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 This Supply Agreement involves

Forest Resource Consultants, Inc | MEADWESTVACO COATED BOARD, INC | MEADWESTVACO CORPORATION | Wells TRS Harvesting Operations, LLC

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Title: FIBER SUPPLY AGREEMENT
Governing Law: Georgia     Date: 3/26/2010
Law Firm: Powell Goldstein    

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Exhibit 10.26

FIBER SUPPLY AGREEMENT

by and among

WELLS TRS HARVESTING OPERATIONS, LLC,

MEADWESTVACO CORPORATION

and

MEADWESTVACO COATED BOARD, INC.

October 9, 2007


TABLE OF CONTENTS

 

ARTICLE I

  

DEFINITIONS

  

2

ARTICLE II

  

PURCHASE OF PRODUCTS

  

6

Section 2.1

  

Purchase of Products

  

6

Section 2.2

  

Modification of Specifications

  

6

Section 2.3

  

Annual Plan

  

6

Section 2.4

  

Force Majeure

  

7

Section 2.5

  

Carbon Rights

  

9

ARTICLE III

  

QUANTITY

  

9

Section 3.1

  

Pine Pulpwood Requirements

  

9

Section 3.2

  

Hardwood Pulpwood Requirements

  

9

Section 3.3

  

Sawtimber Requirements

  

9

Section 3.4

  

Product Forecasts

  

10

Section 3.5

  

Satisfaction of Supply Requirements

  

10

Section 3.6

  

Satisfaction of Purchase Requirements

  

10

Section 3.7

  

Supply Variances

  

10

Section 3.8

  

Optional Pine Pulpwood Purchases

  

11

ARTICLE IV

  

PRICE AND DELIVERY TERMS

  

11

Section 4.1

  

Prices

  

11

Section 4.2

  

Pay or Take

  

13

Section 4.3

  

Delivery Terms

  

14

Section 4.4

  

Payment

  

14

Section 4.5

  

Disputes

  

15

Section 4.6

  

Compliance with Product Specifications

  

15

ARTICLE V

  

TERM

  

15

Section 5.1

  

Initial Term

  

15

Section 5.2

  

Extended Term

  

15

ARTICLE VI

  

REPRESENTATIONS, WARRANTIES AND COVENANTS

  

16

Section 6.1

  

Warranty of Quality

  

16

Section 6.2

  

Ownership of Products

  

16

Section 6.3

  

Power and Authority; Enforceability

  

16

Section 6.4

  

Compliance with Laws

  

16

Section 6.5

  

Supplier as Independent Contractor

  

17

Section 6.6

  

MeadWestvaco and Parent Power and Authority; Enforceability

  

17

ARTICLE VII

  

DEFAULT AND INDEMNIFICATION

  

17

Section 7.1

  

Indemnity

  

17

Section 7.2

  

Certain Remedies

  

18

ARTICLE VIII

  

CONSENT TO JURISDICTION

  

19

Section 8.1

  

Consent to Jurisdiction

  

19

ARTICLE IX

  

TERMINATION

  

19

Section 9.1

  

Termination

  

19

ARTICLE X

  

MISCELLANEOUS

  

20

Section 10.1

  

Assignment by Supplier

  

20

Section 10.2

  

Assignment by MeadWestvaco

  

21

 

i


Section 10.3

  

Notices

  

21

Section 10.4

  

Amendment; Waiver

  

22

Section 10.5

  

Entire Agreement

  

22

Section 10.6

  

Sovereign Law

  

22

Section 10.7

  

Binding Agreement

  

23

Section 10.8

  

Headings

  

23

Section 10.9

  

Counterparts

  

23

Section 10.10

  

Annexes and Exhibits

  

23

Section 10.11

  

Severability, etc

  

23

Section 10.12

  

No Presumption Against Drafter

  

23

Section 10.13

  

Arbitration

  

23

Section 10.14

  

Supplier’s Collateral Assignment

  

24

Section 10.15

  

Parental Guaranty

  

24

ANNEXES, SCHEDULES AND EXHIBITS

 

ANNEXES

    

  

Annex A

    

Product Specifications

  

A-1

SCHEDULES

    

  

Schedule 4.1

    

Prices

  

 

ii


FIBER SUPPLY AGREEMENT

This FIBER SUPPLY AGREEMENT, dated as of October 9, 2007 (this “Agreement”), is made by and between Wells TRS Harvesting Operations, LLC, a Delaware limited liability company (“ Supplier ”), MEADWESTVACO CORPORATION (“ Parent ”), and MEADWESTVACO COATED BOARD, INC., a Delaware corporation (“ MeadWestvaco ”).

