<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-11
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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STRATEGIC TIMBER TRUST, INC.
(Exact name of registrant as specified in its governing instruments)
5 NORTH PLEASANT STREET
NEW LONDON, NEW HAMPSHIRE 03257
(603) 526-7800
(Address, including zip code, and telephone number, including area code, of
registrant's
principal executive offices)
C. EDWARD BROOM, PRESIDENT AND CHIEF EXECUTIVE OFFICER
STRATEGIC TIMBER TRUST, INC.
5 NORTH PLEASANT STREET
NEW LONDON, NEW HAMPSHIRE 03257
(603) 526-7800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
WILLIAM H. BRADLEY, ESQ. ROBERT V. JEWELL, ESQ.
THOMAS C. HERMAN, ESQ. CATHERINE S. GALLAGHER, ESQ.
SUTHERLAND ASBILL & BRENNAN LLP ANDREWS & KURTH L.L.P.
999 PEACHTREE STREET, N.E 600 TRAVIS, SUITE 4200
ATLANTA, GEORGIA 30309-3996 HOUSTON, TEXAS 77002-3090
(404) 853-8000 (713) 220-4200
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
BEING REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common stock, $.01 par value............. 19,090,000 $21.00 $400,890,000 $111,448
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</TABLE>
(1) Includes 2,490,000 shares that may be purchased pursuant to the
underwriters' over-allotment option.
(2) Estimated based on a bona fide estimate of the maximum aggregate offering
price solely for purposes of calculating the registration fee.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 27, 1999
PROSPECTUS
[COMPANY LOGO]
16,600,000 SHARES
STRATEGIC TIMBER TRUST, INC.
COMMON STOCK
$ PER SHARE
------------------
Strategic Timber Trust, Inc. acquires, owns and manages timberlands and
sells timber. We expect to qualify as a real estate investment trust (a "REIT")
for federal income tax purposes. We are selling 16,600,000 shares of our common
stock. The underwriters named in this prospectus may purchase up to 2,490,000
additional shares of common stock from us under certain circumstances.
This is an initial public offering. We currently expect the initial public
offering price to be between $19 and $21 per share, and we intend to apply to
have the common stock listed on the New York Stock Exchange under the symbol
"STG."
------------------
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 10 FOR MATERIAL RISKS THAT MAY AFFECT YOUR INVESTMENT IN THE
COMMON STOCK, INCLUDING:
- The volatility of timber prices will affect our financial results;
- Environmental and endangered species regulations may restrict timber
harvesting and impose liabilities on us, and may otherwise restrict our
ability to conduct our business;
- We may not be able to distribute as much cash to you as we currently
intend;
- We have no significant operating history and our management has never
operated a REIT or a public company;
- We may not be able to achieve our intended growth or manage it
effectively;
- Loss of certain key members of our senior management could make it more
difficult for us to achieve our business goals;
- Our financial results and cash flow will change from season to season;
- Losses of timber from fire and other causes are not insured;
- Tax laws do not require us to distribute to you as much of the cash we
generate as most other REITs must distribute;
- We will be taxed as a regular corporation if we fail to qualify as a
REIT; and
- Certain laws and provisions of our organizational documents limit
potential changes in our ownership or management and limit ownership of
our common stock by one person to 9.8% of all outstanding shares.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Initial Public Offering Price $ $
Underwriting Discount $ $
Proceeds to Strategic Timber Trust (before expenses) $ $
</TABLE>
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about
, 1999.
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SALOMON SMITH BARNEY
, 1999
<PAGE> 3
[COMPANY LOGO] STRATEGIC TIMBER TRUST, INC.
[MAP DEPICTING LOCATION OF REGISTRANT'S TIMBERLANDS AND SURROUNDING
MARKETS APPEARS HERE]
<TABLE>
<CAPTION>
PROXIMITY TO MARKETS
(CONVERTING
MILLS WITHIN
MERCHANTABLE TIMBER MARKET AREA OF
REGION ACRES PREDOMINANT SPECIES (THOUSAND CUNITS) PROPERTY)
------ ------- ------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
California 122,339 Second-growth redwood, 2,433 42
Douglas-fir, ponderosa pine,
true firs
Louisiana 82,009 Slash and loblolly pine 1,912 50
Oregon 232,621 Ponderosa pine, Douglas-fir 891 14
Washington 10,822 Douglas-fir, western 290 31
hemlock, cedar
------- ----- ---
Total 447,791 5,526 137
======= ===== ===
</TABLE>
<PAGE> 4
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with additional or different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information contained
in this prospectus is accurate as of any date other than the date on the front
of this prospectus.
---------------------
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
SUMMARY.............................. 1
The Company........................ 1
Summary Risk Factors............... 3
Structure and Formation of the
Company......................... 3
Summary of Equity Ownership of the
Company......................... 5
Benefits to Related Parties........ 5
Distributions...................... 6
The Offering....................... 6
Tax Status......................... 7
Summary Selected Pro Forma
Financial and Operating
Information..................... 8
RISK FACTORS......................... 10
The Volatility of Timber Prices
Will Affect Our Financial
Results......................... 10
Environmental and Endangered
Species Regulations May Restrict
Timber Harvesting and Impose
Liabilities on Us, and May
Otherwise Restrict Our Ability
to Conduct Our Business......... 10
We May Not Be Able to Distribute as
Much Cash to You as We Currently
Intend.......................... 11
We Have No Significant Operating
History and Our Management Has
Never Operated a REIT or a
Public Company.................. 11
We May Not Be Able to Achieve Our
Intended Growth or Manage It
Effectively..................... 12
We Rely on Certain Key Members of
Our Senior Management........... 12
Our Financial Results and Cash Flow
Will Change from Season to
Season.......................... 13
Losses of Timber from Fire and
Other Causes Are Not Insured.... 13
Tax Laws Do Not Require Us to
Distribute to You as Much of the
Cash We Generate as Most Other
REITs Must Distribute........... 13
We Will Be Taxed as a Regular
Corporation if We Fail to
Qualify as a REIT............... 13
Certain Factors Limit Changes in
Our Ownership or Management..... 14
Our Actual Timber Inventory May Be
Less Than Our Current
Estimates....................... 14
International Operations Entail
Certain Risks................... 14
Our Stock Has Had No Prior Trading
Market.......................... 15
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
You Will Incur Immediate Dilution
of Your Common Stock............ 15
Some Members of Management and
Other Continuing Investors Could
Have Conflicts of Interest...... 15
Shares Eligible for Sale in the
Future May Reduce the Market
Price of Our Common Stock....... 16
We May Change Our Investment,
Financing and Other Policies
Without Your Approval........... 16
Other Tax Risks.................... 17
DISTRIBUTIONS........................ 18
STRUCTURE AND FORMATION OF THE
COMPANY............................ 20
Company Structure.................. 20
Formation of the Company........... 20
Benefits to Related Parties........ 21
USE OF PROCEEDS...................... 23
CAPITALIZATION....................... 24
DILUTION............................. 25
SELECTED HISTORICAL FINANCIAL AND
OPERATING INFORMATION.............. 26
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION.............. 30
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...................... 39
Overview........................... 39
Prospective Results of
Operations...................... 39
Liquidity and Capital Resources.... 41
Commitments and Contingencies...... 44
Historical Results of Operations... 45
Year 2000.......................... 49
Market Risk........................ 51
BUSINESS AND PROPERTIES.............. 52
Overview........................... 52
Business Strategy.................. 54
Competitive Strengths.............. 56
Industry Overview.................. 58
Initial Timberland Properties...... 62
Harvest Methods.................... 69
Access and Limitations on Access... 70
Federal and State Regulations...... 70
Customers.......................... 74
Competition........................ 74
Insurance Coverage................. 75
Legal Proceedings.................. 75
Employees.......................... 75
</TABLE>
i
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
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<S> <C>
POLICIES WITH RESPECT TO CERTAIN
ACTIVITIES......................... 76
Investment Policies................ 76
Financing Policies................. 76
Working Capital Reserves........... 77
Conflict of Interest Policies...... 78
Reports to Shareholders............ 79
Other Policies..................... 79
MANAGEMENT........................... 80
Directors and Executive Officers... 80
Management Relationships........... 82
Committees of the Board of
Directors....................... 83
Executive Compensation............. 83
Compensation of Directors.......... 84
1999 Incentive Plan................ 84
Employment and Non-Competition
Agreements...................... 86
Compensation Committee Interlocks
and Insider Participation....... 87
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS....................... 88
PRINCIPAL SHAREHOLDERS............... 89
DESCRIPTION OF CAPITAL STOCK OF THE
COMPANY............................ 90
General............................ 90
Common Stock....................... 90
Transfer Agent and Registrar....... 90
Preferred Stock.................... 90
Restrictions on Ownership and
Transfer of Shares.............. 91
New York Stock Exchange Listing.... 92
CERTAIN PROVISIONS OF GEORGIA LAW AND
THE COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS........... 93
Ownership Limit.................... 93
Business Combination Provisions of
Georgia Law..................... 93
The Board of Directors............. 94
Special Meetings of Shareholders;
Consents........................ 95
Preferred Stock.................... 95
Advance Notice of Director
Nominations and New Business.... 95
Supermajority Vote Requirements for
Certain Matters................. 95
Amendment of Articles of
Incorporation and Bylaws........ 95
Limitation of Liability and
Indemnification................. 96
</TABLE>
<TABLE>
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PAGE
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<S> <C>
Insurance Policies................. 97
SHARES AVAILABLE FOR FUTURE SALE..... 98
General............................ 98
Registration Rights................ 99
THE PARTNERSHIP AGREEMENT............ 100
Management......................... 100
No Removal of the General Partner;
Transfer of the General
Partner's and the Company's
Interests....................... 100
Amendments to the Partnership
Agreement....................... 100
Transfer of Partnership Units;
Substitute Limited Partners..... 100
Redemption of Partnership Units.... 101
Issuance of Additional Limited
Partnership Interests;
Additional Capital
Contributions................... 101
Other Covenants.................... 101
Exculpation and Indemnification of
the General Partner............. 101
Tax Matters........................ 102
Term............................... 102
FEDERAL INCOME TAX CONSEQUENCES...... 103
Legal Opinions..................... 103
Taxation of the Company............ 104
Taxation of Taxable U.S.
Shareholders of the Company..... 110
Taxation of Tax-Exempt Shareholders
of the Company.................. 112
Taxation of Non-U.S. Shareholders
of the Company.................. 112
Tax Aspects of the Company's
Ownership of Interests in the
Partnership..................... 115
Other Taxes........................ 117
ERISA CONSIDERATIONS................. 119
General............................ 119
Status of the Company and the
Partnership under ERISA......... 120
UNDERWRITING......................... 122
EXPERTS.............................. 124
LEGAL MATTERS........................ 124
ADDITIONAL INFORMATION............... 124
GLOSSARY OF SELECTED TIMBER INDUSTRY
TERMS.............................. 125
INDEX TO FINANCIAL STATEMENTS........ F-1
</TABLE>
Until , 1999, all dealers that buy, sell or trade the common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
ii
<PAGE> 6
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
- Throughout this prospectus, when we say "we," "us," "STT" or the
"Company," we generally mean Strategic Timber Trust, Inc., a Georgia
corporation, and its subsidiaries. These subsidiaries include Strategic
Timber Partners, LP, a Delaware limited partnership, and Pioneer
Resources, LLC, an Oregon limited liability company. If the context
requires, "STT" or the "Company" may refer to Strategic Timber Trust,
Inc. without its subsidiaries.
We operate our business through Strategic Timber Partners, LP, which we
refer to as our "operating partnership" or the "Partnership" in this
prospectus. We own all the stock of the sole general partner of the
Partnership, a company called Strategic Timber Operating Co., a Delaware
corporation, which we refer to as "STOC" in this prospectus.
- We include cross-references in this prospectus to other parts of this
prospectus where you can find further related discussions. The Table of
Contents provides the pages on which you can find these discussions.
- You can find the definitions of certain terms specific to the timber
industry in "Glossary of Selected Timber Industry Terms" beginning on
page 126 in this prospectus.
- Unless otherwise indicated, the information in this prospectus assumes
that (i) the transactions described under "Structure and Formation of the
Company" are completed, (ii) the initial public offering price is $20 per
share (the mid-point of the range of anticipated initial public offering
prices), and (iii) the underwriters' over-allotment option is not
exercised.
- Unless otherwise indicated, all share and per share information in this
prospectus has been adjusted to reflect a 36.59-for-1 common stock split,
which will occur prior to completion of this offering.
FORWARD-LOOKING STATEMENTS
Certain statements in this prospectus represent our expectations for the
Company and the common stock only as of the date of this prospectus. You can
generally identify these forward-looking statements by the use of the words
"may," "will," "expects," "intends," "estimates," "anticipates" or "believes" or
similar language.
We believe the expectations expressed in all forward-looking statements are
reasonable and accurate based on information we currently have. However, our
expectations may not prove to be correct. Important factors that could cause
actual results to differ from our expectations are disclosed under "Risk
Factors" and in other parts of this prospectus.
We will not report to the public any changes to any forward-looking
statements to reflect events, developments or circumstances that occur after the
date of this prospectus.
iii
<PAGE> 7
SUMMARY
This section summarizes information contained in other parts of this
prospectus. This summary does not contain all of the information you should
consider before investing in our common stock. You should read the entire
prospectus carefully before deciding to invest in our common stock.
THE COMPANY
We acquire, own and manage timberlands and sell timber. We currently own
approximately 448,000 acres of timberlands in the states of California,
Louisiana, Oregon and Washington. These timberlands generally contain premium
species of timber with a variety of end uses and are located in active and
competitive timber markets.
We expect our operations to generate substantial cash. Our revenues will
come primarily from the sale of timber. Our ongoing cash operating expenses,
working capital and capital expenditures will be substantially lower than for
integrated forest products companies that operate timber conversion facilities.
As a result, we believe the cash we will generate from our operations will
substantially exceed our earnings for accounting purposes.
We will elect to be taxed as a real estate investment trust or "REIT" for
federal income tax purposes. Because of the nature of our income, the tax rules
that generally require REITs to distribute substantially all of their earnings
to shareholders will not apply to us. We intend to use this flexibility to
retain a substantial part of the cash we generate to acquire additional
timberlands. We also expect to distribute a portion of our cash to you. These
distributions will generally be treated as either tax-free return of capital or
as capital gains.
Our primary objective is to maximize long-term shareholder value through
growth. We believe we are well positioned to do this because of:
- timber's attractive characteristics as an investment asset;
- our management's experience in acquiring and managing timberlands;
- the number of opportunities that we believe exist for timberland
acquisitions;
- the quality and geographic diversity of our initial timberlands; and
- our tax-efficient REIT structure.
WHY WE BELIEVE TIMBER IS AN ATTRACTIVE INVESTMENT ASSET
- Timber is a growing and renewable asset, unlike natural resources such as
minerals, oil and natural gas.
- Trees grow predictably, and as they grow they generally become worth more
per unit of volume because the logs they produce have higher value end
uses.
- Timber owners have flexibility to harvest more trees when local timber
prices are high. When local timber prices are low, owners can harvest
less and let their timber continue to grow.
- We expect consumption of wood and wood products both in the United States
and internationally to increase over the foreseeable future. By contrast,
worldwide timber harvests have been declining in recent years.
- Historically, timber prices in the United States have risen faster than
inflation over the long term.
1
<PAGE> 8
HOW WE INTEND TO CAPITALIZE ON TIMBER AS AN INVESTMENT OPPORTUNITY
- We will focus on owning timberlands and selling timber.
- We intend to acquire additional timberlands and capitalize on the growing
trend toward consolidation of timberland ownership. We believe this trend
will be driven by the desire of integrated forest products companies to
recognize greater value from their timberland assets. We also believe
this trend will be driven by private timberland owners who lack the scale
of operations needed to manage their timberland assets efficiently and
who seek greater liquidity and diversification of their timberland
ownership.
- We will actively manage our timberlands to enhance the natural growth of
our timber.
- We will develop marketing plans to increase the amount of cash produced
by our timber sales and reforestation plans to increase the long-term
value of our timberlands. Our current timber sales plan takes into
account the environmental and regulatory restrictions on harvesting that
currently affect our timberlands.
WHY WE THINK WE WILL SUCCEED
- Our management has substantial experience in the acquisition, ownership
and management of timberlands. Since 1985, members of our management have
participated in a series of investments in timberland in the United
States, Latin America and New Zealand as principals, investment managers
and investment advisors.
- Our timberlands are geographically spread out and generally are located
in active and competitive markets and contain premium species of timber
with a variety of end uses.
- We own timberlands and not lumber mills, paper mills or other wood
conversion facilities. This frees us from the conflicts that frequently
exist within the paper and forest products industry between providing
consistent timber supplies to captive conversion facilities and managing
forests for growth to increase timberland value.
- We believe that we are a preferred purchaser of timberlands from other
forest products companies because we do not compete with their
manufacturing operations.
- The tax rules that generally require REITs to distribute substantially
all of their earnings to shareholders will not apply to us. We intend to
use this flexibility to retain a substantial part of the cash that we
generate to acquire additional timberlands.
- Our structure allows us to acquire timber properties in a tax-advantaged
manner. A timberland owner can contribute timberlands to us in exchange
for interests in our operating partnership. This will permit these owners
to defer the tax on their gains while diversifying and obtaining
liquidity for their timberland assets.
HOW TO CONTACT US
Our principal executive offices are located at 5 North Pleasant Street, New
London, New Hampshire 03257, and our telephone number is (603) 526-7800.
2
<PAGE> 9
SUMMARY RISK FACTORS
You should carefully consider, among other factors, the matters discussed
under "Risk Factors" in this prospectus before deciding whether to invest in our
common stock. We have summarized below some of these risk factors.
- Because timber prices are volatile, our financial results and cash flow
will likely fluctuate, and this may, from time to time, reduce the amount
of cash we pay to you.
- Environmental and endangered species regulations may restrict timber
harvesting and impose liabilities on us, and may otherwise restrict our
ability to conduct our business.
- We may not be able to distribute as much cash to you as we currently
intend.
- We have no significant operating history and our management has never
operated a REIT or a public company.
- We may not be able to achieve our intended growth or manage it
effectively.
- We rely on the business experience and contacts of our senior management.
If we lose certain key members of our senior management, it may be more
difficult for us to achieve our business goals.
- Our financial results and cash flow will change from season to season.
- Losses of timber from fire and other causes are not insured.
- Tax laws do not require us to distribute to you as much of the cash we
generate as most other REITs must distribute, and we intend to retain a
substantial portion of this cash to acquire additional timberlands.
- We will be taxed as a regular corporation if we fail to qualify as a
REIT.
- Certain laws and provisions of our organizational documents may delay or
prevent a change in our ownership or management that might be in your
best interests. These provisions limit ownership of our common stock by
one person to 9.8% of all outstanding shares.
- Our actual timber inventory may be less than our current estimates.
- We may invest in timberlands in countries outside the United States.
These investments may be riskier than investments in domestic
timberlands.
- The lack of a prior market for the common stock, changes in timber prices
and interest rate fluctuations could reduce the market price of our
common stock.
- By purchasing common stock in this offering, you will incur immediate
dilution of $3.91 per share, based on an initial public offering price of
$20 per share.
- Some members of our management and other continuing investors could have
conflicts of interest.
- Shares available for sale in the future may reduce the market price of
our common stock.
- We may change our investment, financing and other policies without your
approval.
- You should consider other tax-related risks. If you are a non-United
States investor, you should consider issues under the Foreign Investment
in Real Property Tax Act (FIRPTA).
3
<PAGE> 10
STRUCTURE AND FORMATION OF THE COMPANY
Shortly after we formed the Company and our operating partnership in April
1998, we acquired approximately 88,000 acres of timberland in southwest
Louisiana. We financed the transaction through a combination of bank loans and
the issuance of units in our operating partnership to the sellers. In October
1998, our initial shareholders formed companies to acquire Pioneer Resources,
LLC, an entity that held approximately 366,000 acres of timberland in the U.S.
Pacific Northwest. The acquisition was financed through a combination of bank
loans, the issuance of units to the sellers, and an additional equity
contribution by a company affiliated with the sellers of the Louisiana property.
At the completion of this offering, the companies formed in October will be
merged into our operating partnership. As a result, our operating partnership
will control all of our timberlands.
At the completion of this offering, we will have sold 16,600,000 shares of
common stock to the public and received net proceeds (after deducting expenses
from this offering) of $306.4 million, based on an initial public offering price
of $20 per share. We will use the net proceeds of this offering, together with
borrowings under a new credit facility, primarily to: (i) repay in full $509.4
million that we borrowed to acquire our timberlands and (ii) redeem $47.0
million of the existing units held by persons who sold timberland properties to
us. See "The Partnership Agreement -- Redemption of Partnership Units" and "Use
of Proceeds."
As a result of this offering and the transactions described above, our
structure will be as follows:
Public Shareholders (96.1%)
Continuing Investors (3.9%)(1)
Strategic Timber Trust, Inc.
Common Stock Continuing
(100% of Shares) Investors
Strategic Timber Limited Partner Limited Partner
Operating Co. Interest (76.7%) Interest (22.3%)
General Partner
Interest (1.0%)
Strategic Timber Partners, LP
(holds all investment properties)(2)
- ---------------
(1) This amount includes 671,770 shares of common stock held by our management
and others before this offering. This amount does not include 1,115,000
shares of common stock issuable upon the exercise of options we will grant
at the completion of this offering under our stock incentive plan. See
"Principal Shareholders" and "Management -- 1999 Incentive Plan."
(2) The operating partnership directly owns all of our timberlands, except for
the Pacific Northwest timberlands, which are owned by Pioneer Resources.
Upon completion of this offering, the operating partnership will own all of
the membership interests in Pioneer Resources.
4
<PAGE> 11
SUMMARY OF EQUITY OWNERSHIP OF THE COMPANY
After we complete this offering and the formation transactions, the
ownership of the Company will be as follows:
<TABLE>
<CAPTION>
COMMON STOCK(1)
-------------------------------------------------
PERCENTAGE BEFORE PERCENTAGE ASSUMING
CONVERSION OF UNITS CONVERSION OF ALL UNITS(2)
------------------- --------------------------
<S> <C> <C>
OWNERSHIP OF THE COMPANY
Public Shareholders.................................. 96.1% 74.7%
Management........................................... 3.6 7.2
Other Continuing Investors........................... 0.3 18.1
----- -----
100.0% 100.0%
===== =====
</TABLE>
- ---------------
(1) Amounts do not include 1,115,000 shares of common stock issuable upon the
exercise of options we will grant at the completion of this offering under
our stock incentive plan. See "Principal Shareholders" and
"Management -- 1999 Incentive Plan."
(2) Assumes that all members of management and other continuing investors
convert all of their units into shares of our common stock.
BENEFITS TO RELATED PARTIES
Certain of our affiliates will obtain benefits as a result of this offering
and the formation transactions:
- Each of the following executive officers owns the following aggregate
number of shares of common stock and units: C. Edward Broom, 408,329;
Christopher J. Broom, 408,329; Thomas P. Broom, 408,329; Nicholas C.
Brunet, 90,740; Vladimir Harris, 90,740; and Joseph E. Rendini, 90,740.
These shares and units have a total value of $29.9 million, based on an
initial public offering price of $20 per share. The shares and units were
issued to the executive officers named above in return for services
rendered. These executive officers and Kenneth L. Chute, who joined us in
January 1999 as our Chief Financial Officer, will also receive options to
acquire a total of 875,000 shares of our common stock at the initial
public offering price that vest in equal amounts over the three years
following completion of this offering.
- We have employment agreements with Messrs. C. Edward Broom, Christopher
J. Broom, Thomas P. Broom, Kenneth L. Chute, Nicholas C. Brunet, Vladimir
Harris and Joseph E. Rendini.
- Louisiana Timber Partners, LLC, the company that sold us the right to
acquire the Louisiana property, will receive $12.9 million in cash in
redemption of a portion of its units, and will own 1,762,974 units upon
completion of this offering. Hanns A. Pielenz, who has agreed to serve on
our Board of Directors, and Larry J. Woodard are the principal owners of
Louisiana Timber Partners. The units retained by Louisiana Timber
Partners will have a value of $35.3 million, based on an initial public
offering price of $20 per share. Louisiana Timber Partners acquired its
units in exchange for the contribution to our operating partnership of a
contract to acquire the Louisiana property.
- Mach One Partners, LLC, a separate company owned equally by Messrs.
Pielenz and Woodard, will receive $10.0 million in cash and 100,110 units
at the completion of this offering in redemption of its interest in
Strategic Timber Partners II, LP, which will be merged into our operating
partnership. These units will have a value of $2.0 million, based on an
initial public offering price of $20 per share. Mach One acquired its
interest in Strategic Timber Partners II in exchange for a cash
contribution of $10.0 million that was used to finance our acquisition of
Pioneer Resources.
- In connection with our acquisition of Pioneer Resources, we paid $35.0
million in cash and issued interests in Strategic Timber Partners II to
the former members of Pioneer Resources, including
5
<PAGE> 12
Gregory M. Demers. Mr. Demers and a company owned by him beneficially
owned 76.5% of Pioneer Resources at the time of the acquisition. Upon
completion of this offering and the merger of Strategic Timber Partners
II into our operating partnership, Mr. Demers and his company will
receive $18.4 million in cash in redemption of a portion of their
interests in Strategic Timber Partners II and will beneficially own
1,660,333 units. These units will have a value of $33.2 million, based on
an initial public offering price of $20 per share.
- In connection with our acquisition of Pioneer Resources, T. Yates Exley,
one of the former members of Pioneer Resources and one of our Vice
Presidents, received an interest in Strategic Timber Partners II. Mr.
Exley will receive $1.2 million in cash and 108,516 units in redemption
of this interest upon completion of this offering. These units will have
a value of $2.2 million, based on an initial public offering price of $20
per share.
You should review "Certain Relationships and Related Transactions" for
additional information concerning benefits to executive officers, directors and
other continuing investors.
DISTRIBUTIONS
We intend to pay regular quarterly cash distributions to you. Our Board of
Directors will determine how much cash we can pay out based upon our financial
results, available cash flow, possible acquisitions and capital requirements, as
well as economic conditions, tax and REIT considerations and other factors. Our
belief that we can make these distributions to you is based upon a number of
assumptions we have made regarding future operations. However, if any of those
assumptions prove to be incorrect, we may not be able to pay to you as much cash
as we intend.
We expect that our first cash distribution, for the period ending June 30,
1999, will be a pro rata share of our expected initial quarterly distribution of
$0.175 per share. This equals a distribution of $0.70 per share each year, or
3.5% of the initial public offering price, assuming that price is $20 per share.
We intend to maintain this distribution amount unless our actual financial
results, available cash flow, possible acquisitions and capital requirements, as
well as economic conditions, tax and REIT considerations or other factors differ
significantly from the assumptions we used to calculate the initial estimated
distribution amount. In addition, our credit facilities may limit or restrict
our ability to make cash distributions to you.
Tax rules generally require REITs to distribute substantially all of their
ordinary income to their shareholders. Because substantially all of our income
will be treated as capital gain, however, these rules will not apply to us.
You should review "Distributions," "Risk Factors -- We May Not Be Able to
Distribute as Much Cash to You as We Currently Intend," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Federal
Income Tax Consequences" for additional information concerning our intended
distributions.
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<PAGE> 13
THE OFFERING
Common stock we are offering........ 16,600,000 shares
Common stock to be outstanding after
this offering(1).................. 17,271,770 shares
Common stock and units to be
outstanding after this
offering(1)(2).................... 22,237,975 shares and units
Use of Proceeds..................... Primarily to repay indebtedness and to
redeem the interests of some of the
continuing investors.
Proposed NYSE symbol................ We intend to apply for listing on the
NYSE under the trading symbol "STG."
- ---------------
(1) The number of shares of common stock outstanding excludes 1,115,000 shares
issuable upon the exercise of options we will grant at the completion of
this offering under our stock incentive plan, and any other shares that may
be issued in the future under our stock incentive plan. See "The Partnership
Agreement," "Structure and Formation of the Company" and "Management -- 1999
Incentive Plan."
(2) Each unit is redeemable for cash or, at our option, for one share of our
common stock.
TAX STATUS
We plan to elect to be taxed as a REIT for federal income tax purposes
beginning with our 1998 tax year. Sutherland Asbill & Brennan LLP has acted as
our counsel in connection with this offering and our election to be taxed as a
REIT. Based on certain assumptions and factual representations we made to it,
Sutherland Asbill & Brennan LLP is of the opinion that we will meet the
requirements to qualify as a REIT for federal income tax purposes, and that our
proposed method of operation will enable us to continue to meet the requirements
for qualification and taxation as a REIT.
As a REIT, we generally will not be subject to federal income taxes on the
portion of our net income that we distribute to you. See "Distributions" for a
discussion of this requirement in our specific circumstances. We may, however,
be subject to certain federal income taxes and certain state and local taxes on
our income and property. See "Risk Factors -- We Will Be Taxed as a Regular
Corporation if We Fail to Qualify as a REIT," " -- Other Tax Risks" and "Federal
Income Tax Consequences."
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<PAGE> 14
SUMMARY SELECTED PRO FORMA FINANCIAL AND OPERATING INFORMATION
In this section, we have provided you with a summary of the unaudited pro
forma financial information. The pro forma balance sheet data presents our pro
forma financial condition as if the formation transactions and this offering had
occurred as of October 9, 1998. The pro forma operating data for the year ended
December 31, 1997 and for the nine months ended September 30, 1998 present our
pro forma operating results as if this offering and certain of the formation
transactions had occurred as of January 1, 1997. The pro forma operating data
include:
- the historical results of Pioneer Resources (our predecessor operation),
as adjusted to eliminate the results of operations and related assets and
liabilities we did not acquire, and to recognize revenues and costs of
Pioneer Resources' sales that were previously eliminated for financial
reporting purposes;
- the historical results from our Louisiana property only from April 27,
1998, the date we purchased these timberlands; and
- the historical results from the Coastal forest portion of our Pacific
Northwest timberlands only from July 5, 1998, the date Pioneer Resources
purchased these timberlands.
The pro forma operating data, however, do not include the historical
results of the Louisiana property prior to the date we purchased these
timberlands. We acquired these timberlands from an unrelated family group that
did not actively manage the property for commercial timber operations. The pro
forma operating data also do not include the historical results of the Coastal
forest portion of the Pacific Northwest timberlands prior to the purchase of
these timberlands by Pioneer Resources in July 1998. We believe that there is
limited continuity between the prior operation of the Coastal forest and Pioneer
Resources' actual (and our intended) forestry activities on these timberlands.
Because of the lack of continuity of operations before and after these
purchases, we believe that inclusion of historical financial information for the
Louisiana property and the Coastal forest in the pro forma operating data prior
to the dates of acquisition would not be helpful to your understanding of our
business or operations.
This section is a summary. We have included more complete pro forma
financial information in other parts of this prospectus. We urge you to read
this summary together with "Structure and Formation of the Company," "Pro Forma
Condensed Consolidated Financial Information," "Selected Historical Financial
and Operating Information" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," as well as with the historical
financial statements and accompanying notes located elsewhere in this
prospectus.
The pro forma financial information does not necessarily indicate what our
financial condition or results of operations actually would have been if all of
our pro forma assumptions were correct. Furthermore, we do not believe that this
information is indicative of our financial position and results of operations in
the future.
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<PAGE> 15
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $60,304 $38,181
Cost of products sold....................................... 5,479 11,014
Cost of timber and property sales........................... 6,116 2,250
Depletion, depreciation and amortization (a)................ 34,092 17,079
Selling, general and administrative expenses................ 5,502 6,284
Operating income............................................ 9,115 1,554
Minority interest........................................... (217) 1,764
Income (loss) from continuing operations.................... 920 (7,963)
Basic income (loss) from continuing operations per share.... $ 0.05 $ (0.46)
Diluted income (loss) from continuing operations per
share..................................................... 0.04 (0.46)
Weighted average number of shares used in the calculation of
income (loss) from continuing operations per share:
Basic..................................................... 17,272 17,272
Diluted................................................... 22,238 17,272
OTHER DATA:
EBITDDA (b)................................................. $49,323 $20,883
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 9,
1998
---------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Timberlands................................................. $616,307
Total assets................................................ 620,665
Long-term debt.............................................. 260,214
Minority interest........................................... 72,778
Shareholders' equity........................................ 286,425
</TABLE>
- ---------------
(a) The calculation of depletion is based on the capitalized cost of the timber
harvested (including our cost of acquisition and any silvicultural
activities) divided by available timber volume to be harvested, based on a
timber survey.
(b) EBITDDA is operating income, plus other income, depletion, depreciation and
amortization, and cost of timber and property sales. EBITDDA is provided
because we believe EBITDDA provides useful information for evaluating our
potential ability to make cash distributions. You should not construe
EBITDDA to be an alternative to operating income (as an indicator of our
operating performance) or an alternative to cash flow from operating
activities (as a measure of liquidity). EBITDDA is not a financial measure
determined in accordance with generally accepted accounting principles and
may not be comparable to similarly titled measures of other companies.
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<PAGE> 16
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should
carefully consider the following risk factors, as well as the other information
presented in this prospectus, in deciding whether to invest in our common stock.
Each of these factors could adversely affect the market price of our common
stock, our financial results and our ability to distribute cash to you.
THE VOLATILITY OF TIMBER PRICES WILL AFFECT OUR FINANCIAL RESULTS
CHANGES IN SUPPLY AND DEMAND AFFECT TIMBER PRICES AND OUR REVENUES
The volatile nature of timber prices can reduce our revenues. The market
price for timber can change substantially, based on changes in supply and
demand, especially for particular species or in a particular geographic area.
Decreases in demand, increases in supply, or both, may reduce prices for our
timber, which in turn could reduce our revenues and hurt our financial results.
The industries that use wood products drive the demand for timber. The vast
majority of our timberlands are stocked with softwood sawtimber. The demand for
most softwood sawtimber depends on the level of construction, repair and
remodeling activity. Interest rates and other local, national and international
economic conditions affect the level of construction, repair and remodeling
activity. A slowdown in construction is likely to reduce demand for our timber,
which would reduce our revenues. Wood substitutes and lower quality wood
products increasingly compete with higher quality sawtimber, which may also
reduce demand for our timber.
Pulpwood (which comes from both softwood and hardwood trees) is used to
make paper, packaging materials, tissue and similar products. Demand for
pulpwood is affected by the general level of economic activity.
The number of timber sellers and the volume of timber they have available
for sale determine the supply of timber. Historically, increases in timber
prices have caused owners of timberlands to cut more trees. This increase in
supply partly offsets price increases. Certain government agencies, principally
the United States Forest Service and the Bureau of Land Management, have the
ability to affect the market for timber significantly due to their large
timberland holdings. Any substantial increase in sales of timber from government
lands could significantly reduce timber prices. The supply of timber available
for harvest is also affected by, among other things, environmental and other
legal restrictions on harvesting, self-imposed restrictions on harvesting
attributable to timberland management decisions, and natural events that destroy
trees or entire forests, such as insect infestation, severe weather and fire.
See "Business and Properties -- Industry Overview -- Timber Demand, Supply and
Prices."
WEAK EXPORT MARKETS MAY REDUCE DEMAND FOR OUR TIMBER
Weak overseas markets for wood and wood products, including weak demand in
Asia due to its current economic crisis, and the resulting increase in domestic
supply have reduced and may continue to reduce the prices that we can obtain for
our timber.
ENVIRONMENTAL AND ENDANGERED SPECIES REGULATIONS MAY RESTRICT TIMBER HARVESTING
AND IMPOSE LIABILITIES ON US, AND MAY OTHERWISE RESTRICT OUR ABILITY TO CONDUCT
OUR BUSINESS
THE PRESENCE OF ENDANGERED OR THREATENED SPECIES MAY RESTRICT HARVESTING
Federal, state and local laws and regulations intended to protect
threatened and endangered species restrict certain activities on our lands,
including timber harvesting and road building. We are not allowed to disturb the
habitat of a protected species. A number of species that naturally live on or
near our timberlands, including the red cockaded woodpecker, peregrine falcon,
bald eagle, spotted owl, marbled murrelet, bull trout and coho salmon, are
protected under the Federal Endangered Species Act and similar state laws. The
Company expects that these laws and regulations will become more restrictive
over time. See "Business and Properties -- Federal and State
Regulations -- Endangered Species Law."
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<PAGE> 17
OTHER REGULATIONS AND ENVIRONMENTAL RISKS MAY ADVERSELY AFFECT US
Our operations and properties are also subject to laws and regulations
governing forestry operations, the environment, and health and safety. Some of
these laws and regulations could impose significant costs, penalties and
liabilities on us for violations or existing conditions whether or not we caused
or knew about them. Our lands are also subject to laws and regulations designed
to protect wetlands, which may in the future restrict harvesting, road building
and other activities. Compliance with, or damages or penalties for violating,
current and future laws and regulations could result in significant expense.
Our Louisiana property contains natural gas and oil wells and pipelines
that have been and will continue to be operated by third parties. The operation
of those wells and pipelines involves certain hazards, such as well blowouts,
cratering, explosions, uncontrollable flows of oil or well fluids, fires,
formations with abnormal pressures, pollution, pipeline ruptures and spills,
releases of toxic gas and other environmental hazards and risks. The occurrence
of any of these events could cause us to incur substantial losses and could
negatively affect our financial results. In addition, we may be liable for any
environmental damage caused by operators of natural gas and oil wells and
pipelines on our Louisiana property.
WE MAY ACQUIRE PROPERTIES SUBJECT TO ENVIRONMENTAL AND OTHER LIABILITIES
We may acquire timberlands subject to environmental liabilities and certain
other existing or potential liabilities. We may not be able to recover any of
these liabilities from the sellers of these properties. In addition, we could be
subject to claims or losses under environmental laws for conditions that are not
revealed by investigations of those properties by environmental consultants.
WE MAY NOT BE ABLE TO DISTRIBUTE AS MUCH CASH TO YOU AS WE CURRENTLY INTEND
Our belief that we will be able to distribute cash to you in regular
quarterly amounts is based on certain assumptions about our operating
conditions, which are described under "Distributions." If any of these
assumptions turns out to be incorrect, we may not be able to distribute as much
cash to you as we currently intend or possibly any at all. Our ability to
distribute cash to you in regular quarterly amounts is also likely to be
affected by:
- the volatility of timber prices;
- timing and amounts of capital expenditures;
- required interest and principal payments on our debt and other
restrictions in our debt instruments;
- costs incurred in connection with acquisitions of timber property;
- our issuance of debt securities, preferred stock, more common stock or
other securities with an equal or greater right to receive cash payments;
and
- other factors, some of which are beyond our control.
In particular, we may reduce sales of our timber for harvest during weak
markets, which may restrict our ability to distribute cash during those periods.
WE HAVE NO SIGNIFICANT OPERATING HISTORY AND OUR MANAGEMENT HAS NEVER OPERATED A
REIT OR A PUBLIC COMPANY
The Company and the operating partnership were formed in April 1998 and
neither entity has any significant operating history. Some of our initial
timberlands have relatively short or no operating history under our management
and some of our initial timberlands have no operating history at all. For
example, prior to our acquisition of the Louisiana property in April 1998, these
timberlands had not been actively managed as a commercial timber property. In
addition, prior to the acquisition of our Pacific Northwest timberlands in
October 1998, these timberlands were managed as part of Pioneer Resources'
overall
11
<PAGE> 18
business, which included the operation of converting facilities. Thus, the
financial statements contained in this prospectus may not be helpful to your
understanding of our business, operations or prospects.
Although some of our executive officers and directors have substantial
experience in the timber industry and managing timberlands held for investment,
none of the members of our management has prior experience operating a
publicly-owned corporation or operating a REIT.
WE MAY NOT BE ABLE TO ACHIEVE OUR INTENDED GROWTH OR MANAGE IT EFFECTIVELY
Over time, we intend to grow by acquiring additional timberland properties.
Our ability to acquire any property will be subject to a number of factors
beyond our control, such as competition from other purchasers for particular
timber properties, our ability to obtain any financing we need to purchase the
property, and the overall availability of timber properties. We intend to issue
units as consideration for some of these acquisitions because this would allow
the sellers to defer taxes on their gain from these sales. Any decrease in the
market price of our common stock could make it more difficult for us to do this.
We compete with traditional paper and forest products companies, other
public and private timber investment firms, governmental entities and
preservationist groups for U.S. timber properties. Many of our competitors have
substantially greater financial resources than we do. Competition for these
properties may increase prices and may make it difficult for us to acquire
timberlands at prices that are acceptable to us. Similar competitive forces may
make quality international timber properties more expensive. See "Business and
Properties -- Competition."
Any acquisition that we make will involve numerous risks, which could
include some or all of the following:
- incurrence of additional debt, repayment of which may adversely affect
our cash flow and financial results;
- issuance of more common stock, units or preferred stock, which may dilute
the value of our outstanding common stock;
- assumption of liabilities that we are unaware of at the time of the
acquisition (such as environmental liabilities);
- uncertainties associated with operating in new markets; and
- difficulties in combining operations of the acquired company or
timberlands with our other operations.
Our acquisition strategy includes exploring acquisition opportunities
outside the United States, especially in undeveloped or underdeveloped markets.
In addition to the risks mentioned above, international acquisitions will
involve the risks described under "-- International Operations Entail Certain
Risks."
WE RELY ON CERTAIN KEY MEMBERS OF OUR SENIOR MANAGEMENT
Our ability to achieve our business goals may depend on the continued
employment of certain key members of our senior management who have substantial
experience and contacts. If one or more of them becomes unable or unwilling to
continue to work for us, the lack of his or their participation may hurt our
business and financial results. Even though we have employment and
non-competition agreements with each of these executive officers, any of these
executive officers could still stop working for us. See
"Management -- Employment and Non-Competition Agreements."
12
<PAGE> 19
OUR FINANCIAL RESULTS AND CASH FLOW WILL CHANGE FROM SEASON TO SEASON
The winter rainy season and spring and summer fire hazards limit timber
harvesting on our Louisiana property. Similarly, harvesting in the Pacific
Northwest is typically interrupted for periods during the winter and spring due
to snow and melting snow, and occasionally in the late summer due to fire
hazards. Due to these seasonal limitations, we may need to draw on cash reserves
or borrow funds to distribute cash to you. We may be unable to borrow funds on
reasonable terms or at all. If we acquire additional properties in other
locations, the seasonality of our operating results may change.
Seasonal factors will also affect the timing of our recognition of income
for accounting purposes. We enter into cutting contracts with timber buyers
that, within limits, let them choose when to harvest our timber. For accounting
purposes, we recognize income at the time the purchaser cuts and takes title to
the timber and not when we receive advance payments under cutting contracts. The
buyer thus has discretion as to the timing of its timber harvest and our
recognition of income. The buyer's harvest plan will likely be affected by the
same seasonal factors that influence timer harvests generally.
These buyers may make substantial cash payments in advance of cutting,
which we will not escrow and are free to use in operations and distributions.
Thus, we expect that we will receive cash prior to the time we recognize income
under some of our cutting contracts. Buyers will be entitled to refunds of these
advance payments if timber, because of fire or other casualty, is not available
for harvest. Even if timber is available for harvest, if the buyer fails to cut
the amounts it agreed it would cut due to weather or other reasons, we may be
required to pay a partial refund to the buyer. See "Business and Properties" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LOSSES OF TIMBER FROM FIRE AND OTHER CAUSES ARE NOT INSURED
Insect infestation, severe weather, fire and other causes beyond our
control may reduce the volume and value of timber that can be harvested from our
timberlands and hurt our financial results and cash flow. As is typical in the
industry, we do not maintain insurance for any loss to our timber from natural
disasters or other causes.
TAX LAWS DO NOT REQUIRE US TO DISTRIBUTE TO YOU AS MUCH OF THE CASH WE GENERATE
AS MOST OTHER REITS MUST DISTRIBUTE
We anticipate that our ongoing operations will produce net capital gains
and net ordinary losses, but unlike most existing REITs, we do not anticipate
that we will produce significant ordinary income. Accordingly, we do not
anticipate that we will be required to distribute any material amounts of cash
to satisfy the tax requirement that a REIT distribute 95% of its ordinary
income. Thus, our management has more discretion over the amounts of shareholder
distributions than that of most other REITs. We intend to retain a substantial
portion of the cash we generate to acquire additional timberlands.
WE WILL BE TAXED AS A REGULAR CORPORATION IF WE FAIL TO QUALIFY AS A REIT
We intend to elect to be taxed as a REIT for federal income tax purposes
beginning in 1998. Although we believe that we qualify as a REIT, it is possible
that future economic, market, legal, tax or other considerations may cause us to
fail to qualify as a REIT or may cause us to elect not to be taxed as a REIT.
The Internal Revenue Service could challenge our qualification as a REIT.
Qualification as a REIT involves highly technical and complex Internal Revenue
Code provisions and there are few authoritative interpretations of these
provisions. The complexity of these provisions and of the applicable income tax
regulations under the Internal Revenue Code is greater in the case of a REIT
that holds its assets through a partnership as we do. In addition, future
legislation, regulations, administrative interpretations or court decisions
could significantly change the tax laws with respect to qualification as a REIT
or the federal income tax consequences of such qualification. See "-- Other Tax
Risks" and "Federal Income Tax Consequences."
13
<PAGE> 20
If we fail to qualify as a REIT in any taxable year, we would not be
allowed a deduction for cash distributions to you in computing our taxable
income and would owe federal and state income tax on our taxable income at
regular corporate rates. The highest federal income tax rate for corporations
currently is 35.0%. The highest state income tax rate for corporations in a
state in which we currently own timberlands or maintain an office is
approximately 8.8%. With some exceptions, we would also be disqualified from
treatment as a REIT for the four taxable years after the year we first failed to
qualify. As a result, we would have significantly less money left to pay out to
you in each of the years in which we were disqualified as a REIT, and any net
income we could distribute would be taxed as ordinary income to you.
CERTAIN FACTORS LIMIT CHANGES IN OUR OWNERSHIP OR MANAGEMENT
Our Articles of Incorporation and Bylaws, the partnership agreement that
governs the operating partnership and Georgia law place certain restrictions on
the ownership and transfer of shares of common stock and units. These
restrictions are intended in part to ensure we comply with federal tax
requirements applicable to REITs, and in part to discourage a change in control
of the Company without the consent of our Board of Directors. These provisions
could delay or prevent a change in our ownership or removal of our existing
management, even where such a change could be beneficial to or desired by you.
Our Articles of Incorporation prohibit "beneficial ownership" (which may be
direct, indirect or constructive) by any person of more than 9.8% of our
outstanding shares of common stock or preferred stock (if any), unless our Board
of Directors waives the restriction. In addition, staggering the election of our
Board of Directors over a three-year period may have an anti-takeover effect
because a potential acquiror cannot obtain immediate control of our Board of
Directors. See "Certain Provisions of Georgia Law and the Company's Articles of
Incorporation and Bylaws."
Our Articles of Incorporation authorize the Board of Directors to issue
preferred stock with whatever rights and preferences it may choose. Our Board of
Directors may, without your approval, issue preferred stock with dividend
rights, liquidation preferences, conversion rights, voting rights or other
rights that could reduce your voting power or other rights. We could use this
preferred stock, under certain circumstances, as a method of discouraging,
delaying or preventing a change in our ownership or management, even when the
holders of a majority of our shares of common stock would approve or benefit
from the change in control. Although we have no current intention to issue any
shares of preferred stock, we may choose to do so in the future. See
"Description of Capital Stock of the Company -- Preferred Stock."
OUR ACTUAL TIMBER INVENTORY MAY BE LESS THAN OUR CURRENT ESTIMATES
Independent forestry consultants have estimated the volume of our timber
inventories. We believe these estimates are reasonably accurate. We use these
estimates to calculate the amount of harvestable timber from our timberlands.
Our actual timber inventories may differ from these estimates. If the volume of
timber we actually own is less than these estimates, the amount of harvestable
timber would be lower than we anticipate. This would hurt our financial results
and cash flow. See "Business and Properties -- Initial Timberland Properties."
INTERNATIONAL OPERATIONS ENTAIL CERTAIN RISKS
Our business strategy includes investing in timberlands located outside the
United States when our management believes that these timberlands offer higher
potential returns after taking into account the increased risks involved. This
strategy may include acquiring timberlands in developed and developing countries
in South America, Asia, Eastern Europe and other regions. Given the difficulties
of evaluating properties outside the United States, we may not correctly assess
the potential returns from our foreign investments. Future changes in the
economic or political conditions in these countries could affect our ability to
retain and sell timber for harvest from those timberlands. Foreign governments
may seek to take over or nationalize our timberlands, renegotiate or nullify
existing contracts or other rights, or impose laws or regulations that might
severely limit the harvesting of timberlands and the import and export of wood
and wood products. Foreign governments may impose other policies that might
negatively impact our
14
<PAGE> 21
operations, such as production restrictions, price controls, export controls,
income and other taxes and environmental regulations. Other political risks,
such as changes in governments, civil unrest, war, insurrection, acts of
terrorism and diplomatic developments could also adversely affect us.
We may be subject to other financial risks of overseas investment,
including inflation, changing fiscal policies, general economic instability and
changing currency exchange rates. From time to time, we may attempt to lessen
the effect of changes in exchange rates through foreign currency hedging
transactions, but we may not be able to do so.
We also cannot predict whether U.S. customs, quotas, duties, taxes or other
charges, or changes in U.S. foreign trade and investment laws and regulations,
will affect the import and export of forest products in the future, or what
effects such actions could have on our financial condition or operations.
OUR STOCK HAS HAD NO PRIOR TRADING MARKET
Prior to this offering, our common stock has not been traded in any public
market. We do not know if investor interest will lead to the development of an
active trading market or how quickly you will be able to find a buyer for your
shares if you want to sell them.
Together with representatives of the underwriters, we will determine the
initial public offering price for the common stock. This initial price may bear
no relationship to the price at which the common stock will trade after
completion of this offering. See "Underwriting" for a description of the factors
to be considered in determining the initial public offering price.
We intend to apply to list the common stock for trading on the New York
Stock Exchange. If we are approved for listing on the New York Stock Exchange,
we would be subject to certain financial and market-related tests established by
the New York Stock Exchange to maintain our listing.
The market price of our common stock may fluctuate significantly due to a
number of factors, such as changes in timber prices, changes in environmental or
tax laws, the issuance or revisions of securities analysts' estimates regarding
us or the timber industry or announcements of changes in federal or state timber
sales or timber management policies.
