AMENDED AND RESTATED FIBER SUPPLY AGREEMENT

 

EXECUTION VERSION

 

AMENDED AND RESTATED FIBER SUPPLY AGREEMENT

 

THIS AMENDED AND RESTATED FIBER SUPPLY AGREEMENT, (this “Agreement”) dated as November 15, 2005, by and among PLUM CREEK MARKETING, INC., a Delaware corporation (“Seller”) and ESCANABA 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 Plum Creek Timberlands, L.P., a Delaware limited partnership (“Timberlands Owner”) have entered into a Real Estate Purchase and Sale Agreement (the “Sale Agreement”), dated as of September 30, 2005, pursuant to which, subject to the terms and conditions thereof, Escanaba Timber has agreed to sell and Timberlands Owner has agreed to purchase all of the timberlands presently owned by Escanaba Timber as described in the Sale Agreement in the Market Region (the “ET Timberlands”);

 

WHEREAS, Timberlands Owner and Seller have entered into as of the date hereof a Stumpage Agreement pursuant to which Timberland Owner has committed to make available to Seller from the ET Timberlands all of the wood fiber necessary for Seller to satisfy its obligations under this 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 2.3(a).

 

“ Annual Volumes ” shall have the meaning provided in Section 2.3(b).

 

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

 

“ Aspen Pulpwood ” means pulpwood from aspen.

 

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

 

“ Delivery Distance ” means the trucking distance between a harvest site and a Delivery Location (which delivery location is within the Market Region), which is based on the zones described in Article IV hereof.

 

“ Delivered Product Price ” shall have the meaning provided in Section 4.1(a).

 

“ Delivery Location ” means a delivery point for Products purchased hereunder or Products sold by Seller to an unrelated third party within the Market Region.

 

“ ET Timberlands ” means the timberlands owned by Escanaba Timber LLC on the date hereof and as legally described in the Real Estate Purchase and Sale Agreement dated September 30, 2005 by and between Escanaba Timber LLC and Plum Creek Timberlands, L.P.

 

“ Force Majeure ” shall have the meaning provided in Section 2.4(a).

 

“ Force Majeure Period ” shall have the meaning provided in Section 2.4(c).

 

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

 

“Hemlock Pulpwood” means pulpwood from hemlock.

 

“ 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 the Upper Peninsula of Michigan and the eleven air mile area of property commonly known as the “Reciprocity Zone” in the State of Wisconsin. “ Mill ” shall mean Buyer’s pulp and paper mill located in Escanaba, Michigan.

 

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 “ Mixed Softwood Pulpwood ” means all softwood pulpwood other than Pine Pulpwood and hemlock.

 

“ Most Recent Price by Species ” shall have the meaning provided in Section 4.1(b).

 

“ 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 ” means the following species of timber:  Jack Pine Pulpwood, Red Pine Pulpwood, White Pine Pulpwood and Spruce Pulpwood.

 

“ Price Period ” shall have the meaning provided in Section 4.1(b).

 

“ Products ” means Softwood Pulpwood, Hardwood Pulpwood,  Aspen Pulpwood and Hemlock Pulpwood.

 

“ Product Category” shall mean any one of the following:  Hardwood Pulpwood, Aspen Pulpwood, Mixed Softwood Pulpwood, Pine Pulpwood, or Hemlock Pulpwood.

 

“ Product Specifications ” shall have the meaning provided in Section 2.1.

 

“Semi-Annual Period” shall mean each January 1 through June 30 and July 1 through December 31 of each calendar year throughout the Term.

 

“Semi-Annual Pricing Date” shall mean each January 7 and July 7 of each year during the Term.

 

“ Softwood Pulpwood ” shall mean Mixed Softwood Pulpwood, Hemlock Pulpwood and Pine Pulpwood.

 

“ 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.

 

“ 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 ET Timberlands.

 

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

 

Annex A-3

 

“ Valuation Consultant ” shall mean either George Banzhaf & Company of Milwaukee, Wisconsin or Steigerwaldt Land Services of Tomahawk, Wisconsin, 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 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.

