AMENDED AND RESTATED FIBER SUPPLY AGREEMENT

 

EXECUTION COPY

 

AMENDED AND RESTATED FIBER SUPPLY AGREEMENT

 

THIS AMENDED AND RESTATED FIBER SUPPLY AGREEMENT, (this “Agreement”) dated as December 16, 2005, by and among CYPRESS CREEK, LLC (“Seller”) and WICKLIFFE PAPER COMPANY, a Delaware corporation (“Buyer”), amends and restates the Fiber Supply Agreement, dated as of May 2, 2005 (the “Original Agreement”), by and between ESCANABA TIMBER LLC, a Delaware limited liability company, (“Escanaba Timber”) and Buyer.

 

RECITALS

 

WHEREAS, Escanaba Timber and Buyer entered into the Original Agreement, pursuant to which Escanaba Timber sold and Buyer purchased wood fiber located on certain timberlands owned by Escanaba Timber;

 

WHEREAS, Escanaba Timber and E&C Land Co., LLP, a Kentucky limited liability partnership (“E&C”), an affiliate of Seller, have entered into a Real Estate Purchase and Sale Agreement (the “Sale Agreement”), dated as of November 10, 2005, pursuant to which, subject to the terms and conditions thereof, Escanaba Timber has agreed to sell and E&C has agreed to purchase all of the Timberlands as described in the Sale Agreement;

 

WHEREAS, one of the conditions to the consummation of the purchase and sale contemplated by the Sale Agreement is the assignment and assumption of all of Escanaba Timber’s rights and obligations under the Original Agreement to Seller and the amendment and restatement of the Original Agreement as provided herein, in each case effective as of the closing of the transactions contemplated by the Sale Agreement;

 

NOW, THEREFORE, in consideration of the mutual covenants described in this Agreement and other good and valuable consideration the receipt and sufficiency of which are acknowledged, Seller and Buyer hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Whenever used in this Agreement, the following terms shall have the respective meanings given to them in the provisions thereof indicated below:

 

“ AAA ” shall have the meaning provided in Section 10.14(a).

 

“ AF&PA ” shall have the meaning provided in the definition of “Sustainable Forest Practice Standards”.

 

 

“ Agreement ” shall have the meaning provided in the opening paragraph of this Agreement.

 

“ Annual Plan ” shall have the meaning provided in Section 2.2(a).

 

“ Annual Volumes ” shall have the meaning provided in Section 2.2(c).

 

“ Assumed Volume ” shall have the meaning provided in Section 10.2(b).

 

“ Base Price Adjustment Date ” shall mean January 1, 2006, and each subsequent second anniversary from such date during the Term of this Agreement.

 

“ Calendar Year ” means a full year beginning on January 1 and continuing through December 31 thereof.

 

“ Delivery Distance ” means the trucking distance between Seller’s harvest site and the Buyer’s delivery location (which delivery location is within the Market Region).

 

“ Fair Market Timber Value ” shall mean the then current fair market value of a Product as mutually determined by Buyer and Seller.  If Buyer and Seller are unable to reach mutual determination, then the applicable Fair Market Timber Value shall be determined in accordance with the Fair Market Timber Value Mechanism.

 

“ Fair Market Timber Value Mechanism ” shall mean the following procedure used to determine the Fair Market Timber Value of each type of Qualifying Timber hereunder.  Either Seller or Buyer may initiate commencement of the Fair Market Timber Value Mechanism by notice to the other (a “Mechanism Notice”).  Not later than ten (10) days following receipt of a Mechanism Notice, Seller and Buyer shall agree on the Valuation Consultant.  Not later than thirty (30) days following selection of the Valuation Consultant, each of Seller, Buyer and the Valuation Consultant shall submit to the others not less than six (6) Qualifying Sales relating to the then applicable Fair Market Timber Value determination.  The Fair Market Timber Value of the Qualifying Timber at issue shall be (a) the sum of (i) the average price per ton of all Qualifying Sales submitted by Seller, plus (ii) the average price per ton of all Qualifying Sales submitted by Buyer, plus (iii) the average price per ton of all Qualifying Sales submitted by the Valuation Consultant, (b) divided by three.

 

“ Force Majeure ” shall have the meaning provided in Section 2.3(a).