The market price of the common stock could also be subject to significant
fluctuations in response to market forces, many of which are out of our direct
control. For instance, the price of our common stock may decrease if interest
rates increase. This could occur because an increase in interest rates could
cause certain financial instruments, such as U.S. government bonds, to become
relatively more attractive investments than our common stock. Additionally, the
New York Stock Exchange and other stock markets have recently experienced
significant and sometimes rapid changes in both price and volume levels.
These and other factors have, from time to time, depressed the market
prices of stock in both forest products companies and REITs. Often, these
changes occur without regard to these companies' operating performances. These
forces could similarly affect the price of our common stock.
YOU WILL INCUR IMMEDIATE DILUTION OF YOUR COMMON STOCK
We are offering our common stock at a price greater than our net tangible
book value. Net tangible book value equals the value of our tangible assets
minus the amount of our liabilities. Based on an initial public offering price
of $20 per share, our expected net tangible book value immediately following
this offering is $16.09 per share. Thus, by purchasing common stock in this
offering, you will incur immediate dilution of $3.91 per share. See "Dilution."
SOME MEMBERS OF MANAGEMENT AND OTHER CONTINUING INVESTORS COULD HAVE CONFLICTS
OF INTEREST
Conflicts of interest create a risk that people will put other interests
ahead of our interests when making decisions that affect us.
15
<PAGE> 22
Our President, Chief Executive Officer and Chairman of our Board of
Directors, C. Edward Broom, is on the Board of Directors of several privately
held timber investment funds. All but one of these funds have been fully
invested and no additional timberland investments can be made. The one fund that
has not been fully invested could compete with us in acquiring timberlands if we
decide to acquire timberlands outside the United States. Under the terms of his
employment agreement with us, Mr. Broom has agreed that if we wish to bid on a
property and a fund with which he is affiliated is either the seller of the
property or also wishes to bid on the property, he will not participate in the
transaction on behalf of the fund. We have agreed that Mr. Broom may spend up to
5% of his time working for these timber funds, which will reduce the amount of
time he devotes to our business.
Members of our management or our employees may own timberlands, and some
currently do. We have implemented a policy that restricts our management and
employees from owning timberlands or selling timber, except in small amounts and
subject to the approval of the Audit Committee of our Board of Directors.
Some of the continuing investors are also engaged in the timber business.
In particular, a company controlled by Mr. Demers currently purchases timber
from our Oregon timberlands. These continuing investors could compete with us in
our efforts to sell timber from our timberlands, as well as in our efforts to
acquire additional timberlands.
SHARES ELIGIBLE FOR SALE IN THE FUTURE MAY REDUCE THE MARKET PRICE OF OUR COMMON
STOCK
Our Articles of Incorporation authorize the issuance of a total of
200,000,000 shares of common stock without additional shareholder approval. See
"Description of Capital Stock of the Company." We will offer to the public
16,600,000 shares in this offering. We have reserved a total of 2,224,000 shares
of our common stock for issuance under our stock incentive plan. We intend to
register all of the shares issuable under this plan for sale in the public
market.
One year from the date of the completion of this offering, the continuing
investors may exchange their units for cash, or, at our option, for shares of
our common stock on a one-for-one basis. See "The Partnership
Agreement -- Redemption of Partnership Units." As of that date, we have also
agreed to register, under certain circumstances, up to 4,966,205 shares of
common stock issuable on redemption of units owned by our continuing investors.
See "Shares Available for Future Sale."
We intend to acquire additional timberlands in the future. We anticipate
funding these acquisitions through the sale of common stock, the issuance of
additional units, or both. Efforts to raise additional capital through the sale
of common stock or additional units may cause the market price of our common
stock to decrease.
If we issue any additional shares of common stock, whether pursuant to
existing stock options or otherwise, the value of your common stock and your
relative voting power may decrease. Our Articles of Incorporation do not grant
you preemptive rights, which would allow you to purchase a pro rata portion of
any future common stock or securities convertible into common stock that we
issue. The market price of our common stock may decrease if the market perceives
that we may issue additional shares of common stock, even if we do not choose to
do so.
WE MAY CHANGE OUR INVESTMENT, FINANCING AND OTHER POLICIES WITHOUT YOUR APPROVAL
Our Board of Directors determines our investment, financing and certain
other operating policies. Although the Board of Directors has no present
intention to amend or revise these policies, the Board of Directors may do so at
any time without your approval. See "Policies with Respect to Certain
Activities."
16
<PAGE> 23
OTHER TAX RISKS
FEDERAL TAX LAW CHANGES MAY BE UNFAVORABLE
We are one of the first REITs to focus on timberland ownership and sales of
timber, and our plan would not have been feasible before certain changes to the
Internal Revenue Code were enacted in 1997. Because the complex REIT rules were
not generally designed to accommodate investments in timber properties, there is
no established law governing the interplay of the tax rules generally applicable
to REITs and those applicable to timber operations. Over time, the Internal
Revenue Service, the United States Treasury Department or various courts may
adopt new interpretations governing this interplay, and these interpretations
may be unfavorable to us. See "Federal Income Tax Consequences."
STATE TAX LAWS MAY NOT CONFORM TO FEDERAL TAX LAW
We expect to qualify as a REIT for federal income tax purposes. However,
our qualification as a REIT under the laws of the individual states will depend,
among other things, on such states' conformity with federal tax law.
If you live in a state that does not conform to the federal tax treatment
of REITs, even if we do not do business in that state, cash distributions to you
will likely be characterized as ordinary income rather than capital gains for
purposes of computing your state taxes. You should consult with your tax advisor
concerning the state tax consequences of an investment in our common stock.
WE EXPECT TO PAY TAX ON CAPITAL GAIN INCOME
We anticipate that our ongoing operations will produce net capital gains
and net ordinary losses, but will not produce significant ordinary income.
Accordingly, unlike most existing REITs, we do not anticipate that we will be
required to pay out any material amounts of cash to satisfy the requirement that
a REIT distribute 95% of its ordinary income.
If, after we have made our cash distributions for a tax year, we have not
distributed 100% of our net taxable income (including capital gains), then we
will owe federal income taxes on the undistributed portion of such taxable
income at regular federal corporate tax rates. In such cases, we anticipate that
we would generally make an election for federal income tax purposes to treat (i)
any tax we paid on our retained capital gains as though it were paid on your
behalf and (ii) such retained capital gains as though they were distributed to
you. Although you must report your share of such gains as income for federal
income tax purposes, you will receive a tax credit for your proportionate share
of the taxes we paid. You may use the credit to offset your overall liability
for federal income tax for that year. If the tax credit, when added to your
other tax payments, exceeds your actual tax liability for the year, you would be
entitled to a refund. If you are a tax-exempt entity, you would be required to
file a return to obtain the refund. State income taxes will depend on the laws
of states in which both we and you are subject to tax. We thus may pay state
income taxes that do not produce a tax credit for you.
To the extent that we have funds available (including from operations,
borrowings, equity issuances, sales of assets or otherwise), we may elect to use
such funds to pay taxes on our retained capital gains. In order to pay such
taxes, we may reduce the amount of cash that we would otherwise distribute to
you. See "Federal Income Tax Consequences -- Taxation of Taxable U.S.
Shareholders of the Company -- Distributions by the Company."
CAPITAL GAINS DISTRIBUTIONS TO NON-U.S. SHAREHOLDERS ARE GENERALLY SUBJECT
TO WITHHOLDING
We anticipate that substantially all of the amounts of cash we pay out to
you will be either capital gains distributions or a return of capital. Under the
provisions of the Foreign Investment in Real Property Tax Act (FIRPTA), which
apply to non-U.S. shareholders, such capital gain distributions are generally
subject to withholding at a rate of 35%.
17
<PAGE> 24
DISTRIBUTIONS
The Company intends to pay regular quarterly cash distributions to its
shareholders. The Board of Directors, in its sole discretion, will determine the
actual amounts of these distributions based on the Company's financial results,
available cash flow, possible acquisitions and capital requirements, as well as
economic conditions, tax and REIT considerations and other factors. The Board of
Directors will review the amount of the Company's distributions from time to
time. The Company's belief that it will be able to pay the intended
distributions is based on a number of assumptions about operating conditions,
which are described below. The following discussion should be read in
conjunction with "Pro Forma Condensed Consolidated Financial Information,"
"Selected Historical Financial and Operating Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated historical financial statements appearing elsewhere in this
prospectus.
The Partnership has been structured so that distributions will be allocated
between the Company and the other limited partners based upon their ownership of
Partnership units. Accordingly, upon completion of this offering, the Company
and the other limited partners will receive 77.7% and 22.3%, respectively, of
all distributions from the Partnership.
The Company's first distribution, for the period ending June 30, 1999, is
expected to be a pro rata share of the expected initial quarterly distribution
of $0.175 per share of the Company's common stock (the "Common Stock"). On an
annualized basis, this represents a distribution amount of $0.70 per share of
Common Stock, or 3.5% of the initial public offering price, based on an initial
public offering price of $20 per share. The Company does not expect to change
its estimated initial distribution per share if the underwriters' over-allotment
option is exercised.
Based on the amount of working capital that the Company is expected to have
upon the completion of this offering and the availability of cash under its new
credit facility, the Company believes that, if its assumptions about operating
conditions are realized, it will have sufficient cash available to make its
intended distributions. The Company intends to maintain the initial distribution
amount unless actual financial results, available cash flow, possible
acquisitions and capital requirements, as well as economic conditions, tax and
REIT considerations or other factors differ significantly from the assumptions
used in calculating the initial estimated distribution amount. In addition, the
Company's credit facilities may limit or restrict distributions to shareholders.
The anticipated initial distribution is based on a number of assumptions,
including that (i) there will be no substantial decreases in timber prices in
the Company's markets from current levels; (ii) the Company will be able to sell
timber volumes for harvest as anticipated in its timber sales plan; and (iii)
market and overall economic conditions will not change substantially.
If any of these assumptions proves to be incorrect, particularly with
respect to prices and volumes sold for harvest, the Company may not be able to
make distributions at the intended level or at all. In addition, the terms of
the Company's indebtedness will under certain circumstances restrict the ability
of the Company to distribute cash to shareholders. See "Risk Factors -- We May
Not Be Able to Distribute as Much Cash to You as We Currently Intend," "-- We
May Change Our Investment, Financing and Other Policies Without Your Approval,"
"Federal Income Tax Consequences -- Taxation of the Company" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The amount of cash needed for the Company to make its intended distribution
on an annualized basis is approximately $15.6 million. If the underwriters'
over-allotment option is exercised in full, this amount would increase to $17.3
million. On a pro forma basis, the Company would have had cash for distributions
(pro forma earnings before interest, taxes, depreciation, depletion and
amortization, or "EBITDDA," less pro forma net interest expense and pro forma
maintenance capital expenditures) for the nine months ended September 30, 1998
of approximately $7.7 million, compared to its pro forma intended distribution
for that period of $11.7 million.
18
<PAGE> 25
The Company does not believe, however, that the pro forma operating results
for 1998 are indicative of its ability to generate cash from its timberlands in
1999 and beyond. The pro forma results include results for the Louisiana
property only from the date the Company purchased the property (April 27, 1998),
and for the Coastal forest portion of the Pacific Northwest properties only from
July 5, 1998. Pro forma results for 1998 reflect harvest levels for the
Louisiana property and the Coastal forest (which together represent the majority
of the Company's merchantable timber inventory) that are well below expected
future harvest levels. The volume of timber harvested from the Louisiana
property for the period from April 27, 1998 to October 9, 1998 and included in
the pro forma results of operations was negligible (1,500 cunits). The planned
harvest for 1999 is approximately 215,000 cunits. The volume of timber harvested
from the Coastal forest from July 5, 1998 to September 30, 1998 and included in
the pro forma results of operations was approximately 15,000 cunits. The planned
harvest for 1999 is approximately 80,000 cunits. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Prospective
Results of Operations."
A tax rule requires REITs to distribute 95% of its ordinary income to
shareholders, but this rule does not mandate cash distributions of capital
gains. Because substantially all of the Company's taxable income will be treated
as capital gains from the sale of timber, this rule will not require the Company
to make significant tax-mandated distributions. As a result, management of the
Company, rather than tax requirements, will determine distribution and retention
policies. In setting these policies, the Company intends to take into account
both the expectations of shareholders and the Company's plans for growth.
If, after giving effect to the Company's distributions for a tax year, the
Company has not distributed 100% of its net taxable income (including capital
gains), then the Company will be required to pay federal income taxes on the
undistributed portion of such taxable income at regular federal corporate tax
rates. In such cases, the Company anticipates that it would generally make an
election to treat (i) any tax paid by the Company on its retained capital gains
as though it were paid on behalf of the Company's shareholders and (ii) such
retained capital gains as though they were distributed to the Company's
shareholders. Although shareholders are required to report their share of such
gains as income, they (including tax-exempt U.S. shareholders) will receive a
credit on their own return for their proportionate shares of the taxes paid by
the Company. Such shareholders may file claims for refund if their proportionate
shares of the taxes paid by the Company, when added to the other tax payments
they have made, exceeds their actual tax liabilities. State income taxes may
also apply, depending on the laws of the states in which both the Company and
each shareholder are subject to tax, and might not result in any usable state
tax credit to shareholders.
If the Company has funds available (including funds from operations,
borrowings, equity issuances, sales of assets or otherwise), the Company may
elect to use such funds to pay taxes on its retained capital gains. If such
funds are not available or, in the judgment of the Board of Directors it would
be in the best interests of the Company and its shareholders to obtain or use
such funds to pay such taxes, then the amount of cash actually distributed to
the Company's shareholders may be reduced to the extent necessary to pay such
taxes.
For a discussion of the federal income tax treatment of distributions to
holders of Common Stock, see "Federal Income Tax Consequences."
19
<PAGE> 26
STRUCTURE AND FORMATION OF THE COMPANY
COMPANY STRUCTURE
At the completion of this offering, the Company will own substantially all
of its assets, and will conduct substantially all of its operations, through the
Partnership and through the Partnership's wholly owned subsidiary, Pioneer
Resources, LLC, an Oregon limited liability company ("Pioneer"). After
refinancing its existing debt, the Company will contribute the remaining net
proceeds of this offering to the Partnership in exchange for a number of
Partnership units equal to the number of shares of Common Stock sold in this
offering. Upon the sale of any additional shares of Common Stock, the Company
will contribute the net proceeds therefrom to the Partnership in exchange for a
number of Partnership units equal to the number of shares sold. For a
description of the Partnership units, see "The Partnership Agreement." Strategic
Timber Operating Co., a Delaware corporation and a wholly owned subsidiary of
the Company ("STOC"), is the sole general partner of the Partnership.
FORMATION OF THE COMPANY
The Company, the Partnership and STOC were all organized on April 21, 1998
in connection with the Company's acquisition of approximately 88,000 acres of
timberland in southwest Louisiana (the "Louisiana Property").
Louisiana Timber Partners, LLC, a Georgia limited liability company
("LTP"), contributed to the Partnership a contract to acquire the Louisiana
Property in exchange for an interest in the Partnership. The parties valued this
contract at $50 million. STT and STOC retained the remaining interest in the
Partnership. The Partnership then purchased the Louisiana Property on April 27,
1998 for $205.0 million in cash. The Partnership funded the purchase price of
the Louisiana Property (and related transaction costs) (i) by borrowing $125.8
million under a $215.0 million bank revolving credit facility (the "Old
Partnership Credit Facility") and (ii) through an $85.0 million cash
contribution to the Partnership by STT. STT borrowed these funds under a bank
bridge loan (the "Bridge Loan").
In September 1998, the shareholders of STT formed Strategic Timber Trust
II, LLC, a Georgia limited liability company ("STT2"). STT2 formed a wholly
owned subsidiary, Strategic Timber Two Operating Co., LLC, a Georgia limited
liability company ("STTOC"). STT2 and STTOC formed Strategic Timber Partners II,
LP ("STP2"), with STTOC serving as its sole general partner. STT2, STTOC and
STP2 were formed in connection with STP2's acquisition of Pioneer, which holds
approximately 366,000 acres of timberland in the U.S. Pacific Northwest (the
"Pacific Northwest Properties").
On October 9, 1998, STP2 acquired all of the membership interests in
Pioneer from its members (the "Former Pioneer Members") in exchange for total
consideration of $35.0 million in cash and a 59.1% interest in STP2, which the
parties valued at $65.0 million. STP2 funded the cash portion of the purchase
price for Pioneer (and related transaction costs) with (i) a cash contribution
of $35.0 million by STTOC in exchange for a 31.8% interest in STP2, and (ii) a
cash contribution of $10.0 million by Mach One Partners, LLC, an affiliate of
LTP ("Mach One"), in exchange for a 9.1% interest in STP2. To fund its
contribution to STP2, STT2 borrowed $35.0 million under a bank bridge loan (the
"STT2 Bridge Loan"). In connection with the acquisition, Pioneer refinanced its
existing debt, leaving approximately $255.0 million outstanding under its credit
facility (the "Pioneer Credit Facility").
Upon completion of this offering, STT2, STTOC and STP2 will be merged with
and into the Partnership, leaving Pioneer as a wholly owned subsidiary of the
Partnership. In connection with the merger, Partnership units will be issued to
the owners of STT2 and the outstanding membership interests in STT2 and STTOC
will be canceled.
In accordance with the terms of the STP2 partnership units held by the
Former Pioneer Members and the STP2 partnership units held by Mach One, the
Former Pioneer Members will receive $24.1 million in cash and 2,170,086
Partnership units having a value of $43.4 million, based on an initial public
20
<PAGE> 27
offering price of $20 per share, and Mach One will receive $10.0 million in cash
(assuming this offering is consummated on March 31, 1999) and 100,110
Partnership units having a value of $2.0 million, based on an initial public
offering price of $20 per share, in connection with the merger of STP2 into the
Partnership.
In accordance with the terms of the Partnership units held by LTP, LTP will
receive $12.9 million in cash and will retain 1,762,974 Partnership units having
a value of $35.3 million, based on an initial public offering price of $20 per
share, at the completion of the offering.
At or immediately prior to the closing of this offering:
- The Company will sell 16,600,000 shares of Common Stock in this offering.
- The Partnership will enter into a new $375.0 million revolving credit
facility (the "New Credit Facility").
- The Company will use the net proceeds of this offering and will borrow
approximately $260.0 million under the New Credit Facility to repay in
full the Bridge Loan and the STT2 Bridge Loan, to repay in full the Old
Partnership Credit Facility and the Pioneer Credit Facility and to redeem
a portion of the Partnership units held by LTP and a portion of the STP2
partnership units held by the Former Pioneer Members and Mach One. See
"Use of Proceeds."
- In connection with the merger of STT2, STTOC and STP2 into the
Partnership, the Partnership will issue 3,203,231 Partnership units to
the owners of STT2, the Former Pioneer Members and Mach One.
- The Company will have employment and non-competition agreements with
Messrs. C. Edward Broom, Christopher J. Broom, Thomas P. Broom, Kenneth
L. Chute, Nicholas C. Brunet, Vladimir Harris, and Joseph E. Rendini.
As a result of the transactions described above (collectively, the "Formation
Transactions"), the Company will own 17,271,770 Partnership units, which will
represent an approximate 77.7% interest in the Partnership upon the completion
of this offering.
The terms of the transactions described above were determined after
arm's-length negotiations between representatives of the Company, LTP, Pioneer,
the Former Pioneer Members, and Mach One.
BENEFITS TO RELATED PARTIES
Certain affiliates of the Company will realize certain material benefits in
connection with this offering and the Formation Transactions:
- Each of the following executive officers will own the following aggregate
number of shares of Common Stock and Partnership units: C. Edward Broom,
408,329; Christopher J. Broom, 408,329; Thomas P. Broom, 408,329;
Nicholas C. Brunet, 90,740; Vladimir Harris, 90,740; and Joseph E.
Rendini, 90,740. These shares and units have a total value of $29.9
million, based on an initial public offering price of $20 per share. The
shares and units were issued to the executive officers named above in
return for services rendered. These executive officers and Kenneth L.
Chute, who joined the Company in January 1999 as Chief Financial Officer,
will also receive options to acquire an aggregate of 875,000 shares of
Common Stock at the initial public offering price that vest in equal
amounts over the three years following completion of this offering.
- The Company has employment and non-competition agreements with Messrs. C.
Edward Broom, Christopher J. Broom, Thomas P. Broom, Kenneth L. Chute,
Nicholas C. Brunet, Vladimir Harris and Joseph E. Rendini.
- LTP will receive $12.9 million in cash in redemption of a portion of its
Partnership units, and will own 1,762,974 Partnership units upon
completion of this offering. Hanns A. Pielenz, who has agreed to serve as
a director of the Company, and Larry J. Woodard are the principal owners
of
21
<PAGE> 28
LTP. The Partnership units retained by LTP will have a value of $35.3
million, based on an initial public offering price of $20 per share. LTP
acquired its Partnership units in exchange for the contribution to the
Partnership of a contract (valued by the parties at $50.0 million) to
acquire the Louisiana Property.
- Mach One, which is owned equally by Messrs. Pielenz and Woodard, will
receive $10.0 million in cash and 100,110 Partnership units upon
completion of this offering in redemption of its interest in STP2. These
Partnership units will have a value of $2.0 million, based on an initial
public offering price of $20 per share. Mach One acquired its interest in
STP2 in exchange for a cash contribution of $10.0 million that was used
to finance STP2's acquisition of Pioneer.
- In connection with the Pioneer acquisition, STP2 paid $35.0 million in
cash and issued partnership interests (valued by the parties at $65.0
million) in STP2 to the Former Pioneer Members, including Gregory M.
Demers. Mr. Demers and a company owned by him beneficially owned 76.5% of
Pioneer at the time of the acquisition. Upon completion of this offering
and the merger of STP2 into the Partnership, Mr. Demers and his company
will receive $18.4 million in cash in redemption of a portion of their
partnership interests in STP2, and will beneficially own 1,660,333
Partnership units. These Partnership units will have a value of $33.2
million, based on an initial public offering price of $20 per share.
- In connection with the Pioneer acquisition, T. Yates Exley, one of the
Former Pioneer Members and a Vice President of the Company, received a
partnership interest in STP2. Mr. Exley will receive $1.2 million in cash
and 108,516 Partnership units in redemption of his partnership interest
in STP2 upon the completion of this offering. The Partnership units will
have a value of $2.2 million, based on an initial public offering price
of $20 per share.
Additional information concerning benefits to executive officers, directors
and other continuing investors is set forth under "Management" and "Certain
Relationships and Related Transactions."
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<PAGE> 29
USE OF PROCEEDS
The net cash proceeds to the Company from this offering are estimated to be
approximately $306.4 million (approximately $352.7 million if the underwriters'
over-allotment option is exercised in full), after deducting estimated
underwriting discounts and commissions and estimated offering expenses and based
on an initial public offering price of $20 per share.
The Company will use the net proceeds of this offering, together with
approximately $260.0 million of borrowings under the New Credit Facility, as
follows: (i) approximately $509.4 million to repay in full debt described in the
table below and accrued interest on such debt; (ii) approximately $47.0 million
to redeem Partnership units and other partnership interests held by certain
continuing investors; (iii) approximately $8.3 million for termination fees on
interest rate swaps and related debt; and (iv) $1.5 million for financing costs
on the New Credit Facility. See "Structure and Formation of the Company."
The table below summarizes the debt to be repaid upon completion of this
offering:
<TABLE>
<CAPTION>
PRINCIPAL BALANCE AT
DECEMBER 31, 1998(1) INTEREST RATE MATURITY DATE
-------------------- ------------- ------------------
<S> <C> <C> <C>
Old Partnership Credit Facility.... $133,787,000 7.75%(2) April 25, 2003
Bridge Loan........................ 85,000,000 9.25%(2) October 27, 1999
Pioneer Credit Facility............ 255,000,000 7.90%(2) September 30, 2003
STT2 Bridge Loan................... 35,000,000 9.06%(3) October 27, 1999
------------ -----
Total/Weighted Average... $508,787,000 8.17%
============ =====
</TABLE>
- ---------------
(1) The actual amounts repaid may differ to the extent of any amortization of
the principal balance of loans occurring subsequent to December 31, 1998.
(2) These loans each bear interest at a floating rate based on LIBOR plus an
applicable margin. The rates shown are interest rates at December 31, 1998.
(3) If the STT2 Bridge Loan has not been repaid as of April 1, 1999, an
additional interest payment of $1.05 million will become due.
If the underwriters' over-allotment option to purchase 2,490,000 additional
shares of Common Stock is exercised in full, the Company expects to use the
additional net proceeds (which would be approximately $46.3 million, based on an
initial public offering price of $20 per share) to reduce amounts outstanding
under the New Credit Facility.
Amounts outstanding under the Old Partnership Credit Facility, the Bridge
Loan, the Pioneer Credit Facility and the STT2 Bridge Loan were each incurred
within the past year to pay for the Company's initial timberlands and to finance
working capital requirements prior to commencement of full-scale operations.
Pending the uses described above, the Company will invest any unused
portion of the net proceeds in interest-bearing accounts or short-term,
interest-bearing securities, or both, which are consistent with the Company's
intention to qualify for taxation as a REIT.
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<PAGE> 30
CAPITALIZATION
The following table sets forth (i) the combined historical capitalization
of STT and STT2 as of October 9, 1998, and (ii) the pro forma capitalization of
the Company assuming the completion of the Formation Transactions, this offering
and the use of the estimated net proceeds of this offering and borrowings under
the New Credit Facility as set forth under "Use of Proceeds," had occurred on
October 9, 1998. The information set forth in the following table should be read
in conjunction with the financial statements and notes thereto included
elsewhere in this prospectus, "Selected Historical Financial and Operating
Information," "Pro Forma Condensed Consolidated Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
OCTOBER 9, 1998
--------------------
STT AND STT2
COMBINED(1)
--------------------
ACTUAL PRO FORMA
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Debt(2):
Bridge loans.............................................. $120,000 $ --
Current portion of long-term debt......................... 136,787 --
Long-term debt............................................ 255,000 260,214
Minority interest........................................... 122,836 72,778
Shareholders' equity:
Preferred Stock, $.01 par value(3)........................ -- --
Common Stock, $.01 par value(4)........................... 1 173
Additional paid-in capital................................ -- 306,221
Accumulated deficit....................................... (9,514) (19,969)
-------- --------
Total shareholders' equity (deficit).............. (9,513) 286,425
-------- --------
Total Capitalization.............................. $625,110 $619,417
======== ========
</TABLE>
- ---------------
(1) As described in "Structure and Formation of the Company," operations of the
Company are currently conducted through two separate entities, STT and STT2.
As these entities will be merged prior to the completion of this offering,
the Company believes it is meaningful to present the combined capitalization
of these entities as of October 9, 1998.
(2) See "Use of Proceeds" for information relating to the Company's debt.
(3) 50,000,000 shares of Preferred Stock will be authorized upon completion of
this offering. No shares of Preferred Stock are currently, or at the
completion of this offering will be, issued and outstanding.
(4) 100,000 shares of Common Stock (prior to the stock split) are currently
authorized. 200,000,000 shares of Common Stock will be authorized at the
completion of this offering. 18,360 actual shares of Common Stock (prior to
the stock split) are currently issued and outstanding. 17,271,770 pro forma
shares of Common Stock will be issued and outstanding. Excludes (i)
4,966,205 shares of Common Stock that may be issued upon the redemption of
Partnership units; (ii) 2,490,000 shares of Common Stock that the
underwriters have the option to purchase solely to cover over-allotments;
and (iii) 1,115,000 shares of Common Stock issuable upon exercise of options
to be granted under the Company's 1999 Incentive Plan upon completion of
this offering. A total of 2,224,000 shares of Common Stock will be reserved
for issuance under the 1999 Incentive Plan. See "The Partnership
Agreement -- Redemption of Partnership Units," "Underwriting" and
"Management -- 1999 Incentive Plan".
24
<PAGE> 31
DILUTION
The assumed initial public offering price of $20 per share exceeds the net
combined tangible book value per share of STT and STT2. Therefore, purchasers of
Common Stock in this offering will incur an immediate dilution in the net
tangible book value of their shares. The following table illustrates the
dilution to purchasers of shares of Common Stock sold in this offering.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1)........ $20.00
Net combined tangible book value per share prior to this
offering(2)............................................ $17.85
Decrease in net combined tangible book value per share
attributable to this offering.......................... 1.76
------
Pro forma net tangible book value per share after this
offering(3)............................................ 16.09
------
Dilution per share purchased in this offering............. $ 3.91
======
</TABLE>
- ---------------
(1) Before deducting the underwriters' discounts and commissions and other
expenses of this offering.
(2) Determined by subtracting the total liabilities of STT and STT2 from the
total tangible assets of STT and STT2 and dividing the difference by the sum
of the total number of shares of Common Stock issued and outstanding
immediately prior to this offering and the number of shares of Common Stock
issuable upon the exchange of all Partnership units issued or to be issued
in connection with the Formation Transactions.
(3) Determined by subtracting the Company's total liabilities from its total
tangible assets and dividing the difference by the number of shares of
Common Stock and Partnership units that will be outstanding after this
offering. This calculation is based on the pro forma condensed combined
balance sheet of the Company contained elsewhere in this prospectus.
The following table summarizes the number of shares of Common Stock to be
sold by the Company in this offering, the total price to be paid for such shares
(based on an initial public offering price of $20 per share), the number of
shares of Common Stock and Partnership units previously issued or to be issued
in the Formation Transactions, and the net tangible book value of the average
contribution per share based on total contributions (all determined as if this
offering and the Formation Transactions had been completed on October 9, 1998).
<TABLE>
<CAPTION>
SHARES SOLD BY THE BOOK VALUE OF
COMPANY AND CONTRIBUTIONS TO
PARTNERSHIP UNITS ISSUED COMPANY/ PURCHASE PRICE/
BY THE PARTNERSHIP PARTNERSHIP(1) BOOK VALUE OF
------------------------ ------------------ CONTRIBUTION
NUMBER PERCENT AMOUNT PERCENT PER SHARE/UNIT
------------ --------- -------- ------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE/UNIT DATA)
<S> <C> <C> <C> <C> <C>
New investors in this offering.......... 16,600,000 74.7% $332,000 92.4% $20.00(2)
Common Stock and Partnership units
outstanding or to be issued in the
Formation Transactions................ 5,637,975 25.3 27,203 7.6 4.82
---------- ----- -------- -----
Total......................... 22,237,975 100.0% $359,203 100.0%
========== ===== ======== =====
</TABLE>
- ---------------
(1) Based on the October 9, 1998 book value of the assets to be contributed to
the Company/Partnership in connection with this offering and the Formation
Transactions, net of liabilities to be assumed.
(2) Before deducting underwriters' discounts and commissions and other estimated
expenses of this offering.
25
<PAGE> 32
SELECTED HISTORICAL FINANCIAL AND OPERATING INFORMATION
The following tables set forth selected historical consolidated financial
and operating information for STT, STT2 and Pioneer. Pioneer is the predecessor
to STT2.
Information shown for STT and STT2 is presented as of and for the period
ended October 9, 1998. The information is derived from the audited historical
financial statements of STT and STT2, and should be read in conjunction with
such financial statements, which are included elsewhere in this prospectus. The
information shown for STT reflects the results of operations for the period from
inception (April 21, 1998) to October 9, 1998. Information shown for STT2 does
not contain any operating results as of October 9, 1998 as this is the date on
which STT2 was formed and acquired Pioneer.
Information is also presented for both Pioneer and its predecessor, Old
Pioneer Resources, LLC ("Old Pioneer"). The selected historical financial and
operating information of Pioneer as of and for the years ended December 31, 1996
and 1997 is derived from the audited historical financial statements of Pioneer
included elsewhere in this prospectus and should be read in conjunction with
such financial statements. Information as of and for the nine months ended
September 30, 1997 and 1998 is derived from the unaudited historical financial
statements of Pioneer included elsewhere in this prospectus. Management believes
that such financial statements were prepared on the same basis as the audited
financial statements and contain all adjustments, consisting of normal recurring
adjustments, necessary to fairly present the financial statements for the
interim periods indicated.
Old Pioneer was formed in April 1994 for the purpose of acquiring certain
timber-related assets. The assets of Old Pioneer were contributed to Pioneer
upon the formation of Pioneer on January 3, 1996. Information presented for Old
Pioneer is derived from the audited historical financial statements of Old
Pioneer as of and for the year ended December 31, 1995 included elsewhere in
this prospectus, and should be read in conjunction with such financial
statements. Information presented for Old Pioneer as of and for the period ended
December 31, 1994 is derived from unaudited financial statements that were
prepared on the same basis as those that were audited. The results of operations
of Old Pioneer and Pioneer among the periods presented are not comparable to one
another because (i) financial information of Old Pioneer was prepared using a
different basis of accounting than that of Pioneer; (ii) financial and operating
information of Pioneer were affected by several acquisitions in 1996 (one of
which was the acquisition of the assets of Old Pioneer on January 3, 1996), 1997
and 1998, each of which was accounted for under the purchase method of
accounting); and (iii) Old Pioneer conducted different operations than Pioneer.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and notes thereto included
elsewhere in this prospectus.
The selected historical information presented for STT and STT2 is not
comparable to that of Pioneer because STT and STT2 were affected by factors
associated with the recent formation of these entities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
This financial and operating information is historical in nature.
Information may not be representative of how the Company plans to manage its
operations after this offering and the Formation Transactions.
26
<PAGE> 33
STRATEGIC TIMBER TRUST, INC. AND STRATEGIC TIMBER TRUST II, LLC
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
STT
AS OF AND FOR THE PERIOD FROM
INCEPTION (APRIL 21, 1998) TO STT2
OCTOBER 9, 1998 AS OF OCTOBER 9, 1998
----------------------------- ---------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues (a):...................................... $ 152 $ --
Operating Expenses:
Cost of timber sold (a).......................... 179 --
Amortization of deferred financing costs (b)..... 1,153 --
Selling, general and administrative expenses..... 1,260 --
--------- --------
Operating loss................................... (2,440) --
Other Income (Expense):
Interest expense................................. (9,024) --
Interest income.................................. 5 --
--------- --------
Loss before minority interest...................... (11,459)
Minority interest (c).............................. 1,945 --
--------- --------
Net loss........................................... $ (9,514) $ --
========= ========
CASH FLOW AND OTHER DATA:
EBITDDA (d)........................................ $ (1,108) $ --
Cash used in operations............................ (8,856) --
Capital expenditures............................... -- --
BALANCE SHEET DATA (AT PERIOD END):
Working capital (e)................................ $(221,681) $(37,603)
Timberlands........................................ 254,821 359,900
Total assets....................................... 261,722 368,862
Total debt......................................... 221,787 290,000
Shareholders' equity (deficit)..................... (9,513) --
Minority interest (f).............................. 47,836 75,000
OPERATING DATA (UNAUDITED):
Timber harvested (tons)............................ 4,342 --
</TABLE>
- ---------------
(a) Cost of timber sold is greater than revenues because only salvage timber
was harvested during the period.
(b) Represents the amortization of financing costs incurred in the Louisiana
Property acquisition. Such amortization is over periods from one to five
years.
(c) Minority interest represents the 19.6% of the loss attributable to the
minority owners of the Partnership.
(d) EBITDDA is defined as operating income plus other income (expense),
depletion, depreciation and amortization and cost of timber sold. EBITDDA
is provided because management believes EBITDDA provides useful information
for evaluating the Company's ability to make cash distributions. EBITDDA
should not be construed as an alternative to operating income (as an
indicator of the Company's operating performance) or as an alternative to
cash flow from operating activities (as a measure of liquidity). EBITDDA is
not a financial measure determined in accordance with generally accepted
accounting principles and may not be comparable to similarly titled
measures of other companies.
(e) The negative working capital of STT is caused primarily by the
classification of all STT debt as current, due to the inclusion of
subjective acceleration clauses in such debt agreements. The negative
working capital of STT2 is attributable primarily to debt maturing in less
than one year and obligations under interest rate swap agreements.
(f) STT2's minority interest represents the 68.2% interest in STP2 held by
minority owners. Although these owners hold more than 50.0% of the equity
in STP2 they are considered minority owners for accounting purposes,
because they cannot exercise control over STP2.
27
<PAGE> 34
PIONEER RESOURCES, LLC
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OLD PIONEER PIONEER
--------------------------- ---------------------------------------------
APRIL 15, NINE MONTHS ENDED
1994 THOUGH YEAR ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ----------------------- -------------------
1994(A) 1995(A) 1996 1997 1997 1998
------------ ------------ ---------- ---------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Logs.............................. $ 42 $ 1,600 $ 25,901 $ 39,505 $ 28,296 $ 23,097
Lumber and by-product sales....... 15,115 31,409 36,004 52,623 38,910 45,213
Timberland and property sales..... 6,503 1,865 613 6,774 4,240 5,901
------- ------- -------- -------- -------- --------
Total revenues............ 21,660 34,874 62,518 98,902 71,446 74,211
Operating Expenses:
Cost of products sold............. 11,331 22,953 25,897 39,602 31,015 45,256
Cost of timberland and property
sales.......................... 2,672 1,330 486 4,292 2,033 2,536
Depletion, depreciation and
amortization................... 2,907 2,982 15,366 25,259 16,738 12,966
Selling, general and
administrative expenses........ 1,205 2,354 3,144 7,444 5,241 6,937
------- ------- -------- -------- -------- --------
Operating income.......... 3,545 5,255 17,625 22,305 16,419 6,516
Other Income (Expense):
Interest expense.................. (1,871) (3,062) (6,070) (8,722) (6,105) (12,505)
Interest income................... 236 46 248 224 87 56
Other income (expense), net....... 239 343 -- 502 662 (780)
------- ------- -------- -------- -------- --------
Income (loss) from continuing
operations before income taxes
and minority interests......... 2,149 2,582 11,803 14,309 11,063 (6,713)
Income tax (provision) benefit.... -- -- (978) 355 (250) 249
------- ------- -------- -------- -------- --------
Income (loss) from continuing
operations before minority
interest....................... 2,149 2,582 10,825 14,664 10,813 (6,464)
Minority interest in loss (income)
of subsidiary(b).................. -- -- 262 51 48 10
------- ------- -------- -------- -------- --------
Income (loss) from continuing
operations..................... 2,149 2,582 11,087 14,715 10,861 (6,454)
Discontinued operations, net(c)..... -- -- (48) (945) (277) (897)
------- ------- -------- -------- -------- --------
Income (loss) before extraordinary
item........................... 2,149 2,582 11,039 13,770 10,584 (7,351)
Extraordinary item -- loss on
extinguishment of debt(d)......... -- -- (780) -- -- (2,106)
------- ------- -------- -------- -------- --------
Net income (loss)................... $ 2,149 $ 2,582 $ 10,259 $ 13,770 $ 10,584 $ (9,457)
======= ======= ======== ======== ======== ========
CASH FLOW AND OTHER DATA:
EBITDDA(e).......................... $ 9,363 $ 9,910 $ 33,477 $ 52,358 $ 35,852 $ 21,238
Cash flow from operations........... (f) 16,451 26,806 24,749 16,011 7,767
Capital expenditures................ 4,380 5,480 3,359 4,654 4,393 1,885
</TABLE>
28
<PAGE> 35
<TABLE>
<CAPTION>
OLD PIONEER PIONEER
--------------------------- ---------------------------------------------
APRIL 15, NINE MONTHS ENDED
1994 THOUGH YEAR ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ----------------------- -------------------
1994(A) 1995(A) 1996 1997 1997 1998
------------ ------------ ---------- ---------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Working capital..................... $(8,563) $(9,219) $ 1,167 $ 4,727 $ 1,170 $ 3,402
Timber, timberlands and timber
cutting rights.................... 26,603 27,230 86,294 99,126 100,673 252,556
Total assets........................ 44,892 52,139 132,060 154,430 150,816 301,266
Long-term debt...................... 40,456 33,964 96,565 126,941 124,088 288,514
Members' equity..................... 2,150 5,922 9,740 19,937 12,649 4,438
OPERATING DATA (UNAUDITED):
Fee timber harvested (MMBF)......... 35 51 106 125 78 75
Non-fee timber purchased (MMBF)..... 12 15 31 28 20 36
Lumber production (MMBF)............ 22 47 71 106 76 112
</TABLE>
- ---------------
(a) Financial and operating data for the period from April 15, 1994 through
December 31, 1994 and for the year ended December 31, 1995 for Old Pioneer
are not comparable to other periods presented in this table. See the
financial statements of Pioneer and accompanying notes included elsewhere
in this prospectus for additional information.
(b) Minority interest represents the minority unitholders' interest in the
Kinzua timberlands. See the financial statements of Pioneer and notes
thereto included elsewhere in this prospectus.
(c) Discontinued operations relate to Lane Plywood, which was discontinued in
1997.
(d) In 1996 and 1998, borrowings of Pioneer were refinanced, resulting in the
write-off of certain deferred financing costs as extraordinary, non-cash
charges.
(e) EBITDDA is defined as operating income plus other income (expense),
depreciation, depletion and amortization and cost of timberland and
property sales. EBITDDA is provided because management believes EBITDDA
provides useful information for evaluating the Company's ability to make
cash distributions. EBITDDA should not be construed as an alternative to
operating income (as an indicator of the Company's operating performance)
or as an alternative to cash flow from operating activities (as a measure
of liquidity). EBITDDA is not a financial measure determined in accordance
with generally accepted accounting principles and may not be comparable to
similarly titled measures of other companies.
(f) Information necessary to calculate cash flow from operations for the period
from April 15, 1994 through December 31, 1994 is not available.
29
<PAGE> 36
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
The following tables set forth, for the periods and dates indicated, pro
forma condensed consolidated financial information for the Company. The Pro
Forma Condensed Consolidated Balance Sheet presents the unaudited pro forma
financial condition of the Company as if the Formation Transactions and this
offering had occurred as of October 9, 1998. The Pro Forma Condensed
Consolidated Statements of Operations for the year ended December 31, 1997 and
for the nine months ended September 30, 1998 present unaudited pro forma
operating results of the Company as if this offering and certain of the
Formation Transactions had occurred as of January 1, 1997.
The Pro Forma Condensed Consolidated Statements of Operations include the
historical results of Pioneer, as this entity represents the predecessor
business to the Company. These historical results of Pioneer have been adjusted
to (i) eliminate results of operations and related assets and liabilities
attributable to Pioneer's timber conversion facilities and other operations that
were not acquired by the Company and (ii) recognize revenues and costs of
Pioneer's sales that were previously eliminated for financial reporting
purposes.
The Pro Forma Condensed Consolidated Statements of Operations, however, do
not include the historical results of the Louisiana Property prior to the
purchase of these timberlands by the Company on April 27, 1998. These
timberlands were acquired from an unrelated family group that did not actively
manage the property for commercial timber operations. The Pro Forma Condensed
Consolidated Statements of Operations also do not include the historical results
of the Coastal forest portion of the Pacific Northwest Properties prior to the
purchase of these timberlands by Pioneer in July 1998. The Company believes that
there is limited continuity between the prior operation of the Coastal forest
and Pioneer's actual (and the Company's intended) forestry activities on these
timberlands. Because of the lack of continuity of operations before and after
these purchases, the Company believes that inclusion of historical financial
information for the Louisiana Property and the Coastal forest in the Pro Forma
Condensed Consolidated Statements of Operations prior to the dates of
acquisition would not be helpful to an investor's understanding of the Company's
business or operations.
The pro forma condensed consolidated financial information does not purport
to represent what the Company's financial position or results of operations
actually would have been had the Formation Transactions, in fact, occurred on
the dates indicated, or to project the Company's financial position or results
of operations at any future date or for any future period. The pro forma
condensed consolidated financial information should be read in conjunction with
(i) Strategic Timber Trust, Inc.'s audited consolidated financial statements as
of, and for the period from inception (April 21, 1998) to October 9, 1998, (ii)
the audited Strategic Timber Trust II, LLC consolidated balance sheet as of
October 9, 1998, (iii) the audited Pioneer consolidated financial statements as
of December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996
and 1995, (iv) the unaudited Pioneer consolidated financial statements as of,
and for the nine months ended, September 30, 1998 and 1997 and (v) "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
30
<PAGE> 37
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
OCTOBER 9, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
INTERCOMPANY
ELIMINATIONS AND
HISTORICAL HISTORICAL PRO FORMA
STT STT2 ADJUSTMENTS(A) PRO FORMA
---------- ---------- ---------------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Current assets
Cash................................... $ 1,377 $ 1,260 $ -- $ 2,637
Accounts receivable.................... 41 -- -- 41
Due from related party................. 300 -- (300)(b) --
-------- -------- --------- --------
Total current assets........... 1,718 1,260 (300) 2,678
Timberlands.............................. 254,821 359,900 1,586(c) 616,307
Property & equipment, net................ 7 173 -- 180
Deferred financing costs................. 5,176 7,530 (11,206)(d) 1,500
-------- -------- --------- --------
Total assets................... $261,722 $368,863 $ (9,920) $620,665
======== ======== ========= ========
LIABILITIES:
Current liabilities
Bridge loans........................... $ 85,000 $ 35,000 $(120,000)(e) $ --
Current portion of long-term debt...... 136,787 -- (136,787)(e) --
Accounts payable....................... 88 -- -- 88
Due to related party................... 760 300 (300)(b) 760
Accrued expenses....................... 764 247 (611)(e) 400
Obligations under swaps................ -- 3,316 (3,316) --
-------- -------- --------- --------
Total current liabilities...... 223,399 38,863 (261,014) 1,248
Long-term debt........................... -- 255,000 5,214(e) 260,214
Minority interest........................ 47,836 75,000 (50,058)(c,d) 72,778
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock........................... 1 -- 172(a,f) 173(g)
Addition paid-in capital............... -- -- 306,221(a,f,h) 306,221
Accumulated deficit.................... (9,514) -- (10,455)(d) (19,969)
-------- -------- --------- --------
Total shareholders' equity
(deficit).................... (9,513) -- 295,938 286,425
-------- -------- --------- --------
Total liabilities and
shareholders' equity
(deficit).................... $261,722 $368,863 $ (9,920) $620,665
======== ======== ========= ========
</TABLE>
The accompanying notes to pro forma condensed consolidated balance sheet
are an integral part of this balance sheet.
31
<PAGE> 38
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
OCTOBER 9, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
(a) For purposes of this Pro Forma Condensed Consolidated Balance Sheet, the
following proceeds from this offering, and uses of these proceeds, are
assumed:
<TABLE>
<S> <C> <C>
Proceeds from offering:
Shares to be issued................................ 16,600,000
Offering price per share........................... $ 20
-----------
Gross proceeds from this offering.................. $332,000
Borrowings under New Credit Facility............... 260,214(e)
--------
Total proceeds............................. $592,214
========
Uses of proceeds:
Repayment of Old Partnership Credit Facility and
Bridge Loan..................................... $ 221,787(e)
Repayment of Pioneer Credit Facility and STT2
Bridge Loan..................................... 290,000(e)
Repayment of accrued interest on debt.............. 572(e)
Early termination payment on STT2 Bridge Loan...... 525(e)
Debt financing costs on New Credit Facility........ 1,500(e)
Termination of interest rate swaps and accrued
interest thereon................................ 5,223(e)
Partial redemption of minority interests........... 47,000(c)
Fees and expenses associated with this offering.... 25,607(h)
-----------
Total uses of proceeds..................... $592,214
========
</TABLE>
(b) Represents the elimination of intercompany receivables and payables.
(c) Certain minority unitholders (the "Continuing Investors") will receive
$47,000 from the offering proceeds based upon contractual commitments with
the Company. These payments represent a return of a portion of the
Continuing Investors' initial interests. The remainder of these Continuing
Investors' interests will be converted into Partnership units. The amount
to be paid to the Continuing Investors in excess of the balance of their
accounts at October 9, 1998 represents additional consideration paid to the
Continuing Investors and has increased the Company's basis in its
timberlands.
In addition, assuming that this offering is consummated on March 31, 1998,
one Continuing Investor will be entitled to a dividend of $1,907 based upon
contractual commitments with the Company. The Continuing Investor has
elected to receive 100,110 Partnership units in lieu of a cash payment of
this dividend. The dividend has been reflected as a reduction to minority
interest.
(d) Represents the write-off of unamortized debt issuance costs on the early
extinguishment of the Company's existing debt instruments (see note (e)).
Together with the early termination on the STT2 Bridge Loan and the
settlement of outstanding obligations under interest rate swaps (see note
(e)), the Company will record an extraordinary loss from the early
extinguishment of debt of approximately $12,361, net of $2,739 allocated to
minority interests.
(e) In conjunction with this offering, the Company plans to repay all
outstanding debt and any accrued interest thereon. The Company also plans
concurrently to enter into the New Credit Facility, which provides for a
$200,000 term loan and a revolving line of credit of up to $175,000. The
Company expects to immediately borrow $260,214 on this facility (see note
(a)). Of the amount expected to be drawn under this facility, approximately
$200,000 will relate to a term loan bearing interest at a variable rate
expected to initially approximate 7.2% and which will be payable in
quarterly installments through March 31, 2004. The remaining $60,214 will
relate to a revolving line of credit
32
<PAGE> 39
bearing interest at a variable rate also expected to initially approximate
7.2% and maturing on March 31, 2004. Unused commitment fees on the New
Credit Facility will approximate 0.5%. The Company expects to incur
approximately $1,500 in debt issuance costs associated with the New Credit
Facility.
In connection with the early retirement of the STT2 Bridge Loan, the
Company will be obligated to pay a termination fee of $525 (assuming
repayment on or before March 31, 1999). All other debt may be retired prior
to maturity without penalty to the Company.
The Company anticipates that it will terminate all existing interest rate
swaps at the date of this offering and enter into replacement swaps to
mitigate variable interest rate risk associated with the New Credit
Facility. The cost to terminate these swaps is estimated to be $5,223,
which represents the fair value of all outstanding swaps as of October 9,
1998.
(f) Includes the effects of a 36.59-for-1 stock split immediately prior to this
offering to convert 18,360 shares of Common Stock held by the previous
owners of STT into 671,770 shares of Common Stock of the Company.
(g) Represents 17,271,770 shares of Common Stock outstanding after this
offering (see notes (a) and (f)) with a par value of $0.01 per share.
(h) Represents assumed underwriting discounts and commissions of $23,240 and
other offering fees and expenses of $2,367 (e.g., legal fees, accounting
fees, stock listing fees, printing costs, etc.).