 

ARTICLE II

 

PURCHASE OF PRODUCTS

 

Section 2.1              Purchase of Softwood Pulpwood, Hardwood Pulpwood and Aspen Pulpwood .  Seller agrees to sell, and Buyer agrees to purchase, receive and pay for, in each calendar year (a “Calendar Year”), the Annual Volumes of Products.  All Products purchased pursuant to this Agreement shall satisfy, respectively, the specifications for the Products set forth in Annex A, 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)            Prior to September 1 of each Calendar Year during the Term, Seller shall 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.   The parties acknowledge and agree that Escanaba Timber submitted an Annual Plan

 

Annex A-4

 

for 2006 that includes the obligation to deliver and sell 535,000 tons of Products to Buyer (the “Original 2006 Plan”).  Pursuant to Article III hereof, Seller and Buyer agree that the Original 2006 Plan will be amended to reduce the volume to be sold and delivered during 2006 to 500,000 tons of Products.

 

(b)            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.

 

(c)            Following adoption of each Annual Plan (or as adjusted according to Section 2.3(b) above), the parties shall act in good faith and each use their respective reasonable best 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 ET 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, 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),  (ii) an act, omission or circumstance arising from the negligence or willful misconduct of the party claiming that a Force Majeure event has occurred, or (iii) adverse financial or market conditions.  The parties shall use reasonable best 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 2.4, 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

 

Annex A-5

 

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 of 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 three (3) days after such termination.

 

ARTICLE III

 

MINIMUM VOLUMES

 

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:

 

Annex A-6

 

(a)            2005 .   From the date hereof through December 31, 2005, 55,000 tons of Hardwood Pulpwood; 7,000 tons of Mixed Softwood Pulpwood; and 9,000 tons of Aspen Pulpwood.

 

(b)            2006 – 2016 .  For the Calendar Years beginning January 1, 2006 and ending December 31, 2016, 500,000 tons.

 

(c)            2017 – 2019 - To the extent Buyer and Seller mutually agree to extend the Term pursuant to Section 5.2 below, for Calendar Years beginning January 1, 2017 and ending December 31, 2019, 500,000 tons.

 

ARTICLE IV

 

PRICE AND DELIVERY TERM

 

Section 4.1              Prices.  

 

(a)            The price to be paid by Buyer to Seller for the Products sold and purchased hereunder shall be the fair market value thereof as hereinafter determined (the “Delivered Product Price”).  The parties agree that the initial Delivered Product Prices for the Products for the period from the date hereof through December 31, 2005 shall be as set forth in Schedule 4.1.  The Delivered Product Prices for the Products shall be adjusted as of January 1, 2006 and each subsequent July 1 and January 1 thereafter and shall be effective for deliveries first made on July 15 and January 15 of each calendar year.  The parties agree that the Products shall be comprised of five categories:  Hardwood Pulpwood, Aspen Pulpwood, Mixed Softwood Pulpwood, Pine Pulpwood, and Hemlock Pulpwood (each, a “Product Category”).  Each six-month calendar period described in this Section is hereinafter referred to as a “Semi-Annual Period.”

 

(b)            Not later than January 7, 2006 and each subsequent July 7 and January 7 of each Calendar Year during the Term (or on such date as the parties may mutually agree) (each, a “Semi-Annual Pricing Date”), Seller and Buyer will determine the Delivered Product Price for the ensuing half-year utilizing the process described in this Section.  On or before December 15, 2005 and each subsequent June 15 and December 15 of each Calendar Year of the Term, Seller and Buyer will jointly and mutually agree upon a schedule of standard haul rates by haul zone (the “Standard Haul Pricing Table”).  The Standard Haul Pricing Table to be effective on January 1, 2006 is as follows:

 

Zone		Miles		Haul Rate
1		0-30		$	5.64
2		30-60		$	7.45
3		60-90		$	9.07
4		90-120		$	11.17
5		120-150		$	13.09
6		150-180		$	14.79
7		180-210		$	16.49

 

Annex A-7

 