 

“ Force Majeure Period ” shall have the meaning provided in Section 2.3(c).

 

“ Hardwood Pulpwood ” means pulpwood from hardwood species of timber.

 

“ KY bottomlands ” shall mean all Timberlands located in Ballard, Carlisle, Fulton and Hickman Counties, Kentucky.

 

“ KY uplands ” shall mean all Timberlands owned by Seller and located in Crittendon, Livingston, Lyon and Trigg Counties, Kentucky.

 

 

 “ Liens ” shall have the meaning provided in Section 6.2(b).

 

“ Losses ” shall have the meaning provided in Section 6.2(b).

 

“ Market Region ” shall mean all areas which are located within one hundred forty (140) miles of the Mill.

 

“ Mill ” shall mean Buyer’s pulp and paper mill located in Wickliffe, Kentucky.

 

“ Minimum Volumes ” shall have the meaning provided in Section 2.2(b).

 

“ Natural Hardwood ” means Hardwood Pulpwood from timber stands that are naturally regenerated.

 

“ New Owner ” shall have the meaning provided in Section 10.2(b).

 

“ Objection Notice ” shall have the meaning provided in Section 10.2(b).

 

“ Past Due ” shall have the meaning provided in Section 4.4.

 

“ Person ” shall have the meaning provided in Section 10.1(b).

 

“ Pine Pulpwood ” shall mean pulpwood from pine species of timber.

 

“ Plantation Hardwood ” means Hardwood Pulpwood from timber stands that are artificially regenerated.

 

“ Products ” means Pine Pulpwood and Hardwood Pulpwood.

 

“ Product Price ” shall mean the per ton price for each Product as set forth on Schedule 4.1(a) attached hereto (the “ Base Price ”) adjusted up or down on a quarterly basis beginning January 1, 2006.  An example of the quarterly price adjustment mechanism is set forth on Schedule 4.1(b) to this Agreement.  On each Base Price Adjustment Date during the Term of this Agreement, the Base Price for the applicable Product shall be adjusted to equal the Fair Market Timber Value for such Product on the applicable Base Price Adjustment Date.  On each such Base Price Adjustment Date a new “Base Price” shall be used in determining the Product Price with respect to each Product until the Base Price is adjusted on the next Base Price Adjustment Date.

 

“ Product Specifications ” shall have the meaning provided in the introductory paragraph of Article II.

 

“ Pulpwood ” means Hardwood Pulpwood and Pine Pulpwood.

 

“Qualifying Sales” shall mean per unit (as opposed to lump sum) sales of the type of Qualifying Timber at issue made during the six months immediately prior to the six month period in which the applicable Base Price Adjustment Date occurs, provided such sales (i) are made within the Market Region, and (ii) involve not less than 2,000 tons of the type of Qualifying Timber at issue as to each such sale.

 

 

“ Qualifying Timber ” shall mean Products which meets or exceeds the specifications set forth in Schedule 2.1 to this Agreement.

 

“ Sustainable Forest Practice Standards ” shall mean practices substantially in compliance with standards substantially similar to the Sustainable Forestry Initiative of the American Forest and Paper Association (the “AF&PA”) as those standards may be modified by AF&PA from time to time.

 

“ Term ” shall have the meaning provided in Section 5.1.

 

“ Timberlands ” shall mean all timberland properties purchased by Seller under the Sale Agreement (defined in the foregoing recitals) and located in the States of Illinois, Missouri and Ballard, Carlisle, Crittendon, Fulton, Hickman, Livingston, Lyon and Trigg Counties, Kentucky.

 

“ TMS ” shall mean the publication known as Timber Mart South, or in the event TMS is no longer published, a comparable publication mutually acceptable to Seller and Buyer.

 

“ Transfer ” shall mean any sale, lease, conveyance, exchange, assignment, hypothecation, disposition, foreclosure or other transfer (excluding the granting of a mortgage or other security agreement), directly or indirectly (whether by agreement, operation of law or otherwise), of all or any portion of the Timberlands.