33
<PAGE> 40
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ELIMINATION
OF NON-
HISTORICAL ACQUIRED PRO FORMA
PIONEER OPERATIONS(A) ADJUSTMENTS(B) PRO FORMA
---------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
Revenues:
Log sales................................. $39,505 $ 14,025 $ -- $ 53,530
Lumber and by-product sales............... 52,623 (52,623) -- --
Timber and property sales and other....... 6,774 -- -- 6,774
------- -------- -------- ----------
Total revenues.................... 98,902 (38,598) -- 60,304
Operating Expenses:
Cost of products sold..................... 39,602 (34,123) -- 5,479
Cost of timber and property sales......... 4,292 -- 1,824(c) 6,116
Depletion, depreciation and
amortization........................... 25,259 (1,326) 9,859 (c,d 33,792
Amortization of deferred financing
costs.................................. -- -- 300 (e,f 300
Selling, general and administrative
expenses............................... 7,444 (1,942) --(g) 5,502
------- -------- -------- ----------
Operating income (loss)........... 22,305 (1,207) (11,983) 9,115
Other Income (Expense):
Interest expense.......................... (8,722) -- (6,553)(e) (15,275)
Interest income........................... 224 -- 7,073(h) 7,297
Other income (expense), net............... 502 (502) -- --
------- -------- -------- ----------
Income (loss) from continuing
operations before income taxes and
minority interest.................... 14,309 (1,709) (11,463) 1,137
Income tax (provision) benefit.............. 355 -- (355)(i) --
------- -------- -------- ----------
Income (loss) from continuing
operations before minority
interest............................. 14,664 (1,709) (11,818) 1,137
Minority interest........................... 51 (51) (217) (j) (217)(k)
------- -------- -------- ----------
Income (loss) from continuing
operations........................... $14,715 $ (1,760) $(12,035) $ 920
======= ======== ======== ==========
Income from Continuing Operations Per Share:
Basic..................................... $ 0.05(l)
==========
Diluted................................... 0.04(l)
==========
Weighted Average Number of Shares Used in
the Calculation of Income from Continuing
Operations Per Share:
Basic..................................... 17,271,770(l)
==========
Diluted................................... 22,237,975(l)
==========
</TABLE>
The accompanying notes to pro forma condensed consolidated statements of
operations are an integral part of this statement.
34
<PAGE> 41
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ELIMINATION
OF NON-
HISTORICAL HISTORICAL ACQUIRED PRO FORMA
PIONEER STT(M) OPERATIONS(A) ADJUSTMENTS(B) PRO FORMA
---------- ---------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Log sales......................... $ 23,097 $ 111 $ 9,987 $ -- $ 33,195
Lumber and by-product sales....... 45,213 -- (45,213) -- --
Timber and property sales and
other.......................... 5,901 41 (956) -- 4,986
-------- -------- -------- ------- ----------
Total revenues............ 74,211 152 (36,182) -- 38,181
Operating Expenses:
Cost of products sold............. 45,256 -- (34,242) -- 11,014
Cost of timber and property
sales.......................... 2,536 -- (957) 671(c) 2,250
Depletion, depreciation and
amortization................... 12,966 179 (894) 4,596(c,d) 16,847
Amortization of deferred financing
costs.......................... -- 1,153 -- (921)(e,f) 232
Selling, general and
administrative expenses........ 6,937 1,260 (1,913) --(g) 6,284
-------- -------- -------- ------- ----------
Operating income (loss)... 6,516 (2,440) 1,824 (4,346) 1,554
Other Income (Expense):
Interest expense.................. (12,505) (9,024) -- 7,904(e) (13,625)
Interest income................... 56 5 -- 2,283(h) 2,344
Other income (expense), net....... (780) -- 780 -- --
-------- -------- -------- ------- ----------
Income (loss) from continuing
operations before income
taxes and minority
interest..................... (6,713) (11,459) 2,604 5,841 (9,727)
Income tax (provision) benefit...... 249 -- -- (249)(i) --
-------- -------- -------- ------- ----------
Income (loss) from continuing
operations before minority
interest..................... (6,464) (11,459) 2,604 5,592 (9,727)
Minority interest................... 10 1,945 (10) (181)(j) 1,764(k)
-------- -------- -------- ------- ----------
Income (loss) from continuing
operations................... $ (6,454) $ (9,514) $ 2,594 $ 5,411 $ (7,963)
======== ======== ======== ======= ==========
Basic and diluted loss from
continuing operations per share... $ (0.46)(l)
==========
Weighted average number of shares
used in the calculation of loss
from continuing operations per
share............................. 17,271,770(l)
==========
</TABLE>
The accompanying notes to pro forma condensed consolidated statements of
operations are an integral part of this statement.
35
<PAGE> 42
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
(a) Amounts represent the elimination of revenues and expenses associated with
operations of Pioneer that were not acquired by the Company. These
operations primarily include the former Pioneer conversion facilities.
Amounts also reflect the recognition of logging revenues and costs from the
sale of timber from Pioneer's timberlands to conversion facilities
previously owned by Pioneer. These sales and costs were previously
eliminated for financial reporting purposes, as they were intercompany
transactions prior to the acquisition by the Company of the timberlands
business of Pioneer. These sales have been recorded at fair value based
upon similar arm's-length transactions.
(b) For purposes of these Pro Forma Condensed Consolidated Statements of
Operations, the following proceeds from this offering, and uses of these
proceeds, are assumed:
<TABLE>
<S> <C> <C>
Proceeds from offering:
Shares to be issued............................. 16,600,000
Offering price per share........................ $ 20
-----------
Gross proceeds from this offering............... $332,000
Borrowings under New Credit Facility............ 260,214(e)
--------
Total proceeds.......................... $592,214
========
Uses of proceeds:
Repayment of Pioneer Credit Facility and STT2
Bridge Loan.................................. $ 290,000(e)
Early termination payment on STT2 Bridge Loan... 525(e)
Debt financing costs on New Credit Facility..... 1,500(e)
Termination of interest rate swaps and accrued
interest thereon............................. 5,223(e)
Partial redemption of minority interests........ 47,000(j)
Fees and expenses associated with this
offering..................................... 25,607(o)
-----------
369,855
--------
Excess cash proceeds......................... $222,359(h)
========
</TABLE>
(c) Represents adjustments to reflect additional depletion expense after the
step-up of the timberlands balance as a result of the application of
purchase accounting to the Company's acquisition of Pioneer.
(d) Amount includes depreciation expense of $35 and $27 for the year ended
December 31, 1997 and the nine months ended September 30, 1998,
respectively, related to property and equipment valued at $173. This
property and equipment is being depreciated over a period of five years.
(e) In conjunction with this offering, the Company plans to repay all
outstanding debt. The Company also plans concurrently to enter into the New
Credit Facility, which provides for a $200,000 term loan and a revolving
line of credit of up to $175,000. The Company expects to immediately borrow
$260,214 on this facility (see notes (a) and (h)). Of the amount expected
to be drawn under this facility, approximately $200,000 will relate to a
term loan bearing interest at a variable rate expected to initially
approximate 7.2% and which will be payable in quarterly installments
through March 31, 2004. The remaining $60,214 will relate to a revolving
line of credit bearing interest at a variable rate also expected to
initially approximate 7.2% and maturing on March 31, 2004. Unused
commitment fees on the New Credit Facility will approximate 0.5%. The
Company expects to incur approximately $1,500 in debt issuance costs
associated with the New Credit Facility. Such costs have been amortized
over a period of five years (see note (f)).
In connection with the early retirement of the STT2 Bridge Loan, the
Company will be obligated to pay a termination fee of $525 (assuming
repayment on or before March 31, 1999). This fee will be recorded as a
component of the extraordinary loss from the early extinguishment of debt
(see note (n)). All other debt may be retired prior to maturity without
penalty to the Company.
36
<PAGE> 43
The Company anticipates that it will terminate all existing interest rate
swaps at the date of this offering and enter into replacement swaps to
mitigate variable interest rate risk associated with the New Credit
Facility. Termination costs will be recorded as a component of the
extraordinary loss from the early extinguishment of debt (see note (n)).
(f) Amount represents amortization expense on debt issuance costs associated
with the New Credit Facility (see note (e)). These costs are being
amortized on a straight-line basis over five years.
(g) Historical selling, general and administrative expenses have not been
adjusted to reflect the reductions in such costs anticipated by management
after this offering. Such reductions are anticipated primarily due to: (i)
expected cost savings from the reduction of personnel due to the
consolidation of all current operations (net of additional costs associated
with being a public company) and (ii) changes in the way the Company plans
to operate the Pacific Northwest Properties. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(h) Does not reflect the historical financial results of the Louisiana Property
until after its acquisition by the Company on April 27, 1998. Accordingly,
it is assumed that no debt associated with the acquisition of these
timberlands existed during the year ended December 31, 1997 and,
accordingly, excess proceeds of $222,359 were available for investment
purposes after this offering on January 1, 1997. Furthermore, it is assumed
that $60,214 of these excess proceeds were utilized to pay down the
revolving line of credit portion of the New Credit Facility initially
borrowed in connection with this offering (see note (e)). It is then
assumed that these proceeds were re-borrowed and used with the remaining
excess cash proceeds to purchase the Louisiana Property on April 27, 1998.
Excess proceeds during all periods presented are assumed to be invested in
highly liquid securities earning interest at 4.5% per annum. The Company
does not expect to realize this level of interest income after this
offering as it does not anticipate maintaining substantial cash balances.
(i) Represents the elimination of all historical taxes recorded by Pioneer
since the Company, after the Formation Transactions and this offering, is
expected to qualify as a REIT.
(j) The Continuing Investors will receive $47,000 from the offering proceeds
based upon contractual commitments with the Company. These payments
represent a return of a portion of the Continuing Investors' initial
interests. The remainder of these Continuing Investors' interests will be
converted into Partnership units. No income statement charge has been
recorded related to these payments or conversions as they represent capital
transactions.
In addition, assuming that this offering is consummated on March 31, 1998,
one Continuing Investor will be entitled to a dividend of $1,907 based upon
contractual commitments with the Company. The dividend has been reflected
as a component of minority interest expense for the year ended December 31,
1997. The Continuing Investor has elected to receive 100,110 Partnership
units in lieu of cash payment of this dividend.
(k) Represents the minority interest charges, assuming minority ownership in
the Partnership of 18.1% after the Formation Transactions and this
offering. Amounts are calculated as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Income (loss) from continuing operations before
minority interest expense....................... $ 1,137 $(9,727)
Extraordinary loss................................ (10,456)(n) --
-------- -------
Net loss before minority interest expense......... (9,319) (9,727)
Multiply by: minority interest percentage......... 18.1% 18.1%
-------- -------
Minority interest before dividends................ 1,690 1,764
Less: Dividend on minority interests (see note
(j))............................................ (1,907) --
-------- -------
Minority interest................................. $ (217) $ 1,764
======== =======
</TABLE>
(l) For the year ended December 31, 1997 and for the nine months ended
September 30, 1998, basic income (loss) from continuing operations per
share is calculated by dividing income (loss) from
37
<PAGE> 44
continuing operations by the weighted average shares outstanding during the
period. It is assumed that 17,271,770 shares were outstanding during the
entire reporting period.
For the year ended December 31, 1997, diluted income from continuing
operations per share is calculated by dividing income from continuing
operations by the weighted average shares outstanding during the period
plus the weighted average of common share equivalents outstanding during
the period. Approximately 4,966,205 Partnership units, which are
convertible on a share for share basis into shares of the Company's common
stock, have been considered common share equivalents for the year ended
December 31, 1997. Diluted loss per share for the nine months ended
September 30, 1998 does not include the effects of the Partnership units
since these potential common share equivalents are antidilutive in periods
in which a loss from continuing operations is reported. Diluted income
(loss) from continuing operations per share for both periods does not
include the effects of stock options to be granted under the 1999 Incentive
Plan, as such stock options will be granted on the date of this offering
with an exercise price equal to the offering price.
(m) Amounts shown for historical STT for the nine months ended September 30,
1998 include STT operating results from inception (April 21, 1998) through
October 9, 1998. The historical activity of STT reflects limited operations
during this time (e.g., sales of salvage timber), as STT was preparing the
Louisiana Property for active commercial timber operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." STT activity for the period from October 1, 1998 through
October 9, 1998 has not been eliminated, as the Company believes that this
activity was immaterial to the Pro Forma Condensed Consolidated Statement
of Operations taken as a whole.
(n) In connection with this offering, the Company will retire its existing debt
facilities and record an extraordinary charge related to the early
extinguishment of this debt (see notes (a) and (e)). This charge will
include the write-off of unamortized debt issuance costs related to the
extinguished debt, a termination fee for the STT2 Bridge Loan and costs
related to terminating obligations under interest rate swaps. This charge
has not been shown for the year ended December 31, 1997 as this statement
presents only amounts through income (loss) from continuing operations. The
amount of this extraordinary charge would approximate $15,100 using
historical amounts reported in the STT and STT2 consolidated financial
statements as of October 9, 1998.
However, as described in note (h), it has been assumed that no debt was
issued in connection with the Company's acquisition of the Louisiana
Property. Accordingly, the extraordinary loss shown in note (k) does not
include any write-off of deferred financing costs associated with early
retirement of debt used to acquire the Louisiana Property, as well as any
termination costs of interest rate swaps related to this debt, as will
actually occur.
(o) Represents assumed underwriting discounts and commissions of $23,240 and
other offering fees and expenses of $2,367 (e.g., legal fees, accounting
fees, stock listing fees, printing costs, etc.). All costs associated with
this offering have been charged against additional paid-in capital.
38
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following represents management's discussion and analysis of the
historical financial condition and results of operations of STT, STT2 and
Pioneer (the predecessor to STT2), respectively. The following also presents the
pro forma financial condition and results of operations of the Company after
giving effect to the Formation Transactions and this offering. See "Structure
and Formation of the Company."
The discussions of historical results are based on the historical financial
statements of (i) STT as of, and for the period from inception (April 21, 1998)
through October 9, 1998, (ii) STT2 as of October 9, 1998 and (iii) Pioneer for
the years ended December 31, 1997, 1996 and 1995 and for the nine months ended
September 30, 1998 and 1997, and should be read in conjunction with those
financial statements contained elsewhere in this prospectus. Analyses of the
anticipated operations and financial condition of the Company are based, in
part, on information contained in the "Pro Forma Condensed Consolidated
Financial Information."
The following discussion first addresses the Company's expected operating
plan after giving effect to the Formation Transactions and this offering.
Subsequent sections discuss seasonality and inflation matters related to the
planned operations of the Company, as well as anticipated liquidity and capital
resources and commitments and contingencies. An analysis of the historical
operating results of STT, STT2 and Pioneer is located later in this section,
followed by management's discussions of Year 2000 compliance plans and market
risks currently facing the Company.
PROSPECTIVE RESULTS OF OPERATIONS
GENERAL
The following discussion is based, in part, on the pro forma information
contained in "Pro Forma Condensed Consolidated Financial Information."
Management believes that the pro forma financial statements of the Company, as
presented, will not be comparable to the results of operations and cash flow
that the Company will derive from its assets in 1999 and beyond. The primary
reason for this belief is that the pro forma results for the Louisiana Property
and certain California timberlands, which together represent the majority of the
merchantable timber inventory of the Company, include only partial years of
operations at actual harvest levels that are well below expected future levels.
The pro forma condensed consolidated statements of operations only include
results of operations of the Louisiana Property for the period from its
acquisition on April 27, 1998 through October 9, 1998. The results of operations
prior to April 27, 1998 are not included in the pro forma financial statements
due to a lack of continuity of operations and a fundamental change in the
management of the Louisiana Property after acquisition. Because the Louisiana
Property had not been operated as a commercial forest prior to STT's acquisition
of these timberlands, the age of the timber located on the Louisiana Property is
disproportionately weighted to over-mature timber that remains standing beyond
its economic rotation age. Starting in 1999, the Company will actively focus on
the sale of this over-mature timber and, as such, harvest volumes and revenues
are expected to substantially exceed historical results.
Furthermore, from the date of the acquisition of the Louisiana Property
through October 9, 1998, STT conducted only limited harvesting operations on the
Louisiana Property, while preparing the property for active commercial timber
operations. These preparations included conducting a complete timber inventory,
detailed mapping, preparation of timber sales plans and initiation of commercial
marketing activities. The Company incurred significant one-time preparatory
expenses prior to the commencement of the commercial operation of the Louisiana
Property that will not occur in future periods.
The pro forma condensed consolidated financial statements also exclude the
historical financial results of certain California timberlands acquired by
Pioneer (the predecessor to STT2) in July 1998 due to a lack of continuity of
operations. These California timberlands, known as the Coastal forest, were
managed
39
<PAGE> 46
in a substantially different manner by the prior owners than the Company expects
to manage them. Prior to Pioneer's acquisition of the Coastal forest, the
previous owners held these timberlands primarily to seek capital appreciation.
Harvests were conducted at relatively low levels with the objectives of thinning
and extraction of hardwood species from softwood tracts. Also, once acquired by
Pioneer, certain planned harvesting operations were postponed in anticipation of
the eventual sale of Pioneer to STT2.
In May 1998, shortly before the Coastal forest acquisition by Pioneer, the
prior owners received approval of an "Option A" timber management plan for the
Coastal forest. The Option A timber management plan was developed pursuant to a
California permit process that establishes long-term growth and sustainable
harvest for a specified timberland. This Option A plan establishes a decade by
decade harvesting model through which the Coastal forest has been approved for
substantial commercial harvesting of softwood species. The Company intends to
manage the property in accordance with the Option A plan and, thus, expects to
increase substantially harvest volumes and revenues from the Coastal forest as
compared with historical results. See "Business and Properties -- Initial
Timberland Properties -- The California Timberlands."
REVENUES
In 1999 and beyond, the Company intends to execute a timber sales plan that
will generate an increasing revenue stream. This plan primarily will involve the
harvesting of mature timber on the Company's various timberlands. For example,
timber on the Louisiana Property is weighted to over-mature timber as the prior
owners allowed the timber to remain standing beyond its economic rotation age.
Similarly, components of the Commander forest in California and the Washington
property consist of mature, high-value timber that is at its optimal harvest
age. The Company's selling plan for these tracts calls for removing this
low-growth timber and replanting with seedlings selected for superior genetic
characteristics to increase biological growth rates.
In selecting tracts to be sold for harvesting in a given year, the Company
will evaluate its holdings on an overall basis, taking into account the relative
maturity levels and current productivity of tracts available for harvest, the
strength of local markets and the desirability of reforesting a particular area
so that the Company can increase the growth rate of its timber and better
balance the age class distribution of its holdings. The Company enters into
cutting contracts with various buyers, generally for terms ranging from three to
eighteen months. Under the cutting contracts, the buyer, at its expense, will be
required to cut and haul the purchased timber to its own conversion facility, or
to another purchaser to whom it is reselling. The Company will recognize revenue
when the timber is removed by the buyer and, therefore, the Company will not
completely control when its revenues are recognized. The Company's timber sales
plan will be modified periodically to adjust for changes in growth patterns,
future acquisitions of timberlands, unforeseen events, and general economic
conditions.
In addition to cutting contracts, the Company also expects to derive
revenues from several other sources. The Company will grant hunting, grazing,
camping and other rights of access to approved hunting clubs and individuals.
These hunting leases and other rights will both produce revenues for the Company
and provide the Company with assistance in maintaining and protecting its
properties. From time to time, the Company expects to make incidental sales of
portions of its properties that have a higher and better use than the long-term
production of timber. See "Business and Properties."
EXPENSES
One of the Company's primary operating expenses will be depletion expense,
relating to the cost of timber harvested. The Company's depletion will be
calculated based on the capitalized cost of the timber harvested (including cost
of acquisition and any silvicultural activities) divided by available timber
volume based on an initial timber survey, or cruise. Cruises are expected to be
performed annually. Accordingly, depletion rates will be adjusted at that time
and applied prospectively. Based on the Company's projected harvest levels, as
well as current depletion rates, the Company's expected 1999 depletion expense
will be approximately $48.8 million.
40
<PAGE> 47
The Company expects that 1999 selling, general and administrative costs
will be approximately one-third lower than annualized pro forma selling, general
and administrative costs for the nine months ended September 30, 1998. This
decline is attributable to the anticipated cost savings primarily from the
reduction of personnel due to the consolidation of all current operations (net
of additional costs associated with being a public company), as well as changes
in the way the Company plans to operate the Pacific Northwest Properties.
Planned management changes include focusing sales efforts on sales of standing
timber, where customers will be responsible for cutting and hauling timber. In
the past, former management of the Pacific Northwest Properties focused on log
sales, in which they were responsible for cutting timber and converting it into
logs prior to sale. This change in business strategy will mitigate or eliminate
previously incurred administrative costs associated with maintaining sorting
areas, log yards and other facilities to convert timber into logs.
SEASONALITY
The winter rainy season and spring and summer fire hazards limit timber
harvesting on the Louisiana Property. Similarly, harvesting on the Company's
timberlands in the Pacific Northwest is typically interrupted for periods during
the winter and spring due to snow and melting snow, and occasionally in the late
summer due to fire hazards. Accordingly, the Company's results of operations may
fluctuate on a quarterly basis due to the seasonal nature of the Company's
operations.
EFFECTS OF INFLATION
Prices for the Company's timber will be subject to cyclical fluctuations
due to market or other economic conditions, including the level of construction
and remodeling activity. Although timber prices in the U.S. have historically
risen faster than inflation over the long-term, these prices generally do not
directly follow short-term inflationary trends. Costs of forest operations and
general and administrative expenses generally do tend to reflect inflationary
trends.
LIQUIDITY AND CAPITAL RESOURCES
HISTORICAL
STT has financed its operations through commercial loans. At October 9,
1998, STT has obligations under a Bridge Loan for approximately $85.0 million
and under the Old Partnership Credit Facility, a revolving credit facility, for
approximately $136.8 million. The Bridge Loan bears interest at a variable rate
based on LIBOR plus an applicable margin (9.06% as of October 9, 1998) and
matures on October 27, 1999. The maximum borrowing allowed under the Old
Partnership Credit Facility is $215.0 million, subject to a "borrowing base"
calculation, as defined in the debt agreement and based on the value of
merchantable timber on the Louisiana Property, as estimated by STT's lenders.
The Old Partnership Credit Facility bears interest at a variable rate based on
LIBOR plus an applicable margin (8.06% as of October 9, 1998) and terminates on
April 25, 2003.
STT2 has financed its acquisition of the Pacific Northwest Properties via
the issuance of $290.0 million in debt instruments. At October 9, 1998, STT2 has
obligations under the STT2 Bridge Loan in the amount of $35.0 million, and under
the Pioneer Credit Facility, which consists of a term loan of $200.0 million and
a revolving credit facility for $55.0 million. The STT2 Bridge Loan bears
interest at a fixed rate of 9.06% at October 9, 1998 and matures on October 27,
1999. The term loan bears interest at adjusted LIBOR plus an applicable margin
(7.85% at October 9, 1998) and matures on September 30, 2003. Term loan payments
will be made in quarterly installments and will commence on December 31, 1999.
The maximum borrowing allowed under the revolving credit facility is $70.0
million, of which approximately $35.0 million can be used for letters of credit.
A portion of the revolving credit facility bears interest at LIBOR plus an
applicable margin (7.85% at October 9, 1998), while the remaining portion bears
interest at the base rate plus an applicable margin (9.25% at October 9, 1998).
The revolving credit facility terminates on September 30, 2003.
41
<PAGE> 48
STT and STT2 are required to meet certain financial and non-financial
covenants under each of the debt instruments, including restrictions on
additional borrowings, the maintenance of certain financial ratios and
limitations on capital spending, investments, distributions and asset sales. At
October 9, 1998, the companies were in compliance with all covenants and expect
to remain in compliance in the immediate future. All borrowings are secured by
the companies' interests in the operating partnerships, as well as the assets of
those partnerships.
Until the completion of the Formation Transactions and this offering, STT
and STT2 expect to finance their on-going operations with cash flows from
harvesting activities on their timberlands, as well as by additional borrowings
under the Old Partnership Credit Facility and the revolving credit facility
portion of the Pioneer Credit Facility. After that time, the Company plans to
extinguish all debt using proceeds from this offering as well as funds from the
New Credit Facility, which is expected to bear interest at a reduced rate. In
addition, the Company will terminate all existing interest rate swaps and enter
into replacement swaps to mitigate variable interest rate risk associated with
future variable rate borrowings. See "-- Market Risk." Assuming the Formation
Transactions and this offering had occurred on October 9, 1998, the Company
would have recognized an extraordinary loss of approximately $13.2 million
associated with the termination of its existing debt agreements. The actual
amount of the extraordinary loss will be determined at the date of this
offering.
PROPOSED NEW CREDIT FACILITY
In connection with this offering, management is discussing with two
commercial banks their "best efforts" arrangement of a lending syndicate to
provide the New Credit Facility, a $375.0 million facility that would be used by
STT and STT2 to repay all existing debt, fund future Company acquisitions and
provide for ongoing working capital requirements. The banks proposing to lead
the syndication efforts have indicated that they believe that they will be able
to arrange the contemplated $375.0 million loan facility. However, they have not
issued credit commitments, and, if issued, the facility commitments may contain
terms that are substantially different from the preliminary terms under
discussion as outlined below.
The New Credit Facility, to close at the same time as this offering, would
include both a single-advance term loan of $200.0 million and a revolving line
of credit of $175.0 million. It is expected that approximately $260.0 million
will be outstanding under the new facility at the time of closing, with $60.0
million borrowed under the revolving line of credit and all $200.0 million of
the term loan being advanced, assuming net proceeds from the initial public
offering of $306.4 million.
Currently, prospective lenders and the Company are contemplating a
five-year term for the proposed New Credit Facility, with no repayment of
principal being required prior to maturity, though proposed percentage of asset
value limitations on borrowings will be reduced on each anniversary of the
facility closing. Both the term and revolving line of credit portions of the
facility, together with any related interest rate derivative or swap
obligations, will be secured by first liens on all Company assets.
Amounts advanced up to the $175.0 million revolving line of credit
commitment would be limited to agreed-upon percentages of a borrowing base
comprised of the value of merchantable timber and of timber sale contracts
containing terms approved by the lenders. Initially, revolver advances could be
borrowed up to the sum of 60% of independently valued merchantable timber and
80% of the amounts owed to the Company under eligible timber sale contracts,
less amounts outstanding under the term loan. At each anniversary of the credit
closing, the percentage that may be borrowed against merchantable timber would
be reduced by 2%, so that during the final loan year of the five-year maturity
only 52% of the value of merchantable timber could be borrowed.
In current discussions, the proposed lead banks in the credit syndicate
have provided preliminary pricing terms. Those terms include interest rates and
a fee on unused portions of the revolving line of credit, with each to be
adjusted quarterly. The Company will have the option to borrow on the basis of
rates tied either to market LIBOR or a bank prime rate.
42
<PAGE> 49
Both interest and the unused revolving line of credit fee will be adjusted
each quarter based on the ratio of total Company debt at the end of the quarter
to cash flows achieved in the four-quarter period concluding at the end of the
quarter. Interest rates could vary under the adjustment formulas between a
margin of 175 and 300 basis points, for advances borrowed on a LIBOR-rate basis,
and 25 and 150 basis points, for advances borrowed on a market prime rate basis.
The unused commitment fee could vary between 37.5 and 50 basis points,
determined on a per annum basis. Interest and commitment fees would be paid
quarterly.
The Company expects that the New Credit Facility will be subject to
numerous covenants, terms and conditions. In current discussions, the
prospective lenders have indicated that these new credit terms and conditions
will be based on provisions of the $215.0 million Old Partnership Credit
Facility used to finance the acquisition of the Louisiana Property. However,
each quarter the Company will be required to earn, on a consolidated basis,
EBITDDA that exceeds a minimum amount and, in addition, meet agreed-upon ratios
to each of total debt, interest charges and the sum of current expenditures for
interest, equity distributions and capital purchases.
The provisions of the New Credit Facility are expected to provide the
Company with significant operating flexibility. There will be no restriction on
acquisitions of timberlands within the United States, as long as the
acquisitions do not cause the Company to be out of compliance with borrowing
base and financial covenant terms contained in the credit agreement. However,
timberland acquisitions outside the United States will require lender approval.
It is expected that there will be no limit in the New Credit Facility on
shareholder distributions by the Company, so long as such distributions do not
cause the Company to default under other terms of the credit agreement. The
Company will be able to make up to $5.0 million in capital expenditures each
year and execute capitalized leases with total payments aggregating less than
$1.0 million annually. There will be no limitation on operating leases entered
into in the ordinary course of business.
Borrowing limitations under the proposed facility will not be as
restrictive as those currently applicable to STT and STT2. As proposed in
current discussions, the Company will be able to borrow outside the new $375.0
million facility on a pari passu basis, so long as these borrowings do not
contain more restrictive covenants or require principal repayment prior to the
five-year maturity of the $375.0 million facility. The Company expects to be
allowed to secure these other borrowings with first liens on certain of its
timberland and other properties.
The expected costs of entering into the New Credit Facility are currently
estimated at $1.5 million.
The Company anticipates that its initial working capital, together with
anticipated cash flow from operations and anticipated borrowings under the New
Credit Facility, will provide adequate liquidity to fund its activities in the
short-term and for the foreseeable future and to allow for distributions to
shareholders in accordance with the Company's initial distribution policy.
However, although the Company may have substantial availability under the New
Credit Facility immediately after this offering, the Company may still need to
obtain additional financing. In particular, one of the Company's principal
business strategies is to acquire additional timberlands. The implementation of
this strategy will require the Company to make significant capital expenditures,
and may require the Company to obtain external financing in addition to the New
Credit Facility.
There can be no assurance that the Company's intentions related to: (i) the
financing of its operations in the near-term, (ii) obtaining a New Credit
Facility with similar terms as those described above and/or (iii) its intention
to repay all of its existing debt obligations with proceeds from this offering
and the New Credit Facility will be completed as planned. If this offering is
delayed or canceled, or the Company is unable to obtain the New Credit Facility
at favorable terms, the Company may not be able to fund ongoing operations, pay
its interest cost or repay its debt obligations upon maturity. This would have a
material adverse effect on the Company's operating results and financial
condition.
The Company intends to pay regular quarterly dividends to its shareholders.
The Board of Directors, in its sole discretion, will determine the actual
amounts of these distributions based on the Company's
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<PAGE> 50
financial results, available cash flow, debt service requirements and other
factors. The Company's first distribution, for the period ending June 30, 1999,
is expected to be a pro rata share of the expected initial quarterly
distribution of $0.175 per share. On an annualized basis, this represents a
distribution amount of $0.70 per share. See "Distributions."
COMMITMENTS AND CONTINGENCIES
STT and STT2 had no material cutting contracts or other contingencies
outstanding at October 9, 1998. After October 9, 1998, STT entered into a
cutting contract whereby the buyer was granted the right to cut approximately
625 acres of timber. Upon closing the contract, STT received an advance payment
of approximately $450,000. The contract became effective on December 29, 1998
and expires on December 31, 2000.
STT also entered into an agreement in December 1998 with its President and
Chief Executive Officer, C. Edward Broom, to sell to Mr. Broom for $3.0 million
approximately 6,700 acres of agricultural land that was acquired as part of the
Louisiana Property. The sale was effected to provide a source of cash for STT to
make certain payments of bank debt. To protect the Company's economic interest
in the property, Mr. Broom has agreed that the Company may repurchase the
property at any time before December 31, 2000 at the price paid by Mr. Broom,
plus a pro rata annual increase at the rate of 8%, compounded annually. See
"Certain Relationships and Related Transactions."
On December 29, 1998, STT2 entered into a contract granting Kinzua
Resources, LLC the right to harvest timber on a tract in the Pacific Northwest
Properties (approximately 42,000 acres). The contract is in the form of a timber
deed where risk of loss passed to Kinzua Resources for the duration of the
contract. The contract expires September 30, 1999. Kinzua Resources may harvest
any timber on the defined acreage during the period of the contract. After the
contract expires, any standing timber on the tract reverts to STT2. Kinzua
Resources paid approximately $5.5 million for these rights, none of which is
refundable. Kinzua Resources is controlled by Gregory M. Demers, a continuing
investor. See "Certain Relationships and Related Transactions."
Revenues, net income and cash flow from the Company's operations will also
be dependent to a significant extent on its ability to harvest timber at
adequate levels. Among other factors, conditions that may restrict harvesting of
the companies' timberlands include insect infestation, severe weather, fire and
other causes beyond the Company's control. As is typical in the forest products
industry, STT and STT2 do not, and it is expected that the Company will not,
maintain insurance coverage with respect to damage to their timberlands. Even if
such insurance was available, the cost would be prohibitive.
The harvesting of timber is also subject to a variety of state and federal
laws and regulations, including environmental, threatened and endangered species
and habitat for such species, and air and water quality. These laws and
regulations are modified from time to time and are subject to judicial and
administrative interpretation. Pending regulatory and legal matters or future
governmental regulations, legislation or judicial or administrative decisions
may have a material adverse effect on the Company's financial position, results
of operations or liquidity. See "Risk Factors -- Environmental and Endangered
Species Regulations May Restrict Timber Harvesting and Impose Liabilities on Us,
and May Otherwise Restrict Our Ability to Conduct Our Business" and "Business
and Properties -- Federal and State Regulations."
STT and STT2 have made limited capital expenditures to date. Upon the
completion of this offering and the Formation Transactions, the Company plans to
make capital expenditures in the form of reforestation and silvicultural
activities on all of its timberlands. These activities will include thinning,
the planned conversion of uneven-aged pine forests to even-aged plantations,
road building and maintenance. Such expenditures are expected to be
approximately $2.0 million during fiscal 1999. In addition, the Company has
engaged Mason, Bruce & Girard, Inc., an independent forestry consultant, for a
fee of approximately $1.3 million to develop an "Option A" timber management
plan with respect to the Company's Commander forest to be submitted to the
California Department of Forestry and Fire Protection. See "Business and
Properties -- Initial Timberland Properties."
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<PAGE> 51
HISTORICAL RESULTS OF OPERATIONS
The following discussion focuses on the historical operating results of
STT, STT2 and STT2's predecessor, Pioneer. This discussion is historical in
nature and may not be representative of how the Company plans to manage the
operations after this offering and the Formation Transactions. See "-- Overview"
and "-- Prospective Results of Operations" and "Structure and Formation of the
Company."
STRATEGIC TIMBER TRUST, INC.
Strategic Timber Trust, Inc., the Partnership and STOC were formed on April
21, 1998 to acquire the Louisiana Property for $255.0 million. The transaction
was financed with bank loans of approximately $210.8 million and issuance of a
19.6% interest in the Partnership to LTP, who contributed to the Partnership the
contract to acquire the Louisiana Property. This interest was valued at
approximately $50.0 million on the date of the acquisition. During the reporting
period, substantially all of STT's operations were conducted through the
Partnership.
The historical financial statements of STT include the results of
operations and cash flows for the period from its inception (April 21, 1998) to
October 9, 1998. Since the acquisition of the Louisiana Property, STT has
deferred active harvesting on these timberlands to prepare for full-scale
commercial operations. During this time, STT conducted a detailed timber
inventory, mapped its property, prepared timber sales plans and initiated
marketing activities for timber to be sold from the property. The operating
results reflect only limited harvesting operations, including the sale of
salvage timber and thinning. Expenses incurred relate primarily to interest
expense on bank debt and the preparation of the property for active commercial
timber operations.
Revenues. During the reporting period, STT sold salvage timber for
approximately $111,000. In addition, STT recognized approximately $41,000 of
revenues related to hunting leases issued on the Louisiana Property.
Expenses. Cost of timber sold represents depletion on timber harvested. The
calculation of depletion is based on the capitalized cost of the harvested
timber (including cost of acquisition and any silvicultural activities) divided
by available timber volume (taking into consideration any growth) based on an
initial cruise. Cruises are expected to be performed annually. Accordingly,
depletion rates will be adjusted at that time and applied prospectively.
Deferred financing costs represent the amortization of costs incurred to
obtain financing used for acquisitions and working capital requirements. Such
costs are amortized over the term of the underlying debt, ranging from one to
five years.
Selling, general and administrative expenses are composed primarily of
consulting and management fees, salaries and bank charges. Consulting and
management fees represent fees paid for managing and tracking available timber.
These expenses also include one-time costs totaling $140,000 associated with
preparing the Louisiana Property for active commercial timber operations. Such
preparations included the conducting of a complete timber inventory, detailed
mapping, preparation of harvest plans and implementation of commercial marketing
activities.
Interest expense represents interest costs on the Company's existing debt,
net of the effects of an interest rate swap used to hedge certain exposures to
variable interest rates. See "-- Market Risk."
Interest income results from available cash balances deposited in highly
liquid investments with banks.
Minority interest is the share of the Partnership's income and losses
attributable to the minority unitholders of the Partnership.
STT will elect to be treated as a REIT under provisions of the Internal
Revenue Code. As a result, STT is not subject to federal income taxes on
distributed income but instead, STT's shareholders are taxed. No benefit for
income taxes has been provided on the loss since inception, as the benefit is
not
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<PAGE> 52
currently "more likely than not" to be realized by STT due to its limited
operating history. STT's net operating loss is approximately $9.5 million at
October 9, 1998.
STRATEGIC TIMBER TRUST II, LLC
STT2 and its subsidiaries were established on October 9, 1998 to acquire
Pioneer, an entity which owned and managed the Pacific Northwest Properties. The
transaction was financed with bank loans of approximately $290.0 million, the
issuance of a 59.1% interest in STP2 to the Former Pioneer Members valued at
approximately $65.0 million at October 9, 1998 and a cash contribution of $10.0
million by Mach One in exchange for a 9.1% preferred minority interest in STP2.
Because it was formed on October 9, 1998, STT2 had no operating results
during the reporting period.
PIONEER RESOURCES, LLC
The historical financial statements of Pioneer are presented as Pioneer is
the predecessor to STT2. In addition to the Pacific Northwest Properties, these
financial statements include the operating results of Pioneer's sawmill and
aircraft operations, neither of which have been acquired by STT2. See "Pro Forma
Condensed Consolidated Financial Information" for a discussion of pro forma
adjustments required to be made to the historical Pioneer financial statements
to reflect the results of operations acquired by STT2.
Introduction. The predecessor to Pioneer (Old Pioneer) was originally
formed in 1994. Pioneer and Old Pioneer, directly or through affiliated
companies, have completed a number of significant timberland and other asset
acquisitions since inception. In addition, Pioneer has engaged, on a small
scale, in the sale or disposal of timberlands not integral to its operations.
These acquisitions are described in more detail below and in the notes to the
financial statements of Pioneer, which are included elsewhere in this
prospectus.
Each acquisition by Pioneer was accounted for using the purchase method of
accounting. Accordingly, the historical financial and operating data vary
significantly as a result of the inclusion in the later periods of the effects
of these acquisitions and, therefore, are not necessarily comparable and are not
indicative of future results of operations. The following table identifies
Pioneer's significant acquisitions. Data regarding acreage and merchantable
timber are given as of the date of acquisition.
<TABLE>
<CAPTION>
MERCHANTABLE
ACQUISITION ACREAGE TIMBER SELLER DATE CONSIDERATION
- ----------- ------- ------------ ----------------- -------------- -------------
(BOARD FEET
IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Kinzua (East Oregon) 175,525 781.7 Kinzua April 1994 $130.0
Lane Plywood (West Oregon) 3,130 31.9 Lane Plywood May 1996 10.0
Pilot Rock (East Oregon) 130,207 188.6 Louisiana Pacific June 1996 34.0
Commander (California) 43,313 313.7 Louisiana Pacific September 1997 25.0
Skelly Panther and Swamp Creek
(West Oregon) 1,194 14.2 Weyerhaeuser December 1997 7.4
Riffe Lake (West Washington) 4,899 63.3 Weyerhaeuser February 1998 15.1
Aloha (West Washington) 5,922 70.5 Weyerhaeuser May 1998 15.0
Coastal forest (California) 79,026 839.2 Coastal Forest July 1998 130.0
</TABLE>
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September
30, 1997
Effective July 2, 1998, Pioneer completed its acquisitions of the Longview
and Willits Woods timberlands in California (together, such timberlands being
referred to herein as the "Coastal forest"). Prior to this acquisition, the
operations of Pioneer consisted primarily of timberlands and sawmills in Oregon,
California and Washington. The Coastal forest acquisition (as with all of
Pioneer's other acquisitions) was accounted for under the purchase method of
accounting.
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<PAGE> 53
Revenues. Revenues for the nine months ended September 30, 1998 increased
by 4% compared to the nine months ended September 30, 1997, from $71.4 million
to $74.2 million. Revenues from the sale of lumber and by-products increased by
16% from $38.9 million to $45.2 million. These increases are due to an increased
volume of lumber sold in 1998 due primarily to increased efficiencies at both
the Heppner and Pilot Rock sawmills. Secondly, there was a backlog of delayed
sales deliveries in the second half of 1997, which were shipped in the first six
months of 1998. Pioneer experienced the industry-wide transportation and
delivery problems associated with the Union Pacific rail service.
The volume of lumber sold increased 48% from 75.7 million board feet to
112.2 million board feet. The Heppner sawmill increased volume 67% from 38.2
million board feet to 63.9 million board feet due to capital improvement
projects and productivity gains resulting from an increased work shift that was
instituted in the later half of 1997. The Pilot Rock sawmill increased volume
29% from 37.5 million board feet to 48.3 million board feet due to productivity
gains from capital improvement projects implemented in the later half of 1997.
Additionally, sales volumes for both mills increased due to the aforementioned
transportation rail problems in the later half of 1997.
Pioneer's average lumber prices decreased 26% from the nine-month period
ended September 30, 1997 to the comparable period of 1998 due to the
industry-wide price declines associated with the Asian export market. Pioneer's
average lumber prices were consistent with the lumber market during this time.
Revenues from the sale of logs decreased by 18% from $28.3 million to $23.1
million. The volume of logs sold decreased by 22% from 54 million board feet to
42 million board feet. The decrease in revenues was due to a general decrease in
the market price of logs compounded with a decrease in the volume of Asian
export quality logs harvested from the Western Oregon timberlands. Pioneer's
management made the decision in 1997 to harvest the majority of the Western
Oregon timberlands acquired in May 1996 from Lane Plywood in anticipation of a
declining export log market.
Boise Cascade reduced harvesting on its timber contracts during this
period. The Boise Cascade contracts generated revenues of $2.3 million and $16.2
million, respectively, for the nine-month periods ending September 30, 1998 and
1997.
Revenues from the sale of non-strategic parcels of timberland and other
property sold during the period increased significantly from $4.2 million to
$5.9 million. The increase is attributed to Pioneer's land management staff that
was put in place in late 1996.
Expenses. Excluding timberland and other property sales and depletion,
depreciation and amortization, cost of products sold was 66% of net revenues for
the nine-month period ended September 30, 1998 and 46% for the nine-month period
ended September 30, 1997. The decrease in gross margin for the nine-month period
ended September 30, 1998 resulted from a variety of factors, the most important
of which was the decrease in lumber prices during the period. For the nine
months ended September 30, 1998, the lumber mills experienced an operating loss
of $1.2 million compared to an operating profit of $5.4 million in the nine
month period ended September 30, 1997.
Depreciation, depletion and amortization decreased 23% from $16.7 million
to $13.0 million due to a small overall decrease in logs harvested and a
substantial decrease in the harvest from the more highly valued Western Oregon
timberlands acquired with Lane Plywood. In 1998, Pioneer did not harvest any
volumes from these timberlands, which have higher depletion rates than those of
its other timberlands. Depreciation and amortization were generally consistent
between these periods.
Selling, general, and administrative expenses increased 32% from $5.2
million to $6.9 million. The increase in selling, general and administrative was
due to salary expense associated with staff increases and consulting and legal
expenses associated with Pioneer's acquisitions and expanded operations.
Interest expense increased 105% from $6.1 million to $12.5 million. Most of
this increase resulted from the increased debt associated with Pioneer's
timberland acquisitions.
Income taxes relate to Lane Plywood, the only taxable entity within the
combined group, and are not material to the combined results of operations.
47
<PAGE> 54
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. Revenues for 1997 increased by 58% compared to 1996, from $62.5
million to $98.9 million. Revenues from the sale of lumber and by-products
increased by 46% from $36.0 million to $52.6 million. These increases are due
primarily to a full year of operations for the Pilot Rock lumber mill. The Pilot
Rock lumber mill operations, acquired from Louisiana Pacific in June 1996,
generated revenues of $9.8 million and $23.8 million respectively, for the years
ended December 31, 1996 and 1997.
The volume of lumber sold increased 49% from 71 million board feet to 106
million board feet. This increase in sales volume was due to the full year of
operations for the Pilot Rock sawmill facility that had volumes of 20 million
board feet in 1996 and 50 million board feet in 1997, respectively. The Heppner
sawmill also increased volume from 51 million board feet in 1996 to 56 million
board feet in 1997. The increased volumes are due to gains achieved from capital
improvement projects and productivity gains resulting from an increased work
shift that was instituted in August 1997.
Pioneer's average lumber prices remained approximately the same for both
1996 and 1997, and were consistent with the lumber market during this time.
There was an improvement in lumber prices starting in the first part of 1996
which peaked in the first quarter of 1997. By year-end 1997, prices had declined
to comparable levels of those at the beginning of 1996.
Revenues from the sale of logs increased by 53% from $25.9 million to $39.5
million. The volume of logs sold increased from 56 million board feet in 1996 to
83 million board feet in 1997. The increased volume was a result of Pioneer's
decision to increase contracted harvesting with Boise Cascade and to increase
harvest volumes of export quality logs. The Boise Cascade contracts generated
volumes of 32 million board feet in 1996 and 65 million board feet in 1997.
Pioneer decided to increase harvesting on the Western Oregon timberlands
acquired in May 1996 from Lane Plywood in anticipation of a declining export log
market. The Western Oregon timberland sales volumes were 9 million board feet in
1996 and 18 million board feet in 1997. Pioneer's overall average price of logs
sold increased during this period due to an increased mix of the higher valued
export quality logs. The export quality logs had an average price decrease of
16% during this period, which was consistent with industry-wide decreases in log
prices.
The Boise Cascade contracts generated revenues of $12.3 million and $26.6
million, respectively, for the years ended December 31, 1996 and 1997. The
Western Oregon timberlands acquired from Lane Plywood generated revenues of $7.3
million and $12.3 million, respectively, for the years ended December 31, 1996
and 1997.
Revenues from sales of non-strategic parcels of timberland and other
property sold during the period increased significantly from $0.6 million in
1996 to $6.8 million in 1997. The increased 1997 revenues were attributed to
Pioneer's staffing addition of an experienced land management group that was put
in place in late 1996. During 1997, the Company sold a total of 6,222 acres in
approximately 20 separate transactions.
Expenses. Excluding timberland and other property sales and depletion,
depreciation and amortization, cost of products sold remained relatively
consistent at 42% of net revenues for 1996 and 43% of net revenues in 1997. Both
the Pilot Rock and Heppner lumber mills maintained comparable operating margins
for both 1996 and 1997.
Depreciation, depletion and amortization increased 64% from $15.4 million
for 1996 to $25.3 million in 1997 due to several factors affecting depletion.
First, Pioneer harvested 19 million board feet more timber in 1997 than in 1996.
Second, Pioneer harvested 9 million board feet more timber in 1997 than in 1996
from the newly acquired Western Oregon timberlands from Lane Plywood. The
depletion rate on these export quality timberlands was more than that on the
other timberlands. Depreciation and amortization were generally consistent
between these periods.
Selling, general and administrative expenses increased 137% from $3.1
million in 1996 to $7.4 million in 1997. The increase in selling, general and
administrative expenses was due to salary expenses associated with staff
increases and additional consulting and legal expenses associated with Pioneer's
expanded operations.
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<PAGE> 55
Interest expense increased 44% from $6.1 million in 1996 to $8.7 million in
1997. Most of this increase resulted from the increased debt associated with the
1997 timberland acquisitions.
Other income and expense consisted of $0.5 million of income in 1997. This
income consisted mainly of the gain associated with the sale of an aircraft.
Income taxes are related to Lane Plywood, the only taxable entity within
the combined group, and are not material to the combined results of operations.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues. Revenues for 1996 increased by 79% compared to 1995, from $34.9
million to $62.5 million. Revenues from the sale of lumber increased by 15% from
$31.4 million in 1995 to $36.0 million in 1996. These increases were
attributable primarily to a full year of operations of the Eastern Oregon
timberlands and Pilot Rock mill, which were acquired in June 1996. Pioneer had
by-product revenues of $10.6 million in 1995 and $3.1 million in 1996, primarily
from sales of wood chips to paper manufacturers.
The volume of lumber sold increased 57% from 21 million board feet to 33
million board feet, primarily due to the inclusion of a full year of operations
of the Pilot Rock sawmill. Pioneer's average lumber prices increased
approximately 5%.
Revenues from log sales increased substantially during the period from $1.6
million in 1995 to $25.9 million in 1996. Log sales volume increased 833% from 6
million board feet in 1995 to 56 million board feet in 1996, principally due to
the acquisition of additional Eastern Oregon timberlands from Louisiana Pacific
and Western Oregon timberlands from Lane Plywood. Eastern Oregon volumes
increased from 6 million board feet in 1995 to 47 million board feet in 1996.
The incremental volumes from the Western Oregon timberlands for 1996 were 9
million board feet.
Timberland and other property sales produced revenues of $0.6 million in
1996, down from $1.9 million in 1995.
Expenses. Excluding timberland and other property sales and depletion,
depreciation and amortization, cost of products sold decreased from 70% of net
revenues for 1995 to 42% of net revenues in 1996. The increase in gross margin
for 1996 resulted from a variety of factors, the most important of which was the
increase in log sales operations versus mill operations.
Depreciation, depletion and amortization increased from $3.0 million for
1995 to $15.4 million in 1996 due to several factors affecting depletion. First,
Pioneer harvested 55 million board feet more timber in 1996 than in 1995.
Second, Pioneer acquired more timberlands from Louisiana Pacific in 1996, which
changed the depletion rates for all harvest volumes. The acquisition of the
Pilot Rock Mill and expansion of business increased depreciation and
amortization between these two periods.
Selling, general and administrative expenses increased 34% from $2.4
million in 1995 to $3.1 million in 1996. The absolute increase in costs was
primarily due to the greater level of operations in 1996 resulting from the
Louisiana Pacific and Lane Plywood acquisitions.
Interest expense increased 98% from $3.1 million in 1995 to $6.1 million in
1996. Most of this increase resulted from the increased debt associated with the
1996 timberlands and mill acquisitions.
During 1995, other income and expense reflected nominal other income of
$0.3 million.
