GLOBAL CLAIMS RELEASE AND INSURER
SETTLEMENT AGREEMENT
THIS GLOBAL CLAIMS RELEASE AND INSURER
SETTLEMENT AGREEMENT (hereinafter, the “Agreement”) is made,
effective as of the latest date written at the end hereof, between
John Rudey, Aubrey L. Cole, George R. Hornig, Robert F. Wright,
Alan B. Abramson and William A. Wyman (hereinafter, collectively,
the “Insured Individuals”), U.S. Timberlands Klamath
Falls, LLC n/k/a Inland Fiber Group, L.L.C. (“Klamath”
or “the Company”), U.S. Timberlands Finance Corp. n/k/a
Fiber Finance Corp. (“FFC”), U.S. Timberlands Yakima,
LLC n/k/a American Forest Resources, L.L.C. (“Yakima”),
and U.S. Timberlands Services Company, LLC n/k/a Timber Resource
Services, LLC (hereinafter, collectively, the “Insured
Entities”), and AIG Domestic Claims, Inc., on behalf of
American International Specialty Lines Insurance Company
(hereinafter, “AISLIC”) and The Travelers Indemnity
Company, as successor in interest by merger to Gulf Insurance
Company (hereinafter, “Gulf”). (Gulf and AISLIC
are collectively referred to herein as “the
Insurers”).
RECITALS
WHEREAS , AISLIC has issued on behalf of Klamath a Directors,
Officers and Corporate Liability/General Partners & Limited
Partnership Liability Insurance Policy Number 518-70-63, with a
policy period of September 29, 2003 to October 1, 2004, with a
coverage limit of $10,000,000.00 (hereinafter, the “AISLIC
Primary Policy”);
WHEREAS , Gulf has issued on behalf of Klamath an Excess
Directors, Officers and Corporate Liability/General Partners &
Limited Partnership Liability Insurance Policy Number GA8578509,
with a policy period of September 29, 2003 to October 8, 2004, with
a coverage limit of $10,000,000.00, which Policy is excess of the
AISLIC Primary Policy (hereinafter, the “Gulf Excess
Policy”);
WHEREAS, Gulf continues to reserve its position that Yakima is
not an insured under the Gulf Excess Policy;
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WHEREAS , the Indenture Trustee (the “Trustee”)
for the $225,000,000 Senior Notes issued by Klamath (the
“Senior Notes”) filed an action styled U.S. Bank
National Assoc., in its capacity as Indenture Trustee and not in
its individual capacity v. U. S. Timberlands Klamath Falls, LLC
n/k/a Inland Fiber Group, L.L.C., et al. , C. A. No. 112-N
(hereinafter, the “Action”), in the Court of
Chancery of the State of Delaware in and for New Castle County (the
“Chancery Court”) on or about December 12, 2003
against, among others, the Individual Insureds and the Insured
Entities (collectively, the “Insured
Defendants”);
WHEREAS , AISLIC and Gulf have received notice of the Action
on behalf of the Insured Defendants under the AISLIC Primary Policy
and under the Gulf Excess Policy, respectively;
WHEREAS , the Insured Defendants have made claims under the
AISLIC Primary Policy for reimbursement, or payment, of their
“Loss” (as such term is defined in the Policy)
resulting from the Action, and the Insured Defendants anticipate
claims under the Gulf Excess Policy upon exhaustion of the AISLIC
Primary Policy;
WHEREAS, Alan B. Abramson, Aubrey L. Cole, George R. Hornig,
Robert F. Wright and William A. Wyman (hereinafter, collectively,
the “Outside Directors”) and the Trustee have entered
into a memorandum of understanding dated December 12, 2005, with
the consent of AISLIC, Gulf and the remaining Insured Defendants,
and have negotiated definitive settlement documentation related
thereto (the “Chancery Court Settlement”), but have
chosen not to present such definitive settlement documentation to
the Court of Chancery at this time in order to further the
potential consummation of a global settlement among all parties to
the Action;
WHEREAS, the Insured Defendants have negotiated and intend to
enter into on or about August 14, 2006 a Settlement Agreement with
the Trustee in the form attached hereto as Exhibit “A,”
for a Global Settlement of the Action against all of the Insured
Defendants (the “Global Settlement
Agreement”);
2
WHEREAS, the Outside Directors have negotiated and intend to
enter into on or about August 14, 2006 a Settlement Agreement with
the Trustee, Klamath and FFC in the form attached hereto as Exhibit
“B,” providing for a settlement of the Action against