RECITALS

A. MeadWestvaco has owned the Timberlands to provide a significant and reliable source of wood fiber products for the Mahrt Mill and Cottonton Mill. The Timberlands provided Pine Pulpwood, Hardwood Pulpwood, Chip-n-saw and Pine Sawlogs, all of which have been used in connection with the production of paperboard and lumber products at the Mahrt Mill and the Cottonton Mill.

B. Pursuant to a Contribution Agreement (the “ Contribution Agreement ”) dated as of October 9, 2007, Timberlands II, LLC (“ Owner ”) acquired the Timberlands from MeadWestvaco.

C. Pursuant to a Purchase and Sale Agreement dated as of August 3, 2007 (as the same may be amended, the “ Purchase and Sale Agreement ”), MWV SPE, LLC (“ Wells ”) acquired all of the outstanding ownership interests in Owner from MeadWestvaco (the “Timberlands Interests ”).

D. In connection with Wells’ acquisition of the Timberlands Interests, in order to assure MeadWestvaco a long-term source of supply of the Products in order to meet its paperboard and lumber production requirements at the Mahrt Mill and the Cottonton Mill, and to provide Supplier with a reliable consumer for the wood products from the Timberlands, Owner, MeadWestvaco and Supplier have entered into a Master Stumpage Agreement (the “ Master Stumpage Agreement ”), of even date herewith, pursuant to which Owner has agreed to make timber on the Timberlands available for harvest by Supplier.

E. MeadWestvaco, Parent and Supplier are entering into this Agreement whereby Supplier will agree to supply, and MeadWestvaco will agree to purchase on specified terms, the wood volumes described herein.

Therefore, in consideration of the mutual covenants and agreements set forth herein, the parties hereto agree as follows:


ARTICLE I

DEFINITIONS

The definitions given for terms shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “hereby,” “herein,” “hereof,” “hereunder” and words of similar import refer to this Agreement as a whole and not merely to the specific section, paragraph or clause in which such word appears. The word “party” or “parties” means a party or the parties to this Agreement, unless preceded by the word “third” or unless the context shall otherwise expressly require. All references herein to Articles, Sections, Annexes and Exhibits shall be deemed references to Articles and Sections of, and Annexes and Exhibits to, this Agreement unless the context shall otherwise require. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation,” unless already expressly followed by such phrase or the phrase “but not limited to.” 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 10.13(a).

Affiliate ” of a Person means any other Person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with the first Person. As used in this definition of the term “affiliate,” and elsewhere herein with respect to any affiliate of any Person, “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a Person, whether through the ownership of voting securities, by voting trust, contract or similar arrangement, as trustee or executor, or otherwise.

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

Annual Plan ” shall have the meaning provided in Section 2.3(a).

Annual Volumes ” means the amounts of Products that Supplier is required to sell and deliver to MeadWestvaco, and MeadWestvaco is required to purchase, in each Calendar Year as described in Sections 3.1, 3.2 and 3.3.

Average Monthly Fuel Price ” shall have the meaning provided in Section 4.1(c)(iv).

Base Fuel Price ” shall have the meaning provided in Section 4.1(c)(i).

BMPs ” shall have the meaning provided in Section 4.2(a).

 

2


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

Change in Control ” means the removal or replacement of Forest Resource Consultants, Inc. as the manager of Owner, except pursuant to an internalization of Owner’s management functions.

Chip-n-saw ” means sawtimber consisting of southern yellow pine that meets the minimum specifications for chip-n-saw as described in Annex A, MeadWestvaco Southern Wood Product Sawtimber Specifications.

Closing ” means the completion of the conveyance of the Timberlands Interests to Wells pursuant to the Purchase and Sale Agreement.

Contract Prices ” means the price paid by MeadWestvaco for each Product for each Price Period, as determined under Section 4.1.