 

“ Valuation Consultant ” shall mean either Sizemore & Sizemore of Tallassee, Alabama or Larson & McGowin of Mobile, Alabama, or if such firms are no longer in existence, another reputable, professionally qualified Person meeting all of the following criteria.  Such Person (i) is not an “Affiliate” (as defined in Section 10.1 (b) below) of either Seller or Buyer, (ii) during the past two (2) years has not transacted substantial business with either Seller or Buyer, and (iii) does not have less than five (5) years experience relating to sales of timber within the Market Region.  If Seller and Buyer are unable to agree on the Valuation Consultant, an arbitrator selected pursuant to Section 10.14 below shall select such Valuation Consultant.  Seller and Buyer shall provide to the Valuation Consultant such information as the Valuation Consultant shall reasonably request to facilitate the determinations to be made by the Valuation Consultant hereunder.

 

“ Zone ” shall mean the zone designated in TMS as Tennessee Area 2.

 

ARTICLE II

 

PURCHASE OF PRODUCTS

 

Section 2.1              Purchase of Softwood Pulpwood and Hardwood Pulpwood .  Seller agrees to sell, and Buyer agrees to purchase, receive and pay for, in each calendar year (a “Calendar Year”), the Annual Volumes, as defined herein, of Pine Pulpwood and Hardwood Pulpwood.  All Pine Pulpwood and Hardwood Pulpwood purchased pursuant to this Agreement shall satisfy, respectively, the specifications for the Products set forth in Schedule 2.1, as may be modified from time to time in accordance

 

 

with Section 2.2 (the “Product Specifications”).  For the purposes of this Agreement, a ton shall weigh two thousand (2,000) pounds.

 

Section 2.2              Modification of Specifications. .  Buyer may, from time to time, and upon at least two (2) months prior written notice to Seller, reasonably modify any of the Product Specifications that Buyer applies to substantially all of its Product suppliers to the Mill.  Buyer shall not modify the Product Specifications to set higher standards for Seller than for any such other Products suppliers.  All Products sold by Seller to Buyer following the date the new specifications become effective shall satisfy such modified Product Specifications.  If Product Specifications are modified to set higher standards, the Annual Volumes shall be adjusted downward as deemed reasonably necessary by Seller, and subject to Buyer’s reasonable approval, as a result of said higher standards.

 

Section 2.3              Annual Plan.

 

(a)            Seller shall on the date hereof and prior to September 1 of each Calendar Year during the Term, complete and submit to Buyer a written delivery plan with respect to the Products to be made available for purchase by Buyer during the next Calendar Year (the “Annual Plan”).  Said Annual Plan shall include estimates of delivery of the Products by Delivery Distances, month and accumulated into estimated quarterly deliveries.  The Annual Plan shall set forth the quantity of Products Seller intends to make available to Buyer during the next Calendar Year, said quantities to be subject to the terms of Article III.

 

(b)            Subject to Seller’s obligation to offer at least the minimum volumes required to be offered to Buyer pursuant to Section 3.1 below (the “Minimum Volumes”):  (i) all Pulpwood volumes projected to be harvested from the Timberlands in the applicable Calendar Year shall be made available in said Annual Plan for Calendar Years 2006 through 2010; (ii) ninety percent (90%) of all Pulpwood volumes projected to be harvested from the Timberlands in the applicable Calendar Year shall be made available in said Annual Plan for Calendar Years 2011 through 2013; and (iii) eighty-five percent (85%) of all Pulpwood volumes projected to be harvested from the Timberlands in the applicable Calendar Year shall be made available in said Annual Plan for Calendar Years 2014 through 2016, and, if the Term is extended pursuant to Section 5.2 below, for Calendar Years 2017 through 2019.

 

(c)            Buyer shall within 30 days of receipt of said Annual Plan confirm with Seller the volumes of the Products Buyer agrees to purchase from Seller during the next Calendar Year; provided, however, that unless Seller agrees otherwise, Buyer must agree to purchase at least ninety percent (90%) of the volumes set forth in the Annual Plan.  Said agreed upon volumes shall then become in the aggregate the “Annual Volumes” Buyer agrees to purchase and Seller agrees to deliver in the next Calendar Year.

