matter except
as specifically set forth herein or in the Ancillary Agreements or the
Confidentiality Agreement.
SECTION 9.07. Severability. If any provision of this Agreement (or any
------------
portion thereof) or the application of any such provision (or any portion
thereof) to any person or circumstance shall be held invalid, illegal or
unenforceable in any respect by a court of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof (or the remaining portion thereof) or the application of such provision
to any other persons or circumstances.
SECTION 9.08. Consent to Jurisdiction. Each party irrevocably submits
-----------------------
to the jurisdiction of (a) the Supreme Court of the State of New York, New York
County, and (b) the United States District Court for the Southern District of
New York, for the purposes of any suit, action or other proceeding arising out
of this Agreement, any Ancillary Agreement or any transaction contemplated
hereby or thereby. Each party agrees to commence any such action, suit or
proceeding either in the United States District Court for the Southern District
of New York or if such suit, action or other proceeding may not be brought in
such court for jurisdictional reasons, in the Supreme Court of the State of New
York, New York County. Purchaser will promptly appoint CSC Corporation System as
its authorized agent and Seller will promptly appoint CT Corporation, as its
authorized agent. Each party represents and warrants that its authorized agent
will agree to act as agent for service of process, and each party agrees to take
any and all action, including, without limitation, the filing of any and all
documents and instruments, which may be necessary to establish and continue such
appointment (or appointment of a substitute authorized agent, in which case
notice of such substitution shall be given to all other parties hereto) in full
force and effect for a period of ten years from the Closing Date. Each party
agrees that any process, summons, notice or document
109
by U.S. registered mail to its authorized agent's address set forth above shall
be effective service of process for any action, suit or proceeding in New York
with respect to any matters to which it has submitted to jurisdiction in this
Section 9.08. Each party irrevocably and unconditionally waives any objection to
the laying of venue of any action, suit or proceeding arising out of this
Agreement, any Ancillary Agreement or the transactions contemplated hereby and
thereby in (i) the Supreme Court of the State of New York, New York County, or
(ii) the United States District Court for the Southern District of New York, and
hereby and thereby further irrevocably and unconditionally waives and agrees not
to plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
SECTION 9.09. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of New York
applicable to agreements made and to be performed entirely within such State,
without regard to the conflicts of law principles of such State (to the extent
that the application of the laws of another jurisdiction would be required
thereby).
SECTION 9.10. Waiver of Jury Trial. Each party hereby waives, to the
--------------------
fullest extent permitted by applicable law, any right it may have to a trial by
jury in respect to any litigation directly or indirectly arising out of, under
or in connection with this Agreement, any Ancillary Agreement or any transaction
contemplated hereby or thereby. Each party (a) certifies that no representative,
agent or attorney of any other party has represented, expressly or otherwise,
that such other party would not, in the event of litigation, seek to enforce
that foregoing waiver and (b) acknowledges that it and the other parties hereto
have been induced to enter into this Agreement and the Ancillary Agreements, as
applicable, by, among other things, the mutual waivers and certifications in
this Section 9.10.
SECTION 9.11. Power of Attorney, etc. (a) Effective upon the Closing,
----------------------
Seller hereby constitutes and appoints Purchaser and its successors, legal
representatives and assigns the true and lawful attorneys of Seller with full
power of substitution, in the name of Seller, but on behalf of and for the
benefit of Purchaser and its successors, legal representatives and assigns, and
at the expense of Purchaser: (i) to demand and receive from time to time any and
all Receivables and other items directly related to Receivables that are
included in the Acquired Assets and to make endorsements and give receipts and
releases for and in respect of the same and any part thereof; and (ii) to do all
such acts and things in relation to the matters set forth in the preceding
clause (i) as Purchaser and its successors, legal representatives or assigns
shall deem desirable. Seller hereby agrees that the appointment hereby made and
the powers hereby granted are coupled with an interest and are and shall be
irrevocable by it in any manner or for any reason. Seller shall deliver to
Purchaser at the Closing an acknowledged power of attorney to the foregoing
effect executed by Seller.
(b) Effective upon the Closing, Purchaser shall have the right to
receive and open all mail, packages and other communications addressed to any
member of the Seller Group relating to the Business, and Seller agrees promptly
to deliver to Purchaser any such mail, packages or other communications received
directly or indirectly by any member of the Seller Group. Purchaser shall
promptly deliver to Seller all mail, packages and other communications received
by it which relate to any member of the Seller Group but do not relate to the
Business.