Contribution Agreement ” shall have the meaning set forth in the recitals to this Agreement.

Cottonton Mill ” means the pine sawmill located in Cottonton, Alabama.

Date of Closing ” means the date this Agreement is executed and delivered.

Fee Portion ” means the portion of the Timberlands consisting of 228,019 acres of fee land.

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).

Fuel Price Adjustment ” shall have the meaning provided in Section 4.1 (c).

Hardwood Pulpwood ” means pulpwood consisting of all hardwood species.

Liens ” means any and all liens, charges, mortgages, deeds to secure debt, pledges, security interests, options of record, adverse claims or other encumbrances of a liquidated amount or which are otherwise statutorily enforceable, other than liens for ad valorem taxes not yet due and payable and other than liens incurred or suffered by MeadWestvaco prior to the date of Owner’s acquisition of the Timberlands; provided, however, none of the aforementioned shall constitute a “Lien” in the event the same fails to prevent Supplier from performing any of its obligations hereunder.

Losses ” means any and all claims, liabilities, obligations, losses, fines, costs, royalties, proceedings, deficiencies or damages (whether absolute, accrued, conditional or otherwise and whether or not resulting from third-party claims) including, but not limited

 

3


to, out-of-pocket expenses and reasonable actual attorneys’ and actual accountants’ fees incurred in the investigation or defense of any of the same or in enforcing any of their respective rights hereunder.

LTC Portion ” means the portion of the Timberlands consisting of approximately 51,730 acres subject to a long-term lease.

Lower Trigger Price ” shall have the meaning provided for in Section 4.1(c)(iii).

Mahrt Mill ” means the Mahrt paperboard mill in Cottonton, Alabama.

Master Stumpage Agreement ” shall have the meaning set forth in the recitals to this Agreement.

MeadWestvaco ” shall have the meaning provided in the opening paragraph to this Agreement.

Measurement Period ” means a six-month period beginning January 1st and ending June 30th or beginning July 1st and ending December 31st.

Other Facilities ” shall have the meaning provided in Section 4.3.

Owner ” shall have the meaning set forth in the recitals to this Agreement.

Parent ” shall have the meaning set forth in the preamble to this Agreement.

Person ” means any individual, sole proprietorship, trust, estate, executor, legal representative, unincorporated association, association, institution, corporation, company, partnership, limited liability company, limited liability partnership, joint venture, government (whether national, Federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof) or other entity.

Pine Pulpwood ” means pulpwood consisting of pine.

Pine Sawlogs ” means sawtimber consisting of southern yellow pine that meets the minimum specifications for tree length sawtimber and pre-cut sawlogs as described in Annex A, MeadWestvaco Southern Wood Product Sawtimber Specifications.

PLM Portion ” means the portion of Timberlands consisting of approximately 44,461 acres subject to multiple shorter term leases, also known as Private Land Management.

Price Period ” means a six-month period beginning February 15 th and ending August 14 th or beginning August 15 th and ending February 14 th . The initial Price Period shall begin on the Closing Date and end on February 14, 2008.

 

4


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

Production Forecast ” shall have the meaning provided in Section 3.4.

Products ” means all Pine Pulpwood, Hardwood Pulpwood, Chip-n-saw and Pine Sawlogs.

Pulpwood ” means Pine Pulpwood and Hardwood Pulpwood.

Purchase and Sale Agreement ” has the meaning set forth in the recitals to this Agreement.

Sawtimber ” means Chip-n-saw and Pine Sawlogs.

Stumpage ” means the trees standing on the stump prior to harvest activities.

Stumpage Prices ” means the value of the trees standing on the stump prior to harvest activities.

Supplier ” shall have the meaning set forth in the preamble to this Agreement.

Sustainable Forest Practice Standards ” shall mean practices substantially in compliance with standards substantially similar to the Sustainable Forestry Initiative™.

Term ” shall have the meaning provided in Section 5.2.

Timberlands ” means the approximately 324,210 acres of certain timberlands located in Alabama and Georgia contributed to Owner by MeadWestvaco pursuant to the Contribution Agreement.

Timberlands Interests ” shall have the meaning set forth in the recitals to this Agreement.