 

(d)            Following adoption of each Annual Plan (or as adjusted according to Section 2.3(c) above), the parties shall act in good faith and each use their

 

 

respective commercially reasonable efforts to implement such Annual Plan in accordance with its terms.  Products shall be delivered throughout the Calendar Year in accordance with the Annual Plan for such year; provided , however , that during any Calendar Year, Seller may vary its deliveries, and Buyer may vary its purchases of Products, subject to Section 4.2 herein, as long as variations in delivery are immaterial and will not impair the operations of the Mill or the operations of Seller on the Timberlands.

 

Section 2.4              Force Majeure. 

 

(a)            For the purposes of this Agreement, the term “Force Majeure” means any cause, condition or event beyond Buyer’s and/or Seller’s reasonable control that delays or prevents either party’s performance of its obligations hereunder, including war, acts of terrorism (which shall not include civil demonstrations), acts of government, acts of public enemy, riots, lightning, fires, explosions, storms, floods, infestation, power failures, other acts of God or nature, labor strikes or lockouts by employees, or other disputes involving either party, adverse financial or market conditions, an involuntary ceasing of operations at the Mill for a minimum of thirty (30) consecutive days, and other similar events or circumstances; provided, however, that “Force Majeure” shall not include (i) a party’s financial inability to perform (unless such inability is caused by a general suspension of payments by banks in the United States), or (ii) an act, omission or circumstance arising from the negligence or willful misconduct of the party claiming that a Force Majeure event has occurred.  The parties shall use commercially reasonable efforts to mitigate the effects of the Force Majeure, and if the cause of Force Majeure can be minimized or remedied, both parties shall use reasonable best efforts to do so promptly.

 

(b)            Subject to the provisions of this Section 2.3, neither party shall be liable hereunder for a delay in or failure of performance of its obligations hereunder that is caused by Force Majeure.  If Force Majeure results in a reduction, but not a complete cessation, of Buyer’s operations in connection with this Agreement, Buyer shall not reduce its purchases of any Product from Seller in greater proportion than the reduction in Buyer’s purchases of any such Products from all its suppliers of pulpwood to the Mill.  Notwithstanding anything contained in this Agreement to the contrary, Force Majeure (other than a general suspension of payments by banks in the United States) shall not excuse Buyer from its obligation to pay, pursuant to the terms of this Agreement, Seller for any quantity of Product delivered by Seller.

 

(c)            The quantity of any Product otherwise required to be purchased or delivered hereunder shall be reduced as a result of Force Majeure for the period during which such Force Majeure is in effect and continuing (such period, the “Force Majeure Period”), based on the respective quantity for each Calendar Year in which such Force Majeure is in effect, prorated (if applicable) for the portion of such year constituting all or part of such Force Majeure Period.  If the Force Majeure Period is less than 15 days, (i) Buyer shall be required to purchase the volume of Products not purchased during the Force Majeure Period within the next 180 days following the end of the Force Majeure Period, and (ii) Seller shall be required to make available the volume of Products not delivered during the Force Majeure Period within the next 180 days

 

 

following the end of the Force Majeure Period.  If the Force Majeure Period is more than 14 days, Buyer shall not be required to purchase the volume of Products not purchased during the Force Majeure Period, and Seller shall not be required to make available the volume of Products not delivered during the Force Majeure Period.  Notwithstanding anything contained in this Agreement to the contrary, Seller shall have the right, but not the obligation, to sell that quantity of the Product Buyer is unable to purchase because of Force Majeure to any third party purchaser or purchasers in the event Force Majeure prevents Buyer from performing hereunder.

 

(d)            Force Majeure shall not relieve a party of its obligations or liability hereunder unless such party shall give notice (including a reasonable description of such Force Majeure) to the other party as soon as reasonably possible and in any event within fifteen (15) days after the occurrence of such Force Majeure.  Upon request, the party whose obligations were suspended shall provide the other party with a plan for remedying the effects of such Force Majeure.  The party prevented from performing by Force Majeure shall keep the other party advised by written notice of all matters affecting such Force Majeure, and the extent of the delay by reason thereof.  Such party shall notify the other party in writing of the termination of such Force Majeure within ten (10) days after such termination.