all the Outside Directors (the “Outside Director Settlement
Agreement”);
WHEREAS , pursuant to the terms of the attached Global
Settlement Agreement, subject to certain conditions, the parties to
the Global Settlement Agreement shall file with the United States
Bankruptcy Court for the District of Delaware (the
“Bankruptcy Court”): (i) the Joint Plan of
Reorganization of Debtors Inland Fiber Group, LLC, and Fiber
Finance Corp. (the “Plan,” a copy of which is annexed
to the Global Settlement Agreement as Exhibit A); and (ii) a motion
seeking conditional approval of the Outside Director Settlement
Agreement under Rule 9019 of the Federal Rules of Bankruptcy
Procedure;
WHEREAS , the terms “Confirmation Date” and
“Effective Date” as used herein shall have the meanings
set forth in Article I, Definitions, of the Plan, provided,
however, that solely for purposes of this Agreement, neither the
Confirmation Date nor the Effective Date shall be deemed to have
occurred unless the Plan that is confirmed by the Bankruptcy Court
contains release language with respect to the Outside Directors
that is not materially different from that contained in the form of
the Plan attached as Exhibit A to the Global Settlement Agreement
and adverse to the Outside Directors, unless such modification to
the release language is consented to in writing by the Outside
Directors;
WHEREAS, the term “Scheduling Date” means the date
on which C. Barr Flinn provides written notice to AISLIC and Gulf
of the scheduled Effective Date, which notice shall be provided
four (4) business days in advance of the scheduled Effective Date,
and which notice shall specify the scheduled date of the Effective
Date and provide instructions for distribution of the AISLIC
Settlement Payment and the Gulf Settlement Payment, and shall also
provide AISLIC and Gulf with a copy of the stipulation of
discontinuance of the Action with prejudice provided by counsel for
the Trustee as well as the stipulation of discontinuance of the
Related Action with prejudice;
WHEREAS, the Insured Defendants will provide AISLIC and Gulf
on the Effective Date with confirmation of the receipt of funding
from other sources for the Global Settlement prior to the transfer
of any funds of AISLIC or Gulf being made to the Trustee on the
Effective Date;
3
WHEREAS, AISLIC, subject to reservation of rights letters
issued on March 24, 2004 and July 9, 2004, has made payments
through July 18, 2006 of approximately $4,393,950.87 for Defense
Costs (as defined in the AISLIC Primary Policy) incurred in the
defense of the Insured Defendants in the Action;
WHEREAS, Gulf has issued reservation of rights letters dated
June 8, 2005, January 12, 2006 and January 31, 2006 with respect to
its obligations under the Gulf Excess Policy for the claims
asserted in the Action;
WHEREAS , AISLIC has previously entered into a Claims Release
and Settlement Agreement with the Outside Directors, with the
consent of Gulf and the remaining Insured Defendants, pursuant to
which AISLIC committed to pay $5,200,000.00 from the proceeds of
the AISLIC Primary Policy to fund a settlement respecting the
Outside Directors;
WHEREAS , all parties desire to proceed with the Global
Settlement Agreement of the claims asserted against all Insured
Defendants in the Action;
WHEREAS , the term “Outside Director Settlement Trigger
Date” as used herein shall mean the first date on which both
of the following have occurred: (a) an order of the
Bankruptcy Court approving the Outside Director Settlement
Agreement has become final and non-appealable; and (b) either (i)
the Bankruptcy Court has confirmed a Plan that contains release
language with respect to the Outside Directors that is materially
different from that contained in the form of the Plan attached as
Exhibit A to the Global Settlement Agreement and adverse to the
Outside Directors, and such modifications to the release language
are not consented to in writing by the Outside Directors, or (ii)
the Global Settlement Agreement is terminated;
WHEREAS, the term “Chancery Settlement Submission
Trigger Date” as used herein shall mean the first date on
which both of the following have occurred: (a) the Outside