TMS ” shall mean the publication known as Timber Mart-South published by the University of Georgia, Warnell School of Forest Resources based on Georgia and Alabama regions. In the event TMS is no longer published, a comparable publication mutually acceptable to Supplier and MeadWestvaco shall replace TMS.

TMS Average Price ” shall mean, with respect to a Product for a Measurement Period, the sum of the average delivered price for such Product for the Georgia One, Georgia Two, Alabama One, and Alabama Two regions, as reported by TMS, for the two quarters comprising the Measurement Period, divided by two. The 7” Sawlog Product Price is based upon the TMS Average Price for Pine Sawlog woods run. The 8” Sawlog Product Price is based upon the TMS Average Price for plylogs.

 

5


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

Upper Trigger Price ” shall have the meaning provided for in Section 4.1(c)(iii).

Wells ” shall have the meaning set forth in the preamble to this Agreement.

ARTICLE II

PURCHASE OF PRODUCTS

Section 2.1 Purchase of Products . Supplier agrees to sell and deliver, and MeadWestvaco agrees to purchase, receive and pay for, in each Calendar Year (a “ Calendar Year ”), the Annual Volumes, as defined herein, of Pine Pulpwood, Hardwood Pulpwood, Chip-n-saw and Pine Sawlogs. All Pine Pulpwood, Hardwood Pulpwood, Chip-n-saw and Pine Sawlogs 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 . MeadWestvaco may, from time to time, and upon at least two (2) months’ prior written notice to Supplier, reasonably modify any of the Product Specifications that MeadWestvaco applies to substantially all of its Product suppliers to the Mahrt Mill and Cottonton Mill. MeadWestvaco shall not modify the Product Specifications to set higher standards for Supplier than for such other Products suppliers. All Products sold by Supplier to MeadWestvaco following the date the new specifications become effective shall satisfy such modified Product Specifications.

Section 2.3 Annual Plan .

(a) Supplier shall at the Closing and prior to September 1 of each Calendar Year during the Term, complete and submit to MeadWestvaco a written production and delivery plan with respect to the Products to be made available for purchase by MeadWestvaco during the next Calendar Year (the “ Annual Plan ”) covering matters such as the schedule for delivery of Products to the Mahrt Mill, Cottonton Mill, the Other Facilities or such other locations serving the Mahrt Mill or Cottonton Mill as MeadWestvaco reasonably directs. Said Annual Plan shall include estimates of delivery of the Products by month and accumulated into estimated quarterly deliveries. The Annual Plan shall set forth the quantity of Products Supplier intends to make available to MeadWestvaco during the next Calendar Year, said quantities to be subject to the terms of Article III and Section 10.1. The Annual Plan shall also specify tracts on the Timberlands from which MeadWestvaco will be permitted, pursuant to the terms of the Master Stumpage Agreement, to harvest a minimum of 80,000 tons per Calendar Year of

 

6


Pine Pulpwood Stumpage to be converted into the form of in-woods chips and such volumes of other Stumpage that occur on these same tracts.

(b) The following minimum volumes shall be made available in the Annual Plan: (i) 80% of the Pine Pulpwood and Hardwood Pulpwood to be harvested from the Timberlands during that Calendar Year (which in the case of Pine Pulpwood shall not be less than the volumes specified in Section 3.1; and (ii) 50% of the Pine Sawlogs and Chip-n-Saw to be harvested from the PLM portion of the Timberlands during each Calendar Year within the term of the PLM leases.

(c) MeadWestvaco agrees to purchase and Supplier agrees to deliver in the next Calendar Year the Annual Volumes as specified in Article III. MeadWestvaco shall within 30 days of receipt of said Annual Plan confirm with Supplier any additional volumes of the Products MeadWestvaco agrees to purchase from Supplier during 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 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, Supplier may vary its deliveries, and MeadWestvaco 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 Mahrt Mill or Cottonton Mill or the operations of Supplier on the Timberlands from which the Products are supplied. Supplier and MeadWestvaco agree that representatives of each party will meet quarterly to review progress toward delivery of Annual Volumes and to review pertinent production issues.

Section 2.4 Force Majeure .