YEAR 2000
The Year 2000 issue refers to the problems that may arise from the improper
processing of dates and date-sensitive calculations by computers and
microprocessors embedded in other systems as the year 2000 approaches and is
reached. Historically, most computers (including hardware and software) and
other systems have used two digits to determine the year in a date (for example,
the year 1975 would be identified by 75). Therefore, such systems cannot
distinguish dates in the 2000s from dates in the 1900s.
49
<PAGE> 56
To address this issue, STT and STT2 have taken an inventory of all of their
information technology ("IT") systems (such as computer hardware and software)
and non-IT systems (such as cutting equipment and fire alarms) and have assessed
the readiness of these systems for the year 2000.
In relation to IT systems, both companies use personal computers and
personal computer-based applications in their daily operations. As most of the
hardware and software for these systems were purchased during 1998, management
believes that most of the IT systems of STT and STT2 should already be Year 2000
compliant. To verify this assumption, STT and STT2 have tested approximately
half of their personal computers for Year 2000 readiness. Those systems tested
appear to be Year 2000 compliant. In addition, STT and STT2 have begun to assess
the readiness of software packages they use, including their geographic
information system ("GIS"). See "Business and Properties -- Business
Strategy -- Develop Harvest and Reforestation Plans That Increase Long-Term
Portfolio Value." In most cases, STT and STT2 have received assurances from the
manufacturers of these software packages that the programs are Year 2000
compliant. Management expects that testing on the remaining systems and software
applications will be completed by the end of the first quarter of 1999.
Due to the recent formation of STT and STT2, and because of Pioneer's
historical methods of operations, there are a limited number of non-IT systems
requiring assessment. Accordingly, STT's and STT2's Year 2000 compliance plans
involve assessing and testing IT systems first and non-IT systems second. The
Year 2000 compliance of non-IT systems has not yet been assessed. These systems
will be assessed in the second quarter of 1999.
STT and STT2 rely on their customers for revenue and rely on vendors for
services (including inventory tracking, reforestation, and other services).
Inadequate Year 2000 compliance programs by these parties could have an adverse
effect on operations. For instance, if customers become unable to pay, STT and
STT2's receivable balances would increase, affecting cash flows. If vendors
provided inaccurate inventory data, the Company's harvest plans would not be
optimized. STT and STT2 are currently evaluating the Year 2000 readiness of
their key customers and vendors.
On a combined basis, STT and STT2 have spent less than $10,000 through
December 31, 1998 on their Year 2000 compliance programs. The companies expect
to spend approximately $15,000 during 1999 to address the Year 2000 issue.
STT and STT2 believe that their most reasonably possible worst case
scenario related to the Year 2000 issue is that their key information systems,
such as the GIS, will not be Year 2000 compliant. If this or any other component
of their Year 2000 compliance plan is not adequately completed prior to January
1, 2000, they can operate their businesses manually until such time as all
systems become compliant. Management does not expect that the short-term manual
operation of their businesses would have a material adverse effect on the
financial condition or results of operations of STT or STT2. However, STT and
STT2 cannot be certain that they have identified all potential Year 2000 issues
or that they will be Year 2000 compliant by January 1, 2000. Non-compliance by
STT, STT2 or their key vendors and customers could have a material adverse
effect on the future results of operations or financial condition of the
Company.
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<PAGE> 57
MARKET RISK
STT and STT2 are exposed to certain market risks such as changes in
interest rates. To manage the volatility relating to these exposures, STT and
STT2 have entered into interest rate swaps to manage well-defined interest rate
risks. STT's and STT2's derivative instruments are "pay fixed, receive variable"
interest rate swaps with highly rated counterparties in which the interest
payments are calculated on notional amounts. The notional amounts do not
represent amounts to be exchanged by the parties and, thus, are not a measure of
exposure to STT and STT2 through their use of derivatives. STT and STT2 have
entered into the following interest rate swaps:
<TABLE>
<CAPTION>
VARIABLE RATE AT
OCTOBER 9, 1998
-----------------------------------
NOTIONAL FIXED FAIR VALUE
AMOUNT MATURITY DATE RATE RATE BASED ON OF SWAP(1)
- ------------ ------------------ ----- ----- ------------- -----------
<S> <C> <C> <C> <C> <C>
STT
$100,000,000 May 13, 2002 5.99% 5.69% 3 Month LIBOR ($3,096,000)
STT2
$25,000,000 October 14, 2003 6.69% 5.34% 3 Month LIBOR ($1,044,650)
$25,000,000 October 14, 2003 6.69% 5.34% 3 Month LIBOR ($1,044,650)
$50,000,000 September 30, 2003 5.77% 5.34% 3 Month LIBOR --
</TABLE>
- ---------------
(1) In order to terminate the swap on October 9, 1998, STT or STT2 (as
applicable) would have to pay the amount shown.
It is the intention of the Company to terminate these swaps in connection
with this offering and enter into replacement swaps to mitigate variable
interest rate risk in connection with borrowings under the New Credit Facility.
STT and STT2 are exposed to credit-related gains or losses in the event of
non-performance by any of the counterparties to the interest rate swaps.
However, STT and STT2 do not expect any of the counterparties to fail to meet
their obligations.
STT and STT2 do not hold or issue derivative financial instruments for
speculative purposes.
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<PAGE> 58
BUSINESS AND PROPERTIES
Timber industry terms used in this section are defined in "Glossary of
Selected Timber Industry Terms." In this section we refer to timber volumes in
terms of board feet, which is the standard for measurement in the western United
States, and tons, which is the standard in the southeastern United States. To
aggregate our holdings, we have in some cases converted board feet or tons to
cunits. Each cunit is equal to 100 cubic feet of timber. We convert one thousand
board feet of timber to 2.25 cunits, and one ton of timber to 0.3525 cunits.
OVERVIEW
GENERAL
The Company acquires, owns and manages timberlands and sells timber. The
Company intends to acquire additional timberlands and capitalize on the growing
trend toward consolidation of timberland ownership.
The Company's initial timberland holdings consist of approximately 448,000
acres in the states of California, Louisiana, Oregon and Washington. These
timberlands generally contain premium species of timber with a variety of end
uses and are well diversified by geographic location. The timberlands are
generally well stocked with premium softwood species (such as Douglas-fir,
second-growth redwood, southern pine, ponderosa pine and cedar), containing a
total of approximately 5.53 million cunits (approximately 2.46 billion board
feet) of merchantable timber.
The Company's timberlands are generally located in active and competitive
markets for sawtimber and specialty products and are in the supply radius of a
significant number of solidwood product and pulp and paper manufacturing
facilities, including plants owned by vertically integrated forest products
companies. Within the market regions the Company serves, total consumption is
over 7.2 billion board feet of timber annually. Over each of the next five
years, the Company's planned annual timber sales represent approximately three
percent of this figure.
FOCUS ON CASH GENERATION
The Company expects its operations to generate substantial cash. The
Company's revenues will come primarily from the sale of timber. The Company's
ongoing cash operating expenses, working capital and capital expenditures will
be substantially lower than for integrated forest products companies that
operate timber conversion facilities.
Accounting rules require that as timber is harvested, recorded income must
be reduced by a non-cash depletion charge against the initial investment in the
harvested timber. This depletion charge will materially reduce any income that
can be recorded for accounting purposes from the sales of timber in years
immediately following the acquisition of such timber, but will not reduce cash
available to the Company for distribution or reinvestment. As a result, the
Company believes the cash it will generate from its operations will
substantially exceed its earnings for accounting purposes.
The Company will elect to be taxed as a REIT for United States federal
income tax purposes. Because substantially all of the Company's income will be
treated as capital gain, it will not be subject to tax rules that generally
require REITs to distribute substantially all of their ordinary income to
shareholders. The Company intends to use this flexibility to retain a
substantial portion of the cash it generates to acquire additional timberlands.
METHOD OF OPERATION AND REVENUE RECOGNITION
The Company sells standing timber rather than delivered logs. The Company
enters into timber cutting contracts with third parties that require those
parties to harvest and pay for standing timber. These parties include forest
products companies and, less frequently, brokers and loggers.
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<PAGE> 59
In selecting tracts to be sold for harvesting in a given year, the Company
evaluates its holdings on an overall basis, taking into account, among other
factors, the relative maturity levels and current productivity of tracts
available for harvest, the strength of local markets and the desirability of
reforesting a particular area so that the Company can increase the growth rate
of its timber and better balance the age class distribution of its holdings.
Once the Company has identified specific timber tracts to be offered for
harvest, the Company either seeks sealed bids from prospective buyers or
negotiates a purchase with one or more individual buyers. In either an auction
sale or an individually negotiated purchase, the Company enters into a cutting
contract with the buyer.
Under cutting contracts, the buyer, at its expense, is required to cut and
haul the purchased timber to its own conversion facility, or to another
purchaser to whom it is reselling. In contracts entered into with auction
buyers, three to 18 months are typically allowed for cutting. Negotiated
purchasers may be allowed from three months to five years for cutting. Under a
cutting contract, the title and risk of loss passes from the Company to the
buyer when the timber is harvested.
In addition to cutting contracts, the Company also expects to derive
revenues from several other sources. The Company will grant hunting, grazing,
camping, and other rights of access to approved hunting clubs and individuals.
These hunting leases and other rights will both produce revenues for the Company
and provide the Company with assistance in maintaining and protecting its
properties. From time to time, the Company expects to make incidental sales of
portions of its properties that have a higher and better use than being held for
long-term production of timber.
For accounting purposes, the Company recognizes income at the time the
purchaser cuts and takes title to the timber and not when it receives advance
payments under cutting contracts. The buyer has discretion as to the timing of
its timber harvest. Buyers may make substantial cash payments in advance of
cutting, which the Company does not escrow and is free to use in operations and
distributions. Thus, the Company expects that it will receive cash prior to the
time it recognizes income under some of its cutting contracts. Purchasers will
be entitled to refunds of these advance payments if timber, because of fire or
other casualty, is not available for harvest. If timber is available for
harvest, but the purchaser fails to cut the amounts it agreed it would cut, a
partial refund may be payable by the Company to the purchaser, but the Company
may seek remedies for the purchaser's breach of contract.
The Company expects its revenues will be seasonal. The winter rainy season
and spring and summer fire hazards limit harvesting timber on the Louisiana
Property. Similarly, harvesting on the Pacific Northwest Properties is typically
interrupted for periods during the winter and spring due to snow and melting
snow, and occasionally in the late summer due to fire hazards.
After a timber tract has been harvested, the Company reforests as soon as
practical (generally within the next year), using independent contractors
working under the supervision of the Company's foresters. The costs of
reforestation represent the majority of the Company's capital expenditures.
OPERATIONAL EXPENSES
The Company has a low-cost operation because it performs few of the "on the
ground" functions required to harvest timber. The Company sells standing timber
and does not cut timber directly or hire third-party loggers to cut its timber.
These functions are performed by purchasers of the Company's timber. By limiting
its expenses, the Company expects to maintain higher operating margins on its
timber sales than if it cut and removed timber itself.
Most of the Company's operating costs are fixed, consisting of employee
salaries and the facilities, supplies and benefits costs associated with these
employees. The Company currently utilizes a third-party forest management firm
to manage its Louisiana Property, but Company employees perform forest
management functions with respect to the Pacific Northwest Properties. The
Company believes that its current staffing and facilities are sufficient to
manage its current timberland holdings as well as additional timberlands that it
may acquire within the next few years.
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<PAGE> 60
BUSINESS STRATEGY
To maximize long-term shareholder value, the Company intends to:
- focus on owning timberlands and selling timber for harvest, not on owning
or operating lumber mills or other timber conversion facilities;
- acquire additional timberlands that will increase the Company's ability
to generate cash and enhance the overall value of its timberland assets;
- actively manage its timberlands to enhance biological timber growth; and
- develop timber selling and reforestation plans to increase the long-term
value of its timberland portfolio. The Company's current timber sales
plan has been developed to account for environmental and regulatory
restrictions on harvesting that currently affect its timberlands.
FOCUS ON TIMBERLAND OWNERSHIP AND SELLING TIMBER
The Company intends to focus on timberland ownership and selling timber for
harvest, which it believes will enable it to:
- avoid the conflicts that frequently exist within the paper and forest
products industry between providing consistent timber supplies to captive
conversion facilities and managing a forest for growth in order to
increase timberland value; and
- increase the value realized from its timber resources by selling its
timber to the highest bidder in each market in which it participates
rather than to captive conversion facilities.
ACQUIRE TIMBERLANDS TO GENERATE CASH AND ENHANCE LONG-TERM VALUE
As an owner and a seller of timber, as opposed to an owner or operator of
timber conversion facilities, the Company is a natural acquiror of timberlands
from a variety of potential sellers. The Company believes that U.S. timberland
ownership will continue its recent trend of consolidation and, more
specifically, will continue to shift from integrated forest products companies
to those focusing solely on timberlands and, in some cases, from small
landowners to larger organizations with greater financial resources.
The Company believes that timberland assets are frequently viewed by
integrated forest products companies as a means of assuring supply to, and
profitability of, their conversion facilities without separate regard for the
current value of their timber resources. As a result, the Company believes that
these companies are under increasing pressure to realize the value of their
timberland assets by selling or monetizing them. The Company believes that it
may be viewed as a preferred purchaser of timberlands offered for sale by these
companies because the Company does not compete with the manufacturing operations
of paper and forest product companies.
Smaller private timberland owners who seek to diversify their timberland
ownership and obtain liquidity also present the Company with acquisition
opportunities. The Company believes that small timberland owners lack the scale
of operations needed to efficiently manage their timberland assets. Private
landowners may be reluctant to make outright sales of their timberlands, even if
they would like additional liquidity, because sales may trigger taxes or be
inconsistent with their estate plans. These issues can often be compounded by
irregular cash flow from smaller timberland tracts.
Approximately 490 million acres of timberlands in the United States are
owned by non-government owners, with the largest such owner owning less than 3%
of all such timberlands. The Company believes this fragmented ownership of
timberlands presents it with a wide variety of potential timberland acquisition
candidates. The Company intends to take advantage of these acquisition
opportunities by:
- maintaining financial flexibility through a conservative capital
structure with a target debt-to-total market capitalization ratio of
approximately 40%, which it believes will better enable it to fund
acquisitions when opportunities arise;
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<PAGE> 61
- retaining a significant portion of internally generated cash primarily
for timber acquisitions;
- utilizing Partnership units as a form of consideration for acquisitions,
an approach that will permit the seller to defer taxes and achieve
liquidity and professional management; and
- accessing capital markets to provide additional funds for acquisitions.
Through acquisitions of timberlands, the Company intends to broaden and
enhance the value, marketability and diversity of its timber portfolio. The
Company evaluates each proposed acquisition based on the specific
characteristics of the property. The Company's evaluation criteria include:
- volume of merchantable and premerchantable timber on the property;
- productivity of the property's soils;
- biological growth rates of timber on the property;
- regional market supply and demand factors affecting the property;
- the proportion of sawtimber on the property;
- whether the acquisition will enhance the mix of species and/or diversify
the ages of timber in the Company's overall timber portfolio; and
- environmental and endangered species conditions, including restrictions
on harvesting that could limit the amount of timber that can be cut.
The Company looks for properties that present it with opportunities to
increase cash flow and derive more value from the property than the seller is
obtaining. Possible opportunities to derive such additional value and cash flow
include the following:
- modifying a property's timber selling plan in ways that may not be
feasible for the seller given the size and composition of the seller's
timber portfolio or the seller's purpose in holding the timberlands (for
example, as a source of raw material supply for a given mill);
- employing timber marketing and merchandising opportunities generally not
available to or used by the seller;
- implementing cost saving opportunities available through economies of
scale by managing the acquired timberlands as a component of the
Company's total portfolio; and
- leasing tracts for recreation, grazing, hunting and other activities and
selling tracts which are suited for better and more valuable uses (such
as for residential or commercial development).
Based on the substantial prior timberland acquisition experience of its
management, the Company believes that timberland properties generally can be
acquired on more favorable terms when privately negotiated rather than when
purchased through competitive auctions. Accordingly, the Company intends to
pursue privately negotiated acquisitions as its principal means of acquiring
timberlands.
The Company's principal focus will be on timberlands located within
developed markets in the continental United States. Developed markets are areas
with a number of independent lumber mills, paper mills, or other timber
conversion facilities sufficient to create a competitive market for the
Company's timber.
The Company also intends to explore potential timberland acquisition
opportunities in Latin America and in other active timber growing regions of the
world. The Company currently intends that timberlands located outside of the
United States will comprise no more than 20% of its asset portfolio. The Company
intends to seek non-U.S. timberlands with values that are depressed relative to
those in the United States, due to undeveloped or underdeveloped forestry
management plans, markets and/or infrastructure. Based on the experience of its
management, the Company believes many timberland acquisition opportunities
outside of the United States are capable of generating higher risk-adjusted
returns due to low-cost labor,
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<PAGE> 62
land, and energy, fertile soils and favorable climates, in combination with the
introduction of modern forestry practices and improved product marketing.
EMPLOY ACTIVE MANAGEMENT PRACTICES TO ENHANCE TREE GROWTH
Biological growth of trees is a major driver of timberland returns. The
Company employs advanced silvicultural techniques to enhance this growth,
improve the quality of its timber and reduce the time required for a tree to
reach harvestable maturity. The application of forest management techniques such
as the choice of seedlings with superior genetic characteristics, pruning,
thinning, pest and disease management and fertilization can improve both growth
rates and the quality of the wood produced. In order to use these techniques,
the Company employs professional forest managers who are silvicultural experts
in local forests and tree species.
DEVELOP HARVEST AND REFORESTATION PLANS THAT INCREASE LONG-TERM PORTFOLIO
VALUE
The Company believes that good silvicultural practices will produce both
financial and environmental benefits. The Company's strategy is to design forest
management plans to bring each of its forests into a balanced state in which the
forest contains a roughly equal number of acres of trees of each age class from
newly planted seedlings to mature trees. Once a forest reaches a balanced state,
the Company intends to manage it to generate predictable, consistent and
sustainable annual timber harvests and cash flow. An additional benefit of
active forest management is that the actively managed forest is more resistant
to the threats of fire, pests and disease than a forest left purely in its
natural state.
The Company intends to develop operating plans for each of its properties
that include site- and species-specific harvest and reforestation plans. While
the Company establishes plans for its portfolio as a whole, it maintains the
flexibility to increase or decrease harvest levels and alter the species mix and
location at each of its timberlands in response to local market conditions.
Finally, to enhance values in the future, the Company engages in an active
reforestation program, planting species well suited for local soils and markets.
The Company uses a computer system called a geographic information system
("GIS") in the management of its timberlands. The Company's GIS data, which the
Company will compile over a period of years, will include detailed topographical
field maps for every stand within the Company's timberlands describing the
characteristics, including age, species, size and other characteristics for the
timber growing on each such stand.
With the aid of the GIS, the Company will be able to manage its timberland
portfolio actively, track its inventory and develop site-specific harvest plans
on multiple scales, adding additional layers of detail, such as the location of
roadways or wildlife nesting areas as required. The GIS also permits the Company
to analyze the impact that new legislation may have on its timberlands by
modeling the effect of such legislation on the Company's timberland portfolio.
The GIS will also be used to evaluate potential acquisition opportunities.
Many of the Company's competitors and smaller timberland owners do not
utilize a GIS, mainly due to the relatively high initial cost and to the length
of time necessary to collect sufficient data to optimize the use of the GIS.
Thus, the Company believes the GIS will give it an advantage over its
competitors who do not use this system.
COMPETITIVE STRENGTHS
EXPERIENCED MANAGEMENT WITH SIGNIFICANT OWNERSHIP
The Company was founded in April 1998 by C. Edward Broom, Christopher J.
Broom, Thomas P. Broom, Vladimir Harris and Joseph E. Rendini, who,
collectively, have substantial experience in the acquisition, ownership and
management of timberland assets. Since 1985, they have collectively participated
in a series of timberland investments in the United States, Latin America and
New Zealand, as principals, investment managers and investment advisors.
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<PAGE> 63
Augmenting this core management team, the Company's founders have drawn
upon both former colleagues and advisors with diverse experience and expertise
in the Company's key areas of timberland acquisition, operation and management.
Collectively, the Company's management has diverse experience and expertise in
forestry, capital markets, corporate finance, accounting and information
systems, which the Company considers its key functional areas.
Upon completion of this offering, management will beneficially own in the
aggregate 1,605,723 shares of Common Stock (including 989,934 shares of Common
Stock which may be received in exchange for Partnership units), representing
7.2% of the then outstanding shares of Common Stock and Partnership units. The
Company believes that management's equity ownership in the Company aligns the
interests of management and shareholders.
DIVERSIFIED PORTFOLIO OF TIMBERLAND
The Company's initial portfolio of timberland consists of approximately
448,000 acres of timberlands in the states of California, Louisiana, Oregon, and
Washington. These timberlands are well diversified by geographic location,
species, age class, and end use market. They are generally well stocked with
premium softwood species (such as Douglas-fir, second-growth redwood, southern
pine, ponderosa pine and cedar), containing approximately 5.53 million cunits
(approximately 2.46 billion board feet) of merchantable timber. The Company's
timberlands are generally located in active and competitive markets for timber
and are in the supply radius of a significant number of timber conversion
facilities.
FOCUS ON TIMBERLANDS
As an owner and a seller of timber, as opposed to an owner or operator of
timber conversion facilities, the Company is a natural acquiror of timberland
holdings from a variety of potential sellers. Paper and forest products
companies, which have substantial timberland holdings, may view an independent
timberland investor such as the Company as a preferred purchaser when
considering the disposition of their timberlands, because the Company does not
directly compete with their manufacturing operations.
REIT STRUCTURE
The Company intends to operate as an umbrella partnership real estate
investment trust ("UPREIT"), owning its timberlands indirectly through the
Partnership. The Company believes the UPREIT structure will offer the following
benefits to its shareholders:
- TAX EFFICIENCY -- The Company's REIT structure, coupled with its focus on
timberland holdings, will provide substantial tax advantages, including:
- a single tax on the Company's taxable income, rather than a double tax
at both the corporate and shareholder levels;
- a substantial timber depletion allowance that will reduce the Company's
taxable income, without reducing its cash flow;
- treatment of distributions to the Company's shareholders either as
tax-free return of capital or as capital gain;
- flexibility to retain and reinvest cash primarily for timber
acquisitions, rather than making tax-mandated distributions to
shareholders; and
- generally, no unrelated business taxable income to the Company's
tax-exempt shareholders.
- ATTRACTIVE ACQUISITION CURRENCY -- The Company will, under appropriate
circumstances, be able to structure timber acquisitions in a way that
will permit a seller to obtain liquidity by exchanging timberland for
Partnership units without incurring tax at the time of the disposition.
This may enhance the Company's ability to complete acquisitions on terms
that are more favorable to it.
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<PAGE> 64
INDUSTRY OVERVIEW
TIMBER AS AN ASSET CLASS
The Company believes that timber represents an attractive asset class for a
number of reasons, including the following:
- REGENERATION -- Timber is a growing and renewable asset, unlike natural
resources such as minerals, oil and natural gas.
- PREDICTABLE GROWTH -- Trees grow predictably and, as they grow, they
become worth more per unit of volume because they have higher value end
uses. For example, solidwood products, which are made from larger trees,
are a higher value end use for timber as compared to pulp or paper
products, which are typically made from smaller trees.
- HARVEST FLEXIBILITY -- Independent timberland owners, such as the
Company, have substantial flexibility to increase their harvest when
local timber prices are high. When such prices are low, independent
owners can harvest less and let their timber continue to grow.
- FAVORABLE LONG-TERM WORLDWIDE SUPPLY/DEMAND FUNDAMENTALS -- Consumption
of wood and wood products has historically been correlated to population
growth, economic development and standards of living, which are forecast
to continue to increase. However, worldwide timber supplies, especially
of high-quality sawtimber, are becoming increasingly constrained due to
historical over-cutting, low historical investment in reforestation and
silviculture, and numerous environmental restrictions.
- HISTORICAL REAL PRICE APPRECIATION -- Domestic timber prices have, over
the long term, increased at rates in excess of inflation. The U.S. Forest
Service (the "USFS") estimates that, from 1967 to 1997, prices for
Douglas-fir, ponderosa pine and southern (loblolly) pine increased at
average rates of between 7% and 9% per year (between 2% and 4% per year
after adjusting for inflation).
PRODUCTS AND MARKETS
The timber harvested from the Company's timberlands is sold to be processed
as either sawtimber or pulpwood in converting facilities located generally in
close proximity to its timberlands. Sawtimber typically is converted into
lumber, plywood and other solidwood products. The harvested timber that is of
insufficient size or quality to be converted into lumber or other solidwood
products is sold for conversion into pulp, paper and engineered wood products.
The lumber, pulp, paper and other wood products are then distributed in domestic
and international markets. Timber markets, while regional in terms of purchasers
of timber, are impacted by the availability and cost of timber from other
regions and by global economic conditions.
TIMBER DEMAND, SUPPLY AND PRICES
Demand. Demand for timber depends upon the markets for wood products,
including lumber, plywood, pulp and engineered wood products. Because these
markets are impacted by changes in domestic and international economic
conditions, demand for these products can experience significant fluctuations.
Regional timber demand can also fluctuate due to changes in operating rates or
the number and size of wood conversion facilities within the region.
The Company's timber portfolio consists primarily of softwood timber.
Douglas-fir, southern pine, second-growth redwood, ponderosa and sugar pine,
hemlock, cedar and white fir are the most prevalent species on the Company's
initial timberlands. Currently, less than 10% of the volume of the Company's
merchantable timber consists of hardwoods.
A substantial portion of softwood timber is converted into lumber. Demand
for lumber is primarily impacted by the home construction, repair and remodeling
markets and the industrial construction market. Because of the structural
strength and stability of Douglas-fir and southern pine lumber, their most
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important use is for construction lumber. Douglas-fir is particularly well-known
for its appearance and hard surface quality. Sugar and ponderosa pines are used
primarily for new construction as well as for decorative purposes such as
moldings, trims, doors, windows and furniture. These pines are recognized for
their strength, durable surface and appearance. Second-growth redwood is also
converted into premium-grade lumber used primarily in applications where
appearance and durability are important, such as residential porches and decks.
Second-growth redwood is known for its natural beauty, superior ability to
retain paints and finishes and resistance to decay, insects and chemicals. As a
result, second-growth redwood is not generally used for commodity lumber
applications and its price has historically been less volatile than that of
other premium softwood species.
The most common applications for hardwood sawtimber include furniture,
flooring and moldings. Thus, demand for hardwood sawtimber is generally less
susceptible than softwood timber to fluctuations in construction activity. Most
of the hardwood timber on the Company's initial timberlands is pulpwood, usable
for paper and other commodity applications rather than specialty applications
such as furniture.
Some timber species grown on the U.S. west coast, such as Douglas-fir and
hemlock, have historically experienced significant demand in the Japanese
markets. These products have strength, appearance and stability characteristics
that have historically been highly valued in Japan and, as a result, have
attracted higher prices than would have been realized if sold in the domestic
market.
U.S. log exports have declined steadily over the past eight years,
generally a result of increased competition from European, Russian and Canadian
producers, and more recently the deteriorating economic and financial conditions
in Asia. Log exports from the United States have fallen from approximately 7.5
million cunits in 1989 to approximately 3.3 million cunits in 1997.
Supply. The Pacific Northwest and the southeast are the two principal
timber producing regions in the United States.
The supply of logs available for purchase within the Company's northwestern
operating areas has been significantly affected in recent years by reductions in
the volume of timber harvested from public lands. This reduction is primarily a
result of increased governmental policy emphasis toward protection of endangered
species, habitat preservation, conservation and recreation. The timber harvested
from federal lands in California, Oregon and Washington in 1997 was
approximately 1.4 billion board feet, a decline of 80% from the approximately
6.7 billion board feet harvested in 1988. The Company expects that the amount of
timber harvested from federal lands will remain at current levels or continue to
decline. This trend changes the supply emphasis to the private sector and thus
strengthens the Company's position as a private seller of timber. Timber
harvests have declined more in the western United States than in the
southeastern United States because public timberland ownership in the west
represents a substantially greater proportion of the total than it does in the
southeast.
Timber harvests can fluctuate regionally depending upon factors such as
changes in weather conditions, harvest strategies of local forest products
industry participants and prevailing timber prices. Rising timber prices often
lead to increased harvests on private timberlands. Timber prices are also
affected by lumber prices, which depend upon a number of factors, including the
level of domestic lumber consumption and production, conditions in export
markets and lumber imports from Canada and other countries. Although imports of
wood products have historically been limited by freight costs and, since April
1996, by the five-year United States-Canada lumber trade agreement, the recent
Asian economic crisis has contributed to reduced lumber and log exports from the
United States and increased lumber imports from Canada, Europe and other
regions.
Timber harvesting operations in the Pacific Northwest tend to be seasonal,
with interruptions for periods during the winter and spring due to snow and
melting snow, and occasionally in the late summer due to fire hazards. Timber
harvests in the southeastern United States, including Louisiana, are
periodically interrupted during the winter months due to seasonal rains and
during the spring and summer due to fire hazards. Although harvesting can
generally be performed throughout the year in Louisiana, harvesting will
typically peak during the summer months. Conversion operations are able to
process logs
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evenly throughout the year by increasing log inventories during the harvest
season and reducing log inventories during the periods of reduced harvesting.
Lumber imports also compete indirectly with timber harvested in the United
States. Because a large portion of logs are converted into lumber, imports of
lumber into the United States reduce the demand for logs at U.S. conversion
facilities. In 1997, lumber imports, most of which came from Canada, represented
36% of the United States consumption of softwood lumber.
Log imports into the United States have not historically been significant.
Small volumes of logs are imported from Canada into the states of Washington and
Maine for conversion into lumber and pulp, but the volumes do not impact the
regional markets materially. Global log markets can, however, have an impact
upon the prices paid for U.S. logs because U.S. exporters face strong
competition in their key export markets.
Prices. Although timber prices have historically been cyclical over the
short term as a result of supply and demand imbalances, over the long term
timber prices have increased at rates above inflation. The USFS estimates that
between 1967 and 1997, timber prices for Douglas-fir, ponderosa pine and
southern (loblolly) pine timber experienced average annual increases of 7.2%,
8.7% and 7.2%, respectively, compared to an average inflation rate of 5.2%.
The reduction in log supply from public lands that occurred at the
beginning of this decade caused prices for logs to increase significantly,
reaching peak levels during late 1993 and early 1994. Since 1996, lower domestic
lumber prices and greatly reduced exports of Douglas-fir logs and lumber to
Japan have negatively impacted prices for Douglas-fir and some pine species in
the Pacific Northwest. Strong domestic construction and repair and remodeling
markets continue to provide support for softwood log prices.
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The graph below illustrates historical price indices for representative
species of timber sold in the areas in which the Company currently operates:
HISTORICAL PRICE INDICES OF SELECTED TIMBER SPECIES
(1990 = 100)(1)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
California Coastal - Redwood 100.0 88.0 144.0 223.8 252.7 184.8 163.4 146.6 161.0
Louisiana - Pine Sawtimber 100.0 101.2 126.6 143.1 176.6 203.3 173.8 231.3 227.8
Washington - Douglas-fir 100.0 100.6 146.1 210.1 200.2 206.6 217.4 193.6 141.9
CPI 100.0 103.0 105.9 109.0 111.9 114.7 118.5 120.6 122.9
</TABLE>
- ---------------
(1) Price indices for timber have been determined by Mason, Bruce & Girard,
Inc., an independent forestry consultant ("MB&G"), and are based upon
average delivered log prices adjusted to exclude typical logging and
delivery costs for timber in those operating areas. The consumer price index
("CPI") is based on data provided by the U.S. Bureau of Labor Statistics.
CPI data for 1998 represent annualized data for the nine months ended
September 30, 1998.
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The table below provides actual market prices for sawtimber on the
Company's timberlands as of September 30, 1998. All prices are expressed in
dollars per thousand board feet, except prices for Louisiana pine sawtimber,
which are in dollars per ton.
<TABLE>
<CAPTION>
PRICES OF STANDING TREES
AS OF SEPTEMBER 30, 1998(1)
---------------------------
<S> <C>
CALIFORNIA -- COASTAL FOREST
Second-growth redwood....................................... $468
Douglas-fir................................................. $268
CALIFORNIA -- COMMANDER FOREST
Ponderosa pine.............................................. $350
Douglas-fir................................................. $300
LOUISIANA
Pine........................................................ $ 56
OREGON
Ponderosa pine.............................................. $290
Douglas-fir................................................. $292
WASHINGTON
Douglas-fir................................................. $452
Western hemlock............................................. $315
Cedar....................................................... $965
</TABLE>
- ---------------
(1) Prices for standing trees are lower than the mill-delivered prices that form
the basis for most published timber pricing, because mill-delivered prices
include cutting and transportation to the mill. However, the Company
believes that the favorable terrain and weather for most of the Company's
properties, and their proximate location to mill and end use facilities,
will lessen buyers' cutting and removal costs and reduce this price
differential. These prices are for sawtimber only and do not reflect
pulpwood prices.
INITIAL TIMBERLAND PROPERTIES
Merchantable timber, acreage, and predominant species for the Company's
initial timberland portfolio are summarized by region in the table below.
<TABLE>
<CAPTION>
MERCHANTABLE TIMBER
------------------------------
REGION ACRES PREDOMINANT SPECIES LOCAL UNITS(A) CUNITS(A)
- ------ ------- ------------------- ---------------- -----------
<S> <C> <C> <C> <C>
California 122,339 Second-growth redwood, Douglas-fir,
ponderosa pine, true firs 1,081,000 MBF(b) 2,433,000
5.4 million
Louisiana 82,009 Slash and loblolly pine tons(c) 1,912,000
Oregon(d) 232,621 Ponderosa pine, Douglas-fir 396,000 MBF(b) 891,000
Washington 10,822 Douglas-fir, western hemlock, cedar 129,000 MBF(b) 290,000
------- ---------
Total 447,791 5,526,000
======= =========
</TABLE>
- ---------------
(a) Timber inventories are carried and tracked in the units used in local
markets. For purposes of summarizing data at the portfolio level, the
Company converts local units into one common unit, the cunit (one cunit
equals 100 cubic feet). The conversion rates used are 0.3525 cunits per ton
(for the Louisiana Property) and 2.25 cunits per thousand board feet (for
the Pacific Northwest Properties).
(b) Verified by MB&G at the time of the Company's purchase of the tracts that
make up the Pacific Northwest Properties. The volumes were subsequently
adjusted for harvest and growth to October 9, 1998 by MB&G.
(c) Verified by Canal Forest Resources, Inc., an independent forestry
consultant ("CFR"), as of September 30, 1998.
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<PAGE> 69
(d) Includes approximately 15 million board feet (approximately 33,750 cunits)
of merchantable timber inventory under Oregon timber deeds. Under these
timber deeds, the Company has the right to harvest timber located on lands
not belonging to the Company.
TIMBERLAND MANAGEMENT STRATEGY
The Company's existing timberland holdings complement one another well.
This is exemplified by the fit between the Louisiana Property and the Coastal
forest in California. A substantial portion of the Louisiana Property contains
over-mature sawtimber. While these trees are expected to command a premium price
in the marketplace due to their size and quality, the overall growth rate of
these stands of mature trees is below the potential of the land given the
fertile soils and site characteristics. Accordingly, once these slower-growing,
mature trees are harvested, and reforestation activities are completed, stand
growth on the Louisiana Property will be substantially increased. By contrast,
the Coastal forest, though it now contains 886 million board feet of
merchantable timber, is relatively immature and is growing at its peak rate. The
Company's operating plan over the next few years for the two forests calls for
substantial harvesting on the Louisiana Property to reinvigorate growth and for
less harvesting of the Coastal forest in order to maintain the rapidly growing
base of timber there. By operating these properties as part of an integrated
whole, the Company anticipates that it can enhance the productivity of the
overall portfolio.
Similarly, components of the Commander forest in California and the
Washington property consist of mature, high-value timber that is at its optimal
harvest age. The Company's timber selling plan for the Commander and Washington
properties calls for removing this low-growth timber and replanting with
seedlings selected for superior genetic characteristics to increase the stands'
total biological growth rates. The Eastern Oregon properties consist primarily
of uneven-aged stands which contain a significant volume of premerchantable
timber. The operating plan for the Eastern Oregon tract includes decreasing
harvest levels over the next five years to allow the younger trees to mature and
to maintain the property's overall balanced condition.
The table below reflects the Company's approximate planned sales of timber
from its initial timberlands from 1999 through 2003 by region, in thousands of
cunits. This table expresses management's current timber sales plan, which is
subject to change.
TIMBER SALES PLAN
(THOUSAND CUNITS)
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
California.................................................. 150 145 145 145 145
Louisiana................................................... 215 230 245 245 255
Oregon...................................................... 110 105 95 90 85
Washington.................................................. 30 30 25 25 25
--- --- --- --- ---
Total............................................. 505 510 510 505 510
=== === === === ===
</TABLE>
Due to a substantial amount of over-mature timber on certain of its
timberlands, and consistent with prudent forest management practices, the
Company plans to sell a volume of timber from its initial timberlands from 1999
to 2003 that is materially greater than the volume it plans to sell thereafter.
The Company presently anticipates that its timber sales from its initial
timberlands will average approximately 380,000 cunits per year from 2004 to
2013. Within this period, the Company anticipates that its timber sales will
reach their lowest level in 2010. As a result of these timber sales plans, the
Company expects the biological growth on its initial timberlands to increase
from approximately 345,000 cunits in 1999 to approximately 523,000 cunits in
2013. The Company further expects that total timber inventory on these lands
will decline from 1999 through 2009, but will increase thereafter. As part of
the Company's strategy to grow its business, it intends to acquire additional
timberlands in order to augment its current timber sales plans.
63
<PAGE> 70
The Company seeks to realize the value of land that may have a higher and
better use than for timber production or that is otherwise a candidate for sale
or exchange. Some of the Company's timberlands may have greater value if used
for ranching, farming or recreational purposes or for residential or commercial
development. The Company will also seek to exchange lands with significant
environmental and recreational values for lands that are more suitable for
commercial timber production.
THE LOUISIANA PROPERTY
[GRAPHIC OF TRACT MAP SHOWING LOCATION OF LOUISIANA TIMBERLANDS
APPEARS HERE]
The Louisiana Property consists of approximately 82,000 acres located in
southwest Louisiana, primarily comprised of high quality softwood timber. Over
79.0% of the acreage of the Louisiana Property contains merchantable timber,
with a comparably high component of mature pine. Additionally, these timberlands
possess highly productive soils and favorable topography and climate. The
Company believes that, due to the substantial amount of mature timber on the
Louisiana Property, the property is well suited for immediate harvest and
replanting to take advantage of superior growing conditions.
Timber on the Louisiana Property is categorized as set forth below
(verified by CFR as of September 30, 1998):
LOUISIANA PROPERTY
ACREAGE BY TYPE
<TABLE>
<CAPTION>
TYPE ACRES PERCENTAGE
- ---- ------ ----------
<S> <C> <C>
Merchantable timber......................................... 64,820 79.0%
Pre-merchantable timber..................................... 13,754 16.8%
------ ------
Total Timberland Acreage.......................... 78,574 95.8%
Agricultural land........................................... 473 0.6%
Open/non-forested........................................... 2,962 3.6%
------ ------
Total Acreage..................................... 82,009 100.0%
====== ======
</TABLE>
The majority of the property features large blocks that can be easily
managed and are highly desirable for the production of timber. This
configuration makes the Louisiana Property well suited for establishing and
managing plantations. Public and private roads provide adequate access for
logging and management activities.
Prior to the Company's acquisition, the Louisiana Property was not actively
managed for commercial timber production. As a result, it now contains a
substantial inventory of mature timber, including approximately 3.6 million tons
of pine sawtimber valued for the size and quality of the wood. This pine
sawtimber represents over 66% of the property's merchantable timber volume, and
over 82% of the property's merchantable pine volume. Since most of the timber on
this property has been allowed to remain standing past the age that a commercial
timber company would normally have harvested it, there is now an abundance of
mature timber that is ready for harvest by the Company.
Since the acquisition of the Louisiana Property, the Company has conducted
only limited harvesting operations on the Louisiana Property, while preparing
the property for active commercial operations. The Company conducted a complete
timber inventory and detailed mapping of the property, prepared timber sales
plans and initiated commercial marketing activities for timber to be sold from
the property.
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<PAGE> 71
Estimated timber volumes on the Louisiana Property are as set forth below
(verified by CFR as of September 30, 1998):
LOUISIANA PROPERTY
MERCHANTABLE TIMBER BY PRODUCT
<TABLE>
<CAPTION>
TIMBER INVENTORY AMOUNT PERCENTAGE
---------------- --------- ----------
(TONS)
<S> <C> <C>
Pine sawtimber.............................................. 3,602,900 66.4%
Pine pulpwood............................................... 773,444 14.3%
Hardwood sawtimber.......................................... 502,286 9.3%
Hardwood pulpwood........................................... 546,222 10.0%
--------- ------
Total............................................. 5,424,852 100.0%
========= ======
</TABLE>
Timber buyers in southwest Louisiana predominantly seek quality pine
sawtimber used for lumber and plywood. Hardwood sawtimber and both pine and
hardwood pulpwood markets exist, but these markets are less competitive. There
are 50 mills within 170 truck miles of the property that annually consume 13.6
million tons of sawtimber and 16.8 million tons of pulpwood. The Company's
planned timber sales in 1999 would represent approximately 2.0% of this
consumption amount. The following map depicts the location of mills located in
the vicinity of the Louisiana Property:
[GRAPHIC DEPICTING LOCATION OF CONVERTING FACILITIES IN MARKET REGION OF
LOUISIANA PROPERTY APPEARS HERE]
The Company will consider selling or exchanging parcels from the Louisiana
Property that may have greater value if not used for timber production. In
particular, the Louisiana Property includes over 50 individual parcels of less
than 200 acres each, which may have a greater value to neighboring landowners
than to the Company. The Louisiana Property also includes several parcels that
are in close proximity to the Coushatta Indian Casino which may accommodate
future commercial development, as could another 160 acre parcel that is adjacent
to an interchange for Interstate 10.
The Company recently sold approximately 6,700 acres of agricultural land
from the Louisiana Property that had previously been used for rice farming. See
"Certain Relationships and Related Transactions."
THE CALIFORNIA TIMBERLANDS
The Company's California timberlands consist of two distinct operating
areas, the Coastal forest and the Commander forest, which together contain
approximately 122,000 acres.
[GRAPHIC DEPICTING LOCATION OF COASTAL PROPERTY APPEARS HERE]
The Coastal forest is located in Mendocino and Sonoma Counties, California,
and consists of two blocks. Together, they include approximately 79,000 acres of
coastal timberland containing approximately 886 million board feet of
merchantable timber, 770 million board feet of which consist of softwood
species.
There are 22 mills in the North Coast resource area, the market area for
the Company's Coastal forest. These mills consume an estimated 887 million board
feet annually. The Company's planned timber sales in 1999 from the Coastal
forest would represent 4.0% of this amount. The following map depicts the
location of conversion facilities within this market area:
[GRAPHIC DEPICTING LOCATION OF CONVERTING FACILITIES IN MARKET REGION OF
COASTAL FOREST APPEARS HERE]
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<PAGE> 72
The Coastal forest contains a blend of species as shown below (verified by
MB&G as of October 9, 1998):
COASTAL FOREST
MERCHANTABLE SOFTWOOD BY SPECIES
<TABLE>
<CAPTION>
SPECIES BOARD FEET PERCENTAGE
------- ----------------- ----------
(IN THOUSANDS)
-----------------
<S> <C> <C>
Second-growth redwood.................................... 412,816 53.6%
Douglas-fir.............................................. 287,195 37.3%
Sugar pine............................................... 54,272 7.0%
Whitewoods............................................... 15,611 2.0%
------- ------
Total.......................................... 769,894 100.0%
======= ======
</TABLE>
The Coastal forest is stocked primarily with second-growth redwood timber.
Second-growth redwood timber commands a premium price in the market and
experiences a lower degree of price volatility than many other softwood species
due to its durability, specialty applications, distinctive coloring, and its
relative scarcity. Second-growth redwood grows exclusively in the climatic
conditions unique to the limited coastal range from central California to
southernmost Oregon due to the soil characteristics, substantial rainfalls, and
persistent fog. Approximately 37% of the merchantable softwood inventory on the
Coastal forest consists of Douglas-fir, which also grows well under these same
conditions and has historically commanded a premium in the marketplace due to
its durability, strength, and aesthetic characteristics.
The Coastal forest is located near the Pacific Ocean, and its terrain
ranges from flat to steep slopes. A significant portion of the property is
available for harvest using ground-based systems, a condition that is unusual
for coastal timberlands in California. Ground-based systems are inexpensive
relative to aerial systems such as helicopter and cable harvesting. The Coastal
forest is accessible from public roads and across private lands where necessary.
The Coastal forest is managed under an "Option A" timber management plan
filed with and approved by the California Department of Forestry and Fire
Protection in May 1998. An Option A timber management plan was developed
pursuant to a California permit process that establishes long-term growth and
sustainable harvest of a specified timberland. This Option A plan established a
decade by decade harvesting model through which the Coastal forest has been
approved for substantial commercial harvesting of softwood species. The Company
intends to manage the property in accordance with the Option A plan and, thus,
expects to increase substantially harvesting and revenues from the Coastal
forest as compared with historical results. This plan greatly simplifies the
Company's operations on the Coastal property, because it details inventory
methods and planned harvest levels and assures the State of California that
growth and harvest are being balanced over time.
Most of the Coastal forest is productive timberland that the Company
intends to continue to manage for timber production. A portion of the property
is suitable for use as a vineyard, and the Company is working with a former
owner of the property to permit it to acquire this land for development of a
vineyard, with the Company reserving ownership of the timber located on the
property.
[GRAPHIC DEPICTING LOCATION OF COMMANDER FOREST APPEARS HERE]
The Commander forest consists of approximately 43,000 acres and is located
in Glenn, Tehama, Lake and Mendocino counties in the coastal range of northern
California. The Commander forest is located entirely within the Mendocino
National Forest. The merchantable timber inventory in the Commander forest is
approximately 45% Douglas-fir and 46% various pine and fir species. The Company
intends to harvest over-mature timber in order to reinvigorate stand growth in
the Commander forest.
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<PAGE> 73
The Commander forest contains a blend of species as shown below (verified
by MB&G as of October 9, 1998):
COMMANDER FOREST
MERCHANTABLE TIMBER BY SPECIES
<TABLE>
<CAPTION>
SPECIES BOARD FEET PERCENTAGE
- ------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Douglas-fir................................................. 138,931 44.6%
White fir................................................... 75,904 24.4%
Ponderosa and sugar pines................................... 67,752 21.7%
Incense cedar............................................... 28,478 9.1%
Other pine.................................................. 539 0.2%
------- ------
Total............................................. 311,604 100.0%
======= ======
</TABLE>
The Commander forest contains terrain ranging from gentle to steep and most
of the timber can be harvested using ground-based systems, although about 15
percent of the property requires aerial (cable or helicopter) systems for
harvesting. The timberlands are accessible from public roads and across private
lands where necessary.
The Company does not expect to sell any significant parcels from the
Commander forest for higher and better uses. However, because the property
contains a number of tracts of less than 100 acres, there may be opportunities
to sell some of these small tracts to recreational or other users.
There are 20 mills in the northern interior and Sacramento resource areas
of California, which is the market area for the Company's Commander forest.
These mills consume an estimated 1.06 billion board feet annually. The Company's
planned timber sales in 1999 from the Commander forest would represent 4.6% of
this amount.
[GRAPHIC DEPICTING LOCATION OF CONVERTING FACILITIES IN MARKET REGION OF
COMMANDER FOREST APPEARS HERE]
The Commander forest is currently managed under an annual timber management
plan filed with and approved by the California Department of Forestry and Fire
Protection. The Company plans to file an "Option A" timber management plan
(similar to the plan filed for the Coastal forest) with the California
Department of Forestry and Fire Protection by the end of 1999. This plan will
greatly simplify the Company's operations on the Commander property, because it
will detail inventory methods and planned harvest levels, assuring the State of
California that growth and harvest will be balanced over time.
THE OREGON TIMBERLANDS
[GRAPHIC DEPICTING LOCATION OF OREGON TIMBERLANDS APPEARS HERE]
The Company's Oregon timberlands consist of approximately 233,000 acres
located to the east of the Cascade Mountains in Umatilla, Grant, Union, Wheeler
and Morrow counties. The Oregon timberlands contain approximately 381 million
board feet of merchantable timber, which can be marketed for many different
uses. The predominant species are ponderosa pine and Douglas-fir, representing
40% and 33% of the merchantable timber volume, respectively. The Company intends
to harvest selectively and thin the Oregon timberlands over the next 15 years to
allow the substantial inventory of premerchantable trees to grow into higher
value age classes.
In addition to the 381 million board feet of timber under full fee
ownership in eastern Oregon, the Company also owns 15.3 million board feet of
merchantable timber under "timber deeds." Under timber deeds, the Company owns
timber on a long-term basis without direct ownership of the land itself.
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<PAGE> 74
The Oregon timberlands (including timber owned under timber deeds) contain
a blend of species as shown below (verified by MB&G as of October 9, 1998):
OREGON TIMBERLANDS AND TIMBER DEEDS
MERCHANTABLE TIMBER BY SPECIES
<TABLE>
<CAPTION>
SPECIES BOARD FEET PERCENTAGE
- ------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Ponderosa pine.............................................. 158,557 40.0%
Douglas-fir................................................. 129,718 32.7%
White fir................................................... 68,024 17.2%
Western larch............................................... 28,154 7.1%
Lodgepole pine.............................................. 9,770 2.5%
Other....................................................... 1,892 0.5%
------- ------
Total............................................. 396,115 100.0%
======= ======
</TABLE>
Throughout the western United States, harvest levels have been reduced from
public lands over the past ten years. Private owners of timberland have become
the beneficiaries of reduced timber supplies from public lands and the resulting
competitive market for timber. Many mills in eastern Oregon have closed during
the last decade, mostly due to the drastic reduction of timber sales from
federal lands. However, many of the remaining mills have increased capacity
through mill improvements. Mill capacity is adjusting to accommodate the
available supply of eastern Oregon timber. The current annual log consumption by
the 14 mills within the market area of the Company's Oregon timberlands is
estimated to be 492 million board feet. The Company's planned timber sales in
1999 from the Company's Oregon timberlands would represent 9.9% of this amount.