110
SECTION 9.12. Refunds and Remittances. After the Closing, if Seller
-----------------------
receives any refund or other amount which is an Acquired Asset or related to an
Acquired Asset or is otherwise properly due and owing to Purchaser in accordance
with the terms of this Agreement, Seller shall promptly remit, or shall cause to
be remitted, such amount to Purchaser at the address set forth in Section 9.04.
After the Closing, if Purchaser or its affiliates receive any refund or other
amount which is related to claims (including workers' compensation), litigation,
insurance or other matters for which Seller is responsible hereunder, and which
amount is an Excluded Asset, Purchaser shall promptly remit, or cause to be
remitted, such amount to Seller at the address set forth in Section 9.04.
SECTION 9.13. Purchaser Guarantor. Subject to and effective only upon
-------------------
its receipt of the approval of the South African Reserve Bank, Purchaser
Guarantor agrees to cause Purchaser to comply with Purchaser's obligations
hereunder until the Closing. As of and effective automatically upon the Closing,
Purchaser Guarantor shall be released from all obligations and liabilities under
this Agreement . Purchaser Guarantor agrees to use its commercially reasonable
efforts to obtain the requisite approval of the South African Reserve Bank as
promptly as possible.
SECTION 9.14. Enforcement of Agreement; Limitation on Damages. (a)
-----------------------------------------------
Each party acknowledges and agrees that the other party would be irreparably
damaged if any of the provisions of this Agreement are not performed in
accordance with their specific terms and that any breach of this agreement by
Seller could not be adequately compensated in all cases by monetary damages
alone. Accordingly, in addition to any other right or remedy to which any party
may be entitled, at law or in equity, it shall be entitled to enforce any
provision of this Agreement by a decree of specific performance and to
temporary, preliminary and permanent injunctive relief to prevent breaches or
threatened breaches of any of the provisions of this Agreement, without posting
any bond or other undertaking.
(b) IF THE CLOSING DOES NOT OCCUR (WHETHER OR NOT THIS AGREEMENT IS
TERMINATED PURSUANT TO SECTION 7.01), (I) NO PARTY HERETO SHALL BE ENTITLED TO
RECOVER ANY CONSEQUENTIAL DAMAGES IN RESPECT OF A BREACH BY ANY OTHER PARTY
HERETO, EXCEPT IN RESPECT OF AN INTENTIONAL BREACH OR GROSSLY NEGLIGENT BREACH
BY SUCH OTHER PARTY AND (II) NO PARTY HERETO SHALL HAVE ANY LIABILITY HEREUNDER
IN EXCESS OF $150,000,000 IN THE AGGREGATE, EXCEPT IN RESPECT OF AN INTENTIONAL
OR GROSSLY NEGLIGENT BREACH.
SECTION 9.15. Schedules; Disclosure. (a) The information in the
---------------------
Schedules constitutes (i) exceptions to particular representations, warranties,
covenants and obligations of Seller as set forth in this Agreement or (ii)
descriptions or lists of assets and liabilities and other items referred to in
this Agreement. If there is any inconsistency between the statements in this
Agreement and those in the Schedules (other than an exception expressly set
forth as such in a Schedule with respect to a specifically identified
representation or warranty), the statements in this Agreement will control.
(b) The statements in the Schedules, and those in any supplement
thereto, relate only to the provisions in the Section or, subject to Section
3.08(d), subsection of
111
this Agreement to which they expressly relate and not to any other provision in
this Agreement.
(c) For purposes of analyzing whether any particular representation or
warranty made to a party has been breached (including for purposes of analyzing
such party's rights under Article VI or Article VIII) or analyzing the
conditions under Article VI to a party's obligations hereunder (including, in
each case, for purposes of analyzing whether any state of facts, change,
development, effect, condition or occurrence is "material" or constitutes a
"material adverse effect" or "material adverse change"), such party shall be
deemed to have no knowledge of (i) with respect to any particular representation
or warranty made to such party, any state of facts, change, development, effect,
condition or occurrence that is not disclosed in the Schedule (or subsection of
a Schedule) that expressly relates to such representation or warranty and (ii)
otherwise, any information other than the representations and warranties made to
such party contained in this Agreement, any Ancillary Agreement or any document
delivered in connection herewith.
112
IN WITNESS WHEREOF, Seller, Purchaser and Purchaser Guarantor (as to
Section 9.13 only) have duly executed this Agreement as of the date first
written above.
POTLATCH CORPORATION,
By /s/ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------
Name: ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Chairman and Chief Executive
Officer
NORTHERN HOLDINGS LLC,
By /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President and CEO
SAPPI LIMITED, as Purchaser Guarantor
and only with respect to Article IV and
Section 9.13
By /s/ ▇▇▇▇▇▇ van As
---------------------------
Name: ▇▇▇▇▇▇ van As
Title: Executive Chairman