(a) For the purposes of this Agreement, the term “ Force Majeure ” means any cause, condition or event beyond MeadWestvaco’s and/or Supplier’s reasonable control that delays, prevents or accelerates 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, and other similar events or circumstances; provided, however, that “ Force Majeure ” shall not include (i) a party’s financial inability to perform or general business or economic conditions (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 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.

 

7


(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 MeadWestvaco’s operations in connection with this Agreement, MeadWestvaco shall not reduce its purchases of any Product from Supplier in greater proportion than the reduction in MeadWestvaco’s purchases of any such Products from all its suppliers to the Mahrt Mill and Cottonton 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 MeadWestvaco from its obligation to pay, pursuant to the terms of this Agreement, Supplier for any quantity of Product delivered by Supplier.

(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) MeadWestvaco 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) Supplier 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, MeadWestvaco shall not be required to purchase the volume of Products not purchased during the Force Majeure Period, and Supplier 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, Supplier shall have the right, but not the obligation, to sell that quantity of the Product MeadWestvaco is unable to purchase because of Force Majeure to any third-party purchaser or purchasers in the event Force Majeure prevents MeadWestvaco from performing hereunder.

(d) If as a result of a Force Majeure, Owner requests that Supplier harvest affected timber to salvage the timber’s value, then (i) Supplier shall deliver such salvaged timber to MeadWestvaco to the extent such Products would have been delivered by Supplier under the Annual Plan then in effect, (ii) to the extent the volume of such salvaged timber exceeds the Product volumes due under the Annual Plan then in effect, MeadWestvaco will attempt to accommodate Supplier’s need to sell the Products by purchasing as much of the salvaged timber as will not in MeadWestvaco’s judgment materially interfere with its operations, and (iii) Supplier may sell any salvaged Product that MeadWestvaco is unwilling to purchase to any third-party purchaser or purchasers.

(e) 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

 

8


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.

Section 2.5 Carbon Rights . The ownership of any carbon rights associated with Products sold to MeadWestvaco under this Agreement shall transfer to MeadWestvaco at the same time that title to such Products passes to MeadWestvaco.

ARTICLE III

QUANTITY

Section 3.1 Pine Pulpwood Requirements .

(a) During the Term, Supplier will sell and (except as set forth in Section 3.1(b)) make available for delivery, and MeadWestvaco shall purchase, minimum volumes of Pine Pulpwood each Calendar Year, as follows:

 

  

Calendar Years 2008-2013

 

-

  

450,000 tons

  

  

Subsequent Calendar Years

 

-

  

350,000 tons

  

(b) Of the volumes specified in Sections 3.1(a), a minimum of 80,000 tons per Calendar Year of Pine Pulpwood shall be sold as Stumpage and purchased by MeadWestvaco for whole-tree chipping.

(c) For Calendar Year 2007, the minimum volumes shall be prorated from the date of MeadWestvaco’s sale of the Timberlands Interests based on the annual harvest schedule, but shall not be less than 450,000 tons.

Section 3.2 Hardwood Pulpwood Requirements . For the Timberlands, in each Calendar Year during the Term, Supplier will make available in the Annual Plan for delivery to MeadWestvaco, and MeadWestvaco shall purchase, no less than 80% of Hardwood Pulpwood to be harvested that Calendar Year from the Timberlands pursuant to the Master Stumpage Agreement. Such amount shall be prorated in 2007 based upon annual requirements.

Section 3.3 Sawtimber Requirements . For the PLM Portion of the Timberlands, in each Calendar Year during the Term, Supplier will make available for delivery to MeadWestvaco, and MeadWestvao shall purchase, no less than 50% of Pine Chip-n-saw and no less than 50% of Pine Sawlogs, as each are further defined in the specifications in Annex A, to be harvested that Calendar Year from the relevant portion of Timberlands pursuant to the Master Stumpage Agreement.