 

ARTICLE III

 

QUANTITY AND PRODUCT MIX

 

Section 3.1              Minimum Volumes by Calendar Year .  With respect to the Products to be purchased by Buyer hereunder, Seller shall make available to Buyer in the applicable Annual Plan the following Minimum Volumes of Products for each Calendar Year during the Term of this Agreement:

 

(a)            2006 – 2016 .  For the Calendar Years beginning January 1, 2006 and ending December 31, 2016, not less than the volumes in thousands of tons by year in the following table:

 

Year Source		2006		2007		2008		2009		2010		2011		2012		2013		2014		2015		2016
(i)Plantation Hardwood		50		30		30		30		25		25		25		25		25		25		25
(ii) Pine Pulpwood		30		30		30		30		30		30		30		30		30		30		30
(iii) Natural Hardwood		11		11		11		11		10		8		7		2		2		2		2

 

 

(b)            2017 – 2019 - To the extent Buyer exercises its option to extend the Term pursuant to Section 5.2 below, for Calendar Years beginning January 1, 2017 and ending December 31, 2019, the mix of Products Seller shall make available to Buyer shall be as follows:

 

 

Section 3.2              Adjustments to Product Mix.

 

Seller and Buyer acknowledge and agree that Seller may from time to time request modifications to the Product mix set forth above during any Calendar Year as a result of its temporary inability to satisfy such Product mix due to adverse weather or similar conditions.  So long as the aggregate total volume of all Products required to be delivered for the Calendar Year is not reduced, and so long as the Buyer’s operations would not be adversely affected in any material respect as a result thereof, Buyer agrees to grant such requests.

 

Section 3.3              Harvest Volume Variances.

 

Following the submission by the Seller of the Annual Plan for a given Calendar Year in accordance with Section 2.2(a), Seller and Buyer shall be deemed to have satisfied the volume requirements of Section 3.1(a) in respect of such Calendar Year regardless of whether Buyer actually receives the volumes contemplated by Section 3.1(a) where harvesting shortfalls arise from (i) variances between actual timber volume and the inventory volumes of such timber tracts used to calculate the volumes in the Annual Plan; or (ii) operational constraints associated with Seller’s adherence to Sustainable Forestry Practice Standards or applicable Forestry Best Management Practices, whether voluntary or as promulgated by the applicable Department of Agriculture Division of Forestry or any successor agency or standards thereto. In the event that Buyer’s harvest volumes exceed the minimum volume requirements for any Harvest Year as specified in Section 3.1(a), such excess harvest volume shall directly offset the corresponding volume requirement for the subsequent Calendar Year.

 

ARTICLE IV

 

PRICE AND DELIVERY TERM

 

Section 4.1              Prices. 

 

(a)            The initial Product Prices shall be as set forth in Schedule 4.1(a).  Products delivered by Seller to Buyer will be paid for at the Product Prices outlined in Schedule 4.1(a), as adjusted pursuant to Section 4.1(b), based on the Delivery Distance.  Such Product Prices for the Pulpwood Products shall be adjusted on a quarterly basis throughout the Term beginning as of January 1, 2006 based on the adjustment mechanism set forth in Section 4.1(b).

 

 

(b)            The Product Prices for the Products set forth on Schedule 4.1 (a) shall be adjusted as provided in the definition of Product Prices herein, and based on the formula set forth on Schedule 4.1(b) attached hereto.

 

(c)            In addition to the other amounts payable hereunder, in the event Buyer pays any amounts to any pulpwood supplier to the Mill for fuel adjustments or snow bonuses, Buyer shall make comparable and contemporaneous payments to Seller.

 

Section 4.2              Pay or Take. 

 

(a)            Seller agrees to sell and deliver, subject to Force Majeure and Section 3.3, and Buyer agrees to purchase, subject to Force Majeure and Section 3.3, the Annual Volumes of Products to be produced under the direction of Seller during each Calendar Year as determined in Article II.  If for any Calendar Year, Seller fails for any reason other than Force Majeure to tender to Buyer at least ninety percent (90%) of the designated Annual Volumes of Products, Seller will pay Buyer at a rate of $15.00 per ton multiplied by the difference between (x) ninety percent (90%) of the Annual Volumes of Products for the applicable Calendar Year minus (y) the volume of Products actually tendered by Seller during such Calendar Year, as liquidated damages and not as a penalty, and Buyer shall have no further claim for damages on account of such shortfall in the delivery of the Annual Volu