[GRAPHIC DEPICTING LOCATION OF CONVERTING FACILITIES IN MARKET REGION OF
OREGON TIMBERLANDS APPEARS HERE]
The Oregon timberlands feature a generally gentle to moderately hilly
topography and can be harvested mostly with ground-based systems. The
timberlands are accessible from public roads and across private lands where
necessary.
The Company is currently evaluating a number of potential sales of property
from the Oregon timberlands for higher and better uses. The Company has
identified over 15,500 acres from its Oregon timberlands that are suitable for
such sales. The properties that could be sold include parcels that may be
suitable for grazing, recreational uses or for exchange with the Bureau of Land
Management for timberland.
THE WASHINGTON TIMBERLANDS
[GRAPHIC DEPICTING LOCATION OF WASHINGTON TIMBERLANDS
APPEARS HERE]
The Company's Washington timberlands are located in Lewis, Grays Harbor and
Douglas counties and consist of approximately 11,000 acres containing
approximately 129 million board feet of merchantable timber. The timber on the
Washington timberlands is in even-aged stands with well-defined harvesting
programs in place. Soil and site characteristics make these the most productive
sites of the Company's western timberland holdings. In addition, the generally
gentle topography and fully-roaded nature of the Washington timberlands makes
them easily accessible for harvesting activities.
68
<PAGE> 75
The Washington timberlands contain a blend of species as shown below
(verified by MB&G as of October 9, 1998):
WASHINGTON TIMBERLANDS
MERCHANTABLE TIMBER BY SPECIES
<TABLE>
<CAPTION>
SPECIES BOARD FEET PERCENTAGE
- ------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Western hemlock............................................. 57,215 44.4%
Douglas-fir................................................. 30,855 23.9%
Red and incense cedar....................................... 16,069 12.5%
Other conifers.............................................. 13,074 10.1%
Red alder................................................... 8,351 6.5%
Other hardwoods............................................. 3,415 2.6%
------- ------
Total............................................. 128,979 100.0%
======= ======
</TABLE>
Historically, a significant amount of logs produced from privately held
timberland in Washington has been sold in the export market, principally due to
the demand for Douglas-fir in Asia, and Japan in particular. The export market
has weakened considerably since early 1997, however, and many logs that would
have previously been exported are now being sold to domestic mills.
There are a total of 31 mills within the market area served by the
Company's Washington timberlands, with a total annual log consumption of
approximately 979 million board feet. The Company's planned timber sales from
its Washington timberlands in 1999 would represent approximately 1.4% of this
amount. Large industrial timberland owners dominate this market. In addition to
providing a large portion of the annual timber supply, these companies also
generate demand for the resource by operating their own sawmills, export
facilities, and, in some cases, pulp mills.
[GRAPHIC DEPICTING LOCATION OF CONVERTING FACILITIES IN MARKET AREA OF
WASHINGTON TIMBERLANDS APPEARS HERE].
HARVEST METHODS
Harvest methods for the Company's timberlands will vary depending upon
geography, topography and soil characteristics. Generally, crawling tractors and
wheeled ground skidders will be used on relatively level terrain. Steep terrain
will generally dictate the use of more expensive cable or tower logging methods.
The Louisiana Property, having comparatively flat terrain, is expected to be
harvested using these ground-based skidder and tractor methods. Portions of the
Coastal forest, having comparatively steep terrain, are expected to require more
cable or tower logging methods. The remaining properties, containing both level
and steep terrain, are expected to be harvested using a combination of methods.
On the Louisiana Property, the Company intends to thin the productive pine
timberlands, generally twice prior to final harvest. Thinning is employed both
to maintain the optimal stocking density and to improve the quality and health
of the remaining timber. Thinning will be conducted using either mechanical
harvesters or ground crews. The Company intends to conduct its final harvest of
pine plantations when the timber reaches a mature condition, usually between the
ages of 26 and 34. These management and harvest guidelines are accepted forestry
practice in the southeastern United States and are intended to replicate the
natural ecological lifecycle of the southern pine. Following final harvest, the
Company will regenerate the site through replanting with appropriate genetically
selected seedlings.
On its Pacific Northwest Properties, the Company will employ a variety of
management and harvest techniques. Consistent with prudent forest management,
commonly accepted forestry practices, and applicable law, harvest practices will
include both partial cutting and clear cutting depending on the specific forest
characteristics. For example, in western Washington, Douglas-fir timber stands
on steeper slopes should be clear-cut and replanted in order to minimize soil
damage and encourage the regeneration
69
<PAGE> 76
of a productive forest. However, in the ponderosa pine forests of eastern Oregon
or California, a multiple stage partial harvest will encourage natural
regeneration of pine, minimize risks (such as insect infestation) and maintain
wildlife habitat.
ACCESS AND LIMITATIONS ON ACCESS
Substantially all of the timberlands in the Company's timberland portfolio
are accessible by a system of established public and private roadways. When
maintenance or new roads are needed, third-party road crews typically conduct
road and bridge construction under the supervision of Company personnel or
contracted forest managers. The Company is also a party to reciprocal road-use
and cost-sharing agreements with private landowners and with governmental
agencies. See " -- Federal and State Regulations -- Other Regulatory Matters."
FEDERAL AND STATE REGULATIONS
BACKGROUND AND APPROACH
The Company's operations are subject to numerous federal, state and local
laws and regulations, including those relating to the environment, endangered
species, the Company's forestry activities, and health and safety. Endangered
species, environmental and other laws could restrict the Company's operations or
impose significant costs, damages, penalties and liabilities on the Company. The
Company expects that endangered species and environmental laws will become more
restrictive over time. Due to the significance of regulation to its business,
the Company's plans integrate wildlife, habitat and watershed management into
its resource management practices.
In determining the amount of merchantable timber available for harvesting,
the Company excludes all timber that is currently unavailable for harvesting due
to regulatory restrictions.
ENDANGERED SPECIES LAW
The Federal Endangered Species Act and similar state laws and regulations
protect wildlife species threatened with possible extinction. A number of
species indigenous to the southern and northwestern United States have been, are
and in the future may be protected under these laws and regulations. Protected
species indigenous to the southern United States and currently found on or near
the Company's properties include the red cockaded woodpecker, Louisiana black
bear and bald eagle. Protected species indigenous to the northwestern United
States and currently found on or near the Company's properties include the
northern spotted owl, marbled murrelet, bald eagle, American peregrine falcon,
northern goshawk, steelhead trout, Coho salmon and various other fish species.
No comprehensive, systematic survey of endangered species has been conducted on
the Company's properties. At the time the Company harvests any specific tract of
timberland, it will need to confirm whether its harvesting activities will
affect any threatened or endangered species. The presence of protected species
on or near the Company's timberlands may significantly affect the Company's
operations, including restricting or prohibiting timber harvesting, road
building and other silvicultural activities on the affected areas of the
Company's timberlands.
In 1990, the U.S. Fish and Wildlife Service (the "USFWS") listed the
northern spotted owl as a threatened species throughout its range in Washington,
Oregon and California. At the time of the listing, the USFWS issued suggested
guidelines to be followed by landowners in order to comply with the Endangered
Species Act's prohibition against harming or harassing owls. The guidelines
recommend several measures, including the restriction of harvest activities in
areas within a certain proximity of known owl activity centers. The USFWS also
proposed a rule for the conservation of the owl on non-federal land. These
proposed guidelines were subsequently withdrawn.
Certain states in which the Company owns timberland properties also have
rules and regulations relating to timber harvest activities and the protection
of endangered species. The California Forest Practice Rules, the California
Endangered Species Act, the Washington Forest Practices Act, the Oregon
70
<PAGE> 77
Forest Practices Act and related regulations all have specific provisions
governing habitat protection for the northern spotted owl, the bald eagle, the
marbled murrelet, anadromous fish and other threatened or endangered species.
Recent surveys have been conducted on the Company's Pacific Northwest
Properties recording the presence of the northern spotted owl, the bald eagle
and other endangered or threatened species on the Company's properties. The
Company has also utilized independent forestry consultants to provide
information about its timberlands for its lenders. In connection with this
process, the consultants surveyed the presence of wildlife on the Company's
properties. The surveys conducted in the first quarter of 1998 showed that there
were approximately 70 northern spotted owl activity centers that affect the
Company's Commander tract in California, though many of these activity centers
are located on adjacent properties. One bald eagle nest was found on the
Company's Riffe Lake tract in Washington, and the marbled murrelet and the
northern spotted owl are within the range of the Riffe Lake tract, though none
are currently known to reside on the property. The surveys conducted as part of
the timber harvest planning process and reported in connection with an August
1998 report on the Company's Coastal properties showed that there were
approximately 12 pairs or single spotted owls on the Longview tract in
California, and that the property is within the range of the bald eagle,
peregrine falcon and marbled murrelet. A similar survey conducted on the
Company's Willits Woods/Williams Ranch tract in California showed that there
were approximately 10 pairs or single spotted owls and one peregrine falcon nest
on the property, and that the property is within the range of the bald eagle,
the peregrine falcon and the marbled murrelet.
A Phase I environmental site assessment performed on the Louisiana Property
in April 1998 identified red cockaded woodpecker nests, apparently abandoned, on
approximately two acres. The Louisiana Property has in the past been, and may
still be, inhabited by the red cockaded woodpecker, as well as other protected
species. Although no endangered species surveys are required prior to harvesting
in Louisiana, there are strict regulations requiring harvest operations to halt
in specific areas where evidence of endangered species is observed. Such areas
become subject to biological studies to determine appropriate responses to
protected species present on the property. The presence of any protected species
on the Company's timberlands could materially restrict the Company's harvest
plans in the future.
To the extent required to comply with governmental environmental
regulations, the Company will evaluate each tract of timber designated for
thinning, harvesting or another silvicultural operation in order to determine
whether to conduct a field inspection before commencing operations. The Company
also intends to investigate reported sightings of threatened or endangered
species to the extent required by industry standards and governmental
regulations.
The Company believes that it is managing its harvesting operations in the
areas affected by protected species in compliance with applicable federal and
state regulations. The Company does not believe that the presence of any
protected species on its lands will materially restrict the Company's ability to
proceed with its current harvest plans and other silvicultural activities and
operations. However, additional species on or around the Company's timberlands
may receive protected status under the Endangered Species Act or similar state
laws. Currently protected species may be discovered in significant numbers on or
around the Company's timberlands. Additionally, future legislative,
administrative or judicial activities related to protected species may adversely
affect the Company, its ability to continue its operations as currently
conducted, or its ability to implement its business strategy. Any such changes
could materially and adversely affect the Company's financial condition and
results of operations.
FORESTRY REGULATIONS
The operation of the Pacific Northwest Properties is subject to statutes
and regulations in the states of Oregon, California and Washington that regulate
forestry operations, including the Oregon Forest Practices Act, the California
Forest Practice Rules and the Washington Forest Practices Act, which address
many growing, harvesting and processing activities on forest lands. Among other
requirements, these laws restrict the size and spacing of harvest units and
impose certain reforestation obligations on the owners of forest lands. The
State of Oregon requires a timber owner to provide prior notification before
beginning
71
<PAGE> 78
harvesting activity. The States of Washington and California are more
restrictive. The State of Washington requires a rigorous regulatory review
taking from 15 to 30 days or more prior to harvesting, depending upon the
environmental and other sensitivities of the proposed logging site. Prior to
harvesting timber in California, the Company is required to file with the
California Department of Forestry, and obtain its approval of, a detailed timber
harvest plan prepared by a registered professional forester for the area to be
harvested. A timber harvest plan includes information regarding the method of
proposed timber operations for a specified forest area, whether the operations
will have any adverse impact on the environment and, if so, the measures to be
used to reduce any such impact. The ability of the Company to sell timber will
depend in part upon its ability to obtain regulatory approval of timber harvest
plans. In addition, the Company or its predecessors in interest have filed a
sustained yield plan in California. The Oregon Forest Practices Act, the
California Forest Practice Rules and the Washington Forest Practices Act and
other state laws and regulations control timber slash burning, operations during
fire hazard periods, logging activities affecting or utilizing water courses or
in proximity to certain ocean and inland shore lines, water anti-degradation and
certain grading and road construction activities.
Louisiana does not currently have any statutes or regulations that the
Company believes would materially restrict forestry operations.
The Company may acquire timberlands in jurisdictions that have forest
practices acts that are considerably more restrictive than the best management
practices currently utilized by many foresters. Many states are considering or
are expected to consider laws and regulations governing forest practices.
ENVIRONMENTAL LAWS
Timber operations involve the use and storage of various materials such as
herbicides, pesticides, fertilizers and gasoline, and may result in air
emissions, releases to soil or groundwater, or discharges of certain materials
into streams and other bodies of water. Accordingly, the Company's operations
are subject to federal, state and local environmental laws and regulations
relating to the protection of the environment. Environmental laws and
regulations have changed substantially and rapidly over the last 20 years, and
the Company expects they will become increasingly stringent. Although the
Company believes that it is in substantial compliance with these requirements,
these laws and regulations may lead to significant costs, penalties and
liabilities, including those related to claims for damages to property or
natural resources. Such laws and regulations could also impose restrictions on
timber harvesting and other silvicultural activities. As of the date of this
prospectus, the Company is not aware of any pending legislative, administrative
or judicial action relating to the protection of the environment that could
materially and adversely affect the Company.
Some environmental statutes, such as the Federal Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") and comparable
state laws, impose strict liability, regardless of the lack of negligence or
fault on the part of the person held liable. Under various laws and regulations,
an owner or operator of real property may become liable for the costs of removal
or remediation of certain hazardous substances released on, from or in its
property, often without regard to whether the owner or operator knew of, or was
responsible for, the release of such substances. The presence of such
substances, or the failure to remediate such substances properly, may adversely
affect the owner's ability to sell such real estate or to use such real estate
as collateral. The Louisiana Property contains active and inactive natural gas
and oil wells and pipelines, which have been and will continue to be operated by
third parties. The operation of natural gas and oil wells involves certain
hazards, such as well blowouts, cratering, explosions, uncontrollable flows of
oil or well fluids, fires, formation with abnormal pressures, pollution,
pipeline ruptures and spills, releases of toxic gas and other environmental
hazards and risks. The operators of these natural gas and oil wells and
pipelines are primarily responsible for any environmental hazards associated
with these activities. Other past activities on the Louisiana Property include
an abandoned asphalt plant, an abandoned sawmill and abandoned landfills. The
Company does not believe that these past activities have caused any material
environmental impacts. As of the date of this prospectus, the Company is not
aware of any material environmental liability related to the Louisiana Property.
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Although the Company's operations involve only timberlands, Pioneer and
related entities have in the past owned timber processing facilities associated
with the Pacific Northwest Properties. These facilities are no longer owned by
any entity connected with the Company; however, in certain circumstances, past
owners may incur environmental liability. As of the date of this prospectus, the
Company is not aware of any material liability relating to these facilities.
Additionally, a property connected with the Company's Oregon timberlands was
previously the site of an equipment maintenance operation. Remedial activities
have been conducted on this property, and no material contamination is believed
to remain at the site. Subject to certain limitations, a company affiliated with
the sellers of Pioneer has agreed to indemnify the Company against environmental
liabilities arising out of the Pacific Northwest Properties relating to
conditions that existed at the time of the acquisition.
The Company may acquire timberlands subject to potential environmental or
other liabilities. The Company is not aware of any activities by the Company or
any conditions on the timberlands contained in its initial portfolio which would
likely result in material liability to the Company for remediation or other
environmental costs. However, the Company or any other prior owner or operator
of its timberlands, or an owner or operator of any land adjacent to the
Company's lands may have created a material environmental condition on the
Company's lands, without the Company's knowledge. In addition, the operations of
the Company and its contractors on the Company timberlands, currently owned or
acquired in the future, could result in material liabilities, fines, costs and
restrictions on the Company pursuant to current or future environmental laws and
regulations.
OTHER REGULATORY MATTERS
The Company's operations will be subject to various other federal and state
regulations. For example, the Federal Insecticide, Fungicide, and Rodenticide
Act regulates the use of pesticides that may be used in forestry practices. The
operations of the Company's timberlands are subject to the requirements of the
Federal Occupational Safety and Health Act ("OSHA") and comparable state
statutes relating to the health and safety of employees. The Company believes
that it is in compliance with OSHA regulations, including general industry
standards, permissible exposure levels for toxic chemicals and record-keeping
requirements.
The Federal Clean Air Act and Clean Water Act, and their state equivalents,
may affect timber operations through controls on site preparation activities
such as slash burning and regulatory programs designed to reduce non-point
source pollution discharged into bodies of water. For example, the Environmental
Protection Agency and its state counterparts have designated certain bodies of
water as "water quality impaired," triggering a requirement to establish Total
Maximum Daily Loads ("TMDLs") for such bodies of water. The TMDL process could
result in additional limitations on harvesting activities in some or all of the
states where the Company operates. The Company's California timberlands are in
watersheds that have been designated as water quality impaired. As the TMDL
process is completed for these watersheds, precautions to prevent sediment
erosion will be required, and additional water quality monitoring during
harvesting operations may be necessary. However, the Company's timber sales
plans currently provide measures to protect water quality. The Company therefore
believes that this designation will have no material effect on its ability to
conduct operations.
In addition, the Company's operations are affected by federal and state
laws designed to protect wetlands. The Federal Clean Water Act authorizes the
regulation of "wetland" areas. Access to timberlands located within or beyond a
protected wetlands area may be limited, and the Company may be required to
expend substantial sums for the protection of such wetland areas or avoid
harvesting in such areas. The Company has not performed a comprehensive wetlands
survey on its properties.
A portion of the Pacific Northwest Properties consists of sections of land
that are intermingled with or adjacent to sections of federal land managed by
the USFS and the Bureau of Land Management. Removal of trees from those portions
of the Pacific Northwest Properties requires transportation of the logs by truck
across logging and general purpose roads. In many cases, access is only, or most
economically, achieved through a road or roads built across adjacent federal
land and available to the Company pursuant to a
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reciprocal right-of-way agreement. Removal of federal timber often requires
similar access across the Pacific Northwest Properties. Recent litigation (not
involving the Company) before the U.S. Court of Appeals for the Ninth Circuit
held that the Bureau of Land Management was not required to consult with the
USFWS (which administers the Endangered Species Act) prior to approving a
private landowner's proposal to build an access road across federal land
pursuant to an existing reciprocal right-of-way entered into prior to the
enactment of the Endangered Species Act wherein the Bureau of Land Management
did not have discretion to disapprove a road segment due to endangered species
concerns. However, future federal law or regulation requiring the Bureau of Land
Management to consult with the USFWS in connection with a reciprocal
right-of-way could materially adversely affect the Company's ability to harvest
the affected portion of the Pacific Northwest Properties. To the extent that the
Company acquires new timberlands that require access through federal lands, the
Company may enter into new reciprocal right-of-way agreements with the Bureau of
Land Management or other federal agencies which would require consultation with
the USFWS. In addition, the Bureau of Land Management previously attempted to
revise regulations governing reciprocal right-of-way agreements to, among other
things, expand the Bureau of Land Management's consideration of environmental
and cultural factors in granting, issuing or renewing rights-of-way, provide the
Bureau of Land Management with regulatory authority to object to the location of
roads because of potential effects on threatened or endangered species and allow
for the abandonment of rights-of-way under certain circumstances. Future
attempts to so revise the applicable regulations, if successful, could
materially adversely affect the Company's activities on the Pacific Northwest
Properties.
CUSTOMERS
Currently, the Company is in the process of building a customer base for
timber from the Louisiana Property that will enable it to meet its planned
timber sales program. The Company has entered into and will continue to enter
into cutting contracts with respect to the Louisiana Property in the ordinary
course of its business. The Company plans to offer timber for sale to major
industrial companies, as well as to develop marketing relationships with timber
brokers and independent logging companies in the southeastern United States.
The Company's eastern Oregon timberlands have historically been a raw
material supplier for two previously affiliated sawmills located nearby.
Although it is expected that these two mills will continue to be major
purchasers of timber from these lands, the Company has initiated a marketing
program to diversify its customer base within the region.
Until mid-1998, the Company's western Washington timberlands had been
managed as part of a much larger industrial land base, with the bulk of the
harvested timber being converted at affiliated facilities. In the future, the
Company intends to take advantage of the diverse market for timber in the
region. These potential new markets include many large industrial timber
companies as well as several brokers and exporters.
Historically, the Company has been dealing exclusively with the most
prominent lumber producer in northern California with respect to sales of timber
from its Commander forest. The Company intends to develop relationships with
other wood users in the region. In the redwood region of northern California,
the Company anticipates doing business with a diverse group of potential timber
customers.
Currently, the Company is in the process of building a customer base for
timber from the Company's Coastal forest.
COMPETITION
COMPETITION IN TIMBER SALES
Due to transportation costs, domestic timber conversion facilities tend to
purchase raw materials within relatively confined geographic areas. Currently in
the United States, the Company and its competitors all benefit from the
relatively close proximity of numerous conversion facilities. Additional
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competitive factors within a market area generally will include species,
quality, and consistency in meeting customers' specifications and delivery
requirements.
Within the United States, the Company competes with numerous private timber
owners, as well as logs imported into the United States from foreign countries.
In addition, the Company competes with the USFS and other governmental and/or
public agencies with timber holdings. The level of competition will also tend to
vary depending upon prevailing timber prices. Rising timber prices often lead to
increased harvesting on private timberlands, including lands not previously made
available for commercial timber operations.
Internationally, the Company expects competitive situations and factors
similar to those in the United States. Where the Company seeks to develop the
timber resource in a growing locality, it may also experience competition for or
limitations on labor, energy, skilled professionals or other resources.
Relatively new markets and markets which are not yet fully developed for a
particular product may experience sluggish sales due to a lack of market
competition, as there may be a limited or undeveloped pool of buyers for a
particular product.
Global price fluctuations may adversely affect demand for particular
species, grades, or products or could make substitute species, products or
materials economically competitive. Price fluctuations could also bring certain
supplies of standing timber to market which have until now been unprofitable to
harvest. The Company believes, however, that its current diversified portfolio
and its global investment strategy will dampen the negative effects of depressed
markets in any given region.
COMPETITION FOR TIMBERLAND PROPERTIES
Competition for high-quality timberland within the United States and in
certain other countries has intensified, often requiring a flexible approach to
identification, negotiation, and completion of successful acquisitions. The
Company believes that its competitive strengths will enhance its success in
acquisitions despite the greater financial resources of certain of its
competitors. See "Risk Factors -- We May Not Be Able to Achieve Our Intended
Growth or Manage It Effectively."
INSURANCE COVERAGE
Certain types of losses (such as damage to the Company's timberlands and
associated lost revenues due to fires, ice storms, pests, disease and other
natural disasters) are uninsurable at commercially justifiable rates.
Accordingly, as is typical in the industry, the Company does not carry insurance
for these losses. See "Risk Factors -- Losses of Timber from Fire and Other
Causes Are Not Insured."
LEGAL PROCEEDINGS
Although the Company may, from time to time, be involved in litigation and
claims arising out of its operations in the normal course of business, the
Company is not currently a party to any material legal proceedings.
EMPLOYEES
Upon the closing of the Formation Transactions, the Company's employees
will consist of the persons currently employed by the Company, Pioneer and STOC.
As of December 31, 1998, these entities employed 24 salaried full-time
employees. Of these employees, nine are part of senior management, nine are in
forestry operations and six hold administrative and clerical positions.
All of the Company's senior management, together with three administrative
employees, are located at the Company's headquarters office in New London, New
Hampshire.
As of December 31, 1998, none of the Company's employees were represented
by unions or covered by any collective bargaining agreements. The Company has
not experienced a work stoppage and the Company's management believes that its
employee relations are good.
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POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following discussion summarizes the Company's current investment
objectives and policies, disposition and financing policies and policies with
respect to certain other activities. These policies have been determined by the
Board of Directors and may be amended or revised from time to time at the
discretion of the Board of Directors without a vote of the Company's
shareholders, except that the Company cannot affirmatively take any action
intended to terminate its qualification as a REIT without the approval of the
holders of a majority of the Company's issued and outstanding Common Stock.
INVESTMENT POLICIES
The Company's investment objective is to maximize the total return from its
entire portfolio consistent with its long-term policy of increasing sustainable
yield. The Company will seek to accomplish its objective primarily through its
management of its initial portfolio of timberlands and through acquisitions of
additional timberlands.
The Company's initial portfolio of timberlands includes a total of
approximately 448,000 acres in California, Louisiana, Oregon and Washington. The
Company intends to expand its timberland holdings in those states where it has
existing properties and elsewhere within the United States and abroad. The
Company's current policy, however, is to limit its investments outside the
United States to no more than 20% of the total value of its assets.
The Company will focus on long-term equity investments in timberlands.
However, the Company may purchase or lease properties for long- or short-term
investment. The Company's investments will be financed as described below under
"-- Financing Policies." The Company may cause the Partnership to hold or sell
any or all of its initial portfolio when circumstances warrant, subject to the
restrictions on sale in the Partnership Agreement. The Company also may
participate with other entities in property ownership, through joint ventures or
other types of co-ownership. Equity investments may be subject to existing
mortgage financing and other indebtedness that has priority over the equity
interest of the Company in such properties. To enhance the value of timberlands
located in undeveloped or underdeveloped markets, the Company may invest in
limited conversion, transport, or export facilities, to stimulate the growth and
competition of local timber markets or provide access to export markets.
While the Company intends to emphasize equity investments in timberlands,
it may, in its sole discretion, invest in forest products-related mortgages,
partnerships and other interests in timberlands. The Company may invest in
securities of entities engaged in timberlands activities, subject to the gross
income and asset tests necessary for REIT qualification. The Company may acquire
all or substantially all of the securities or assets of other timber owning
entities where such investments would be consistent with the Company's
investment policies.
There are currently no other limitations on (i) the percentage of the
Company's assets that may be invested in any one property, venture, or type of
security, (ii) the number of properties in which the Company may invest or (iii)
the concentration of investments in a single geographic region. The Board of
Directors may establish such other limitations, and other policies, as it deems
appropriate from time
to time.
Under the Partnership Agreement, the Company must conduct all of its
investment activities through the Partnership. See "The Partnership
Agreement -- Management."
FINANCING POLICIES
The Company intends to target a ratio of debt to total market
capitalization (assuming the exchange of all Partnership units for Common Stock)
of approximately 40%. The Board of Directors may, however, reconsider this
policy from time to time and reduce or increase such ratio accordingly.
Following the completion of this offering and the use of net proceeds from this
offering, the Company will have approximately $260.0 million of indebtedness
($213.7 million if the underwriters' over-allotment option is exercised in
full), which will constitute approximately 36.9% of its total market
capitalization after giving
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effect to this offering (30.2% if the Underwriters' over-allotment option is
exercised in full), in each case assuming the exchange of all Partnership units
for Common Stock and an initial public offering price of $20 per share. Prior to
the completion of this offering, the Company has financed its activities
primarily through bank loans and equity investments. See "Structure and
Formation of the Company."
Generally, the Company will determine all of its financing policies in
light of then-current economic conditions and timber prices, relative costs of
debt and equity capital, market values of properties, growth and acquisition
opportunities and other factors. If the Board of Directors determines that
additional funding is desirable, the Company may raise such funds through
additional equity offerings (including offerings of senior or convertible
securities), debt financings or retention of cash flow (subject to provisions in
the Code concerning the taxability of undistributed REIT income and REIT
qualification), or a combination of these methods.
The Company anticipates that borrowings will be made through the
Partnership. The Company also may incur indebtedness and re-loan borrowed funds
to the Partnership on the same terms and conditions on which the Company
borrowed such funds. Debt may be in the form of purchase money obligations to
sellers of timberlands to the Partnership, publicly or privately placed debt
instruments, or financing from banks, institutional investors or other lenders.
Any of this debt may be unsecured or may be secured by mortgages or other
interests in the assets of the Company, the Partnership or any newly-created
property-owning partnership. Any number or amount of mortgages may be placed on
a particular property. In addition, such indebtedness may be recourse to all or
any part of the assets of the Company, the Partnership or any newly-created
property-owning partnership or may be limited to the particular property to
which the indebtedness relates. The proceeds from any borrowings may be used for
the payment of distributions, for working capital, to pay the exchange price
payable for Partnership units under the Partnership Agreement, to refinance
indebtedness, to finance acquisitions or for other purposes deemed appropriate
by the Board of Directors.
If the Board of Directors determines to raise additional equity capital,
the Board has the authority, without shareholder approval, to issue additional
shares of authorized Common Stock or Preferred Stock on such terms and for such
consideration as it deems appropriate, including in exchange for property. The
Company's then-existing shareholders will have no preemptive right to purchase
any of the shares so issued. If the Board of Directors determines to raise
additional equity capital, the Company will contribute such funds to the
Partnership in return for additional Partnership units. In addition, under
certain circumstances the Company may issue additional shares of Common Stock in
connection with the redemption of Partnership units for shares of Common Stock
pursuant to the exercise of the limited partners' exchange rights under the
Partnership Agreement. See "The Partnership Agreement."
The Board of Directors, through its control of STOC, also has the authority
to cause the Partnership to issue additional Partnership units in any manner
(and on such terms and for such consideration) as it deems appropriate,
including in exchange for property. See "The Partnership Agreement -- Issuance
of Additional Limited Partnership Interests; Additional Capital Contributions."
The Company may also purchase shares of its Common Stock, subject to
restrictions under Georgia law applicable to shareholder distributions. If a
holder of Partnership units surrenders its units for exchange, the Company may,
at its discretion, cause the Partnership to redeem such Partnership units for
cash rather than Common Stock. See "The Partnership Agreement."
WORKING CAPITAL RESERVES
The Company will maintain working capital reserves in amounts that the
Board of Directors determines to be adequate to meet normal contingencies in
connection with the operation of the Company's business and investments.
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CONFLICT OF INTEREST POLICIES
EMPLOYMENT AGREEMENTS
C. Edward Broom serves on the Board of Directors (or equivalent management
body) of several privately held timber investment funds arising from his
previous employment with Resource Investments, Inc. Only one of these funds has
committed funds that have not yet been invested. This fund could compete with
the Company in acquiring timberlands. Because this fund's investment policies
are (i) to invest exclusively outside the United States and (ii) typically to
make larger investments than the Company plans to make, the Company does not
expect conflicts to arise. In his employment agreement with the Company, Mr.
Broom has agreed that if the Company wishes to bid on a property and any fund
with which he is affiliated is either the seller of the property or also wishes
to bid on the property, he will not participate in the transaction on behalf of
such fund. Mr. Broom may not compete against the Company during the term of the
employment agreement and for a period of one year thereafter in North America,
Central America and South America, and may not solicit purchasers of the
Company's timber or prospective sellers of timberlands with which he had contact
during the term of his employment with the Company for a period of one year
thereafter. Mr. Broom has also agreed to spend no more than 5% of his time
devoted to his interests in these timber funds.
The Company has an employment and non-competition agreement with each of
Messrs. Christopher J. Broom, Thomas P. Broom, Kenneth L. Chute, Nicholas C.
Brunet, Vladimir Harris and Joseph E. Rendini effective as of the consummation
of this offering. Each of these employment agreements prohibits the employee
from competing against the Company during the term of his employment and for a
period of one year thereafter in North America, Central America and South
America, and from soliciting prospective sellers of timberlands with which he
had contact during the term of his employment for a period of one year
thereafter. See "Management -- Employment and Non-Competition Agreements."
OTHER POLICIES GOVERNING COMPETING WITH THE COMPANY
Pursuant to Georgia law, each of the Company's directors and executive
officers is required to discharge his duties in a manner he believes in good
faith to be in the best interests of the Company, and with the care an
ordinarily prudent person in a like position would exercise under similar
circumstances. In addition, under Georgia law, a transaction between the Company
and any of its directors or between the Company and a corporation, firm or other
entity in which one of its directors has a significant interest may not be
challenged on the basis of the director's conflicting interest if (i) after
disclosure of the material facts concerning such person's interest and
concerning the transaction, the transaction is approved by a majority of the
disinterested directors or a majority of the shareholders (not counting shares
held or controlled by a director with a conflicting interest), or (ii) the
transaction is fair to the Company.
The Company's policies restrict all employees from investing in timberlands
(directly or indirectly) for their own accounts. This policy does not apply to
timberlands owned by employees at the time they became employees of the Company.
Non-employee directors of the Company may only invest in timberlands (directly
or indirectly) if the director first offers the opportunity to the Company on
the same terms and conditions available to the director. The Audit Committee of
the Board of Directors administers this policy, and can make exceptions in
extraordinary circumstances.
The Company's Amended and Restated Articles of Incorporation (the "Articles
of Incorporation") and Amended and Restated Bylaws (the "Bylaws") do not further
restrict directors, officers, shareholders or affiliates of the Company from (i)
having an interest in investments that are acquired or sold by the Company or
its subsidiaries or (ii) acting for their own accounts in investing in
timberlands or engaging in other businesses in which the Company engages.
THE PARTNERSHIP
The Partnership Agreement gives STOC, as general partner, full and
exclusive responsibility and discretion in managing and controlling the business
of the Partnership and in making all decisions affecting the business and assets
of the Partnership, subject to certain limited exceptions described under "The
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Partnership Agreement." The limited partners in the Partnership have agreed that
STOC is not required to consider the separate interests of the limited partners
(including tax consequences to the limited partners) in conducting the business
of the Partnership. The Company owns all of the equity interests in STOC.
REPORTS TO SHAREHOLDERS
The Company intends to furnish its shareholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm. The Company also intends to
furnish its shareholders with quarterly reports for the first three quarters of
each fiscal year containing unaudited financial information. See "Additional
Information."
OTHER POLICIES
The Company intends to operate in a manner that will permit it to qualify
for taxation as a REIT under the Code unless, because of changes in
circumstances, the Code or the Treasury Regulations, the Board of Directors,
with the approval of the holders of a majority of the Company's issued and
outstanding Common Stock, determines that it is no longer in the Company's best
interests to qualify as a REIT. The Company also intends to operate in a manner
that will not subject it to regulation under the Investment Company Act of 1940,
as amended. The Company does not intend to (i) invest in the securities of other
issuers (other than the Partnership and STOC and other than in connection with
timberland acquisitions) for the purpose of exercising control over such
issuers, (ii) underwrite securities of other issuers, or (iii) trade actively in
loans or other investments.
The Company may make investments other than as previously described,
although it currently does not intend to do so. The Company has authority to
repurchase or otherwise reacquire Common Stock or any other securities it may
issue and may engage in such activities in the future. The Board of Directors
has no present intention to cause the Company to repurchase any of the shares of
Common Stock, and any such action would be taken only in conformity with
applicable federal and state laws and the requirements for qualifying as a REIT
under the Code and the Treasury Regulations. Although it may do so in the
future, the Company has not issued Common Stock or any other securities in
exchange for property except in connection with the Formation Transactions, nor
has it reacquired any of its Common Stock or any other securities. See
"Structure and Formation of the Company." The Company may make loans to third
parties, including, without limitation, to its officers and directors. The
Company has not engaged in trading, underwriting or agency distribution or sale
of securities of other issuers, nor has the Company invested in the securities
of other issuers other than STOC and the Partnership for the purpose of
exercising control.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Company will be expanded effective
immediately upon completion of this offering to include the director nominees
named below, each of whom has been nominated for election and has consented to
serve. The Company believes that an independent Board of Directors, whose
interests are aligned with those of the shareholders, is essential to the
creation of long-term shareholder value. Therefore, it is expected that upon
completion of this offering, four of seven of the Company's directors will not
be employed by, or otherwise affiliated with, the Company ("Independent
Directors").
In connection with the expansion of the Board of Directors, and upon
completion of this offering, the Board of Directors will be divided into three
classes of directors. The initial terms of the first, second and third classes
will expire in 2000, 2001 and 2002, respectively. Beginning in 2000, directors
of each class will be chosen for three-year terms upon the expiration of their
current terms and each year one class of directors will be elected by the
shareholders. The Company believes that classification of the Board of Directors
will help to assure the continuity and stability of the Company's business
strategies and policies as determined by the Board of Directors. Holders of
Common Stock will have no right to cumulative voting in the election of
directors. Consequently, at each annual meeting of shareholders, the holders of
a plurality of shares of Common Stock will be able to elect all of the
successors of the class of directors whose term expires at that meeting.
Information concerning the current directors, director nominees and
executive officers of the Company is set forth below.
<TABLE>
<CAPTION>
TERM EXPIRES
NAME AGE POSITION (DIRECTORS ONLY)
- ---- --- -------- ----------------
<S> <C> <C> <C>
C. Edward Broom............. 70 President, Chief Executive Officer and Chairman of 2002
the Board of Directors
Christopher J. Broom........ 38 Executive Vice President, Chief Investment Officer 2001
and Director
Thomas P. Broom............. 39 Executive Vice President, Chief Operating Officer and 2000
Director
Kenneth L. Chute............ 53 Senior Vice President and Chief Financial Officer
Nicholas C. Brunet.......... 36 Senior Vice President and Director of Forest
Operations
Vladimir Harris............. 42 Senior Vice President and Director of Acquisitions
Joseph E. Rendini........... 44 Secretary, General Counsel and Vice President
T. Yates Exley.............. 38 Vice President -- Strategy and Development
Starling W. Childs, II...... 45 Director+ 2000
Jay S. Lucas................ 44 Director+ 2001
Hanns A. Pielenz............ 59 Director+ 2002
Richard P. Urfer............ 62 Director+ 2002
</TABLE>
- ---------------
+ Each of these individuals has agreed to serve as a director of the Company
upon being elected to the Board of Directors. The Company expects that each of
these individuals will be elected as a director of the Company upon completion
of this offering.
CURRENT DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
C. Edward Broom has been the President and Chief Executive Officer of the
Company since its inception and Chairman of the Board of Directors since January
1999. Mr. Broom is responsible for the
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Company's overall corporate strategy and direction. Mr. Broom was a co-founder
of Resource Investments, Inc. ("RII"), a timberland investment advisory firm,
and served as its Chairman and Chief Executive Officer from its founding in 1983
until the firm was acquired by the Union Bank of Switzerland ("UBS") in 1995.
Mr. Broom organized Resource Investments Advisors, Inc. ("RIA") in June 1995
after RII was acquired by UBS, and has served as the President, Chief Executive
Officer and controlling shareholder of RIA since that time. RIA is a timberland
investment management firm that performs some of the same services previously
offered by RII. In 1997, Mr. Broom co-founded Strategic Timber Investments LLC
("STI"), which was created as a new timberland investment management firm and
succeeded to a portion of the business of RIA, but was subsequently dissolved
when the Company was formed. Mr. Broom currently serves on the management
committee of each of RII's joint ventures.
Christopher J. Broom has served as Executive Vice President and Chief
Investment Officer of the Company since its inception and a Director since
January 1999. Mr. Broom has primary responsibility for the development of
investment opportunities, capital development, and investor relations. From 1997
to 1998, Mr. Broom served as Executive Vice President and Director of Marketing
and Product Development for STI, which he co-founded. From 1995 to 1997, he
served as a Director of UBS Resource Investments, Inc. ("UBSRII"), the successor
to RII after its acquisition by UBS, and had overall responsibility for new
product development and marketing of the firm's timberland investment services
to institutional investors. Mr. Broom previously served RII as Senior Vice
President of New Product Development, Client Services and Marketing and
Principal from 1988 to 1995.
Thomas P. Broom has served as Executive Vice President and Chief Operating
Officer and a Director of the Company since its inception. Mr. Broom has primary
responsibility for management and administration of the Company's timberland
portfolio. From 1997 to 1998, Mr. Broom served as Executive Vice President and
Director of Operations and Finance for STI, which he co-founded. From 1995 to
1997, he served as Director of Finance and Administration and Fund Manager of
UBSRII, and had responsibility for UBSRII's administrative matters, including
accounting, insurance, auditing, personnel and facilities management. Mr. Broom
previously served as Vice President of Administration of RII from 1992 to 1995.
During that time, Mr. Broom also served as the fund manager of RII's Tasman
Chile Ltd. joint venture and was responsible for new investment activities for
RII in South America.
Kenneth L. Chute has served as Senior Vice President and Chief Financial
Officer of the Company since January 1999, and is responsible for the Company's
financial, accounting, treasury and tax functions, credit facilities,
information systems, and human resources. Mr. Chute has over 20 years experience
in financial management, auditing, accounting systems, mergers, acquisitions,
and disposals. From 1979 to 1998, he served as Chief Financial Officer and Vice
President of Finance and Administration for Sprague Energy Corp., a diversified
energy company located in Portsmouth, New Hampshire. He began his career as an
auditor at Arthur Andersen, LLP. Mr. Chute is a Certified Public Accountant and
is a member of the American Institute of CPAs, the New Hampshire Society of
CPAs, the Institute of Management Accountants and the Financial Executives
Institute.
Nicholas C. Brunet has served as Senior Vice President and Director of
Forest Operations of the Company since June 1998, and is responsible for
forestry operations of the Company's timberland holdings. From 1996 until the
time he joined the Company, Mr. Brunet served as Area Manager for Green Crow
Corporation, a land investment and log brokerage firm located in Port Angeles,
Washington. From 1995 to 1996, Mr. Brunet served as a Vice President of UBSRII,
where he was Fund Manager for U.S. timberlands. From 1990 to 1995, Mr. Brunet
served in the same capacity for RII, UBSRII's predecessor.
Vladimir Harris has served as Senior Vice President and Director of
Acquisitions of the Company since its inception. Mr. Harris has primary
responsibility for timberland acquisitions. From February to April 1998, Mr.
Harris served as Senior Vice President and Chief Investment Officer of STI. From
June 1988 through January 1998, he was an officer and a Managing Director of
Baldwin & Clarke Corporate Finance, Inc. and Baldwin & Clarke Capital Markets,
Inc., which are affiliated financial advisory and investment banking firms based
in Bedford, New Hampshire. In these capacities, he
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<PAGE> 88
specialized in mergers and acquisitions and served as a consultant to UBSRII
from 1995 to 1997, and to RII, UBSRII's predecessor, from 1990 to 1995.
Joseph E. Rendini has served as Secretary, General Counsel and Vice
President of the Company since its inception. From 1997 to 1998, Mr. Rendini
served as Vice President and General Counsel of STI. From 1994 to 1997, Mr.
Rendini engaged in a private civil litigation practice in Boston, Massachusetts.
From 1993 through 1994, Mr. Rendini served as Managing Attorney for United
States Fidelity + Guaranty Insurance Company for eastern Massachusetts. Prior to
joining USF+G, Mr. Rendini engaged in a private civil litigation practice in
Boston, Massachusetts and New York, New York.
T. Yates Exley has served as Vice President -- Strategy and Development of
the Company since October 1998. Mr. Exley is responsible for the development and
structure of acquisition vehicles and investment partnerships. Mr. Exley served
as Executive Vice President of Pioneer from 1997 to 1998. From 1989 to 1997, he
was a Senior Vice President at Dillon, Read & Co., Inc., located in San
Francisco, California, where he headed that firm's West Coast forest practice
business and worked on a wide range of financings, acquisitions, and
divestitures within the forest and paper product sector.
DIRECTORS WHO HAVE AGREED TO SERVE AS OF THE COMPLETION OF THIS OFFERING
Starling W. Childs, II will become a director of the Company upon the
completion of this offering. Since 1997, Mr. Childs has served as a Partner and
sales representative for Optimum Yield, Incorporated, a distributor of forestry
and agricultural soil additives and fertilizers. Since 1988, Mr. Childs has
served as the Chairman of the Board of S. W. Childs Management Corporation, a
privately-held brokerage firm located in New York, New York, and served as a
director of that firm from 1978 to 1988. Since 1988, Mr. Childs has also served
as the Principal of Ecological and Environmental Consulting Services, Inc., an
environmental, ecological and forest resource consulting firm located in Lyme,
Connecticut.
Jay S. Lucas will become a director of the Company upon the completion of
this offering. Since 1991, Mr. Lucas has served as the President and Managing
Director of The Lucas Group, a corporate strategy consulting firm located in New
London, New Hampshire that he founded in 1991. From 1982 to 1990, Mr. Lucas was
a Vice President and partner at Bain & Company, a leading international
corporate strategy consulting firm based in Boston, Massachusetts. Mr. Lucas
currently serves as a director of Wolverine (Massachusetts) Corporation, an
international manufacturer of industrial ovens, and MIJA Industries, Inc., the
leading manufacturer of pressure gauges for the fire protection industry.
Hanns A. Pielenz will become a director of the Company upon the completion
of this offering. Since 1968, Mr. Pielenz has been the Chief Executive Officer
and Chairman of Amann Group, a textile manufacturing company based in Germany.
Mr. Pielenz also serves as a director of Interglas A.G., a German fiberglass
manufacturer. Mr. Pielenz is a resident and citizen of Germany.
Richard P. Urfer will become a director of the Company upon the completion
of this offering. Since 1997, Mr. Urfer has served as the Chief Executive
Officer of BW Capital Markets, Inc., the U.S. affiliate of
Baden-Wurttembergische Bank AG, the largest privately held commercial bank in
the State of Baden-Wurttemberg, Germany. From 1995 to 1997, Mr. Urfer served as
an Executive Vice President of RIA. In 1987, Mr. Urfer founded R.P. Urfer & Co.,
Inc., a corporate finance consulting firm located in Morristown, New Jersey, and
served as its Managing Director until 1995. Mr. Urfer currently is a director of
Anesta Corp., a pharmaceutical company located in Salt Lake City, Utah, and BW
Capital Markets, Inc.
MANAGEMENT RELATIONSHIPS
C. Edward Broom, the President, Chief Executive Officer and Chairman of the
Board of Directors of the Company, is the father of both Christopher J. Broom,
Executive Vice President, Chief Investment Officer and a Director of the
Company, and Thomas P. Broom, Executive Vice President, Chief Operating Officer
and a Director of the Company.
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<PAGE> 89
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE
Promptly following the completion of this offering, the Board of Directors
of the Company will establish an Audit Committee that will at all times consist
of three Independent Directors. The Audit Committee will make recommendations
concerning the engagement of independent public accountants, review with the
independent public accountants the plans and results of the audit engagement,
approve professional services provided by the independent public accountants,
review the independence of the independent public accountants, consider the
range of audit and non-audit fees and review the adequacy of the Company's
internal accounting controls.
EXECUTIVE COMMITTEE
Promptly following the completion of this offering, the Board of Directors
will establish an Executive Committee. The Executive Committee will set and
execute corporate strategy and policy, and will generally exercise all other
powers of the Board of Directors except as prohibited by law. The initial
members of the Executive Committee will be Messrs. C. Edward Broom, Christopher
J. Broom and Thomas P. Broom.
COMPENSATION COMMITTEE
Promptly following the completion of this offering, the Board of Directors
will establish a Compensation Committee that will at all times consist of three
Independent Directors. The Compensation Committee will review and make
recommendations to the full Board of Directors concerning proposals by
management with respect to compensation, bonuses, employment agreements and
other benefits and policies respecting such matters for the executive officers
of the Company. The Compensation Committee will also administer the Company's
stock incentive plan and other benefit plans.
EXECUTIVE COMPENSATION
The following table shows total compensation paid in 1998 and compensation
expected to be paid in 1999 by the Company to C. Edward Broom, its President and
Chief Executive Officer, and the other most highly compensated executive
officers of the Company (collectively, the "Named Executive Officers"). Kenneth
L. Chute, Senior Vice President and Chief Financial Officer of the Company, was
not employed by the Company in 1998, but is included because the Company expects
him to be one of the four most highly compensated executive officers in 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
----------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) OPTIONS(#)
- --------------------------- ---- ------------ -------- ------------
<S> <C> <C> <C> <C>
C. Edward Broom.................................... 1998 $168,750(2) -- --
President and Chief Executive Officer 1999 225,000 (3) 150,000(4)
Christopher J. Broom............................... 1998 $131,250(2) -- --
Executive Vice President and Chief Investment
Officer 1999 175,000 (3) 150,000(4)
Thomas P. Broom.................................... 1998 $131,250(2) -- --
Executive Vice President and Chief Operating
Officer 1999 175,000 (3) 150,000(4)
Kenneth L. Chute................................... 1998 -- -- --
Senior Vice President and Chief Financial Officer 1999 $150,000 (3) 137,500(4)
Vladimir Harris.................................... 1998 $101,250(2) -- --
Senior Vice President and Director of
Acquisitions 1999 135,000 (3) 137,500(4)
</TABLE>
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<PAGE> 90
- ---------------
(1) The Company was formed in April 1998; thus, no compensation was paid by the
Company in any prior completed year and the amounts indicated above for 1998
reflect compensation for a partial year. Salaries for 1999 are current
annual base salaries.
(2) Salaries for 1998 include the following amounts that were earned but not
paid in 1998: C. Edward Broom, $18,750; Christopher J. Broom, $56,250;
Thomas P. Broom, $62,250; and Vladimir Harris, $33,750. The Company expects
to pay these amounts prior to the completion of this offering.
(3) Bonuses for 1999 will be determined by the Board of Directors in its sole
discretion, upon recommendation from the Compensation Committee.
(4) The Company will grant these options to purchase Common Stock at the
completion of this offering. The exercise price of all of these options will
be the initial public offering price. One-third of the options granted to
each Named Executive Officer will vest on each of the first, second and
third anniversaries of the completion of this offering. No stock options or
stock appreciation rights ("SARs") were granted by the Company during 1998
to any of the Named Executive Officers, and the Company does not anticipate
granting any SARs to the Named Executive Officers during 1999.
COMPENSATION OF DIRECTORS
The Company will pay to its directors who are not employees of the Company
fees for their services as directors. Each non-employee director will receive an
annual retainer of $12,000. In addition, each such director will receive a fee
of $1,000 for each meeting of the Board of Directors attended in person, $500
for each such meeting attended by telephone, and $500 for each committee meeting
attended. Each non-employee director will also be reimbursed for all expenses
incurred in connection with attending Board of Directors and committee meetings
in person. Upon the completion of this offering, each non-employee director will
receive options to purchase 10,000 shares of Common Stock at an exercise price
equal to the initial public offering price. These options will vest over a
three-year period, with the first vesting to occur on the first anniversary of
the completion of this offering. Any future issuance of stock options to non-
employee directors will be in accordance with the terms of the Company's stock
incentive plan.
1999 INCENTIVE PLAN
Prior to the completion of this offering, the Board of Directors will
adopt, and the shareholders of the Company will approve, the 1999 Strategic
Timber Trust Omnibus Incentive Plan (the "1999 Incentive Plan").