 

9


Section 3.4 Product Forecasts . Commencing as of the date of this Agreement, no later than October 1, 2007 and no later than September 1 of each Calendar Year thereafter during the Term, pursuant to the Master Stumpage Agreement, Supplier and Owner shall provide MeadWestvaco with a written forecast (the “ Production Forecast ”) of the Pine Pulpwood, Hardwood Pulpwood, Chip-n-saw and Pine Sawlogs expected to be harvested from the Timberlands each year for the five Calendar Years following the date of such Production Forecast. Each Production Forecast delivered by Supplier shall represent Supplier’s good faith estimate as to the Pine Pulpwood, Hardwood Pulpwood, Chip-n-saw and Pine Sawlogs to be harvested for each of the five succeeding Calendar Years; provided however, that no Production Forecast, nor any estimate contained therein, shall be binding on Supplier.

Section 3.5 Satisfaction of Supply Requirements . Supplier shall act in good faith and use its reasonable best efforts, subject to Force Majeure, to perform its obligations hereunder to deliver the Annual Volumes, as adjusted, of the Products. Supplier shall act in good faith and use its reasonable best efforts, subject to Force Majeure, to ensure that delivery of the Products hereunder shall not be delayed or disrupted or otherwise affected in a manner adverse to the operation of the Mahrt Mill or the Cottonton Mill. Supplier shall be permitted to provide Products to MeadWestvaco from property owned by Owner other than the Timberlands.

Section 3.6 Satisfaction of Purchase Requirements . MeadWestvaco shall act in good faith and use its reasonable best efforts, subject to Force Majeure, to perform its obligations hereunder to receive the Annual Volumes. MeadWestvaco shall act in good faith and use its reasonable best efforts to ensure that acceptance of the Products hereunder shall not be delayed or disrupted or otherwise affected in a manner adverse to the operations of Supplier on the Timberlands, including by delivery of timely information regarding any fact or circumstances which may impact the ability of MeadWestvaco to accept the Products. Nothing contained in this Section 3.6 shall excuse MeadWestvaco from its obligations to make payments in a timely manner to Supplier for Products delivered to MeadWestvaco pursuant to the terms of this Agreement.

Section 3.7 Supply Variances . As the annual volume delivery schedule will be impacted by variables (weather, stand composition variations) uncontrollable by Supplier or MeadWestvaco, the schedule of delivery of Products will, as a normal course of business, vary above or below target levels. Target annual volumes for various products will not be reached simultaneously. Personnel designated by Supplier and MeadWestvaco will communicate regularly to insure that scheduling of delivery and purchase of Products is as consistent as possible. It is expected that the actual annual volumes for each Product delivered by Supplier and purchased by MeadWestvaco will not exactly match the targets as identified in the Annual Plan. It is understood and expected that in the last quarter of each year, as a normal course of business, personnel designated by Supplier and MeadWestvaco, with agreement of Owner, may agree to begin cutting on the next year’s scheduled Annual Volumes or carry over some volume of the current year’s target volumes to be added to the following year’s target Annual

 

10


Volumes. A variance in Annual Volumes approved by the parties under this Section 3.7 will not affect any party’s obligations under Section 4.2.

Section 3.8 Optional Pine Pulpwood Purchases . In addition to the mandatory volumes of Pine Pulpwood to be purchased by MeadWestvaco as provided in Section 3.1, MeadWestvaco shall have the right, but not the obligation, to purchase additional amounts of Pine Pulpwood, if any, made available pursuant to Section 2.3(b) (i.e., where 80% of Pine Pulpwood volume to be harvested exceeds the volumes specified in Section 3.1.), for any Calendar Year where such amount exceeds the minimum volumes provided in Section 3.1. MeadWestvaco will commit to any such purchases by notice to Supplier pursuant to Section 2.3(c).

ARTICLE IV

PRICE AND DELIVERY TERMS

Section 4.1 Prices .

(a) Pulpwood and Sawtimber delivered by Supplier to MeadWestvaco, and Stumpage harvested by MeadWestvaco, will be paid for at the Contract Prices determined under this Section 4.1. The Contract Prices set forth in Schedule 4.1 shall remain in effect until August 14, 2008. Contract Prices for the Price Period beginning August 15, 2008 and all subsequent Price Periods shall be determined pursuant to subsection (b).

