Exhibit 99.2
March 27, 2009
Kapstone Paper and Packaging
Corporation
Kapstone Kraft Paper Corporation
1101 Skokie Boulevard, Suite 300
Northbrook, Illinois, 60062
Attention: Andrea K. Tarbox
Re:
Limited Waiver and Amendment No. 2 to Note
Agreement
Ladies and Gentlemen:
This limited waiver and amendment
letter (this “ Letter ”) makes reference to that
certain Note Purchase Agreement, dated as of July 1, 2008 (as
amended by Amendment No. 1 thereto dated as of August 25,
2008, the “ Note Agreement ”), among Kapstone
Kraft Paper Corporation, a Delaware corporation (the “
Company ”), Kapstone Paper and Packaging Corporation,
a Delaware corporation (the “ Parent ”), and The
Prudential Insurance Company of America (“ Prudential
”). Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to such terms in the Note
Agreement, as amended hereby.
The Company has informed Prudential
that it intends to sell (the “ Proposed Sale ”)
certain of its assets relating to the Company’s “Ride
Rite Air Bag” division located in Fordyce, Arkansas to
Illinois Tool Works Inc. (or a subsidiary thereof) pursuant to that
certain Asset Purchase Agreement between the Company and the
Purchaser for an aggregate purchase price of not less than $36
million.
Consummation of the Proposed Sale
will result in a Senior Debt Prepayment Event. The Company
intends to prepay a portion of the Notes equal to the Ratable
Portion of the Notes (which Ratable Portion is expected to be
determined from aggregate Net Cash Proceeds of approximately $32.7
million as of the closing date of the Proposed Sale, after taking
into account $2.5 million of the purchase price that will be placed
in an escrow account, closing costs and taxes) with respect to such
Senior Debt Prepayment Event in accordance with paragraph 4E of the
Note Agreement (the “ Prepayment ”).
The Company acknowledges that, to
the extent the Proposed Sale and the related Prepayment do not
occur on or prior to March 31, 2009, an Event of Default may
exist under the Note Agreement as a result of the failure of the
Company to comply with the terms of paragraph 6A(1) (Total
Leverage Ratio) of the Note Agreement for the fiscal quarter ended
March 31, 2009 (the “ Applicable Event of Default
”);
The Parent and the Company have
requested that Prudential waive the Applicable Event of Default and
agree to amend the Note Agreement as more particularly set forth
below.
Subject to the terms and conditions
hereof, Prudential is willing to agree to such requests.
Accordingly, and in accordance with the provisions of paragraph 11C
of the Note Agreement, the parties hereto agree as
follows:
SECTION 1.
Limited Waiver .
(a)
Subject to the other terms and conditions of this Letter (including
the conditions precedent set forth in Section 3 hereof), but
regardless of whether or not the Proposed Sale and the related
Prepayment occur on or prior to March 31, 2009 or thereafter,
Prudential hereby waives the Applicable Event of Default for all
purposes of the Note Agreement; provided that such waiver
shall terminate on May 31, 2009 (the “ Termination
Date ”) and shall be of no further force and effect after
such Termination Date unless (i) the Proposed Sale, together
with the related Prepayment, has been consummated on or before
May 1, 2009 and (ii) after giving effect to the Proposed
Sale and related Prepayment, and taking into account any Debt
reasonably expected to be incurred in connection with the payment
of approximately $3.7 million of Earn-Out Obligations payable to
International Paper Company as a result of consummating the
Proposed Sale, the Company is in compliance on a pro forma basis
with the financial covenants set forth in paragraph 6A of the Note
Agreement as of March 31, 2009 (with the gain recognized from
the Proposed Sale, which is expected to be approximately $15.7
million on an after-tax basis, being deemed included in
Consolidated Net Income and EBITDA solely for purposes of
establishing such pro forma compliance as of March 31, 2009)
(subsections (a)(i) and (a)(ii) of this Section 1
being referred to hereinafter, collectively, as the “
Termination Conditions ”). Accordingly, so long
as the Termination Date shall not have occurred, Prudential shall,
subject to the terms and conditions set forth herein, forbear
exercising their rights and remedies arising exclusively as a
result of the Applicable Event of Default.
(b)
To the extent the Proposed Sale, together with the related
Prepayment, is not consummated on or before May 1, 2009, the
Company acknowledges and agrees that, unless the Required Holders,
in their sole discretion, further amend the Note Agreement or
otherwise agree in writing to continue this limited waiver beyond
the Termination Date, an unwaived Event of Default will exist under
the Note Agreement as of May 31, 2009, for which no grace
period or cure period shall apply, and the holders of the Notes may
pursue all rights and remedies available to them under the Note
Agreement, the Transaction Documents and applicable law. The
Company further acknowledges and agrees that to the extent any
Defaults or Events of Default (other than the Applicable Event of
Default) now ex