Under the 1999 Incentive Plan, the Company may grant to employees and
non-employee directors stock options, SARs, restricted stock and other
stock-based awards, as well as cash-based annual and long-term incentive awards.
The Board of Directors believes that the 1999 Incentive Plan will form an
important part of the Company's overall compensation program. The 1999 Incentive
Plan will support the Company's ongoing efforts to attract and retain talented
employees and directors and will give the Company the ability to provide
employees with incentives that are directly linked to the profitability of the
Company's businesses and increases in shareholder value.
Eligibility. All employees of the Company, its subsidiaries and its
affiliates as well as non-employee directors of the Company, its subsidiaries,
and its affiliates, will be eligible to receive awards under the 1999 Incentive
Plan. For convenience, both employees and non-employee directors eligible to
receive awards under the 1999 Incentive Plan are hereinafter referred to as
"employees."
Administration. It is currently anticipated that the 1999 Incentive Plan
will be administered by the Compensation Committee or a subcommittee thereof.
The Compensation Committee will make recommendations to the full Board of
Directors as to the individuals to whom awards will be granted and the terms of
such awards. The Compensation Committee may delegate its authority under the
1999 Incentive Plan to officers of the Company, subject to approval by the Board
of Directors, with respect to employees who are not executive officers. The
Board of Directors will determine the terms of any awards to members of the
Compensation Committee under the Incentive Plan.
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<PAGE> 91
Shares Reserved. 2,224,000 shares of Common Stock may be issued under the
1999 Incentive Plan, representing, upon the completion of this offering,
approximately 10% of the shares of Common Stock and Partnership units. The
shares of Common Stock subject to any award that terminates, expires or is
cashed out without payment being made in the form of Common Stock will again be
available for distribution under the 1999 Incentive Plan.
Options to purchase an aggregate of 1,115,000 shares of Common Stock will
be granted to certain executive officers, directors and employees of the Company
as of the completion of this offering, at an exercise price equal to the initial
public offering price. These options will vest over a three-year period, with
the first vesting to occur on the first anniversary of the completion of this
offering. Messrs. C. Edward, Christopher J. and Thomas P. Broom will each
receive options to purchase 150,000 shares of Common Stock, Messrs. Chute and
Harris will each receive options to purchase 137,500 shares of Common Stock, and
Messrs. Brunet and Rendini will each receive options to purchase 75,000 shares
of Common Stock.
Cash-Based Annual and Long-Term Incentive Awards. Cash-based annual and
long-term incentive awards may be granted under the 1999 Incentive Plan. Such
awards will be earned only if corporate, business unit or individual performance
objectives over performance cycles established by or under the direction of the
Compensation Committee are met. The performance objectives may vary from
participant to participant, group to group and period to period. Performance
objectives for awards will be based upon such criteria as are established by the
Compensation Committee. No annual incentive award paid to a participant with
respect to a performance cycle may exceed $1,000,000, and no long-term incentive
award paid to a participant may exceed $1,000,000 times the number of years in
the performance cycle.
Stock-Based Awards. The 1999 Incentive Plan will permit the granting of
incentive stock options ("ISOs"), which qualify for special tax treatment, and
nonqualified stock options. The exercise price for incentive stock options will
not be less than the "fair market value" (as defined in the 1999 Incentive Plan)
of Common Stock on the date of grant. The 1999 Incentive Plan permits the
Compensation Committee to cancel an option upon exercise by the holder and pay
the holder, in cash or Common Stock, the difference between the fair market
value of the shares covered by the option and the exercise price.
SARs may also be granted either singly or in combination with underlying
stock options. SARs entitle the holder upon exercise to receive an amount in any
combination of cash or Common Stock (as determined by the Compensation
Committee) equal in value to the excess of the fair market value of the shares
covered by such right over the grant price. The grant price and other terms of
SARs will be determined by the Compensation Committee.
Shares of restricted Common Stock may also be awarded. The restricted stock
vests and becomes transferable upon the satisfaction of conditions set forth in
the applicable award agreement. Restricted stock awards may be subject to
forfeiture if, for example, the recipient's employment terminates before the
award vests. Except as specified at the time of grant, holders of restricted
stock will have voting rights and the right to receive dividends on their
restricted shares.
The 1999 Incentive Plan also provides for other awards that are denominated
in, valued by reference to, or otherwise based on or related to, Common Stock.
These awards may include, without limitation, performance shares and restricted
stock units that entitle the recipient to receive, upon satisfaction of
performance goals or other conditions, a specified number of shares of Common
Stock or the cash equivalent thereof.
Under the 1999 Incentive Plan, the total number of shares of restricted
Common Stock and other shares of Common Stock subject to or underlying ISOs,
nonqualified stock options, SARs and other stock-based awards granted to any
plan participant may not exceed 25% of the total shares of Common Stock that may
be issued under the 1999 Incentive Plan.
Change in Control Provisions. The 1999 Incentive Plan provides that, if
approved by the Board of Directors, in the event of a "Change in Control" (as
defined in the 1999 Incentive Plan), all stock options and SARs will become
immediately exercisable, the restrictions applicable to outstanding restricted
stock
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<PAGE> 92
and other stock-based awards will lapse, and, unless otherwise determined by the
Compensation Committee, the value of outstanding stock options, SARs, restricted
stock and other stock-based awards will be cashed out on the basis of the
highest price paid (or offered) during the preceding 60-day period. In addition,
outstanding incentive awards will be vested and paid out on a prorated basis,
based on the maximum award opportunity of such awards and the number of months
elapsed compared with the total number of months in the performance cycle.
Adjustments for Share Dividends, Mergers and Similar Events. The Board of
Directors will make appropriate adjustments in outstanding awards under the 1999
Incentive Plan to reflect Common Stock dividends, splits and similar events. In
the event of a merger, liquidation, sale of the Company or similar event, the
Board of Directors, in its discretion, may provide for substitution or
adjustment of outstanding awards, or may terminate all awards with payment of
cash or in-kind consideration.
Amendments and Termination. The Board of Directors may at any time amend or
discontinue the 1999 Incentive Plan. The Compensation Committee may at any time
amend outstanding awards for the purpose of satisfying changes in law or for any
other lawful purpose. However, no such action may be taken which materially and
adversely affects any rights under an outstanding award without the holder's
consent. Further, amendments to the Incentive Plan may be subject to approval by
the Company's shareholders if and to the extent required by the Code to preserve
the qualified status of incentive stock options or to preserve tax deductibility
of compensation earned under options.
EMPLOYMENT AND NON-COMPETITION AGREEMENTS
The Company has employment agreements with each of Messrs. C. Edward Broom,
Christopher J. Broom, Thomas P. Broom, Kenneth L. Chute, Nicholas C. Brunet,
Vladimir Harris and Joseph E. Rendini effective as of the consummation of this
offering.
The employment agreement with C. Edward Broom provides for his employment
as President and Chief Executive Officer of the Company for a period of four
years. Mr. Broom's employment agreement provides for an initial annual base
salary of $225,000. Mr. Broom's employment agreement contains provisions
relating to his involvement in several privately held timber investment funds.
If the Company wishes to bid on a property and any fund with which Mr. Broom is
affiliated is the seller of the property or also wishes to bid on the property,
Mr. Broom will not participate in the transaction on behalf of such fund. In
addition, Mr. Broom has agreed to spend no more than 5% of his time devoted to
his interests in these timber funds. The employment agreement otherwise
prohibits Mr. Broom from competing against the Company during the term of his
employment under the agreement and for a period of one year thereafter in North
America, Central America and South America, and from soliciting purchasers of
the Company's timber or prospective sellers of timberlands with which he had
contact during the term of his employment for a period of one year thereafter.
The employment agreement may be terminated by mutual agreement, voluntarily by
Mr. Broom or by the Company without cause upon six months' prior written notice
during the first two years of the employment term and upon ninety days' notice
thereafter, and immediately by the Company for cause or upon the death or
disability of Mr. Broom. Mr. Broom or his heirs shall be entitled to one year's
compensation if the employment agreement is terminated by the executive for
"good reason" (as defined in the agreement), terminated by the Company without
cause, or at the expiration of the four-year term (assuming the agreement is not
renewed).
Each of Messrs. Christopher J. Broom, Thomas P. Broom, Chute, Brunet,
Harris and Rendini have entered into employment agreements with the Company on
substantially similar terms. Each employment agreement provides for an initial
minimum annual base salary for each executive officer as follows: Mr.
Christopher J. Broom, $175,000; Mr. Thomas P. Broom, $175,000; Mr. Chute,
$150,000; Mr. Brunet, $90,000; Mr. Harris, $135,000; and Mr. Rendini, $100,000.
The employment agreement with each such executive provides for his employment as
an officer of the Company for a period of four years. Each employment agreement
prohibits the executive from competing against the Company during the term of
his employment under the agreement and for a period of one year thereafter in
North America, Central America and South America, and from soliciting purchasers
of the Company's timber or prospective
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<PAGE> 93
sellers of timberlands with which he had contact during the term of his
employment for a period of one year thereafter. The employment agreement may be
terminated by mutual agreement, voluntarily by the executive or by the Company
without cause upon six months' prior written notice during the first two years
of the employment term and upon ninety days' notice thereafter, and immediately
by the Company for cause or upon the death or disability of such executive. Each
such executive or his heirs shall be entitled to one year's compensation if the
employment agreement is terminated by the executive for "good reason,"
terminated by the Company without cause, or at the expiration of the four-year
term (assuming the agreement is not renewed).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, the Company did not have a compensation committee.
Compensation of executive officers of the Company for 1998 was determined by
Thomas P. Broom, who was the Company's sole director from the Company's
inception until January 1999, and who is Executive Vice President and Chief
Operating Officer of the Company. C. Edward Broom, President and Chief Executive
of the Company, and Christopher J. Broom, Executive Vice President and Chief
Investment Officer of the Company, assisted Thomas P. Broom in determining
executive officer compensation for 1998.
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<PAGE> 94
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1998, the Company concluded a transaction with its President
and Chief Executive Officer, C. Edward Broom, pursuant to which Mr. Broom
purchased for $3.0 million approximately 6,700 acres of agricultural land that
the Company had leased to third parties principally for rice farming. This
property was included in the purchase of the Louisiana Property without any
separate determination of cost. The Company determined that this property was
ancillary to its ongoing business of timber production. The sale was effected to
provide a source of cash for the Company to make certain payments of bank debt.
The purchase price was determined by Mr. Broom and other senior management to
produce the necessary funds to make these payments, and does not necessarily
reflect the price the Company might have been able to obtain if the property had
been fully prepared for sale and exposed to the market for a sufficient period
of time to produce the highest price. In order to protect the Company's economic
interest in the property, Mr. Broom has agreed that the Company may repurchase
the property at any time before December 31, 2000, at the price paid by Mr.
Broom plus a pro-rata annual increase at the rate of 8%, compounded annually.
In December 1998, the Company sold certain of its eastern Oregon timber to
Kinzua Resources, LLC, an entity controlled by Gregory M. Demers, a beneficial
owner of more than 5% of the Company's Common Stock, for $5.6 million. The
Company executed timber deeds conveying approximately 19.3 million board feet of
timber, consisting of a variety of species. Kinzua Resources has regularly
acquired and used wood from the eastern Oregon timberlands in the past, and the
Company anticipates that it will continue to sell timber from these lands to
Kinzua in the ordinary course of business in the future.
Hanns A. Pielenz, who has agreed to serve as a Director of the Company on
or prior to the completion of this offering, owns a 50% interest in each of LTP
and Mach One. In April 1998, LTP contributed to the Partnership a contract to
acquire the Louisiana Property in exchange for an interest in the Partnership,
which the parties valued at $50.0 million. In October 1998, Mach One invested
$10.0 million cash in exchange for an interest in STP2, in connection with the
Company's acquisition of Pioneer.
Prior to completion of this offering, the Company will pay approximately
$760,000 to Broom Resource Investments, LLC ("BRI"). This amount includes
reimbursement of approximately $320,000 in expenses paid on behalf of the
Company and $440,000 in fees due to BRI in connection with the Company's
acquisition of the Louisiana Property. BRI is owned by Messrs. C. Edward Broom,
Christopher J. Broom and Thomas P. Broom, who are executive officers and
directors of the Company.
The Company rents its headquarters office in New London, New Hampshire,
from Broom Properties, LLC, a company controlled by Messrs. C. Edward and Thomas
P. Broom. The Company rents this space under a month-to-month lease for $5,000
per month. In 1998, payments to Broom Properties, LLC for this space totaled
$30,000.
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<PAGE> 95
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock and Partnership units exchangeable for Common Stock by
(i) each director and prospective director of the Company, (ii) each Named
Executive Officer, (iii) all directors, prospective directors and executive
officers of the Company as a group and (iv) each person who is known to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock. This
table assumes that all of the Formation Transactions and this offering have been
completed and that the underwriters do not exercise their over-allotment option
and gives effect to a 36.59-for-1 stock split, which will occur prior to
completion of this offering.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK PERCENTAGE PERCENTAGE
AND PARTNERSHIP OF ALL SHARES OF ALL SHARES OF
UNITS BENEFICIALLY OF COMMON COMMON STOCK AND
NAME AND ADDRESS OF OWNER(1) OWNED STOCK(2) PARTNERSHIP UNITS
---------------------------- ------------------ ------------- --------------------
<S> <C> <C> <C>
Hanns A. Pielenz(3)............................ 1,863,084 9.7% 8.4%
740 Manatee Cove
Vero Beach, FL 32963
Larry J. Woodard(3)............................ 1,863,084 9.7% 8.4%
1089 Lighthouse Two
Hilton Head Island, SC
29928
Gregory M. Demers(4)........................... 1,660,333 8.8% 7.5%
25310 Jeans Road
Veneta, OR 97487
C. Edward Broom................................ 408,329 2.3% 1.8%
Christopher J. Broom........................... 408,329 2.3% 1.8%
Thomas P. Broom................................ 408,329 2.3% 1.8%
Kenneth L. Chute............................... -- -- --
Vladimir Harris................................ 90,740 * *
Jay S. Lucas................................... -- -- --
Starling W. Childs, II......................... -- -- --
Richard P. Urfer............................... -- -- --
All directors, prospective directors and
executive officers as a group (12
persons)(5).................................. 3,468,807 17.2% 15.6%
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise indicated, each beneficial owner's address is 5 North
Pleasant Street, New London, New Hampshire 03257, all Common Stock is owned
directly and the indicated person has sole voting and investment power with
respect to such Common Stock.
(2) Assumes that the identified person (and no other person) redeems all
Partnership units the identified person beneficially owns for shares of
Common Stock.
(3) Includes 1,762,974 Partnership units held of record by LTP and 100,110
Partnership units held of record by Mach One. Hanns A. Pielenz, a
prospective director of the Company, and Larry J. Woodard each may be deemed
to beneficially own the Partnership units held by LTP and Mach One.
(4) Includes 1,393,648 Partnership units held of record by Old Pioneer. Mr.
Demers principally owns the membership interests in Old Pioneer.
(5) Includes 289,996 shares of Common Stock and Partnership units beneficially
owned by certain executive officers of the Company not named in the table
set forth above.
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<PAGE> 96
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
The description of the Company's capital stock set forth below and
elsewhere in this prospectus does not purport to be complete and is qualified in
its entirety by reference to the Company's Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws, each of which will be adopted
shortly before completion of this offering. Copies of the Company's Amended and
Restated Articles of Incorporation and Amended and Restated Bylaws are exhibits
to the Registration Statement of which this prospectus is a part.
GENERAL
Under the Articles of Incorporation, the Board of Directors has the
authority to issue up to 200,000,000 shares of common stock, par value $.01 per
share ("Common Stock"), and 50,000,000 shares of preferred stock, par value $.01
per share ("Preferred Stock"). Upon completion of this offering and the
Formation Transactions, 17,271,770 shares of Common Stock will be issued and
outstanding (19,761,770 shares if the underwriters' over-allotment option is
exercised in full), and no shares of Preferred Stock will be issued or
outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
to be voted on by shareholders and are not entitled to cumulative voting in the
election of directors. Generally, matters to be approved by shareholders must be
voted for by holders of a majority (or with respect to the election of
directors, a plurality) of the shares of Common Stock represented in person or
by proxy at a meeting, subject to any contractual or other rights of security
holders, such as any special rights of holders of Preferred Stock (none of which
is currently outstanding). For certain other matters affecting or relating to
voting rights of holders of shares of Common Stock, including election of
directors and supermajority voting requirements, see "Certain Provisions of
Georgia Law and the Company's Articles of Incorporation and Bylaws."
Subject to such preferential rights as may be granted by the Board of
Directors in connection with the future issuance of Preferred Stock, holders of
shares of Common Stock are entitled to share ratably in any dividends and
distributions declared and paid by the Company and in any distribution to
shareholders upon dissolution of the Company. The Company intends to pay
quarterly distributions on the Common Stock, beginning with the quarter ending
June 30, 1999. See "Distributions."
Holders of Common Stock have no preemptive or other subscription or
conversion rights, and there are no redemption or sinking fund provisions with
respect to such shares. As discussed below, if shares of Common Stock are
converted into shares of Excess Stock (as defined below), the rights
attributable to such shares will be substantially limited.
All shares of Common Stock offered hereby will be duly authorized and, when
issued and paid for as prescribed herein, will be fully paid and non-assessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is
.
PREFERRED STOCK
The Board of Directors has the authority, without further shareholder vote,
to issue Preferred Stock in one or more series and to fix the rights,
preferences and limitations thereof, including dividend rights, conversion
rights, sinking fund provisions, voting rights (including rights to elect a
specified number of directors), terms and rights of redemption and liquidation
preferences. Such rights and preferences could include the right to receive
specified dividend payments and payments on liquidation prior to any such
payments being made to the holders of Common Stock. The Board of Directors could
authorize the issuance of Preferred Stock with terms and conditions that could
discourage a takeover or other transaction
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that holders of Common Stock might believe to be in their best interests. See
"Certain Provisions of Georgia Law and the Company's Articles of Incorporation
and Bylaws -- Preferred Stock." As of the date of this prospectus, no shares of
Preferred Stock are outstanding, and the Company has no current plans to issue
any Preferred Stock.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF SHARES
For the Company to qualify as a REIT under the Code, among other things,
not more than 50% in value of its outstanding capital stock may be owned,
directly or indirectly, by five or fewer individuals (defined in the Code to
include certain entities) during the last half of a taxable year (the "Five or
Fewer Requirement"). The Five or Fewer Requirement does not apply during the
first year for which the Company elects to be treated as a REIT. Also, shares of
the Company's capital stock must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months (other than the first
year) or during a proportionate part of a shorter taxable year. See "Federal
Income Tax Consequences."
In order to protect the Company from losing its status as a REIT and to
protect the Company from a concentration of ownership among its shareholders,
the Articles of Incorporation, subject to certain exceptions, provides that no
person may "beneficially own" more than 9.8% (the "Ownership Limit") of the
lesser of (a) the aggregate number or (b) the value of outstanding shares of
Common Stock or any series of Preferred Stock. Under the Articles of
Incorporation, a person generally "beneficially owns" shares for such purpose if
such person would be treated as an owner of Common Stock or Preferred Stock
either directly or indirectly under section 542(a)(2) of the Code, taking into
account, for this purpose, constructive ownership under section 544 of the Code,
as modified by section 856(h)(1)(B) of the Code. When two or more persons act as
a partnership or similar group for the purpose of acquiring, holding or
disposing of securities, the group shall be considered a single person under the
Articles of Incorporation. The Board of Directors may waive the Ownership Limit
as to any person upon receipt of a ruling from the Internal Revenue Service, an
opinion of counsel or other evidence acceptable to the Board that ownership by
such person will not cause the Company to lose its REIT status, provided the
Board receives certain representations and agreements from the person who would
exceed the Ownership Limit.
Any transfer of shares of Common Stock or Preferred Stock that would do any
of the following shall be null and void, and the intended transferee will
acquire no rights to the shares of capital stock:
(i) cause any person to beneficially own shares of Common Stock or
Preferred Stock in excess of the Ownership Limit not otherwise permitted as
provided above;
(ii) result in the shares of Common Stock or Preferred Stock being
beneficially owned by fewer than 100 persons;
(iii) result in the Company being "closely held" within the meaning of
section 856(h) of the Code;
(iv) result in the Company constructively owning 10% or more of the
ownership interests in a tenant of the Company within the meaning of
section 856(d)(2)(B) of the Code;
(v) result in the Company failing to qualify as a "domestically
controlled REIT" within the meaning of section 897(h)(4)(B) of the Code; or
(vi) otherwise cause the Company to fail to qualify as a REIT.
The foregoing restrictions on transferability and ownership will not apply if
the Board of Directors adopts a resolution recommending that the Company
terminate its status as a REIT, and such resolution is approved by the holders
of a majority of the issued and outstanding shares of Common Stock.
If any attempted transfer of Common Stock or Preferred Stock or other event
resulting in an increase in any holder's percentage interest in Common Stock or
Preferred Stock would cause a purported transferee or holder to be in violation
of any of the restrictions described in the previous paragraph, then the
purported transferee or holder (the "Prohibited Owner") shall not acquire or
shall cease to own, as the
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case may be, such number of shares in excess of the highest number of shares
which would comply with such restrictions. Any such excess stock described above
will be converted automatically into an equal number of shares of stock (the
"Excess Stock") and transferred automatically, by operation of law, to a trust,
the beneficiary of which will be a qualified charitable organization selected by
the Company (the "Beneficiary"). Such automatic transfer shall be deemed to be
effective as of the close of business on the Trading Day (as defined in the
Articles of Incorporation) prior to the date of such violative transfer or
event.
As soon as practical after the transfer of shares to the trust, the trustee
of the trust (who shall be designated by the Company and be unaffiliated with
the Company and any Prohibited Owner) will be required to sell such Excess Stock
to a person or entity who could own such shares without violating the ownership
restrictions. In the case of Excess Stock resulting from a transfer for value,
the trustee must distribute to the Prohibited Owner the lesser of the price paid
by the Prohibited Owner for such Excess Stock or the sales proceeds received by
the trust for such Excess Stock. In the case of Excess Stock resulting from any
event other than a transfer for value, the trustee will be required to sell such
Excess Stock to a qualified person and distribute to the Prohibited Owner the
lesser of the Market Price (as defined in the Articles of Incorporation) of such
Excess Stock as of the date of such event or the sales proceeds received by the
trust for such Excess Stock. In either case, any proceeds in excess of the
amount distributed to the Prohibited Owner will be distributed to the
Beneficiary. Prior to a sale of any such Excess Stock by the trust, the trustee
will be entitled to receive, in trust for the Beneficiary, the same per share
dividends and other distributions paid by the Company with respect to the Common
Stock or Preferred Stock which was converted into Excess Stock. A holder of
Excess Stock shall not be entitled to any voting rights other than those
required by Georgia law.
In addition, Excess Stock held in the trust shall be deemed to be offered
for sale to the Company, or its designee, at the lesser of (i) in the case of
Excess Stock resulting from a transfer for value, the price per share in the
transaction that created the Excess Stock, or in the case of Excess Stock
resulting from any event other than a transfer for value, the Market Price on
the date of such event and (ii) the Market Price on the date the Company, or its
designee, accepts such offer. The Company shall have the right to accept such
offer for a period of 90 days.
All certificates representing shares of Common Stock will bear a legend
referring to the restrictions described above.
Any person who beneficially owns more than 5% of the outstanding shares of
any class or series of the Company's capital stock (or such lower percentages as
are then required pursuant to the regulations under the Code) is required to
provide a written statement containing certain information to the Company by
January 31 of each year. In addition, upon the Company's request, each record
and beneficial owner of Common Stock or Preferred Stock shall be required to
disclose to the Company in writing such information as the Company may request
in order to determine the Company's status as a REIT and to ensure compliance
with the Ownership Limit.
These restrictions do not preclude settlement of transactions through the
New York Stock Exchange.
The ownership restrictions described above could have the effect of
delaying, deferring or preventing a change of control of the Company in which
holders of Common Stock might receive a premium for their shares over the then
prevailing market price. For additional matters that could have the effect of
delaying, deferring or preventing a change of control of the Company, see
"Certain Provisions of Georgia Law and the Company's Articles of Incorporation
and Bylaws."
NEW YORK STOCK EXCHANGE LISTING
Prior to the date of this prospectus, there has been no public trading
market for the Common Stock. The Company intends to apply to have the Common
Stock listed on the New York Stock Exchange under the symbol "STG."
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CERTAIN PROVISIONS OF GEORGIA LAW AND THE COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS
The following summary of certain provisions of Georgia law and of the
Articles of Incorporation and Bylaws does not purport to be complete and is
subject to and qualified in its entirety by reference to Georgia law and the
Articles of Incorporation and Bylaws. Copies of the Articles of Incorporation
and Bylaws have been filed as exhibits to the Registration Statement of which
this prospectus forms a part.
Certain provisions of the Georgia Business Corporation Code (the "GBCC")
and of the Articles of Incorporation and Bylaws, summarized in the following
paragraphs, may be considered to have an anti-takeover effect and may delay,
deter or prevent a tender offer, proxy contest, or other takeover attempt that a
shareholder might consider to be in such shareholder's best interest, including
such an attempt as might result in payment of a premium over the market price of
shares held by shareholders.
OWNERSHIP LIMIT
The Articles of Incorporation contain restrictions on the number of shares
of capital stock that individual shareholders may own. Under the Articles of
Incorporation, any transfer of shares of Common Stock or Preferred Stock that
would do any of the following shall be null and void, and the intended
transferee will acquire no rights to the shares of capital stock: (i) cause any
person to beneficially own shares of Common Stock or Preferred Stock in excess
of the Ownership Limit (unless waived by the Board of Directors), (ii) result in
the shares of Common Stock or Preferred Stock being beneficially owned by fewer
than 100 persons, (iii) result in the Company being "closely held" within the
meaning of section 856(h) of the Code, (iv) result in the Company constructively
owning 10% or more of the ownership interests in a tenant of the Company within
the meaning of section 856(d)(2)(B) of the Code, (v) result of the Company
failing to qualify as a "domestically controlled REIT" within the meaning of
section 897(h)(4)(B) of the Code, or (vi) otherwise cause the Company to fail to
qualify as a REIT.
The foregoing restrictions on transferability and ownership will not apply
if the Board of Directors adopts a resolution recommending that the Company
terminate its status as a REIT, and such resolution is approved by the holders
of a majority of the issued and outstanding shares of Common Stock. The
ownership limitations described above could have the effect of delaying,
deferring or preventing a change of control of the Company in which holders of
Common Stock might receive a premium for their shares over the then prevailing
market price. For additional discussion of these restrictions and the
consequences of violating such restrictions, see "Description of Capital Stock
of the Company -- Restrictions on Ownership and Transfer of Shares."
BUSINESS COMBINATION PROVISIONS OF GEORGIA LAW
The Company's Bylaws subject the Company to provisions of the GBCC
restricting the Company's ability to engage in business combination transactions
with certain significant shareholders. These provisions prohibit certain
business combinations between a corporation and any person who has acquired
beneficial ownership of 10% or more of the voting stock of the corporation (an
"interested shareholder"). The prohibition applies for a period of five years
from the date such shareholder became an interested shareholder. The
prohibitions do not apply if:
(i) prior to the time such shareholder became an interested
shareholder, the Board of Directors of the corporation approved either the
business combination or the transaction that resulted in such person
becoming an interested shareholder;
(ii) such interested shareholder became the beneficial owner of at
least 90% of the outstanding shares of voting stock of the corporation
(excluding shares owned by persons who are directors or officers, their
affiliates or associates and by subsidiaries of the corporation and certain
employee stock plans) in the same transaction in which the interested
shareholder became an interested shareholder; or
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(iii) the interested shareholder, subsequent to becoming an interested
shareholder, became the beneficial owner of at least 90% of the voting
stock of the corporation (excluding shares owned by persons who are
directors or officers, their affiliates or associates and by subsidiaries
of the corporation and certain employee stock plans) and the business
combination was approved by holders of a majority of the voting stock
entitled to vote, excluding voting stock beneficially owned by the
interested shareholder or by persons who are directors or officers and by
subsidiaries and certain employee stock plans.
The Company's Bylaws also subject the Company to "fair price" provisions of
the GBCC that further restrict business combination transactions with interested
shareholders. These provisions require the consideration paid for stock acquired
in the business combination to meet certain tests, which are designed to ensure
that shareholders receive at least fair market value for their shares in the
business combination. A business combination with an interested shareholder does
not need to meet these tests if:
(i) the continuing directors unanimously approve the business
combination, provided there are at least three continuing directors (a
continuing director is any member of the Board of Directors who (i) is not
an affiliate or associate of an interested shareholder or any of its
affiliates, and (ii) was a director prior to the date the interested
shareholder first became an interested shareholder, or a successor to such
a director in certain circumstances); or
(ii) two-thirds of the continuing directors recommend the business
combination and a majority of the voting stock entitled to vote (excluding
voting stock beneficially owned by the interested shareholder) approves the
business combination.
THE BOARD OF DIRECTORS
The Board of Directors of the Company is divided into three classes of
directors serving staggered three-year terms. The term of office of the first
class of directors will expire at the 2000 meeting of shareholders; the term of
the second class of directors will expire at the 2001 annual meeting of
shareholders; and the term of the third class of directors will expire at the
2002 annual meeting of shareholders. At each annual meeting of shareholders, the
class of directors to be elected at such meeting will be elected for a
three-year term, and the directors in the other two classes will continue in
office. Because shareholders will have no right to cumulative voting for the
election of directors, at each annual meeting of shareholders the holders of a
plurality of the shares of Common Stock will be able to elect all of the
successors to the class of directors whose term expires at that meeting.
Classification of the Board of Directors expands the time required to change the
composition of a majority of directors, which may discourage an acquisition
proposal for the Company. The Articles of Incorporation provide that the number
of directors of the Company shall be fixed by resolution of the Board of
Directors, but shall not be less than three unless the Articles of Incorporation
are amended to delete the classification of the Board of Directors.
The Articles of Incorporation also provide that, except for any directors
who may be elected by holders of Preferred Stock (the terms of which provide for
the right of such holders to elect a specified number of directors), directors
of the Company may be removed only for cause by the affirmative vote of
shareholders holding at least a majority of the votes entitled to be cast by all
shareholders in the election of directors. Vacancies on the Board of Directors,
however occurring, may be filled only by a majority vote of the remaining
directors. Directors elected by the Board of Directors to fill vacancies
continue until the next election of the class for which such directors have been
chosen, except for directors elected to fill vacancies resulting from an
increase in the number of directors, who continue until the next election of
directors by the shareholders. A vote of shareholders holding at least
two-thirds of all the votes entitled to be cast thereon is required to amend,
alter, change, repeal or adopt any provision inconsistent with the foregoing
classified board and director removal provisions. These provisions make it more
difficult and time-consuming to change majority control of the Board of
Directors of the Company and make it more difficult for shareholders to remove
incumbent directors and fill the vacancies with their own nominees
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and, thus, may reduce the vulnerability of the Company to an unsolicited
proposal for the takeover of the Company or the removal of incumbent management.
SPECIAL MEETINGS OF SHAREHOLDERS; CONSENTS
The Bylaws provide that special meetings of shareholders may be called only
by the Chairman of the Board of Directors, the President, a majority of the
Board of Directors of the Company or holders of outstanding stock having not
less than 75% of the votes entitled to be cast by all of the outstanding shares
of the capital stock of the Company, and shareholders of the Company may act
without a meeting only by unanimous written consent. These provisions make it
more difficult for the shareholders to take action without the sanction of
Company management.
PREFERRED STOCK
Under the Articles of Incorporation, the Board of Directors has the power,
without a shareholder vote, to establish the preferences and rights of one or
more series of Preferred Stock and to issue such shares. The Board of Directors
may afford the holders of any series of Preferred Stock preferences, powers and
rights, voting or otherwise, that are senior to and have priority over the
rights of holders of Common Stock. The issuance of any such Preferred Stock
could discourage, delay or prevent a change in control of the Company. As of the
date of this prospectus, no shares of Preferred Stock are outstanding, and the
Company has no current plans to issue any Preferred Stock.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws contain provisions requiring advance notice to the Company of
(i) nominations of candidates for election to the Board of Directors who are not
nominated by the Board of Directors and (ii) business to be conducted at the
Company's annual meeting of shareholders (other than such business as may be
brought by or at the direction of the Board of Directors). Without compliance
with these provisions, any such nominations or business may not be considered by
the shareholders.
SUPERMAJORITY VOTE REQUIREMENTS FOR CERTAIN MATTERS
Under the Articles of Incorporation and the Bylaws, certain matters require
approval by a two-thirds vote of the shareholders and/or Board of Directors,
rather than merely a majority vote. A vote of two-thirds of shareholders is
required to amend the provisions of the Articles of Incorporation and the Bylaws
concerning classification of the Board of Directors and removal and replacement
of directors. A vote of two-thirds of shareholders is required to amend the
Articles of Incorporation to permit shareholders to act by majority (rather than
unanimous) written consent. Approval by two-thirds of the continuing directors
and a majority of shareholders (excluding certain persons) is required to amend
the Bylaws to eliminate the applicability of the provisions of the GBCC
restricting business combinations between the Company and certain significant
shareholders.
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS
The Articles of Incorporation may not be amended without the affirmative
vote of at least a majority of the shares of capital stock outstanding and
entitled to vote thereon voting together as a group, provided that certain
provisions of the Articles of Incorporation may not be amended without the
approval of the holders of two-thirds of the shares of capital stock of the
Company outstanding and entitled to vote thereon voting together as a single
class. See " -- Supermajority Vote Requirements for Certain Matters." The Bylaws
may be amended by the Board of Directors or a majority of the shares cast at
duly constituted meeting of shareholders.
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LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's officers and directors are and will be indemnified against
certain liabilities in accordance with GBCC, the Articles of Incorporation, the
Bylaws and certain indemnification agreements described below.
GEORGIA BUSINESS CORPORATION CODE
Section 14-2-851 of the GBCC empowers a corporation to indemnify a director
(including a former director and including a director who is or was serving at
the request of the corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise) against liability
arising from official acts if the director acted in good faith and reasonably
believed that his or her conduct was in the best interests of the corporation.
For all other acts, the corporation may indemnify a director who acted in good
faith and reasonably believed that the conduct was not opposed to the best
interests of the corporation. The corporation may indemnify a director with
respect to criminal proceedings if the director acted in good faith and had no
reasonable cause to believe the conduct was unlawful. A corporation may not
indemnify a director adjudged liable for conduct involving receipt of an
improper personal benefit.
In addition, section 14-2-856 of the GBCC permits the articles of
incorporation, bylaws, a contract, or resolution approved by the shareholders to
authorize the corporation to indemnify a director against claims to which the
director was a party, including claims by the corporation or in the right of the
corporation (e.g., a shareholder derivative action). However, the corporation
may not indemnify the director for liability to the corporation for any
appropriation of a corporate opportunity, intentional misconduct or knowing
violation of law, unlawful distributions or receipt of an improper benefit.
Section 14-2-852 of the GBCC provides for mandatory indemnification against
reasonable expenses incurred by a director who is wholly successful in defending
an action to which the director was a party due to his or her status as a
director of the Company on the merits or otherwise. Section 14-2-854 allows a
court, upon application by a director, to order indemnification and advance of
expenses if it determines that the director is entitled to indemnification under
the GBCC or if it determines that indemnification is fair and reasonable even if
the director has failed to meet the statutory standard of conduct under section
14-2-851. However, the court may not order indemnification in excess of
reasonable expenses for liability to the corporation or for receipt of an
improper benefit.
Section 14-2-857 of the GBCC permits a corporation to indemnify an officer
(including a former officer and including an officer who is or was serving at
the request of the corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise) to the same extent as
a director. A corporation may indemnify an officer who is not a director to a
further extent by means of articles of incorporation, bylaw, board resolution,
or contract. However, the corporation may not indemnify an officer for liability
arising from conduct involving appropriation of a corporate opportunity,
intentional misconduct or knowing violation of law, unlawful distributions, or
receipt of an improper personal benefit. An officer who is not a director is
also entitled to mandatory indemnification and may apply for court-ordered
indemnification.
Section 14-2-858 of the GBCC permits a corporation to purchase and maintain
insurance on behalf of directors and officers against liability incurred by them
in their capacities or arising out of their status as directors and officers of
the corporation, regardless of whether the corporation would have the power to
indemnify or advance expenses to the director or officer for the same liability
under the GBCC.
ARTICLES OF INCORPORATION
Article V of the Articles of Incorporation exculpates the directors of the
Company from personal liability for money damages to the Company or its
shareholders to the fullest extent permitted by the GBCC, as it may be amended
from time to time. Currently, the directors are exculpated from all liability to
the Company or its shareholders except for liability arising from conduct
involving appropriation of a
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corporate opportunity, intentional misconduct or knowing violation of law,
unlawful distributions, or receipt of an improper personal benefit. The Articles
of Incorporation also provide that any repeal or modification of Article V of
the Articles of Incorporation by the shareholders of the Company shall not
adversely affect any right or protection of a director of the Company existing
at the time of such repeal or modification.
BYLAWS
Article VI of the Bylaws provides that the Company shall indemnify to the
fullest extent permitted under the GBCC any person who is or was a director or
an officer of the Company, including a director or an officer who is or was
serving at the request of the Company as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise.
No amendment, termination, or other elimination of Article VI of the Bylaws
or of any relevant provisions of the GBCC or of any other applicable law shall
affect or diminish in any way the rights to indemnification under the Bylaws
with respect to any action, suit or proceeding arising out of, or relating to,
any event or act or omission occurring or fact or circumstance existing prior to
such amendment, termination or other elimination. The indemnification and
advancement of expenses provided by, or granted pursuant to, the Bylaws are not
exclusive of any other rights permitted by applicable law to which a person
seeking indemnification or advancement of expenses may be entitled, whether by
contract or otherwise. All rights to indemnification under Article VI of the
Bylaws continue as to a person who has ceased to be a director or officer and
shall be deemed to be a contract between the Company and each such person.
INDEMNIFICATION AGREEMENTS
The Company intends to enter into indemnification agreements with each of
its directors and executive officers prior to completion of this offering, and
intends to enter into similar agreements with its prospective directors upon
completion of this offering. The indemnification agreements require, among other
things, that the Company indemnify its directors and executive officers to the
fullest extent permitted by law and advance to the directors and executive
officers all related expenses, subject to reimbursement if it is subsequently
determined that indemnification is not permitted. Under these agreements, the
Company must also indemnify and advance all expenses incurred by directors and
executive officers seeking to enforce their rights under the indemnification
agreements. Although the form of indemnification agreement offers substantially
the same scope of coverage afforded by the GBCC and the Articles of
Incorporation and the Bylaws, it provides greater assurance to directors and
executive officers that indemnification will be available, because, as a
contract, it cannot be modified unilaterally in the future by the Board of
Directors or the shareholders to eliminate the rights it provides.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers or persons controlling the registrant pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
INSURANCE POLICIES
The Company intends to purchase a policy of insurance providing
reimbursement of indemnification payments to officers and directors of the
Company and reimbursement of certain liabilities incurred by directors and
officers of the Company in their capacities as such, to the extent that they are
not otherwise indemnified by the Company.
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SHARES AVAILABLE FOR FUTURE SALE
GENERAL
Prior to this offering, there has been no public market for the Common
Stock, and no predictions can be made regarding the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. As described below, only a limited number of
shares will be available for sale shortly after this offering due to certain
contractual and legal restrictions on resale. Nevertheless, sales of substantial
amounts of Common Stock in the public market after the restrictions lapse could
adversely affect the prevailing market price. Limited partners of the
Partnership may be entitled under certain circumstances to exchange Partnership
units for substantial numbers of shares of Common Stock, which shares may
eligible for immediate resale in the public market. See "The Partnership
Agreement -- Redemption of Partnership Units."
Upon completion of this offering, the Company will have 17,271,770
outstanding shares of Common Stock (19,761,770 shares of Common Stock if the
Underwriters' over allotment option is exercised in full). The shares of Common
Stock being sold hereby will be freely tradeable by persons other than
"affiliates" of the Company (as such term is defined in the rules promulgated
under the Securities Act) without restriction or registration under the
Securities Act, subject to the limitations on ownership set forth in the
Company's Articles of Incorporation and Bylaws. See "Description of Capital
Stock of the Company -- Restrictions on Ownership and Transfer of Shares." All
remaining outstanding shares were issued and sold by the Company in private
transactions ("Restricted Shares") and are eligible for public sale if
registered under the Securities Act or sold in accordance with Rule 144
thereunder (as described below).
The Company, its officers and directors, and the Partnership have agreed,
subject to certain exceptions, that, for a period of one year from the
completion of this offering (the "Lockup Period"), they will not, without the
prior written consent of Salomon Smith Barney Inc., offer, sell, contract to
sell, or otherwise dispose of any shares of Common Stock or any Partnership
units or any securities convertible into, or exercisable or exchangeable for,
Common Stock or Partnership units.
On and after the first anniversary of the completion of this offering, the
Partnership will be obligated to exchange each Partnership unit at the request
of the holder thereof for, at the Company's option, either one share of Common
Stock (subject to antidilution adjustments) or cash equal to the fair market
value of one share of Common Stock at the time of such exchange (as determined
in accordance with the provisions of the Partnership Agreement).
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of Restricted Shares from the Company
or any "affiliate" of the Company, as that term is defined under the Securities
Act, the acquiror or subsequent holder thereof is entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the then outstanding Common Stock or the average weekly trading volume of the
Common Stock during the four calendar weeks immediately preceding the date on
which notice of the sale is filed with the Commission. Sales under Rule 144 also
are subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company.
If two years have elapsed since the date of acquisition of Restricted
Shares from the Company or from any "affiliate" of the Company, and the acquiror
or subsequent holder thereof is deemed not to have been an affiliate of the
Company at any time during the three months immediately preceding a sale, such
person is entitled to sell such shares in the public market under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information requirements or notice requirements.
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REGISTRATION RIGHTS
The Company intends to issue options to purchase approximately 1,115,000
shares of Common Stock to executive officers, directors and employees upon
completion of this offering, and has reserved additional shares for future
issuance under the 1999 Incentive Plan. The Company intends to file one or more
registration statements under the Securities Act to register the shares of
Common Stock reserved for issuance pursuant to the 1999 Incentive Plan. Each
such registration statement will become effective immediately upon filing.
Commencing one year after this offering, the Company will also be obligated to
file one or more registration statements under the Securities Act to register
the shares of Common Stock issuable upon redemption of Partnership units for
shares of Common Stock. See "Management -- 1999 Incentive Plan" and "The
Partnership Agreement -- Redemption of Partnership Units."
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THE PARTNERSHIP AGREEMENT
The following summary of the Partnership Agreement describes the material
provisions of that agreement as it will be in effect immediately after the
Formation Transactions. This summary and the descriptions of certain provisions
of the Partnership Agreement set forth elsewhere in this prospectus are
qualified in their entirety by reference to the Partnership Agreement, which is
filed as an exhibit to the Registration Statement of which this prospectus forms
a part.
MANAGEMENT
The Partnership was formed in April 1998 under the Delaware Limited
Partnership Act. STOC, a wholly owned subsidiary of the Company, is the sole
general partner of the Partnership. The Company is a limited partner of the
Partnership, and upon consummation of this offering will hold approximately
76.7% of the limited Partnership units. The Company will conduct all of its
business, including the acquisition and operation of timberlands and its
investment and financing activities, through the Partnership.
Pursuant to the Partnership Agreement, STOC, as the sole general partner of
the Partnership, generally will have full and exclusive responsibility and
discretion in the management, operation and control of the Partnership. These
powers include the ability to cause the Partnership to enter into certain major
transactions, such as cutting contracts, acquisitions and dispositions of
timberland. No limited partner may take part in the operation, management or
control of the business of the Partnership by virtue of being a holder of
Partnership units.
NO REMOVAL OF THE GENERAL PARTNER; TRANSFER OF THE GENERAL PARTNER'S AND THE
COMPANY'S INTERESTS
Under the Partnership Agreement, the limited partners, other than the
Company, cannot remove STOC as the general partner of the Partnership. The
Company and STOC may not transfer (including in connection with mergers and
other business combinations involving the Company) any of their Partnership
units except in accordance with their respective Articles of Incorporation. In
addition, so long as persons other than the Company or STOC hold at least 10% or
more of the outstanding Partnership units, the Company and STOC may not transfer
any of their Partnership units without the consent of a majority of the
Partnership units (not including any Partnership units owned or controlled by
the Company or its affiliates), except as otherwise provided in the Partnership
Agreement.
AMENDMENTS TO THE PARTNERSHIP AGREEMENT
Generally, the Partnership Agreement may be amended with the approval of
STOC, as general partner. Certain amendments that would, among other things,
convert a limited partner's interest into a general partner's interest, modify
the limited liability of a limited partner, alter the interest of any partner in
profits or losses or the right to receive distributions other than as a result
of dilution to account for additional capital contributions being made by a new
or existing partner, or alter or modify the redemption right described below,
must be approved by each partner that would be adversely affected by such
amendment.
TRANSFER OF PARTNERSHIP UNITS; SUBSTITUTE LIMITED PARTNERS
The Partnership Agreement provides that the limited partners, other than
the Company, generally may transfer the economic interests in a Partnership unit
without the consent of any other person. However, a transferee (other than a
family member or a trust for the benefit of a family member) may not be
substituted as a limited partner except with the prior written consent of STOC
and provided that certain other conditions are met, including an agreement to be
bound by the terms and conditions of the Partnership Agreement. In addition,
limited partners may not transfer Partnership units in violation of certain
regulatory and other restrictions set forth in the Partnership Agreement.
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REDEMPTION OF PARTNERSHIP UNITS
On and after the first anniversary of the completion of this offering, at
the request of a holder of Partnership units, the Partnership will be obligated
to redeem each Partnership unit for cash equal to the fair market value of one
share of Common Stock at the time of such redemption (as determined in
accordance with the provisions of the Partnership Agreement). However, solely at
its option, the Company may assume the Partnership's obligation and elect to
acquire any such Partnership unit presented for redemption for either one share
of Common Stock (subject to antidilution adjustments) or an amount of cash of
the same value. With each acquisition of Partnership units, the Company's
percentage ownership interest in the Partnership will increase. The initial
limited partners, other than the Company, will have certain rights, pursuant to
a separate Registration Rights Agreement, to cause the Company to register under
the Securities Act the shares of Common Stock that may be issued to them in
exchange for their Partnership units or the resale of such shares by such
initial limited partners.
ISSUANCE OF ADDITIONAL LIMITED PARTNERSHIP INTERESTS; ADDITIONAL CAPITAL
CONTRIBUTIONS
Generally, STOC, as the sole general partner, is authorized, without the
consent of the limited partners, to cause the Partnership to issue additional
Partnership units to the Company, to the limited partners or to other persons
for such consideration and on such terms and conditions as STOC deems
appropriate. However, for so long as the limited partnership interests (not
including any Partnership units owned or controlled by the Company or its
affiliates) represent at least 15% of the outstanding units, a majority of the
limited partnership units (not including any units owned or controlled by the
Company or its affiliates) must consent to the issuance of any partnership
interests having rights superior to those of the then-existing limited
partnership units.
In order for additional Partnership units to be issued to the Company by
the Partnership, (i) the Company must issue additional shares of Common Stock
and contribute to the Partnership the entire net proceeds received by the
Company from such issuance, or (ii) the Partnership must issue additional
Partnership units to all partners in proportion to their respective interests in
the Partnership. In addition, STOC, as the general partner, may cause the
Partnership to issue to the Company additional partnership units in different
series or classes, which may be senior to the Partnership units, in conjunction
with an offering of securities of the Company having substantially similar
rights, if the net proceeds of such offering are contributed to the Partnership.
Consideration for additional Partnership units may be cash or other timber
assets. No limited partner has preemptive, preferential or similar rights with
respect to additional capital contributions to the Partnership or the issuance
or sale of any partnership units therein.
Other than as described above with respect to the Company, no limited
partner is required to make any additional capital contributions to the
Partnership.
OTHER COVENANTS
The Partnership Agreement provides that the Partnership may not effect any
transaction that would (i) adversely affect the ability of the REIT to qualify
as a real estate investment trust under the Code, (ii) subject the REIT to
federal income taxes (other than for capital gains that it has elected to retain
or (iii) violate any law or regulation applicable to the REIT or the
Partnership.
EXCULPATION AND INDEMNIFICATION OF THE GENERAL PARTNER
The Partnership Agreement generally provides that neither STOC, as general
partner of the Partnership, nor the Company will have liability for monetary
damages to the Partnership or any limited partner for losses sustained or
liabilities incurred as a result of any act or omission taken or permitted by
STOC in connection with the Partnership's business that is determined by STOC,
in good faith, to be in, or not against, the Partnership's best interest, unless
such act or omission constitutes intentional misconduct, or a knowing violation
of law or the Partnership Agreement. In addition, STOC and the Company are not
liable for any misconduct or negligence on the part of their agents, provided
that such agents were appointed by STOC in good faith. By executing the
Partnership Agreement, the limited
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partners have agreed that, in fulfilling the fiduciary duties owed by STOC to
the limited partners, STOC is not required to consider the separate interests of
the limited partners (including tax consequences to the limited partners),
unless the Partnership Agreement specifies otherwise.
The Partnership Agreement provides for indemnification of the Company,
STOC, and the directors and officers of the Company, as well as any other
persons STOC, as general partner, may designate. The Partnership shall indemnify
any of these indemnitees against any losses, claims, damages, liabilities,
judgments, fines, settlements and expenses arising from the operations of the
Partnership so long as the indemnitee acted in good faith and in a manner it
reasonably believed to be in, or not opposed to, the best interest of the
Partnership, and in the case of any criminal proceeding, the indemnitee had no
reasonable cause to believe that its conduct was unlawful. This indemnification
is limited to the assets of the Partnership and no partner in the Partnership
shall be personally liable for such indemnification. The Partnership may
reimburse reasonable expenses incurred by any such indemnitee in defense of an
action relating to the operations of the Partnership, if the Partnership
receives certain written affirmations and undertakings from the indemnitee. The
Partnership may purchase and maintain insurance on behalf of such indemnitees
against liabilities incurred by them in connection with the Partnership's
activities, regardless of whether the Partnership would have the power to
indemnify the indemnitee for the same liability under the Partnership Agreement.
TAX MATTERS
STOC will be the tax matters partner of the Partnership and, as such, will
generally have the authority to make tax elections under the Code on behalf of
the Partnership. See "Federal Income Tax Consequences -- Tax Aspects of the
Company's Ownership of Interests in the Partnership."