(b) On or before the first day of each Price Period, Supplier and MeadWestvaco shall mutually calculate the percentage change in the TMS Average Price for each Product occurring during the Measurement Period ending one and a half months before the start of such Price Period. The current Contract Price for each Product shall be increased or decreased to reflect such percentage change, and such adjusted price shall become the Contract Price for each Product for the Price Period in question. For example, the Contract Prices in effect for the Price Period beginning August 15, 2008 and ending February 14, 2009 shall be the Contract Prices in effect for the current Price Period ( i.e ., from February 15, 2008 until August 14, 2008), increased or decreased by the percentage change in the TMS Average Price for each Product that occurred during the preceding two Price Periods. Changes in the price paid for pine chip Stumpage and mileage premiums (for transportation in excess of 70 miles) will be based on the TMS Average Price change for Pine Pulpwood.

(c) In addition to the pricing adjustment outlined above, the Contract Prices will be adjusted up or down as appropriate to compensate for significant diesel fuel price increases or decreases. This adjustment shall be called the Fuel Price Adjustment and shall be calculated and applied as follows:

 

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(i) Beginning at Closing, then at February 15 th , 2008; then at the end of each of the subsequent Price Period; the parties shall mutually calculate the Base Fuel Price for the Pricing Period. The Base Fuel Price shall be the average of the weekly fuel prices for the previous eight (8) weeks, as listed in the DOE Gulf Coast Retail Diesel Fuel Price Index. At Closing, the Base Fuel Price shall be set at $ 2.83 per gallon,

(ii) In the event that the wholesale fuel depot currently being constructed becomes accessible and operates consistently for 60 days, the parties agree to re-set the Base Fuel Price and switch the index pricing to be calculated based on the actual price of diesel fuel available at that local source.

(iii) In addition to the Base Fuel Price, the parties shall mutually calculate the Upper Trigger Price by adding $0.20 to the Base Fuel Price, and the Lower Trigger Price by subtracting $0.20 from the Base Fuel Price. The Base Fuel Price, Upper Trigger Price and the Lower Trigger Price shall stay in effect for the duration of each Pricing Period.

(iv) Beginning at the end of the first full month after Closing and at the end of each month thereafter, the parties shall mutually determine the Average Monthly Fuel Price. The Average Monthly Fuel Price shall be the average of the weekly fuel prices for the previous four (4) weeks, as listed in the DOE Gulf Coast Retail Gasoline Fuel Price Index. If the Average Monthly Fuel Price exceeds the Upper Trigger Price or is less than the Lower Trigger Price, the Fuel Price Adjustment will be calculated, then added to or subtracted from the applicable Contract Price for the duration of the following month. The Fuel Price Adjustment shall be calculated by multiplying the difference between the Base Fuel Price and the Average Monthly Fuel Price by the adjustment factor of 1.3. For example, if the Base Fuel Price is $2.83 per gallon, and the Average Monthly Fuel Price is $3.05, the Average Monthly Fuel Price exceeds the Upper Trigger Price of $3.03 per gallon and the Fuel Price Adjustment will be calculated. The difference between the Base Fuel Price and the Average Monthly Price is $0.22, which is multiplied by the adjustment factor of 1.3 ($0.22 x 1.3 = $0.286 per ton). The Fuel Price Adjustment would increase Contract Price of Pulpwood and Sawtimber delivered by Supplier to MeadWestvaco, and decrease the Contract Price of Stumpage harvested by MeadWestvaco, by $0.286 for the following month.

(v) The Fuel Price Adjustment shall be calculated at the end of every month.

(vi) In the event that in any given month the Average Monthly Fuel Price is below the Upper Trigger Price, and above the Lower Trigger Price (i.e. within the +/- $0.20 range) there shall be no Fuel Price Adjustment for that month.

(d) Supplier and MeadWestvaco agree to renegotiate the pricing mechanism and the delivery and receiving performance outlined in this Agreement once every two years.

 

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Section 4.2 Pay or Take .