Director Settlement Agreement is terminated; and (b) either (i) the
Bankruptcy Court has confirmed a Plan that contains release
language with respect to the Outside Directors that
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is materially different from that
contained in the form of the Plan attached as Exhibit A to the
Global Settlement Agreement and adverse to the Outside Directors,
and such modifications to the release language are not consented to
in writing by the Outside Directors, or (ii) the Global Settlement
Agreement is terminated:
WHEREAS, the term “Chancery Settlement Effective
Date” shall mean the date on which an Order of the Chancery
Court approving the Chancery Court Settlement has become final and
non-appealable;
WHEREAS, AISLIC, Gulf and the Insured Defendants are desirous,
if the Outside Director Settlement Trigger Date occurs, of
resolving all of the claims asserted against the Outside Directors
in the Action, and whereas the Outside Directors have reached
agreements with AISLIC and Gulf on the payments to be made by
AISLIC toward funding of the Outside Director Settlement
Agreement;
WHEREAS, AISLIC, Gulf and the Insured Defendants are desirous
of resolving all of the claims asserted against all of the Insured
Defendants in the Action, and whereas the Insured Defendants have
reached agreements with AISLIC and Gulf on the payments to be made
by AISLIC and Gulf toward funding of the proposed Global Settlement
of the Action;
WHEREAS , AISLIC and the Insured Defendants desire a complete
resolution of all existing and potential claims and questions that
have arisen or that may arise between and among them with respect
to the Action and with respect to AISLIC’s obligations under
the AISLIC Primary Policy;
WHEREAS , Gulf and the Insured Defendants desire a complete
resolution of all existing and potential claims and questions that
have arisen or that may arise between and among them with respect
to the Action and with respect to Gulf’s obligations under
the Gulf Excess Policy; and
WHEREAS , to facilitate the complete resolution of all such
existing and potential claims and questions, counsel for the
Insured Defendants will provide notice to AISLIC and to Gulf of:
i) the Confirmation Hearing Date scheduled
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by the Bankruptcy Court as soon as
practicable, but in no event later than three (3) business days
from the receipt of notice of scheduling of the Confirmation
Hearing Date; ii) the Scheduling Date, which shall be at
least four (4) business days in advance of the scheduled Effective
Date, which notice shall specify the scheduled date of the
Effective Date and provide instructions for distribution on the
scheduled Effective Date of the AISLIC Settlement Payment and the
Gulf Settlement Payment, and shall also provide AISLIC and Gulf
with a copy of the stipulation of discontinuance with prejudice of
the Action provided by counsel for the Trustee and a copy of the
stipulation of discontinuance with prejudice of the Related Action;
or iii) the termination of the Global Settlement Agreement as soon
as practicable, but in no event later than three (3) business days
from the date of such termination.
AGREEMENT
NOW, THEREFORE , in consideration of the respective representations,
covenants, undertakings, terms and conditions hereinafter set
forth, as well as other good and valuable consideration, the
receipt of which is hereby acknowledged, the Insured Defendants,
AISLIC and Gulf hereby agree as follows:
1. Confidentiality: The existence
and terms of this Agreement are confidential, and the parties
hereto agree to maintain the confidentiality of the Agreement and
each of its provisions, except as otherwise required by law or
legal process and except that AISLIC, Gulf and the Insured
Defendants: (i) may notify the Bankruptcy Court and Chancery
Court, as well as excess insurers and reinsurers, of the existence
and terms of this Agreement; (ii) upon the request of any other
court, may inform such court of the existence and terms of this
Agreement; and (iii) may provide information contained in this
Agreement to their respective accountants, attorneys, auditors and
regulators.