(c)            In addition, not later than each Semi-Annual Pricing Date during the Term, Seller and Buyer will each assemble a table of the volume weighted open market delivered prices and a table of volumes by Delivery Distance for each Product Category (in the case of Seller, the delivered prices Seller received from unrelated third parties, excluding the Annual Volumes, in the immediately preceding Semi-Annual Period for Products produced from the ET Timberlands (or other timberlands owned by Seller or Seller’s affiliated companies in the Market Region as of Sepember 30, 2005)  and delivered in the Market Region for each Product Category and in the case of Buyer, the prices Buyer paid to unrelated third parties, excluding the Annual Volumes, for Products produced from within the Market Region and delivered to any Delivery Location in the immediately preceding Semi-Annual Period) (the “Delivered Price and Volume Tables”).    Buyer shall include all payments made to its suppliers of Products for purposes of its calculations hereunder except for fuel adjustments or snow bonuses, the payments for which are provided for in Section 4.1(h) hereof.  In addition, for purposes of assembling their respective Delivered Price and Volume Tables, each party must include the prices and volumes of any Products sold by Seller and purchased by Buyer in any Semi-Annual Period in excess of the Annual Volumes.  The prices shown in each party’s Delivered Price and Volume Table shall be the weighted average for all volume sold in each Product Category and Zone during the preceding Semi-Annual Period.  An example of a Delivered Price and Volume Table is as follows:

 

Delivered Prices ($/ton):

 

Zone		Hardwood			Aspen			Mixed Sftwd			Pine			Hemlock
1		$	30.00		$	35.00		$	40.00		$	45.00		$	25.00
2		$	31.00		$	36.00		$	41.00		$	46.00		$	26.00
3					$	37.00		$	43.00					$	27.00
4		$	33.00					$	44.00		$	48.00
5		$	35.00					$	44.00		$	50.00		$	29.00
6		$	37.00		$	41.00					$	50.00		$	31.00
7		$	39.00		$	45.00		$	50.00		$	53.00		$	33.00

 

Volume (in tons)

 

Zone		Hardwood		Aspen		Mixed Sftwd		Pine		Hemlock
1		1,200		100		1,500		450		300
2		100		600		1,200		650		600
3				1,500		300				900
4		1,500				500		850
5		600				800		950		900
6		200		500				250		600
7		800		60		600		650		300

 

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(d)            When each party has assembled its internal Delivered Price and Volume Table, each party will deduct the Standard Haul Rate for each Zone from the respective prices for each Product Category to arrive at a pre-haul price for each Product Category in each Zone (the “Road Side Price”).  For each Product Category, each party will then calculate a “Weighted Average Road Side Price” by taking the sum of the volumes times the road side price for each haul zone, divided by the total volume delivered for each product as follows:

 

(Delivered Price - Haul Rate) x Volume for each zone	=	Weighted Average Road Side
Total Volume in each Product Category		Price in each Product Category

 

For illustration purposes, using the Delivered Price and Volume Table shown above, the calculations would be as follows:

 

Roadside Prices:

 

Zone		Hardwood								Aspen				Mixed Sftwd			Pine			Hemlock
1		$	24.36							$	29.36			$	34.36		$	39.36		$	19.36
2		$						23.55		$		28.55		$	33.55		$	38.55		$	18.55
3										$		27.93		$	33.93					$	17.93
4		$					21.83							$	32.83		$	36.83
5		$					21.91							$	30.91		$	36.91		$	15.91
6		$				22.21				$		26.21					$	35.21		$	16.21
7		$			22.51					$		28.51		$	33.51		$	36.51		$	16.51
**		$		22.71						$		27.82		$	33.31		$	37.28		$	17.24

 

**  Weighted Average Roadside Price by Product

 

(e)            Not later than each Semi-Annual Pricing Date during the Term, Seller and Buyer will submit to the other their respective Weighted Average Road Side Price for each of the Product Categories.  Seller’s and Buyer’s combined Weighted Average Road Side Price for each Product Category will be computed using a 1/3 weight for Seller’s prices and 2/3 weight for Buyer’s prices, the result of which is hereinafter referred to as the “Combined Road Side Average.”  The Combined Road Side Average for each Product Category will be added to the Haul Rate in each Zone to determine the final Delivered Product Price for each Product Category in each Zone.

 

(f)             The foregoing notwithstanding, in the event Buyer materially changes the sourcing of Products into its Mill (i.e., purcha