(a) Supplier agrees to sell and deliver, subject to Force Majeure, and MeadWestvaco agrees to purchase, subject to Force Majeure, the Annual Volumes of Pulpwood and Sawtimber to be produced under the direction of Supplier during each Calendar Year as determined in Section 2.3(c). If for any Calendar Year, Supplier fails for any reason other than Force Majeure to tender to MeadWestvaco at least 90% of the designated Annual Volumes of Pulpwood and Sawtimber which comply with the Product Specifications, State Best Management Practices (“ BMPs ”) and the forest certification standards, Supplier will pay MeadWestvaco (i) at a rate of $15.00 per ton multiplied by the difference between (x) 90% of the Annual Volumes of Pulpwood for the applicable Calendar Year minus (y) the volume of Pulpwood actually tendered by Supplier during such Calendar Year; (ii) at a rate of $35.00 per ton multiplied by the difference between (x) 90% of the Annual Volumes of Sawtimber for the applicable Calendar Year minus (y) the volume of Sawtimber actually tendered by Supplier during such Calendar Year, and (iii) at a rate of $7.00 per ton multiplied by the difference between (x) 90% of the Annual Volume of pine chip Stumpage for the applicable Calendar Year minus (y) the volume of pine chip Stumpage actually tendered by Supplier during such Calendar Year, each of (i), (ii) and (iii) as liquidated damages and not as a penalty, and MeadWestvaco shall have no further claim for damages on account of such shortfall in the delivery of the Annual Volumes. Payment shall be made by Supplier to MeadWestvaco on demand no later than fifteen (15) days from MeadWestvaco’s written request for such payment.

(b) If for any Calendar Year, MeadWestvaco fails for any reason other than Force Majeure to purchase at least 90% of the Annual Volumes of Pulpwood and Sawtimber from Supplier, then MeadWestvaco shall pay Supplier for the shortage (i) at a rate of $15.00 per ton multiplied by the difference between (x) 90% of the Annual Volumes of Pulpwood for the applicable Calendar Year minus (y) the sum of (1) the volume of Pulpwood actually purchased by MeadWestvaco hereunder during such Calendar Year plus (2) if a Verification Failure (as defined below) has occurred with respect to that Calendar Year, the volume of Pulpwood deemed to be purchased by MeadWestvaco hereunder during such Calendar Year as provided below in this Section 4.2(b); (ii) at a rate of $35.00 per ton multiplied by the difference between (x) 90% of the Annual Volumes of Sawtimber for the applicable Calendar Year minus (y) the sum of (1) the volume of Sawtimber actually purchased by MeadWestvaco hereunder during such Calendar Year plus (2) if a Verification Failure (as defined below) has occurred with respect to that Calendar Year, the volume of Sawtimber deemed to be purchased by MeadWestvaco hereunder during such Calendar Year as provided below in this Section 4.2(b), and (iii) at a rate of $7.00 per ton multiplied by the difference between (x) 90% of the Annual Volumes of pine chips Stumpage for the applicable Calendar Year minus (y) the sum of (1) the volume of pine chips Stumpage actually purchased by MeadWestvaco hereunder during such Calendar Year plus (2) if a Verification Failure (as defined below) has occurred with respect to that Calendar Year, the volume of pine chips Stumpage deemed to be purchased by MeadWestvaco hereunder during such Calendar Year as provided below in this Section 4.2(b), each of (i), (ii) and (iii) as liquidated damages and not as a penalty, and Supplier shall have no further claim for damages on account of

 

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MeadWestvaco’s failure to purchase the Annual Volumes. Payment shall be made by MeadWestvaco to Supplier on demand no later than fifteen (15) days from Supplier’s written request for such payment. For purposes of this Section 4.2(b) only, a Verification Failure shall mean the failure by Supplier to provide to MeadWestvaco third-party verification of Supplier’s compliance with Sustainable Forest Practice Standards with respect to the portion of the Timberlands from which Products are supplied to the Mahrt Mill and Cottonton Mill during such Calendar Year. If a Verification Failure occurs with respect to a Calendar Year and, following 30 days’ prior written notice to Supplier of such occurrence, MeadWestvaco purchases from third parties for delivery to the Mahrt Mill and Cottonton Mill during such Calendar Year Products which have been so verified, such purchases (to the extent not greater than the excess of 90% of the applicable Annual Volumes of Pulpwood over the volume of Pulpwood actually purchased by MeadWestvaco hereunder for the applicable Calendar Year) shall be deemed made from Supplier solely for the purposes of this Section 4.2(b) and shall not be deemed made from Supplier for purposes of Article III.

(c) The payments, if any, shall be calculated separately for Pine Pulpwood, Hardwood Pulp


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