TERM
The Partnership will continue in full force and effect until December 31,
2199 or until sooner dissolved pursuant to the terms of the Partnership
Agreement.
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FEDERAL INCOME TAX CONSEQUENCES
This section is a summary of the federal income tax consequences that may
be relevant to prospective shareholders of the Company. To the extent set forth
below, this section expresses the opinion of Sutherland Asbill & Brennan LLP
insofar as it relates to matters of law and legal conclusions.
This section is based on current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), existing, temporary, and currently proposed
Treasury Regulations thereunder, the legislative history of the Code, existing
administrative interpretations and practices of the Internal Revenue Service
(the "Service"), and judicial decisions, all of which are subject to change
either prospectively or retroactively. Subsequent changes in these authorities
may adversely affect the tax consequences described below.
The discussion below does not address all federal income tax matters
affecting the Company or its shareholders. It does not address the tax
consequences that may be relevant to particular shareholders that are subject to
special treatment under the federal income tax laws, such as dealers in
securities, banks, insurance companies, tax-exempt organizations (except to the
extent discussed under the heading "Taxation of Tax-Exempt Shareholders of the
Company") or non-United States persons (except to the extent discussed under the
heading "Taxation of Non-U.S. Shareholders of the Company"). The discussion also
does not address any consequences arising under the laws of any state, locality,
or foreign jurisdiction (except to the extent discussed under the heading "Other
Taxes").
Prospective purchasers of shares of Common Stock should consult their own
tax advisors regarding the specific tax consequences to them of the ownership
and disposition of shares of Common Stock in light of their specific tax and
investment situations, the specific federal, state, local, and foreign tax laws
applicable to them, and the potential changes in applicable tax laws.
LEGAL OPINIONS
Sutherland Asbill & Brennan LLP has acted as counsel to the Company in
connection with this offering and the Company's election to be taxed as a REIT.
Unless otherwise noted, all statements as to matters of federal income tax law
and legal conclusions contained in this section reflect the opinion of
Sutherland Asbill & Brennan LLP. However, none of the statements herein
concerning any consequences arising under the laws of any state, locality or
foreign jurisdiction constitutes an opinion of counsel. Investors should be
aware that an opinion of counsel represents only that counsel's best legal
judgment and does not bind the Service or any court. Thus, the Service could
challenge the statements and opinions in this section, and a court could reject
the statements or opinions if so challenged.
Based on the accuracy of representations made by the Company, STOC and the
Partnership, and subject to the qualifications set forth in the more detailed
discussion that follows, Sutherland Asbill & Brennan LLP is of the opinion that,
commencing with the Company's taxable year ending December 31, 1998, the Company
will be organized in conformity with the requirements for qualification as a
REIT, and the Company's proposed method of operation will enable it to meet the
requirements for qualification and taxation as a REIT.
Sutherland Asbill & Brennan LLP's opinion is based on various assumptions
and is conditioned upon certain representations by the Company, STOC and the
Partnership, as to factual matters, including representations regarding their
organization, business, properties, operations, and future conduct of their
businesses. Furthermore, qualification and taxation as a REIT depend upon the
Company's ability to meet on an ongoing basis (through actual annual operating
results, distribution levels, and diversity of share ownership) the various
qualification tests discussed below. Sutherland Asbill & Brennan LLP will not
review these results on a continuing basis and cannot provide any assurance that
the actual results of the Company's operations for any particular taxable year
will satisfy the qualification tests.
The Company has requested a private letter ruling from the Service relating
to certain matters discussed in this section. The Company has requested the
Service to rule that timberlands and the timber thereon constitute real estate
assets within the meaning of the asset tests for REIT qualification described
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in section 856(c)(4) of the Code. See "-- Taxation of the Company -- Asset
Tests." The Company has also requested the Service to rule that income the
Company receives from Timber Cutting Agreements satisfying the requirements of
section 631(b) of the Code will qualify as gain from the sale or other
disposition of real property which is not property held primarily for sale to
customers in the ordinary course of business within the meaning of the gross
income tests for REIT qualification described in section 856(c)(2) and (3) of
the Code. See "-- Taxation of the Company -- Income Tests." Finally, the Company
has requested the Service to rule that such income would not be considered
income derived from a prohibited transaction as described in section 857(b)(6)
of the Code.
At present, the Service has not responded in writing to the ruling request.
As discussed below, Sutherland Asbill & Brennan LLP is of the opinion that the
requested rulings represent the correct interpretation of the law. If the
Service does not respond formally to the pending ruling request by the time this
prospectus is to be circulated in preliminary form, the Company may withdraw its
ruling request and rely solely on the opinion of Sutherland Asbill & Brennan
LLP. As noted, an opinion of counsel represents only that counsel's best legal
judgment and does not bind the Service or any court. The Service could challenge
the statements and opinions in this section, and a court could reject the
statements or opinions if so challenged.
TAXATION OF THE COMPANY
GENERAL
The Company will elect to be taxed as a REIT under sections 856 through 860
of the Code, beginning with its taxable year ending December 31, 1998. The
Company believes that it will be organized and will operate in such a manner as
to qualify and remain qualified to be taxed as a REIT. No assurance can be
given, however, that the Company will operate in a manner so as to qualify, or
remain qualified, as a REIT.
As a REIT, the Company generally will not be subject to federal income
taxes on that portion of its ordinary income or capital gain that it currently
distributes to shareholders. The Code generally allows a REIT to deduct
dividends paid to its shareholders. This deduction for dividends paid
substantially eliminates the "double taxation" (of earnings at the corporation
and distributions to the shareholders) that generally results from investment in
a regular "C" corporation. However, the Company will be subject to federal
income tax as follows:
- The Company will be taxed at regular corporate rates on any undistributed
REIT taxable income, including undistributed net capital gains, although,
as explained below, shareholders of the Company may receive a credit on
their returns for their share of the tax paid by the Company with respect
to undistributed net capital gains (which can produce a tax refund to the
extent the credit exceeds the shareholder's liability for taxes).
- If the Company has (i) net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in
the ordinary course of the Company's trade or business or (ii) other
nonqualifying income from foreclosure property, the Company will be
subject to tax at the highest corporate rate on such income.
- If the Company has net income from prohibited transactions (which are, in
general, certain sales or other dispositions of property (other than
foreclosure property) held primarily for sale to customers in the
ordinary course of business), such income will be subject to a 100% tax.
- If the Company fails to satisfy the 75% gross income test or the 95%
gross income test (as discussed below), but has nonetheless maintained
its qualification as a REIT because certain other requirements have been
met, the Company will be subject to a 100% tax on an amount equal to (i)
the gross income attributable to the greater of the amount by which the
Company fails the 75% or 95% gross income test, multiplied by (ii) a
fraction intended to reflect the Company's profitability.
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- If the Company fails to distribute during each calendar year at least the
sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its
REIT capital gain net income for such year (other than capital gain
income the Company elects to retain and pay taxes on) and (iii) any
undistributed taxable income from prior periods (other than capital gains
from such years which the Company elected to retain and pay taxes on),
the Company will be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed.
- Under certain circumstances, the Company may be subject to the
"alternative minimum tax" on certain items of tax preference.
REQUIREMENTS FOR QUALIFICATION
To qualify as a REIT, the Company must elect to be so treated and must meet
the requirements discussed below relating to the Company's organization, sources
of income, nature of assets, and distributions.
Organizational Requirements
In order to qualify as a REIT, the Company must satisfy the following
organizational requirements:
(i) it must be a corporation, trust, or association that is managed by
one or more trustees or directors;
(ii) its beneficial ownership must be evidenced by transferable shares
or by transferable certificates of beneficial interest;
(iii) it must be taxable as a domestic corporation but for sections
856 through 859 of the Code;
(iv) it must not be a financial institution or an insurance company
subject to certain provisions of the Code;
(v) its beneficial ownership must be held by 100 or more persons; and
(vi) during the last half of each taxable year no more than 50% in
value of its outstanding stock may be owned directly or indirectly through
the application of certain attribution rules, by five or fewer individuals
(as defined in the Code to include certain entities).
The Company must meet requirements (i) through (iv) during the entire
taxable year. The Company must meet requirement (v) during at least 335 days of
a taxable year of twelve months, or during a proportionate part of a taxable
year of less than twelve months. Requirements (v) and (vi) will not apply until
the Company's taxable year ending December 31, 1999.
The Company has satisfied requirements (i) through (iv) above with respect
to its first taxable year, the taxable year ended December 31, 1998. With
respect to requirement (v), the Company has represented that 100 or more persons
have held the beneficial ownership of its stock since December 31, 1998. The
Company further believes that it will have issued in this offering sufficient
Common Stock with sufficient diversity of ownership to allow it to satisfy
requirement (vi) above (and continue to satisfy requirement (v) above) for its
taxable year ending December 31, 1999. In addition, the Company's Articles of
Incorporation provide restrictions intended to assist the Company in continuing
to satisfy the share ownership requirements described in (v) and (vi) above
regarding the transfer and ownership of Common Stock. Such ownership and
transfer restrictions are described in "Description of Capital Stock --
Restrictions on Ownership and Transfer of Shares." However, because of the
absence of authority on this issue, there is no assurance that the operation of
these Articles of Incorporation provisions will, as a matter of law, prevent a
concentration of ownership of stock in excess of the ownership limits described
in requirements (v) and (vi) above. If the Company fails to satisfy these
requirements, the Company's status as a REIT will terminate; however, if the
Company complies with the rules contained in the applicable Treasury Regulations
requiring the Company to attempt to ascertain the actual ownership of its
shares, and the Company does not know, and would not have known through the
exercise of reasonable diligence,
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whether it failed to meet the requirement set forth in condition (vi) above, the
Company will be treated as having met such requirement. See "-- Taxation of the
Company -- Failure of the Company to Qualify as a REIT." In rendering its
opinion that the Company is organized in a manner that permits the Company to
qualify as a REIT, Sutherland Asbill & Brennan LLP is relying on the
representations of the Company that the ownership of its stock (without regard
to the Excess Stock provisions of the Articles of Incorporation) satisfies the
stock ownership requirements set forth in requirement (vi) above.
There are a few additional organizational requirements that the Company
must satisfy in order to be treated as a REIT. Its taxable year must be the
calendar year. The Company cannot have at the end of any taxable year any
undistributed "earnings and profits" that are attributable to a "C corporation"
taxable year. And, the Company must maintain certain records and request on an
annual basis certain information from its shareholders designed to disclose the
actual ownership of its outstanding stock. A REIT's failure to comply with such
record-keeping requirements would result in a monetary fine imposed on such
REIT, unless it is shown that such failure was due to reasonable cause and not
to willful neglect. The Company intends to comply with all of these
requirements.
Income Tests
In order to maintain qualification as a REIT, the Company annually must
satisfy two gross income requirements. First, at least 75% of the Company's
gross income (excluding gross income from "prohibited transactions") for each
taxable year must be derived directly or indirectly from investments relating to
real property or mortgages on real property (including "rents from real
property" and "gain from the sale or other disposition of real property" other
than property held primarily for sale to customers in the ordinary course of
business) or from certain types of temporary investments. Second, at least 95%
of the Company's gross income (excluding gross income from "prohibited
transactions") for each taxable year must be derived from such real property
investments, dividends, interest and gain from the sale or disposition of stock
or securities (or from any combination of these items).
In applying the gross income tests and the asset tests to a REIT that is a
partner in a partnership, Treasury Regulations provide that the REIT will be
deemed to own its proportionate share of the assets of the partnership and will
be deemed to be entitled to the income of the partnership attributable to such
share. In addition, the character of the assets and gross income of the
partnership is the same in the hands of the REIT for purposes of section 856 of
the Code, including satisfying the gross income tests and the asset tests. Thus,
the Company's proportionate share of the assets and items of income of the
Partnership will be treated as assets and items of income of the Company for
purposes of applying the requirements described herein. For this reason,
references in this summary to the income and assets of the Company include the
Company's proportionate share of the income and assets of the Partnership. A
summary of the rules governing the federal income taxation of partnerships and
their partners is provided below in "-- Tax Aspects of the Company's Ownership
of Interests in the Partnership."
The Company owns 100% of the outstanding stock of STOC, a qualified REIT
subsidiary (a "QRS"). A corporation will qualify as a QRS if 100% of its stock
is held by the Company. A QRS is not treated as a separate corporation for
federal income tax purposes, and all assets, liabilities, and items of income,
deduction, and credit of a QRS are treated as assets, liabilities, and such
items (as the case may be) of the Company for all purposes of the Code,
including the REIT qualification tests. For this reason, references in this
summary to the income and assets of the Company include the income and assets of
STOC and any other QRS. A QRS is not subject to federal income tax and the
Company's ownership of the voting stock of a QRS does not violate the
restrictions against ownership of securities of any one issuer that constitute
more than 10% of such issuer's voting securities or more than 5% of the value of
the Company's total assets, as described below under "-- Taxation of the
Company -- Requirements for Qualification -- Asset Tests."
The Company plans to dispose of standing timber by granting purchasers
cutting rights to such timber by contracts ("Timber Cutting Agreements") that
satisfy the requirements of section 631(b) of the Code. Section 631(b) generally
treats a timber owner's gain or loss on a disposal of timber as though it were
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gain or loss on the sale of such timber if the owner has held the timber for
more than one year and disposes of it under a contract pursuant to which the
owner retains an economic interest in the timber. Advance payments received
under a section 631(b) contract are taxable in the year received, even though
the timber to be cut under the contract might be cut in a later year. If advance
payments are refunded by the Company subsequent to the filing of the tax return
for the year such advance payments were received, the Company will be required
to amend such tax return and may be required to issue revised statements (Forms
1099) to its shareholders, which may necessitate the filing of amended tax
returns by such shareholders.
Any gain the Company recognizes under its Timber Cutting Agreements that
satisfy the requirements of section 631(b) will be treated as gain from the sale
or other disposition of real property that is not property held primarily for
sale to customers in the ordinary course of business within the meaning of the
75% gross income test and the 95% gross income test. As noted above, the Company
has requested a private letter ruling from the Service that would confirm this
result.
If the Company receives income from Timber Cutting Agreements that does not
satisfy the requirements of section 631(b) of the Code solely because the timber
has not been held by the Company for more than one year, such income will
qualify as "rents from real property" within the meaning of the two gross income
tests, provided that each such Timber Cutting Agreement meets the requirements
set forth in the following paragraph.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely because it is based on a fixed percentage or percentages of
receipts or sales. Second, rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income tests if the REIT, or
an actual or constructive owner of 10% or more of the REIT, actually or
constructively owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, for rents received to qualify as
"rents from real property," the REIT generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an independent contractor who is adequately compensated and from
whom the REIT derives no revenue (subject to a 1% de minimis exception).
The Company anticipates that its only rental income of a material amount
from sources other than Timber Cutting Agreements will be from certain real
property leases, including hunting leases. In determining that the Company
satisfied the gross income tests for the period ending December 31, 1998,
Sutherland Asbill & Brennan LLP reviewed available lease documents, determined
which leases would produce qualifying "rents from real property" and which
leases would not, and relied on representations of the Company (i) that each
lease that produced qualifying rents that was not reviewed is substantially
identical in all material respects to the terms of a particular lease reviewed,
(ii) that no lessee was a Related Party Tenant and (iii) that specific amounts
of the Company's 1998 gross income were derived from specific sources. Based on
these representations, the Company satisfied the gross income tests for the
period ending December 31, 1998.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it will fail to qualify as a REIT for such year
unless it is entitled to relief under certain provisions of the Code. These
relief provisions will generally be available if the Company's failure to meet
the gross income tests was due to reasonable cause and not due to willful
neglect, the Company attaches a schedule of the sources of its income to its
federal income tax return, and any incorrect information on the schedule was not
due to fraud with intent to evade tax. The Company has represented that it will
exercise ordinary business care and prudence in attempting to satisfy the gross
income tests and will attach a schedule of the sources of its income to its tax
return each year. It is not possible, however, to state whether in all
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circumstances the Company would be entitled to the benefit of the relief
provisions. Furthermore, as discussed above in "-- Taxation of the
Company -- General," even if the relief provisions apply, a 100% tax would be
imposed on an amount equal to (a) the gross income attributable to the greater
of the amount by which the Company failed the 75% or 95% test, multiplied by (b)
a fraction intended to reflect the Company's profitability.
Any net income realized by the Company from the sale or other disposition
of property held primarily for sale to customers in the ordinary course of a
trade or business (including the Company's share of any such gain realized by
the Partnership) will be treated as income from a "prohibited transaction" and
will be subject to a 100% penalty tax. Such prohibited transaction income may
also have an adverse effect upon the Company's ability to satisfy the income
tests for qualification as a REIT. Under existing law, whether property is held
primarily for sale to customers in the ordinary course of a trade or business is
a question of fact that depends on all the facts and circumstances with respect
to the particular transaction. Income derived from Timber Cutting Agreements
that satisfy the requirements of section 631(b) of the Code will be treated as
income realized by the Company from the disposition of property used in its
trade or business and not as income realized from the sale or other disposition
of property held primarily for sale to customers in the ordinary course of the
Company's trade or business.
The Partnership intends to hold its timberlands and other properties for
investment with a view to long-term appreciation, to engage in the business of
acquiring, developing, owning and operating its timberlands and other properties
and to make such occasional sales of timberlands (as opposed to dispositions of
standing timber) or other properties (including "higher and better use" parcels)
as are consistent with the Partnership's investment objectives. The Service
could contend that one or more of such sales is a prohibited transaction and
subject to the 100% penalty tax. Because the determination of whether property
is held primarily for sale to customers in the ordinary course of its trade of
business depends on all the facts and circumstances surrounding such property's
sale, it is not possible for Sutherland Asbill & Brennan LLP to opine whether
any such future sale might be a prohibited transaction.
Given the opinions set forth above concerning the tax treatment of income
from Timber Cutting Agreements, the Company has represented that it will satisfy
the gross income tests in 1999 and subsequent years.
Asset Tests
The Company, at the close of each quarter of its taxable year, must satisfy
three tests relating to the nature of its assets. First, at least 75% of the
value of the Company's total assets must be represented by real estate assets
including (i) its allocable share of real estate assets held by partnerships in
which the Company owns an interest (including its allocable share of the assets
held directly or indirectly through the Partnership) and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of the Company,
cash, cash items and government securities. Second, not more than 25% of the
Company's total assets may be represented by securities other than those in the
75% asset class. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by the Company may not exceed 5% of
the value of the Company's total assets, and the Company may not own more than
10% of any one issuer's outstanding voting securities (except for its interests
in the Partnership, STOC, any other interests in any QRS, and any entity that is
disregarded as a separate entity under Treasury Regulations dealing with entity
classification).
Timberlands and the timber thereon constitute real estate assets within the
meaning of the asset tests. The ruling request pending before the Service
requests confirmation of this conclusion. Based on counsel's opinion, the
Company met the 75% asset test during 1998 and anticipates that it will always
meet this test.
If the Company should fail to satisfy the asset tests at the end of a
calendar quarter, it would lose its REIT status unless (i) it satisfied all of
the asset tests at the close of the preceding calendar quarter and (ii) the
discrepancy between the value of the Company's assets and the asset requirements
either did not
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exist immediately after the acquisition of any particular asset or was not
wholly or partly caused by such an acquisition. If the condition described in
clause (ii) of the preceding sentence were not satisfied, the Company could
still avoid disqualification by eliminating any discrepancy within 30 days after
the close of the quarter in which it arose.
Distribution Requirements
In order to qualify as a REIT, the Company must distribute dividends (other
than capital gain dividends) to its shareholders in an amount at least equal to
(i) the sum of (a) 95% of the Company's "REIT taxable income" (computed without
regard to the dividends paid deduction and by excluding the Company's net
capital gain) and (b) 95% of the net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of non-cash income.
The Company generally must pay these dividends in the taxable year to which they
relate. However, the Company may pay a dividend in the following taxable year if
it declares the dividend before timely filing its tax return for the taxable
year to which the dividend relates and it pays the dividend on or before the
first regular dividend payment date after the declaration. The Company intends
to make timely distributions sufficient to satisfy these distribution
requirements.
In the event that the Company distributes (or is treated as having
distributed) at least 95%, but less than 100%, of its "REIT taxable income," as
adjusted, it will be subject to tax on the income not distributed at ordinary
corporate tax rates. The Company will also be subject to tax at capital gain
rates on any of its net capital gain that it does not distribute (or is not
treated as having distributed). If the Company fails to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain income for such year (other than capital
gain income which the Company elects to retain and pay tax on as provided below)
and (iii) any undistributed taxable income from prior periods (other than
capital gains from such years which the Company elected to retain and pay tax
on), the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed.
The Code allows the Company to elect to retain rather than distribute all
or part of its net capital gains. The effect of such an election is that (i) the
Company is required to pay the tax on such gains at regular corporate tax rates;
(ii) its shareholders, while required to include their proportionate share of
the undistributed net capital gain in income, will receive a credit or refund as
the case may be for their share of the tax paid by the Company; and (iii) the
basis of a shareholder's stock would be increased by the amount of the
undistributed net capital gains included in income by such shareholder minus the
amount of capital gains tax paid by the Company. In order for a shareholder to
receive the credit or the refund, however, the shareholder must file the
necessary forms with the Service.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the distribution requirements due to timing
or other differences between (i) the actual receipt of income and actual payment
of deductible expenses, (ii) the inclusion of such income and deduction of such
expenses in arriving at taxable income of the Company, or (iii) the Company's
percentage interest in the Partnership's cash flow and the Company's share of
taxable income arising upon a disposition of property contributed to the
Partnership where the fair market value of such property exceeds its tax basis.
If such differences occur, the Company may, in order to meet the distribution
requirements, find it necessary to arrange for borrowings, equity issuances or
asset sales, or to pay dividends in the form of taxable stock dividends (if it
is practicable to do so), or to elect to retain and pay taxes on a portion of
its net long-term capital gains.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to shareholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends; however,
the Company will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends. It is,
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however, the Company's intention to meet all distribution requirements for the
year in which such requirements arise; hence, the Company does not anticipate
paying deficiency dividends.
FAILURE OF THE COMPANY TO QUALIFY AS A REIT
If the Company fails to qualify for taxation as a REIT in any taxable year
and if the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which the
Company failed to qualify as a REIT would not be deductible by the Company. This
would significantly reduce the cash available for the Company to distribute to
its shareholders. In addition, if the Company failed to qualify as a REIT, all
distributions to shareholders would be taxable as ordinary income, to the extent
of the Company's current and accumulated earnings and profits. In such an event,
subject to certain limitations of the Code, corporate shareholders might be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, the Company also would be disqualified from
taxation as a REIT for the four taxable years following the year during which
such qualification was lost. It is not possible to state whether in all
circumstances the Company would be entitled to such statutory relief.
TAXATION OF TAXABLE U.S. SHAREHOLDERS OF THE COMPANY
As used herein, the term "U.S. Shareholder" means a holder of Common Stock
who (for United States federal income tax purposes) is (i) an individual who is
a citizen or resident of the United States; (ii) an entity that is a corporation
or partnership for United States federal income tax purposes and that is created
or organized in the United States or under the laws of the United States or any
political subdivision thereof (although certain partnerships so created or
organized may be treated, under regulations not yet published, as not a United
States person); (iii) any estate whose income is includible in gross income for
United States federal income tax purposes regardless of its source; or (iv) a
Domestic Trust. A "Domestic Trust" is any trust with respect to which a court
within the United States is able to exercise primary supervision over the
administration of such trust, and as to which one or more United States
fiduciaries have the authority to control all substantial decisions of such
trust (although certain trusts classified for United States federal income tax
purposes as a United States person prior to August 20, 1996 may, under
regulations not yet published, elect to retain their classification as a
Domestic Trust).
DISTRIBUTIONS BY THE COMPANY
So long as the Company qualifies as a REIT, distributions the Company makes
out of its current or accumulated earnings and profits (and not designated as
capital gain dividends) will constitute dividends taxable to its taxable U.S.
Shareholders as ordinary income. U.S. Shareholders that are corporations will
not be eligible for the dividends received deduction with respect to such
dividends. Distributions the Company properly designates as capital gain
dividends will be taxable to taxable U.S. Shareholders as long-term capital
gains (to the extent that they do not exceed the Company's actual net capital
gain for the taxable year) without regard to the period for which a U.S.
Shareholder has held his Common Stock.
U.S. Shareholders that are corporations may, however, be required to treat
up to 20% of certain capital gain dividends as ordinary income pursuant to
section 291(d) of the Code. Individuals are generally subject to differing rates
of tax on various transactions giving rise to long-term capital gains or losses.
In general, the long-term capital gain rate applicable to individuals is 20%.
If the Company elects to retain capital gains rather than distribute them,
a U.S. Shareholder will be deemed to receive a capital gain dividend equal to
the amount of such retained capital gains. In such a case, shareholders of the
Company may receive a credit on their returns for their share of the tax paid by
the Company. This may produce a tax refund to the extent the credit exceeds the
shareholder's liability for taxes. In order for the shareholder to receive the
credit or the refund, however, the shareholder must file the necessary forms
with the Service.
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To the extent that the Company makes distributions in excess of its current
and accumulated earnings and profits, such distributions will be treated first
as a tax-free return of capital to each U.S. Shareholder, reducing the adjusted
basis which such U.S. Shareholder has in its Common Stock for tax purposes by
the amount of such distribution (but not below zero), with distributions in
excess of a U.S. Shareholder's adjusted basis in its Common Stock taxable as
capital gains (provided that the Common Stock has been held as a capital asset).
The Company will be treated as having sufficient earnings and profits to treat
as a dividend any distribution by the Company up to the amount required to be
distributed in order to avoid imposition of the 4% excise tax discussed under
"-- Taxation of the Company -- General" and "--Taxation of the
Company -- Requirements for Qualification -- Distribution Requirements." As a
result, shareholders may be required to treat as taxable dividends certain
distributions that would otherwise result in tax-free returns of capital.
Moreover, any "deficiency dividend" will be treated as a "dividend" (an ordinary
dividend or a capital gain dividend, as the case may be), regardless of the
Company's earnings and profits. Dividends declared by the Company in October,
November, or December of any year and payable to a shareholder of record on a
specified date in any such month shall be treated as both paid by the Company
and received by the shareholder on December 31 of such year, provided that the
dividend is actually paid by the Company on or before January 31 of the
following calendar year. Shareholders may not include in their own income tax
returns any net operating losses or capital losses of the Company. The Company
will notify each shareholder after the close of the Company's taxable year as to
the portions of the distributions attributable to that year which constitute
ordinary income, capital gain or a return of capital.
Distributions made by the Company and gain arising from the sale or
exchange by a U.S. Shareholder of Common Stock will not be treated as passive
activity income, and, as a result, U.S. Shareholders generally will not be able
to apply any "passive losses" against such income or gain. Dividends from the
Company (to the extent they do not constitute a capital gain dividend or a
return of capital) will generally be treated as investment income for purposes
of the investment interest limitation. Net capital gain from the sale or other
disposition of shares of Common Stock and capital gain dividends will generally
not be considered investment income for purposes of the investment interest
limitation.
SALE OF COMMON STOCK
Upon any sale or other taxable disposition of Common Stock, a U.S.
Shareholder will recognize gain or loss for federal income tax purposes in an
amount equal to the difference between (i) the amount of cash and the fair
market value of any property received on such sale or other disposition and (ii)
the holder's adjusted basis in such Common Stock for tax purposes. Such gain or
loss will be capital gain or loss if the Common Stock has been held by the U.S.
Shareholder as a capital asset and will be long-term gain or loss if such Common
Stock has been held for more than one year. In general, any loss recognized by a
U.S. Shareholder upon the sale or other taxable disposition of Common Stock that
has been held for six months or less (after applying certain holding period
rules) will be treated as a long-term capital loss to the extent of
distributions received by such U.S. Shareholder from the Company which were
required to be treated as long-term capital gains.
WITHHOLDING ON COMPANY DISTRIBUTIONS
The Company will report to its U.S. Shareholders and the Service the amount
of dividends paid during each calendar year and the amount of any tax withheld.
Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless such holder
(a) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact, or (b) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup withholding rules.
A U.S. Shareholder that does not provide the Company with his correct taxpayer
identification number may also be subject to penalties imposed by the Service.
Any amount paid as backup withholding will be creditable against the
shareholder's federal income tax liability. In addition, the Company may be
required to withhold a portion of capital gain distributions to any shareholders
who fail
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to certify their non-foreign status to the Company. See "-- Taxation of Non-U.S.
Shareholders of the Company."
TAXATION OF TAX-EXEMPT SHAREHOLDERS OF THE COMPANY
Dividends that a tax-exempt shareholder (other than certain tax-exempt
shareholders described below) receives from the Company will not be unrelated
business taxable income ("UBTI") unless the tax-exempt shareholder has held its
Common Stock as "debt financed property" within the meaning of the Code or has
otherwise used such Common Stock in an unrelated trade or business. Similarly, a
tax-exempt shareholder's income from the sale of Common Stock will not
constitute UBTI unless such tax-exempt shareholder has held such Common Stock as
"debt financed property" within the meaning of the Code or has used the Common
Stock in an unrelated trade or business.
For tax-exempt shareholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Code
sections 501(c)(7), (9), (17) and (20), respectively, income from an investment
in the Company will constitute UBTI unless the organization is able properly to
deduct amounts set aside or placed in reserve for certain purposes so as to
offset the income generated by its investment in the Company. Such prospective
shareholders should consult their own tax advisors concerning these set aside
and reserve requirements.
In addition, in certain circumstances a pension trust that owns more than
10% of the Company's stock may be required to treat a percentage of the
dividends received from the Company as UBTI (the "UBTI Percentage"). The UBTI
Percentage is the gross income derived by the Company from an unrelated trade or
business (determined as if the Company were a pension trust) divided by the
gross income of the Company for the year in which the dividends are paid. The
UBTI Percentage rule will apply to a pension trust holding more than 10% of the
Company's stock only if (i) the UBTI Percentage is at least 5%, (ii) the Company
qualifies as a REIT by reason of the modification of the 5/50 Rule (requirement
(vi) discussed above under the heading "Taxation of the
Company -- Organizational Requirements") that allows the beneficiaries of the
pension trust to be treated as holding shares of the Company in proportion to
their actuarial interests in the pension trust and (iii) either (A) one pension
trust owns more than 25% of the value of the Company's stock or (B) a group of
pension trusts individually holding more than 10% of the value of the Company's
stock collectively owns more than 50% of the value of the Company's stock. Based
on the anticipated ownership of the shares of Common Stock immediately after
this offering, and as a result of certain limitations on transfer and ownership
of Common Stock contained in the Articles of Incorporation, the Company does not
expect the UBTI Percentage rule to apply to any tax-exempt shareholders of the
Company. In addition, the Company intends to conduct its business in such a way
that it would not be treated as deriving gross income from an unrelated trade or
business, even if such rule were to apply.
TAXATION OF NON-U.S. SHAREHOLDERS OF THE COMPANY
The rules governing United States federal income taxation of the ownership
and disposition of common stock by persons that are, for purposes of such
taxation, not U.S. Shareholders ("Non-U.S. Shareholders") are complex, and no
attempt is made herein to provide more than a brief summary of such rules.
Accordingly, the discussion does not address all aspects of United States
federal income tax and does not address state, local or foreign tax consequences
that may be relevant to a Non-U.S. Shareholder in light of its particular
circumstances.
DISTRIBUTIONS BY THE COMPANY
Under the Foreign Investment in Real Property Tax Act ("FIRPTA"),
distributions to a Non-U.S. Shareholder that are attributable to gain from sales
or exchanges by the Company of United States real property interests will cause
the Non-U.S. Shareholder to be treated as recognizing such gain as income
effectively connected with a United States trade or business. Non-U.S.
Shareholders would thus
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generally be taxed at the same rates applicable to domestic shareholders
(subject to a special alternative minimum tax in the case of nonresident alien
individuals). Also, such gain may be subject to a 30% branch profits tax in the
hands of a Non-U.S. Shareholder that is a corporation. Unless a tax treaty
between the United States and the country of residence of the Non-U.S.
Shareholder reduces the withholding rate for REIT dividends, the Company is
generally required to withhold 35% of any capital gain distribution. That amount
is creditable against the Non-U.S. Shareholder's United States federal income
tax liability. It should be noted that the 35% withholding tax rate on capital
gain dividends is higher than the maximum rate (which may be 20% or 25%
depending upon the facts and circumstances) on long-term capital gains of
individuals. It should also be emphasized that the Company believes that the
income it will receive under the Timber Cutting Agreements will be characterized
for federal income tax purposes as gain from the sale or other disposition of
U.S. real property interests.
Distributions by the Company to a Non-U.S. Shareholder that are neither
attributable to gain from sales or exchanges by the Company of United States
real property interests nor designated by the Company as capital gains dividends
will be treated as ordinary income to the extent that they are made out of
current or accumulated earnings and profits of the Company. Such distributions
will be subject to U.S. withholding tax on a gross basis (that is, without
allowance of deductions) at a 30% rate, unless the withholding tax rate is
reduced under an applicable income tax treaty between the United States and the
country of tax residence of the Non-U.S. Shareholder.
For dividends paid prior to January 1, 2000, the Company may rely on a
shareholder's address in determining whether the dividend is subject to
withholding on the basis of being paid to a Non-U.S. person. If a Non-U.S.
Shareholder is relying on a tax treaty to claim a lower withholding rate, the
Company will ask such shareholder to provide an appropriately executed Form 1001
to document the claim of treaty benefits.
Recently finalized United States Treasury Regulations applicable to
dividends paid after December 31, 1999 (the "Final Regulations") provide for
certain presumptions upon which the Company may generally rely to determine
whether, in the absence of certain documentation, a shareholder should be
treated as a Non-U.S. Shareholder for purposes of the withholding tax on
non-capital gain dividends. The presumptions would not apply for purposes of
granting a reduced rate of withholding under a treaty to a Non-U.S. Shareholder.
Under the Final Regulations, to obtain a reduced rate of withholding under a
treaty, a Non-U.S. Shareholder will be required to either (i) provide a Form W-8
certifying such Non-U.S. Shareholder's entitlement to benefits under a treaty
together with, in certain circumstances, additional information, or (ii) satisfy
certain other applicable treaty certification requirements. The Final
Regulations also provide special rules to determine whether, for purposes of
determining the applicability of a tax treaty, dividends paid to a Non-U.S.
Shareholder that is an entity should be treated as paid to the entity or to
those persons or entities holding an interest in such entity.
In addition, under recently enacted legislation, a Non-U.S. Shareholder
will not be entitled to claim the benefit of any reduced rate of withholding tax
under any income tax treaty between the United States and a foreign country on
an item of income derived through an entity which is treated as a partnership or
is otherwise fiscally transparent if: (i) such item is not treated for purposes
of the tax laws of such foreign country as an item of income of such Non-U.S.
Shareholder; (ii) the treaty does not contain a provision addressing the
applicability of the treaty in the case of an item of income derived through a
partnership, and (iii) the foreign country does not impose tax on a distribution
of such item of income from such entity to such holder.
The 30% withholding tax applicable to non-capital gain dividends will not
apply if the dividends are treated as effectively connected with the conduct by
the Non-U.S. Shareholder of a United States trade or business (or,
alternatively, where an income tax treaty applies, if the dividend is
effectively connected with a permanent establishment maintained within the
United States by the Non-U.S. Shareholder) and such Non-U.S. Shareholder files
appropriate certifications with the Company. Such dividends will be subject to
tax on a net basis (that is, after allowance of deductions) at graduated rates,
in the same manner as U.S.
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Shareholders are taxed with respect to such dividends. In general, a foreign
shareholder will not be considered engaged in a U.S. trade or business solely as
a result of its ownership of Common Stock.
Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Shareholder to the extent that
they do not exceed the adjusted basis of the shareholder's Common Stock, but
rather will reduce the adjusted basis of such Common Stock. To the extent that
such distributions exceed the adjusted basis of a Non-U.S. Shareholder's Common
Stock, they will give rise to gain from the sale or exchange of its Common
Stock, the tax treatment of which is described below.
SALE OF COMMON STOCK
Gain recognized by a Non-U.S. Shareholder upon the sale or exchange of
Common Stock generally will not be subject to United States taxation unless such
shares constitute a "United States real property interest" within the meaning of
FIRPTA. The Common Stock will not constitute a "United States real property
interest" so long as the Company is a "domestically controlled REIT." A
"domestically controlled REIT" is a REIT in which, at all times during a
specified testing period, less than 50% in value of its stock is held directly
or indirectly by Non-U.S. Shareholders. The Company believes that after this
Offering it will be a "domestically controlled REIT," and therefore that the
sale of Common Stock will not be subject to taxation under FIRPTA. However,
because the Common Stock is expected to become publicly traded, no assurance can
be given that the Company will continue to be a "domestically controlled REIT."
Notwithstanding the foregoing, gain from the sale or exchange of Common Stock
not otherwise subject to FIRPTA will be taxable to a Non-U.S. Shareholder if (i)
the Non-U.S. Shareholder is a nonresident alien individual who is present in the
United States for 183 days or more during the taxable year and has a "tax home"
in the United States, in which case the nonresident alien individual will be
subject to a 30% United States withholding tax on the amount of such
individual's gain, or (ii) the Non-U.S. Shareholder's investment in Common Stock
is effectively connected with its U.S. trade or business, in which case the
Non-U.S. Shareholder will be subject to the same treatment as U.S. Shareholders
with respect to such gain.
If the Company does not qualify as or ceases to be a "domestically
controlled REIT," whether gain arising from the sale or exchange by a Non-U.S.
Shareholder of Common Stock would be subject to United States taxation under
FIRPTA as a sale of a "United States real property interest" will depend on
whether the Common Stock is "regularly traded" (as defined by applicable
Treasury Regulations) on an established securities market (e.g., the New York
Stock Exchange) and on the size of the selling Non-U.S. Shareholder's interest
in the Company. In general, if (as expected) the Common Stock is "regularly
traded" on an established securities market during the quarter in which the
Common Stock were sold and the selling Non-U.S. Shareholder holds, directly or
indirectly, 5% or less of the Common Stock of the Company during the five-year
period ending on the date of disposition, then such sale will not be subject to
United States taxation under FIRPTA. The applicable Treasury Regulations may be
interpreted to provide that a security is not "regularly traded" for these
purposes if during the applicable calendar quarter 100 or fewer persons
(treating related parties as one person) in the aggregate own 50% or more of
such security or the quarterly trading volume is less than 7.5% of the average
number of the issued and outstanding shares of such security (2.5% if there are
2,500 or more shareholders of record). If gain on the sale or exchange of Common
Stock were subject to taxation under FIRPTA, the Non-U.S. Shareholder would be
subject to regular United States income tax with respect to such gain in the
same manner as a U.S. Shareholder (subject to any applicable alternative minimum
tax, a special alternative minimum tax in the case of nonresident alien
individuals and the possible application of the 30% branch profits tax in the
case of foreign corporations), and the purchaser of the Common Stock would be
required to withhold and remit to the Service 10% of the purchase price.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The Company must report annually to the Service and to each Non-U.S.
Shareholder the amount of dividends paid to, and the tax withheld with respect
to, such shareholder, regardless of whether any tax
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was actually withheld. That information may also be made available to the tax
authorities of the country in which a Non-U.S. Shareholder resides.
Backup withholding tax (which generally is imposed at the rate of 31% on
certain payments to persons that fail to furnish certain information under the
United States information reporting requirements) will generally not apply: (i)
if distributions are paid on or prior to December 31, 1999 to a Non-U.S.
Shareholders at an address outside the United States (provided that the payor
does not have actual knowledge that the payee is a United States person), (ii)
if such distributions are subject to the 30% (or lower treaty rate) withholding
tax discussed above, (iii) if the distribution is a capital gains distribution,
or (iv) if the distribution is attributable to gain from the sale or exchange by
the Company of United States real property interests. For distributions paid
after December 31, 1999, the Final Regulations provide certain presumptions and
other rules under which Non-U.S. Shareholders may be subject to backup
withholding and related information reporting in the absence of required
certifications. As a general matter, backup withholding and information
reporting will not apply to a payment of the proceeds of a sale of Common Stock
by or through a foreign office of a foreign broker. However, information
reporting (but not backup withholding) will apply to a payment of the proceeds
of a sale of Common Stock by a foreign office of a broker that (a) is a United
States person, (b) derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States, (c) is a
"controlled foreign corporation" (generally, a foreign corporation controlled by
United States shareholders) for United States tax purposes, or (d) effective
after December 31, 1999, certain brokers that are foreign partnerships with U.S.
partners or that are engaged in a U.S. trade or business, unless in each such
case the broker has documentary evidence in its records that the holder is a
Non-U.S. Shareholder and certain other conditions are met, or the shareholder
otherwise establishes an exemption. Payment to or through a United States office
of a broker of the proceeds of a sale of Common Stock is subject to both backup
withholding and information reporting unless the shareholder certifies under
penalty of perjury that the shareholder is a Non-U.S. Shareholder, or otherwise
establishes an exemption.
The backup withholding tax is not an additional tax and may be credited
against a Non-U.S. Shareholder's United States federal income tax liability or
refunded to the extent excess amounts are withheld, provided that the required
information is supplied to the Service.
TAX ASPECTS OF THE COMPANY'S OWNERSHIP OF INTERESTS IN THE PARTNERSHIP
GENERAL
All of the Company's assets will be held through the Partnership. In
general, partnerships are "pass-through" entities which are not subject to
federal income tax. Rather, partners are allocated their proportionate shares of
the items of income, gain, loss, deduction and credit of a partnership, and are
potentially subject to tax thereon, without regard to whether the partners
receive a distribution from the partnership. The Company will include in its
income its proportionate share of the foregoing partnership items for purposes
of the various REIT income tests and in the computation of its REIT taxable
income. Moreover, for purposes of the REIT asset tests, the Company will include
its proportionate share of assets held through the Partnership.
The Company's interest in the Partnership may involve special tax
considerations. Such considerations include (i) the allocation of items of
income and expense, which could affect the computation of taxable income of the
Company, (ii) the status of the Partnership as a partnership (as opposed to an
association taxable as a corporation) for federal income tax purposes, and (iii)
the taking of actions by the Partnership which could adversely affect the
Company's qualification as a REIT.
ENTITY CLASSIFICATION
An organization formed as a partnership will be treated as a partnership,
rather than as a corporation, for federal income tax purposes if (i) it is not
expressly classified as a corporation under section 301.7701-2(b)(1) through (8)
of the Treasury Regulations; (ii) it does not elect to be classified as an
association
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taxable as a corporation; and (iii) it is not treated as a corporation by virtue
of being classified as a "publicly traded partnership."
Under section 7704 of the Code, a partnership is treated as a corporation
for federal income tax purposes if it is a "publicly traded partnership" (except
in situations in which 90% or more of the partnership's gross income is
"qualifying income" within the meaning of section 7704(c)(2) of the Code).
"Qualifying income" includes interest, dividends, real property rents, gains
from the disposition of real property (whether or not held for sale to customers
in the ordinary course of a trade or business), and certain income or gains from
the exploitation of natural resources, including timber.
Based on certain factual representations made by the Company, STOC, and the
Partnership, the Partnership will be treated as a partnership (and not as an
association taxable as a corporation) for federal income tax purposes.
If for any reason the Partnership were taxable as a corporation, rather
than as a partnership, for federal income tax purposes, the Company would not be
able to satisfy the income and asset requirements for REIT status. See
"-- Taxation of the Company -- Requirements for Qualification -- Income Tests"
and "-- Requirements for Qualification -- Asset Tests." In addition, any change
in the Partnership's status for tax purposes might be treated as a taxable
event, in which case the Company might incur a tax liability without any related
cash distribution. See "-- Taxation of the Company -- Distribution
Requirements." Further, items of income and deduction of the Partnership would
not pass through to its partners, and its partners would be treated as
shareholders for tax purposes. Consequently, the Partnership would be required
to pay income tax at corporate tax rates on its net income, and distributions to
its partners would constitute dividends that would not be deductible in
computing the Partnership's taxable income.
PARTNERSHIP ALLOCATIONS
Although a partnership agreement will generally determine the allocation of
income and loss among partners, such allocations will be disregarded for tax
purposes if they do not comply with the provisions of section 704(b) of the Code
and the Treasury Regulations promulgated thereunder. Generally, section 704(b)
and the Treasury Regulations promulgated thereunder require that partnership
allocations respect the economic arrangement of the partners.
If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The allocation of taxable income and
loss contained in the Partnership Agreement complies with the requirements of
section 704(b) of the Code and the Treasury Regulations promulgated thereunder.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES
Pursuant to section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated or depreciated property which has been contributed
to a partnership in exchange for an interest in the partnership must be
allocated in a manner such that the contributing partner is charged with, or
benefits from, respectively, the unrealized gain or unrealized loss associated
with the property at the time of the contribution. The amount of such unrealized
gain or unrealized loss is generally equal to the difference between the fair
market value of contributed property at the time of contribution and the
adjusted tax basis of such property at such time (a "Book-Tax Difference").
Section 704(c) allocations are solely for federal income tax purposes and do not
affect the partners' capital accounts or other economic or legal arrangements
among the partners.
All of the current timber assets of the Partnership have a Book-Tax
Difference. When those assets are disposed of (including as a result of timber
dispositions pursuant to a Timber Cutting Agreement), the Book-Tax Difference
will be accounted for by income allocations to the respective contributing
partners.
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These income allocations will eliminate the Book-Tax Difference over the life of
the Partnership. Treasury Regulations under section 704(c) of the Code provide
partnerships with a choice of several methods of accounting for Book-Tax
Differences. The Partnership and the Company have determined to use the
"remedial method" for accounting for Book-Tax Differences with respect to the
properties owned by the Partnership at the time of this offering.
BASIS IN PARTNERSHIP INTEREST
The Company's adjusted tax basis in its interest in the Partnership
generally (i) will be equal to the amount of cash and the basis of any other
property contributed to the Partnership by the Company, (ii) will be increased
by (a) its allocable share of the Partnership's income and (b) its allocable
share of indebtedness of the Partnership and (iii) will be reduced, but not
below zero, by the Company's allocable share of (a) losses suffered by the
Partnership, (b) the amount of cash distributed to the Company and (c) by
constructive distributions resulting from a reduction in the Company's share of
indebtedness of the Partnership.
If the allocation of the Company's distributive share of the Partnership's
losses exceeds the adjusted tax basis of the Company's partnership interest in
the Partnership, the recognition of such excess loss will be deferred until such
time and to the extent that the Company has adjusted tax basis in its interest
in the Partnership. To the extent that the Partnership's distributions, or any
decrease in the Company's share of the indebtedness of the Partnership (such
decreases being considered a cash distribution to the partners), exceeds the
Company's adjusted tax basis, such excess distributions (including such
constructive distributions) constitute taxable income to the Company. Such
taxable income will normally be characterized as capital gain, and if the
Company's interest in the Partnership has been held for longer than the
long-term capital gain holding period (currently one year), the distributions
and constructive distributions will constitute long-term capital gain.
OTHER TAXES
The Company, any of its subsidiaries, the Partnership or the Company's
shareholders may be subject to foreign, state and local tax in various
countries, states and localities, including those countries, states and
localities in which it or they transact business, own property, or reside. The
state, local or foreign tax treatment of the Company, the Partnership, and the
Company shareholders in such jurisdictions may differ from the federal income
tax treatment described above.
Qualification as a REIT under the laws of the individual states will
depend, among other things, on such states' conformity with federal tax law. For
example, one change made by the Taxpayer Relief Act of 1997 (which eliminated
percentage limitations on the amount of income a REIT can have from the
disposition of assets held for less than four years) is critical to the federal
income tax treatment described in this prospectus. If a state's tax laws do not
conform to this change, the Company's status as a REIT under that state's tax
laws would be doubtful.
Louisiana and Oregon conform to this change and otherwise generally follow
the federal tax treatment of REITs. New Hampshire does not conform to the
federal tax treatment of REITs. Accordingly, the New Hampshire Business Profits
Tax will apply to the Company. The Business Profits Tax is a 7% tax on net
business profits (with no deduction for dividends distributed to shareholders).
The Business Profits Tax is subject to apportionment based on a three-factor
formula, so the Company will not be required to pay the tax on the full amount
of its income, but rather only on that portion that is attributed to New
Hampshire through application of the apportionment formula.
The Company will be subject to a Business and Occupation tax in Washington,
which is a tax on gross receipts. However, receipts from the sale of standing
timber are exempt from this Washington tax.
Some states in which the Company is not engaged in business do not conform
to the federal tax treatment of REITs. Since the Company does not do business in
those states, it would generally not be subject to taxation by such state.
However, cash distributions out of the Company's earnings and profits to
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<PAGE> 124
shareholders in those states would likely be characterized as ordinary income
rather than capital gains for purposes of computing their state tax liability.
This difference will generally be relevant only in those states where capital
gains are taxed at preferential rates or if a shareholder has a net capital loss
carryforward available for state tax purposes.
The state tax treatment of net capital gains retained by the Company will
depend on the state tax laws of the states in which both the Company and its
shareholders are subject to tax. It is possible, therefore, that the Company may
pay some state income taxes with respect to its undistributed net capital gains
that produce no usable state tax credit for its shareholders. For example,
although California otherwise generally conforms to the federal treatment of
REITs, it has not adopted the provisions dealing with the treatment of retained
capital gains. As a result, the Company will pay California taxes on its
retained capital gains, but shareholders will not receive a credit for the taxes
paid by the Company against their California tax liability, if any.
Prospective investors should consult their own tax advisors regarding the
effect of foreign, state and local tax laws upon an investment in the Common
Stock.
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ERISA CONSIDERATIONS
GENERAL
The following is a summary of material considerations arising under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
prohibited transaction provisions of section 4975 of the Code that may be
relevant to a prospective purchaser of Common Stock (including, with respect to
the discussion contained in " -- Status of the Company and the Partnership under
ERISA," to a prospective purchaser that is not an employee benefit plan, another
tax-qualified retirement plan, or an individual retirement account ("IRA")). The
discussion does not purport to deal with all aspects of ERISA or section 4975 of
the Code that may be relevant to particular shareholders (including plans
subject to Title I of ERISA, other retirement plans and IRAs subject to the
prohibited transaction provisions of section 4975 of the Code, and governmental
plans or church plans that are exempt from ERISA and section 4975 of the Code
but that may be subject to state law requirements) in light of their particular
circumstances.