2. Payment by AISLIC : Following
AISLIC’s receipt of advance notice of the Confirmation
Hearing Date scheduled by the Bankruptcy Court as set forth above,
and in consideration of the Release given by the Insured Defendants
pursuant to Paragraph 5 below, within two (2) business days
following the Confirmation Date, AISLIC will deposit in an escrow
account maintained by its counsel, D’Amato & Lynch
(“D&L”) at the offices of D’Amato
&
6
Lynch located at 70 Pine Street, New
York, New York, the balance of the proceeds of the AISLIC Primary
Policy (the “AISLIC Settlement Payment”). D&L
shall hold in the AISLIC Escrow Account the AISLIC Settlement
Payment until AISLIC and D&L receive notice of the scheduled
Effective Date (which notice shall state the scheduled Effective
Date and provide instructions for disbursement of the AISLIC
Settlement Payment). Provided that AISLIC has received notice
of the scheduled Effective Date, AISLIC shall cause D&L to make
all reasonable arrangements to ensure that the AISLIC Settlement
Payment is disbursed on the scheduled Effective Date, pursuant to
the written instructions of C. Barr Flinn, as approved in writing
by Srinivas M. Raju and Joel Friedlander, in compromise and final
settlement of all claims that the Insured Defendants may have under
the AISLIC Primary Policy, as further set forth in the Release at
Paragraph 5 hereof.
In the event the Outside Director
Settlement Trigger Date occurs, then the AISLIC Settlement Payment
shall continue to be held either by AISLIC or by D&L for
funding the Outside Director Settlement Agreement annexed hereto as
Exhibit B pursuant to the terms of Paragraph 14 hereof.
In the event that the Effective Date does
not occur and the Outside Director Settlement Agreement is
terminated, then the AISLIC Settlement Payment shall continue to be
held by AISLIC or D&L for funding the Chancery Court Settlement
annexed hereto as Exhibit C pursuant to the terms of paragraph 14
hereof.
Any interest earned on the AISLIC
Settlement Payment while such funds are held in escrow at D&L
shall revert to AISLIC.
3. Disbursements from the AISLIC
Primary Policy for Legal Fees of the Insured Defendants
: The parties hereto acknowledge
that disbursements from the AISLIC Primary Policy may be required
to be paid prior to the Confirmation Date for reimbursement of
reasonable Defense Costs incurred by the Insured Defendants.
Invoices for Defense Costs incurred by the Insured Defendants
subsequent to the date of this Agreement shall be provided promptly
to AISLIC and Gulf, and Gulf shall review any such invoices and
advise the Insured Defendants to the extent that Gulf agrees that
the billed amounts constitute reasonable Defense Costs. The
Insured Defendants agree that, for so long as they have or may have
incurred such reasonable Defense Costs, all such future payments
may be made under the
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AISLIC Primary Policy, but only with the
written consent of Gulf and of all Insured Defendants, which
consent shall not unreasonably be withheld, and only to the extent
that the earmarked amount of $5,200,000.00 (the “Earmarked
Amount”) for either the Outside Director Settlement Agreement
or the Chancery Court Settlement is not used for reimbursement of
Defense Costs.
4. Advancement of Outside Directors’
Legal Fees: Gulf acknowledges that the limits of
liability under the AISLIC Primary Policy shall be exhausted when
AISLIC makes payments totaling $10,000,000.00 under the AISLIC
Primary Policy, regardless of whether those payments are made as
reimbursement of Defense Costs, contribution to the Global
Settlement, or contribution to the Outside Director Settlement
Agreement or th