The discussion is based on current provisions of ERISA and the Code,
existing and currently proposed regulations under ERISA and the Code, the
legislative history of ERISA and the Code, existing administrative rulings of
the Department of Labor ("DOL") and reported judicial decisions. No assurance
can be given that legislative, judicial, or administrative changes will not
affect the accuracy of any statements herein with respect to transactions
entered into or contemplated prior to the effective date of such changes.
A FIDUCIARY MAKING A DECISION TO INVEST IN THE COMMON STOCK ON BEHALF OF A
PROSPECTIVE PURCHASER THAT IS AN EMPLOYEE BENEFIT PLAN, A TAX-QUALIFIED
RETIREMENT PLAN, OR AN IRA IS ADVISED TO CONSULT ITS OWN LEGAL ADVISOR REGARDING
THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975 OF THE CODE, AND
STATE LAW WITH RESPECT TO THE PURCHASE, OWNERSHIP OR SALE OF THE COMMON STOCK BY
SUCH PLAN OR IRA.
Each fiduciary of a pension, profit-sharing, or other employee benefit plan
(an "ERISA Plan") subject to Title I of ERISA should consider carefully whether
an investment in the Common Stock is consistent with his fiduciary
responsibilities under ERISA. In particular, the fiduciary requirements of Part
4 of Title I of ERISA require a ERISA Plan's investments to be (i) prudent and
in the best interests of the ERISA Plan, its participants, and its
beneficiaries, (ii) diversified in order to minimize the risk of large losses,
unless it is clearly prudent not to do so, and (iii) authorized under the terms
of the ERISA Plan's governing documents (provided the documents are consistent
with ERISA). In determining whether an investment in the Common Stock is prudent
for purposes of ERISA, the appropriate fiduciary of a ERISA Plan should consider
all of the facts and circumstances, including whether the investment is
reasonably designed, as a part of the ERISA Plan's portfolio for which the
fiduciary has investment responsibility, to meet the objectives of the ERISA
Plan, taking into consideration the risk of loss and opportunity for gain (or
other return) from the investment, the diversification, cash flow, and funding
requirements of the ERISA Plan's portfolio. A fiduciary also should take into
account the nature of the Company's business, the management of the Company, the
length of the Company's operating history, the fact that certain investment
properties may not have been identified yet, and the possibility of the
recognition of UBTI.
The fiduciary of an IRA or of a qualified retirement plan not subject to
Title I of ERISA because it is a governmental or church plan or because it does
not cover common law employees (a "Non-ERISA Plan") should consider that such an
IRA or Non-ERISA Plan may only make investments that are authorized by the
appropriate governing documents and under applicable state law.
Fiduciaries of ERISA Plans and persons making the investment decision for
an IRA or other Non-ERISA Plan should consider the application of the prohibited
transaction provisions of ERISA and the Code in making their investment
decision. A "party in interest" or "disqualified person" with respect to an
ERISA Plan or with respect to a Non-ERISA Plan or IRA subject to Code section
4975 is subject to (i) an initial 15% excise tax on the amount involved in any
prohibited transaction involving the assets of the plan or IRA and (ii) an
additional excise tax equal to 100% of the amount involved if any prohibited
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transaction is not corrected within the appropriate period. If the disqualified
person who engages in the transaction is the individual on behalf of whom an IRA
is maintained (or his beneficiary), the IRA will lose its tax-exempt status and
its assets will be deemed to have been distributed to such individual in a
taxable distribution (and no excise tax will be imposed) on account of the
prohibited transaction. In addition, a fiduciary who permits an ERISA Plan to
engage in a transaction that the fiduciary knows or should know is a prohibited
transaction may be liable to the ERISA Plan for any loss the ERISA Plan incurs
as a result of the transaction or for any profits earned by the fiduciary in the
transaction.
STATUS OF THE COMPANY AND THE PARTNERSHIP UNDER ERISA
The following section discusses certain principles that apply in
determining whether the fiduciary requirements of ERISA and the prohibited
transaction provisions of ERISA and the Code apply to an entity because one or
more investors in the equity interests in the entity is an ERISA Plan or is a
Non-ERISA Plan or IRA subject to section 4975 of the Code. An ERISA Plan
fiduciary also should consider the relevance of those principles to ERISA's
prohibition on improper delegation of control over or responsibility for "plan
assets" and ERISA's imposition of co-fiduciary liability on a fiduciary who
participates in, permits (by action or inaction) the occurrence of, or fails to
remedy a known breach by another fiduciary.
If the assets of the Company are deemed to be "plan assets" under ERISA,
(i) the prudence standards and other provisions of Part 4 of Title I of ERISA
would be applicable to any transactions involving the Company's assets, (ii)
persons who exercise any authority over the Company's assets, or who provide
investment advice to the Company, would (for purposes of the fiduciary
responsibility provisions of ERISA) be fiduciaries of each ERISA Plan that
acquires Common Stock, and transactions involving the Company's assets
undertaken at their direction or pursuant to their advice might violate their
fiduciary responsibilities under ERISA, especially with regard to conflicts of
interest, (iii) a fiduciary exercising his investment discretion over the assets
of an ERISA Plan to cause it to acquire or hold the Common Stock could be liable
under Part 4 of Title I of ERISA for transactions entered into by the Company
that do not conform to ERISA standards of prudence and fiduciary responsibility,
and (iv) certain transactions that the Company might enter into in the ordinary
course of its business and operations might constitute "prohibited transactions"
under ERISA and the Code.
Regulations of the DOL defining "plan assets" (the "Plan Asset
Regulations") generally provide that when an ERISA Plan or Non-ERISA Plan or IRA
acquires a security that is an equity interest in an entity and the security is
neither a "publicly-offered security" nor a security issued by an investment
company registered under the Investment Company Act of 1940, the ERISA or
Non-ERISA Plan's or IRA's assets include both the equity interest and an
undivided interest in each of the underlying assets of the issuer of such equity
interest, unless one or more exceptions specified in the Plan Asset Regulations
are satisfied.
The Plan Asset Regulations define a publicly-offered security as a security
that is "widely-held," "freely transferable," and either part of a class of
securities registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or sold pursuant to an effective registration statement under
the Securities Act (provided the securities are registered under the Exchange
Act within 120 days after the end of the fiscal year of the issuer during which
this offering occurred). The shares of Common Stock offered hereby are being
sold in an offering registered under the Securities Act and will be registered
under the Exchange Act. The Plan Asset Regulations provide that a security is
"widely held" only if it is part of a class of securities that is owned by 100
or more investors independent of the issuer and of one another. A security will
not fail to be widely held because the number of independent investors falls
below 100 subsequent to the initial public offering as a result of events beyond
the issuer's control. The Company anticipates that upon completion of this
offering, the Common Stock will be "widely held."
The Plan Asset Regulations provide that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The Plan Asset Regulations further provide
that when a security is part of an offering in which the minimum investment is
$10,000 or
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less (as is the case with this offering), certain restrictions ordinarily will
not, alone or in combination, affect a finding that such securities are freely
transferable. The restrictions on transfer enumerated in the Plan Asset
Regulations as not affecting that finding include: (i) any restriction on or
prohibition against any transfer or assignment that would result in the
termination or reclassification of an entity for federal or state tax purposes,
or that otherwise would violate any federal or state law or court order, (ii)
any requirement that advance notice of a transfer or assignment be given to the
issuer, (iii) any administrative procedure that establishes an effective date,
or an event (such as completion of an offering), prior to which a transfer or
assignment will not be effective, and (iv) any limitation or restriction on
transfer or assignment that is not imposed by the issuer or a person acting on
behalf of the issuer. The Company believes that the restrictions imposed under
the Articles of Incorporation on the transfer of the Company's shares of Common
Stock will not result in the failure of the Common Stock to be "freely
transferable." The Company also is not aware of any other facts or circumstances
limiting the transferability of the Common Stock that are not enumerated in the
Plan Asset Regulations as those not affecting free transferability, and the
Company does not intend to impose in the future (or to permit any person to
impose on its behalf) any limitations or restrictions on transfer that would not
be among the enumerated permissible limitations or restrictions. The Plan Asset
Regulations only establish a presumption in favor of a finding of free
transferability, and no assurance can be given that the DOL or the Treasury
Department will not reach a contrary conclusion.
Assuming that the Common Stock will be "widely held" and that no other
facts and circumstances other than those referred to in the preceding paragraph
exist that restrict transferability of the Common Stock, the Common Stock should
be publicly offered securities, and the assets of the Company should not be
deemed to be "plan assets" of any ERISA Plan, IRA, or Non-ERISA Plan that
invests in the Common Stock.
The Plan Asset Regulations also will apply in determining whether the
assets of the Partnership will be deemed to be "plan assets." The partnership
interests in the Partnership will not be publicly-offered securities.
Nevertheless, if the shares of Common Stock constitute publicly-offered
securities, the indirect investment in the Partnership by ERISA Plans, IRAs, or
Non-ERISA Plans subject to section 4975 of the Code through their ownership of
Common Stock will not cause the assets of the Partnership to be treated as "plan
assets" of such shareholders.
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UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and the Company has agreed to sell to such underwriter, the number of
shares set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ----------
<S> <C>
Salomon Smith Barney Inc....................................
----------
Total.................................................. 16,600,000
==========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares (other than those
covered by the underwriters' over-allotment option described below) if they
purchase any of the shares.
The underwriters, for whom Salomon Smith Barney Inc. is acting as
representative, propose to offer some of the shares directly to the public at
the public offering price set forth on the cover page of this prospectus and
some of the shares to certain dealers at the public offering price less a
concession not in excess of $ per share. The underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share on sales
to certain other dealers. After the initial offering of the shares to the
public, the public offering price and such concessions may be changed by the
representative. The representative has advised the Company that the underwriters
do not intend to confirm any sales to any accounts over which they exercise
discretionary authority.
The Company has granted to the underwriters an option, exercisable for 30
days from the date of this prospectus, to purchase up to 2,490,000 additional
shares of Common Stock at the public offering price less the underwriting
discount. The underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with this offering. To the
extent such option is exercised, each underwriter will be obligated, subject to
certain conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.
The Company will pay an advisory fee of 0.65% of the gross proceeds of this
offering (including any exercise of the Underwriters' over-allotment option) to
Salomon Smith Barney Inc. for advisory services in connection with the
evaluation, analysis and structuring of the Company's formation and this
offering.
The Company, its officers and directors, and the Partnership have agreed,
that subject to certain exceptions, for a period of one year from the date of
the consummation of this offering, they will not, without the prior written
consent of Salomon Smith Barney Inc., offer, sell, contract to sell, or
otherwise dispose of, any shares of Common Stock or any Partnership units or any
securities convertible into, or exercisable or exchangeable for, Common Stock or
Partnership units. The owners of units received in the Formation Transactions
have agreed not to offer, sell, contract to sell or otherwise dispose of units
for a period of one year after consummation of this offering, without the prior
written consent of Salomon Smith Barney Inc. However, Salomon Smith Barney Inc.,
in its sole discretion, may release any of the securities subject to these
lock-up agreements at any time without notice.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the shares will be
determined by negotiations between the Company and the representative. Among the
factors to be considered in determining the initial public offering price are
the Company's record of operations, its current financial condition, its future
prospects, its markets, the
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economic conditions in and future prospects for the industry in which the
Company competes, its management, and currently prevailing general conditions in
the equity securities markets, including current market valuations of publicly
traded companies considered comparable to the Company. However, the prices at
which the shares will sell in the public market after this offering may be lower
than the price at which they are sold by the underwriters. An active trading
market in the Common Stock may not develop or continue after this offer.
The Company has applied to have the Common Stock listed on the New York
Stock Exchange under the symbol "STG." In order to meet the requirements for
listing of the Common Stock on that exchange, the underwriters have undertaken
to sell lots of 100 or more shares to a minimum of 2,000 beneficial owners.
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by the Company in connection with this offering. These
amounts are shown assuming both no exercise and full exercise of the
over-allotment option.
<TABLE>
<CAPTION>
PAID BY THE COMPANY
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... $ $
Total....................................................... $ $
</TABLE>
In connection with this offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may over-allot, or engage in syndicate covering transactions,
stabilizing transactions and penalty bids. Over-allotment involves syndicate
sales of common stock in excess of the number of shares to be purchased by the
underwriters in this offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of common stock made for the purpose of preventing or retarding a
decline in the market price of the common stock while this offering is in
progress. Penalty bids permit the underwriters to reclaim a selling concession
from a syndicate member when Salomon Smith Barney Inc., in covering syndicate
short positions or making stabilizing purchases, repurchases shares originally
sold by that syndicate member. These activities may cause the price of the
common stock to be higher than the price that otherwise would exist in the open
market in the absence of such transactions. These transactions may be effected
on the New York Stock Exchange or in the over-the-counter market, or otherwise
and, if commenced, may be discontinued at any time.
The Company estimates that the total expenses of this offering will be
$2,367,000.
The Company and the Partnership have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments the underwriters may be required to make in respect of
any of those liabilities.
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EXPERTS
The financial statements of (i) Pioneer Resources, LLC as of December 31,
1997 and 1996, and for each of the years in the three-year period ended December
31, 1997, (ii) Strategic Timber Trust, Inc. as of and for the period from
inception (April 21, 1998) to October 9, 1998, and (iii) Strategic Timber Trust
II, LLC, as of October 9, 1998, included in this prospectus and elsewhere in
this registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving such reports. Information included
herein relating to the Company's timber inventory, acreage and timber sales plan
with respect to the Pacific Northwest Properties, and the growth rate and
species of the Company's timber on such properties, as well as historical price
indices and current prices in the Company's markets, has been reviewed by Mason,
Bruce & Girard, Inc., an independent forest resource consulting firm, and is
included herein in reliance upon the authority of such firm as an expert in
timber inventory and appraisals. Information included herein relating to the
Company's timber inventory, acreage and timber sales plan with respect to the
Louisiana Property, and the growth rate and species of the Company's timber on
such property, as well as current prices in the Company's markets, has been
reviewed by Canal Forest Resources, Inc., an independent forest resource
consulting firm, and is included herein in reliance upon the authority of such
firm as an expert in timber inventory and appraisals.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Sutherland Asbill &
Brennan LLP, Atlanta, Georgia, and for the Underwriters by Andrews & Kurth
L.L.P., Houston, Texas. In connection with the Formation Transactions,
Sutherland Asbill & Brennan LLP received 98,268 shares of Common Stock and
Partnership units, which are now owned by certain partners of that firm.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-11 under the Securities Act with respect to the Common Stock offered hereby.
This prospectus constitutes a part of the Registration Statement and does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock, reference is hereby made to such Registration
Statement, exhibits and schedules. Statements contained in this prospectus
regarding the contents of any contract or other document are not complete; with
respect to each such contract or document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
Upon completion of this offering, the Company will be subject to the
information and reporting requirements of the Exchange Act, and, in accordance
therewith, will file reports, proxy statements and other information with the
Commission. A copy of the Registration Statement, including the exhibits and
schedules thereto, as well as such reports, proxy statements and other
information may be inspected at the Commission's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549, and copies of such material may be
obtained from such office upon payment of the fees prescribed by the Commission.
The public may obtain information on the operation of the Public Reference Room
by calling the Commission at 1-800-SEC-0330. Such documents may also be accessed
electronically at the Commission's home page on the Internet at
http://www.sec.gov.
In addition, the Company intends to apply to have the Common Stock listed
on the New York Stock Exchange under the trading symbol "STG." Once the Common
Stock has been listed on the NYSE, information concerning the Company can be
inspected and copied at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
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GLOSSARY OF SELECTED TIMBER INDUSTRY TERMS
As used in this prospectus, the following terms shall have the meanings set
forth below unless the context otherwise requires.
BOARD FOOT (BF) A standard unit of measure for lumber that is 12
inches square and one inch thick.
CONVERSION The process of sawing or otherwise processing logs
or transforming timber into any other type of wood
product.
CONVERSION FACILITY A sawmill, pulp mill or other facility at which
timber conversion occurs.
CUNIT A standard unit of measurement of volume equal to
one hundred cubic feet.
HARDWOODS Trees that generally have broad leaves and are
deciduous (losing leaves every year).
LOGS Segments of the main stem of a tree that are cut to
specific length and diameter specifications and are
utilized as raw materials for lumber, plywood and
pulp/paper manufacturers.
LUMBER Solidwood product which is manufactured from logs.
Lumber is produced in standard dimensions and used
for a variety of applications, including building
construction, furniture and shipping containers.
MBF One thousand board feet. A common unit of measure
for estimating timber volume as well as lumber.
MERCHANTABLE TIMBER Timber exceeding a minimum size and usable volume
that is suitable for sale in the market where the
timber is to be sold. Merchantable timber does not
include timber that cannot be cost-effectively
harvested.
PLANTATION A timber stand established either through sowing of
seeds or by planting seedlings.
PREMERCHANTABLE TIMBER Trees which have not yet reached a size where they
are marketable.
PULPWOOD Wood that is cut primarily to make wood pulp, which
may be manufactured into paper, fiber, paperboard,
and other paper products.
SAWTIMBER Trees containing logs of sufficient size and
quality to be suitable for conversion into lumber
or plywood.
SECOND-GROWTH REDWOODS Redwoods that have been replanted after the
original forest was harvested or regrown after
being destroyed by fire; these redwoods may be
harvested for commercial purposes.
SEEDLINGS Live trees less than one inch in diameter at ground
level.
SILVICULTURE The practice of cultivating forest crops based on
the knowledge of forestry; in particular,
controlling the establishment, composition and
growth of forests.
SOFTWOODS Conifers such as Douglas-fir, spruce, loblolly pine
and shortleaf pine.
SOLIDWOOD A term used to distinguish wood products that are
manufactured by sawing or cutting a log, such as
lumber or plywood, as opposed to wood products
produced from wood pulp, wood fiber or chips.
125
<PAGE> 132
THINNING Removal of selected trees, usually to eliminate
overcrowding, to remove dying or diseased trees and
to promote more rapid growth of desired trees.
"Pre-commercial thinning" refers to thinning that
does not produce merchantable timber.
TIMBER A standing tree or group of standing trees. Once
cut, a tree is no longer considered timber, but
becomes a log which can then be converted into wood
products.
TIMBERLANDS Forestland generally capable of producing more than
20 cubic feet of wood per acre per year.
WOOD FIBER Generally refers to pulpwood or chips used in the
manufacture of pulp and paper.
126
<PAGE> 133
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Strategic Timber Trust, Inc. Consolidated Financial
Statements:
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheet -- October 9, 1998............. F-3
Consolidated Statement of Operations -- For the Period
from Inception (April 21, 1998) through October 9,
1998................................................... F-4
Consolidated Statement of Changes in Shareholder's Equity
(Deficit) -- For the Period from Inception (April 21,
1998) through October 9, 1998.......................... F-5
Consolidated Statement of Cash Flows -- For the Period
from Inception (April 21, 1998) through October 9,
1998................................................... F-6
Notes to Consolidated Financial Statements................ F-7
Strategic Timber Trust II, LLC and Subsidiaries Consolidated
Balance Sheet:
Report of Independent Public Accountants.................. F-11
Consolidated Balance Sheet -- October 9, 1998............. F-12
Notes to Consolidated Financial Statement................. F-13
Pioneer Resources, LLC and Subsidiaries:
Report of Independent Public Accountants.................. F-18
Consolidated Balance Sheets -- December 31, 1996 and 1997
and September 30, 1998 (Unaudited)..................... F-19
Consolidated Statements of Operations -- Years Ended
December 31, 1995, 1996 and 1997 and the Nine Months
Ended September 30, 1997 (Unaudited) and 1998
(Unaudited)............................................ F-20
Consolidated Statements of Changes in Members'
Equity -- Years Ended December 31, 1995, 1996 and 1997
and the Nine Months Ended September 30, 1998
(Unaudited)............................................ F-21
Consolidated Statements of Cash Flows -- Years Ended
December 31, 1995, 1996 and 1997 and the Nine Months
Ended September 30, 1997 (Unaudited) and 1998
(Unaudited)............................................ F-22
Notes to Consolidated Financial Statements................ F-23
</TABLE>
F-1
<PAGE> 134
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Strategic Timber Trust, Inc.:
We have audited the accompanying consolidated balance sheet of Strategic
Timber Trust, Inc. (a Georgia corporation) and subsidiaries as of October 9,
1998, and the related consolidated statements of operations, shareholders'
equity (deficit) and cash flows for the period from inception (April 21, 1998)
to October 9, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Strategic Timber Trust, Inc.
and subsidiaries as of October 9, 1998, and the results of their operations and
their cash flows for the period from inception (April 21, 1998) to October 9,
1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
December 22, 1998
F-2
<PAGE> 135
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)
CONSOLIDATED BALANCE SHEET
OCTOBER 9, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,376,761
Trade accounts receivable................................. 41,222
Due from related party.................................... 300,000
------------
Total current assets.............................. 1,717,983
TIMBERLANDS................................................. 254,820,600
PROPERTY AND EQUIPMENT:
Machinery and equipment................................... 5,989
Leasehold improvements.................................... 1,400
------------
7,389
Less -- Accumulated depreciation.......................... (125)
------------
7,264
DEFERRED FINANCING COSTS.................................... 5,176,371
------------
Total assets...................................... $261,722,218
============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bridge loan............................................... $ 85,000,000
Revolving line of credit.................................. 136,787,034
Accounts payable.......................................... 87,970
Due to related party...................................... 760,000
Accrued expenses.......................................... 763,680
------------
Total current liabilities......................... 223,398,684
COMMITMENTS AND CONTINGENCIES...............................
----
MINORITY INTEREST........................................... 47,836,379
SHAREHOLDERS' DEFICIT:
Common stock ($.01 par value, 100,000 shares authorized,
18,360 shares issued and outstanding).................. 1,000
Accumulated deficit....................................... (9,513,845)
------------
(9,512,845)
------------
Total liabilities and shareholders' deficit....... $261,722,218
============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of this consolidated balance sheet.
F-3
<PAGE> 136
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (APRIL 21, 1998) THROUGH OCTOBER 9, 1998
<TABLE>
<S> <C>
REVENUES:
Timber sales.............................................. $ 111,107
Other..................................................... 41,192
------------
Total revenues.................................... 152,299
OPERATING EXPENSES:
Cost of timber sold....................................... 179,400
Amortization of deferred financing costs.................. 1,152,629
General and administrative expenses....................... 1,259,993
------------
Operating loss.................................... (2,439,723)
OTHER INCOME (EXPENSE):
Interest expense.......................................... (9,024,331)
Interest income........................................... 4,622
------------
Loss before minority interest..................... (11,459,432)
MINORITY INTEREST IN LOSS OF SUBSIDIARY PARTNERSHIP......... 1,945,587
------------
Net loss.......................................... $ (9,513,845)
============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated statement.
F-4
<PAGE> 137
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (APRIL 21, 1998) THROUGH OCTOBER 9, 1998
<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK DEFICIT TOTAL
------ ----------- -----------
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY, April 21, 1998..................... $ -- $ -- $ --
Initial contribution................................... 1,000 -- 1,000
Net loss............................................... -- (9,513,845) (9,513,845)
------ ----------- -----------
SHAREHOLDERS' DEFICIT, October 9, 1998................... $1,000 $(9,513,845) $(9,512,845)
====== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated statement.
F-5
<PAGE> 138
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (APRIL 21, 1998) THROUGH OCTOBER 9, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (9,513,845)
Adjustments to reconcile net loss to net cash used in
operating activities --
Amortization of deferred financing costs............... 1,152,629
Depletion, depreciation and amortization............... 179,525
Minority interest in net loss of subsidiary
partnership........................................... (1,945,587)
Non-cash compensation.................................. 1,000
Changes in assets and liabilities:
(Increase) in trade accounts receivable................ (41,222)
(Increase) in due from related party................... (300,000)
Increase in accounts payable and due to related
party................................................. 847,970
Increase in accrued expenses........................... 763,680
-------------
Net cash used in operating activities............. (8,855,850)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of timberlands.................................. (205,218,034)
Purchases of property and equipment....................... (7,389)
-------------
Net cash used in investing activities............. (205,225,423)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bridge loan................................. 85,000,000
Proceeds from revolving line of credit.................... 136,787,034
Deferred financing costs.................................. (6,329,000)
-------------
Net cash provided by financing activities......... 215,458,034
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 1,376,761
CASH AND CASH EQUIVALENTS, beginning of period.............. --
-------------
CASH AND CASH EQUIVALENTS, end of period.................... $ 1,376,761
=============
Cash paid for interest...................................... $ 8,414,790
=============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated statement.
F-6
<PAGE> 139
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 9, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND CONTROL --
Strategic Timber Trust, Inc. ("STT" or the "Company"), a Georgia
corporation, was established on April 21, 1998 for the purpose of acquiring,
owning and managing timberlands in the United States and abroad. The
consolidated financial statements of STT include the accounts of its wholly
owned subsidiary, Strategic Timber Operating Co. ("STOC"), a Delaware
corporation, and those of Strategic Timber Partners, LP (the "Partnership"), a
Delaware limited partnership in which STT has a limited partner interest. STOC
is the sole general partner of the Partnership. All significant intercompany
transactions have been eliminated.
On April 27, 1998, STT acquired 88,000 acres of timberland in southwest
Louisiana (the "Louisiana Property") for total consideration valued at $255
million. Louisiana Timber Partners, LLC, a Georgia limited liability company
("LTP"), contributed to the Partnership a contract to acquire the Louisiana
Property in exchange for 5,000 Partnership Units (representing an aggregate of
19.6% of the total Partnership Units then outstanding), which the parties valued
at $50 million. The Partnership purchased the Louisiana Property on April 27,
1998 for $205 million in cash. The Partnership funded the purchase price of the
Louisiana Property (i) by borrowing $125.8 million under a $215 million bank
revolving credit facility and (ii) through a $85 million cash contribution to
the Partnership by the Company. To fund its contribution to the Partnership, the
Company borrowed $85 million under a bank bridge loan (the "Bridge Loan"). The
Partnership issued 20,500 Partnership Units (including 255 Partnership Units
acquired by STOC), representing 80.4% of the total Partnership Units then
outstanding, to the Company in exchange for its contribution.
The Company plans to sell shares of its Common Stock in an initial public
offering (the "Offering") in early 1999. Shortly before the Offering, certain
timber operations under common ownership will be merged into the Partnership.
The Company expects to qualify as a real estate investment trust ("REIT") for
federal income tax purposes. As a REIT, the Company's distributed earnings will
not be subject to corporate taxation. The Company intends to pay regular
quarterly distributions to shareholders.
NATURE OF BUSINESS OPERATIONS --
The Company engages in the management of its timberlands, including
reforestation, timber thinning and the marketing of standing timber. STT
negotiates and contracts for the sale of its standing timber at fixed prices
with buyers who generally cut and pay for the trees during the contract period.
CONSOLIDATION --
The financial statements consolidate the accounts of STT and all entities
in which STT holds a majority interest. Minority ownership in the Company's
subsidiaries is reflected as minority interest expense in the accompanying
consolidated statement of operations and minority interest in the accompanying
consolidated balance sheet.
USE OF ESTIMATES --
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of certain estimates by
management in determining the reported amount of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-7
<PAGE> 140
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION --
Timber sales are recognized when legal ownership and the risk of loss
passes to the purchaser and the quantity sold is determinable. This generally
occurs when the purchaser severs and measures the timber.
Revenues are based on actual harvest volumes multiplied by contractually
agreed upon prices determined at arm's-length with purchasers.
CASH AND CASH EQUIVALENTS --
Cash and cash equivalents include cash and short term investments with
original maturities of three months or less.
TIMBERLANDS --
The acquisition cost of land and timber, site preparation and other costs
relating to the planting and growing of timber are capitalized. Such costs are
charged against revenue at the time the timber is harvested, based on the
relationship of harvested timber to the estimated volume of currently
merchantable timber. These estimates of currently merchantable timber are
subject to change based on periodic timber cruises. Timberlands are stated at
the lower of cost, net of depletion, or market value.
PROPERTY AND EQUIPMENT --
Property and equipment consists principally of leasehold improvements and
machinery and equipment. Depreciation is computed on a straight-line basis over
the lease term or the estimated useful lives of the assets, which range from
three to five years.
DEFERRED FINANCING COSTS --
Deferred financing costs consist of fees incurred to obtain the Company's
borrowings. These fees are being amortized over the terms of the related debt
agreements ranging from one to five years.
INCOME TAXES --
The Company intends to elect to be treated as a REIT under provisions of
the Internal Revenue Code. As a result, the Company will not be subject to
federal income taxes on distributed income. Only the shareholders will be taxed.
The Company's net operating loss at October 9, 1998 is approximately $9,514,000.
However, no benefit for income taxes has been provided on this loss since
inception as the benefit is not currently "more likely than not" to be realized
by the Company due to its limited operating history.
INTEREST RATE SWAPS --
Interest rate swaps involve the periodic exchange of payments without the
exchange of underlying principal or notional amounts. Gains and losses from
interest rate swaps are recognized as interest expense as incurred in the
accompanying consolidated statement of operations.
F-8
<PAGE> 141
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. DEBT:
The Company has the following debt instruments outstanding as of October 9,
1998:
<TABLE>
<S> <C>
Revolving credit line(a).............................. $136,787,034
Bridge Loan(b)........................................ 85,000,000
------------
$221,787,034
============
</TABLE>
(a) The Company has a senior revolving credit line (the "Old Partnership Credit
Facility") that provides a maximum borrowing of $215,000,000, subject to
formula. This credit facility is used to finance acquisitions of
timberlands and for general corporate purposes. The facility bears interest
at LIBOR plus an applicable margin rate, yielding a rate of 8.06% at
October 9, 1998. Interest is payable quarterly. The unused portion of this
credit facility is subject to a commitment fee of 50 basis points per annum
at October 9, 1998. This facility expires on April 25, 2003 and is secured
by all assets and properties of the Partnership, including timberlands.
(b) The Bridge Loan was used to finance the Company's initial acquisition of
timberlands and matures on October 27, 1999. However, it is expected that
this loan will be retired prior to maturity with the proceeds from the
Offering. The loan bears interest at LIBOR plus an applicable margin rate,
yielding a rate of 9.06% at October 9, 1998. Interest is payable quarterly.
The Bridge Loan is secured by all assets and property of the Company.
Both instruments described above have certain financial and non-financial
covenants, including restrictions on additional borrowings, the maintenance of
certain financial ratios and limitations on capital spending, investments,
distributions and asset sales.
All debt has been classified as current in the accompanying consolidated
balance sheet due to the inclusion of subjective acceleration clauses in the
debt agreements. The Company's intention is to repay all of the borrowings with
the proceeds from the Offering.
The fair value of the above financial instruments approximate their
carrying value at October 9, 1998.
3. INTEREST RATE SWAP:
In connection with the Old Partnership Credit Facility (see Note 2), the
Company has entered into a $100 million interest rate swap contract with the
primary lender to hedge a portion of the variable interest rate exposure on the
underlying debt instrument. Under the terms of the swap, the Company is required
to pay interest quarterly to the lender at a fixed rate of 5.99% and receive
interest quarterly at the three-month LIBOR rate (5.69% at October 9, 1998). At
October 9, 1998, the Company has recorded a payable of approximately $37,000
related to the accrued net interest payment owed to the lender, with the
offsetting charge applied to interest expense. The swap will mature on May 13,
2002.
The fair value of this swap is estimated as the amount receivable from, or
payable to, the lender to terminate the agreement as of October 9, 1998. At this
date, the fair value of this swap is a payable of approximately $3,096,000.
The counterparty to the Company's interest rate swap contract is a major
financial institution. The Company does not expect non-performance by this
institution but periodically monitors the credit quality of this organization.
The Company's credit risk on this derivative financial instrument is limited to
the unrealized gain on the contract in the event it has a positive fair value.
F-9
<PAGE> 142
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. COMMITMENTS AND CONTINGENCIES:
As of October 9, 1998, the Company does not have any material commitments
under non-cancelable operating leases.
The Company's operations and timberlands are subject to federal, state and
local laws and regulations, including those related to the environment,
endangered species and forestry activities. In addition, the Company's land may
become subject to laws and regulations designed to protect wetlands. All of
these regulations may cause the Company to incur significant costs, damages,
penalties and/or other liabilities, and may materially and adversely affect
harvesting operations on the Company's timberlands.
The Company is subject to certain claims and litigation, including
unasserted claims, in the normal course of business. While it is not possible to
predict with certainty the outcome of these matters, it is management's opinion
that the ultimate outcome will not have a material adverse effect on the
financial statements of the Company.
5. RELATED PARTY TRANSACTIONS:
The Company rents office space from a group of officers of the Company.
Rental payments under this lease arrangement are $5,000 per month and totaled
approximately $25,000 for the period from inception through October 9, 1998.
The Company has a receivable due from Strategic Timber Trust II, LLC
("STT2") whose members are substantially the same as those of the Company. This
receivable, totaling $300,000 as of October 9, 1998, relates to
financing-related expenses paid by the Company on behalf of STT2 and has been
subsequently repaid.
The Company also has a payable of $760,000 to Broom Resource Investments,
LLC, an entity whose members are executive officers of the Company. This payable
relates to certain expenses paid by this entity on behalf of the Company in
connection with the acquisition of the Louisiana Property.
6. EMPLOYEE BENEFIT PLANS:
The Company has established a 401(k) plan. All full time employees are
eligible to participate in the plan after completing 1000 hours of service. The
plan document provides that the Company may make contributions at the board's
discretion. No contributions were made for the period ended October 9, 1998.
7. NON-CASH INVESTING AND FINANCING ACTIVITIES:
The founding shareholders of the Company provided services valued at $1,000
in lieu of funding the required initial capital contribution to form the
Company.
In connection with the Company's acquisition of the Louisiana Property,
LTP, in lieu of cash consideration, received a 19.6% limited partner interest in
the Partnership valued at approximately $50 million.
8. MAJOR CUSTOMERS:
As the Company has recently commenced its timber sales plan on its newly
acquired timberlands, the Company has recognized limited revenues during this
reporting period. Accordingly, all of the Company's revenues during the
reporting period were derived from two customers and were limited to salvage
operations. The Company expects that sales to other customers will commence in
the near term as the Company continues to expand the operations of these
timberlands.
F-10
<PAGE> 143
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
Strategic Timber Trust II, LLC:
We have audited the accompanying consolidated balance sheet of Strategic
Timber Trust II, LLC (a Georgia limited liability company) and subsidiaries as
of October 9, 1998. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Strategic Timber Trust II, LLC and
subsidiaries as of October 9, 1998 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
December 22, 1998
F-11
<PAGE> 144
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)
CONSOLIDATED BALANCE SHEET
OCTOBER 9, 1998
<TABLE>
<S> <C>
ASSETS
CASH AND CASH EQUIVALENTS................................... $ 1,259,668
TIMBERLANDS................................................. 359,900,000
PROPERTY AND EQUIPMENT:
Vehicles.................................................. 123,167
Machinery and equipment................................... 50,000
------------
Total property and equipment...................... 173,167
DEFERRED FINANCING COSTS.................................... 7,529,632
------------
Total assets...................................... $368,862,467
============
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Short-term debt........................................... $ 35,000,000
Due to related party...................................... 300,000
Obligations under interest rate swaps and other accrued
expenses............................................... 3,562,467
------------
Total current liabilities......................... 38,862,467
LONG-TERM DEBT.............................................. 255,000,000
MINORITY INTEREST........................................... 75,000,000
MEMBERS' EQUITY:
Subscription receivable from members...................... (100)
Membership units (2,810 units authorized, issued and
outstanding)........................................... 100
------------
Total members' equity............................. --
------------
Total liabilities and members' equity............. $368,862,467
============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of this consolidated balance sheet.
F-12
<PAGE> 145
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
OCTOBER 9, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND CONTROL --
Strategic Timber Trust II, LLC ("STT2" or the "Company"), a Georgia limited
liability company, was established on October 9, 1998 for the purpose of
acquiring, owning and managing timberlands in the United States and abroad. The
consolidated financial statements of STT2 include the accounts of its wholly
owned subsidiary, Strategic Timber Two Operating Co., LLC ("STTOC"), a Georgia
limited liability company, and those of Strategic Timber Partners II, LP
("STP2"), a Georgia limited partnership in which STT2 has a limited partner
interest. STTOC is the sole general partner of STP2. The consolidated financial
statements of STT2 include the accounts of Pioneer Resources, LLC ("Pioneer"),
an Oregon limited liability company wholly-owned by STP2. All significant
intercompany transactions have been eliminated.
On October 9, 1998, STP2 acquired all of the membership interests in
Pioneer from its members (the "Former Pioneer Members"), in exchange for total
consideration of $35 million in cash and 59.091% interest in STP2. Pioneer holds
approximately 366,000 acres of timberland in the U.S. Pacific Northwest (the
"Pacific Northwest Properties"). STP2 funded the cash portion of the purchase
price for Pioneer (and related transaction costs) with (i) a cash contribution
of $35 million by STTOC in exchange for a 31.818% interest in STP2, and (ii) a
cash contribution of $10 million by Mach One Partners, LLC ("Mach One") in
exchange for a 9.091% interest in STP2. To fund its contribution to STP2, STT2
borrowed $35 million under a bank bridge loan (the "STT2 Bridge Loan"). In
connection with the acquisition, Pioneer refinanced its existing debt, leaving
$255 million outstanding under its credit facility (the "Pioneer Credit
Facility"). The membership interests retained by the Former Pioneer Members were
valued at $65 million at the date of acquisition.
The acquisition was accounted for using the purchase method. The purchase
price has been allocated to timberlands, property and equipment and certain
other assets and liabilities based on an independent third party valuation of
certain of the assets acquired. However, the accounting for this transaction is
preliminary and may be subject to certain purchase accounting adjustments as
additional information becomes available.
The members of STT2 also own and control Strategic Timber Trust, Inc.
("STT"), an affiliated entity which was organized in April 1998 to acquire, own
and manage timberlands in the United States and abroad. STT has a controlling
interest in Strategic Timber Partners, LP (the "Partnership"). STT plans to sell
shares of its Common Stock in an initial public offering (the "Offering") in
early 1999. Shortly before the Offering, STT2, STTOC and STP2 will be merged
with and into the Partnership, resulting in an organization in which Pioneer
will remain as a wholly owned subsidiary of the Partnership.
As STT expects to qualify as a real estate investment trust ("REIT") for
federal income tax purposes, STT's distributed earnings will not be subject to
corporate taxation. STT intends to pay regular quarterly distributions to
shareholders. Only the shareholders will be taxed.
NATURE OF BUSINESS OPERATIONS --
The Company engages in the management of its timberlands, including
reforestation, timber thinning and the marketing of standing timber from its
timberlands. STT2 negotiates and contracts for the sale of its standing timber
at fixed prices with buyers who generally cut and pay for the trees during the
contract period.
F-13
<PAGE> 146
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)
CONSOLIDATION --
The financial statements consolidate the accounts of STT2 and all entities
in which STT2 holds a majority or controlling interest. The Company consolidates
the results of STP2 (and its wholly owned subsidiary, Pioneer) as the management
and control of this entity is held by STTOC (STT2's wholly-owned subsidiary) as
general partner of STP2. Minority ownership in the Company's subsidiaries is
reflected as minority interest in the accompanying consolidated balance sheet.
USE OF ESTIMATES --
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of certain estimates by
management in determining the reported amount of assets and liabilities at the
date of the financial statements. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS --
Cash and cash equivalents include cash and short-term investments with
original maturities of three months or less.
TIMBERLANDS --
The acquisition cost of land and timber, site preparation and other costs
relating to the planting and growing of timber are capitalized. Such costs will
be charged against revenue at the time the timber is harvested, based on the
relationship of harvested timber to the estimated volume of currently
merchantable timber. These estimates of currently merchantable timber are
subject to change based on periodic timber cruises. Timberlands are stated at
the lower of cost, net of depletion, or market value.
PROPERTY AND EQUIPMENT --
Property and equipment consists principally of vehicles and machinery and
equipment. Depreciation will be computed on a straight-line basis over the
estimated useful lives of the assets, which range from three to five years.
DEFERRED FINANCING COSTS --
Deferred financing costs consist of fees incurred to obtain the Company's
borrowings. These fees will be amortized over the terms of the related debt
arguments ranging from one to five years.
2. DEBT:
The Company has the following debt instruments outstanding as of October 9,
1998:
<TABLE>
<S> <C>
Pioneer Credit Facility:
Revolving credit line(a)............................ $ 55,000,000
Term loan(b)........................................ 200,000,000
STT2 Bridge Loan(c)................................... 35,000,000
------------
$290,000,000
============
</TABLE>
(a) The Company has a revolving credit line that provides a maximum borrowing
of $70,000,000, subject to formula. The credit line is used to finance
acquisitions of timber and timberland and to provide for working capital
needs. A portion of the facility bears interest at LIBOR plus margin, 7.85%
at October 9, 1998, while the remaining portion bears interest at the base
rate plus margin, 9.25% at
F-14
<PAGE> 147
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)
October 9, 1998. Interest is payable quarterly. This facility expires on
September 30, 2003 and is secured by certain assets of the Company,
including timberlands. However, it is expected that this credit facility
will be retired prior to maturity with the proceeds from the Offering (see
Note 1).
(b) The term loan was used to finance the Company's initial acquisition of
timberlands and is payable in quarterly installments commencing on December
31, 1999, with the last installment being due on September 30, 2003.
However, it is expected that this loan will be retired prior to maturity
with the proceeds from the Offering (see Note 1). The loan bears interest
at adjusted LIBOR plus the applicable margin rate, as defined, yielding a
rate of 7.85% at October 9, 1998. Interest is payable quarterly. The term
loan is also secured by certain assets of the Company, including
timberlands.
(c) The STT2 Bridge Loan was also used to finance the Company's initial
acquisition of timberlands and matures on October 27, 1999, although early
payment is encouraged (see below). Similar to the Company's other debt
instruments, it is expected that this loan will be retired prior to
maturity with the proceeds from the Offering (see Note 1). The loan bears
interest at a fixed rate of 9.06%. Interest is payable quarterly. The STT2
Bridge Loan is also secured by certain assets of the Company, including
timberlands.
Under the STT2 Bridge Loan agreement, additional interest will be charged
on the principal balance if the loan is not repaid as of the following
dates:
<TABLE>
<S> <C>
Before January 1, 1999................................. No additional interest
Between January 1, 1999 and March 31, 1999............. 1.5%
Between April 1, 1999 and June 30, 1999................ 4.5%
Between July 1, 1999 and September 30, 1999............ 10.5%
After October 1, 1999.................................. 19.5%
</TABLE>
All instruments described above have certain financial and non-financial
covenants, including restrictions on additional borrowings, the maintenance of
certain financial ratios and limitations on capital spending, investments,
distributions and asset sales.
Contractual maturities of debt as of October 9, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------
<S> <C> <C>
1998................................................ $ --
1999................................................ 37,500,000
2000................................................ 13,750,000
2001................................................ 27,500,000
2002................................................ 36,250,000
Thereafter.......................................... 175,000,000
------------
$290,000,000
============
</TABLE>
The fair value of the above financial instruments approximate their
carrying value at October 9, 1998.
F-15
<PAGE> 148
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)
3. INTEREST RATE SWAPS:
In connection with the Company's debt instruments (see Note 2), the Company
has entered into a series of interest rate swap agreements to hedge a portion of
the variable interest rate exposure on the underlying debt instruments. The
following table outlines the key terms of each swap:
<TABLE>
<CAPTION>
NOTIONAL COMPANY COMPANY AT OCTOBER 9,
COUNTERPARTY AMOUNT PAYS RECEIVES 1998
- ------------ ------------ ------- ------------- -------------
<S> <C> <C> <C> <C>
First Union..................... $ 25,000,000 6.69% 3 month LIBOR 5.34%
NationsBank..................... 25,000,000 6.69% 3 month LIBOR 5.34%
ABN Amro........................ 50,000,000 5.77% 3 month LIBOR 5.34%
------------
$100,000,000
============
</TABLE>
Net interest payments are made quarterly on January 14, April 14, July 14
and October 14, (commencing on January 14, 1999) under the terms of each swap.
The maturity dates of the swaps are in 2003. At October 9, 1998, the Company has
recorded a payable of approximately $3,316,000 related to such swaps. Such
amount represents the fair value of swaps assumed or entered into in connection
with the acquisition of Pioneer (see Note 1) and, accordingly, such amounts are
reflected as a payable in the accompanying balance sheet as of October 9, 1998.
The fair value of these swaps is estimated as the amount receivable from,
or payable to, the lenders to terminate the agreements as of October 9, 1998.
The counterparties to the Company's interest rate swap contracts consist of
major financial institutions. The Company does not expect non-performance by any
of these counterparties but periodically monitors the credit quality of these
institutions. The Company's credit risk on these derivative financial
instruments is limited to the unrealized gain on those contracts with a positive
fair value.
4. COMMITMENTS AND CONTINGENCIES:
As of October 9, 1998, the Company does not have any material commitments
under non-cancelable operating leases.
The ownership units held by Mach One in the Partnership entitle Mach One to
a dividend of 40% per annum on its initial investment of $10,000,000. Dividends
are payable at the earlier of the effective date of the Offering or December 31,
1999. The Company's maximum liability under this required payment would be
approximately $4,921,000, assuming that such payment is made on December 31,
1999.
The Company's operations and timberlands are subject to federal, state and
local laws and regulations, including those related to the environment,
endangered species and forestry activities. In addition, the Company's land may
become subject to laws and regulations designed to protect wetlands. All of
these regulations may cause the Company to incur significant costs, damages,
penalties and/or other liabilities, and may materially and adversely affect
harvesting operations on the Company's timberlands.
The Company is subject to certain claims and litigation, including
unasserted claims, in the normal course of business. While it is not possible to
predict with certainty the outcome of these matters, it is management's opinion
that the ultimate outcome will not have a material adverse effect on the
financial statements of the Company.
The Company has engaged Mason, Bruce & Girard, Inc. for a fee of
approximately $1.3 million to develop an "Option A" timber management plan to be
submitted to the California Department of Forestry and Fire Protection.
F-16
<PAGE> 149
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)
5. RELATED-PARTY TRANSACTIONS:
The Company has a payable to STT of $300,000 as of October 9, 1998 related
to financing related costs paid by STT on behalf the Company, which has been
subsequently been repaid.
6. NON-CASH INVESTING AND FINANCING ACTIVITIES:
As of October 9, 1998, the founding members of the Company had not funded
the required initial capital contribution of $100 to form the Company.
Accordingly, the accompanying consolidated balance sheet reflects a receivable
from these members, which has been classified as subscriptions receivable within
members' equity.
In connection with the Company's acquisition of the Pacific Northwest
Properties, the Former Pioneer Members received a 59.091% ownership interest in
STP2 and $35 million in cash in exchange for 100% of their membership interests
in Pioneer. The ownership interest in STP2 was valued at approximately
$65,000,000.
F-17
<PAGE> 150
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
Pioneer Resources, LLC:
We have audited the accompanying consolidated balance sheets of Pioneer
Resources, LLC (an Oregon limited liability company) and subsidiaries (the
"Company") as of December 31, 1996 and 1997, and the related consolidated
statements of operations, changes in members' equity and cash flows for the
years then ended. We have also audited the accompanying combined statements of
operations, changes in members' equity and cash flows of the Predecessor, as
discussed in Note 1, for the year ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pioneer Resources, LLC and
subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for the years then ended and the Predecessor's
results of operations and its cash flows for the year ended December 31, 1995 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Portland, Oregon
June 11, 1998
F-18
<PAGE> 151
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997 AND SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1996 1997 1998
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 4,429,000 $ 1,362,000 $ --
Trade accounts receivable........................... 2,338,000 3,396,000 5,555,000
Receivables, related party.......................... 176,000 256,000 1,209,000
Inventories......................................... 11,623,000 12,602,000 12,882,000
Prepaid expenses and deposits....................... 258,000 4,198,000 875,000
Real estate investments............................. 1,091,000 2,000,000 2,000,000
Current portion of notes receivable................. -- 1,522,000 2,325,000
Net current assets of discontinued operation........ 3,331,000 3,209,000 1,031,000
------------ ------------ ------------
Total current assets........................ 23,246,000 28,545,000 25,877,000
------------ ------------ ------------
TIMBER, TIMBERLANDS AND TIMBER CUTTING RIGHTS......... 86,294,000 99,126,000 252,556,000
REAL ESTATE INVESTMENTS............................... 5,128,000 7,409,000 7,316,000
PROPERTY, PLANT AND EQUIPMENT:
Land................................................ 1,233,000 1,145,000 1,132,000
Buildings........................................... 2,222,000 2,364,000 2,362,000
Machinery and equipment............................. 8,482,000 10,035,000 11,807,000
Aircraft............................................ 5,735,000 3,660,000 1,199,000
------------ ------------ ------------
17,672,000 17,204,000 16,500,000
Less -- Accumulated depreciation.................... (1,924,000) (2,845,000) (3,641,000)
------------ ------------ ------------
Total property, plant and equipment......... 15,748,000 14,359,000 12,859,000
------------ ------------ ------------
NOTES RECEIVABLE...................................... 1,420,000 2,546,000 257,000
OTHER ASSETS.......................................... 224,000 2,445,000 2,401,000
------------ ------------ ------------
Total assets................................ $132,060,000 $154,430,000 $301,266,000
============ ============ ============
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt................ $ 17,119,000 $ 18,000,000 $ 15,650,000
Accounts payable.................................... 1,749,000 3,096,000 3,466,000
Accounts payable -- related party................... 101,000 27,000 --
Accrued liabilities................................. 2,209,000 2,180,000 3,119,000
Deferred income taxes............................... 901,000 515,000 240,000
------------ ------------ ------------
Total current liabilities................... 22,079,000 23,818,000 22,475,000
------------ ------------ ------------
DEFERRED INCOME TAXES................................. 2,363,000 1,688,000 1,453,000
CUTTING CONTRACT DEPOSIT.............................. 16,819,000 -- --
LONG-TERM DEBT, less current maturities............... 79,446,000 108,941,000 272,864,000
NET NONCURRENT LIABILITIES OF DISCONTINUED
OPERATION........................................... 622,000 -- --
MINORITY INTEREST..................................... 991,000 46,000 36,000
MEMBERS' EQUITY....................................... 9,740,000 19,937,000 4,438,000
------------ ------------ ------------
Total liabilities and members' equity....... $132,060,000 $154,430,000 $301,266,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-19
<PAGE> 152
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998
<TABLE>
<CAPTION>
PIONEER RESOURCES, LLC AND SUBSIDIARIES
PREDECESSOR(A) ------------------------------------------------------
-------------- NINE MONTHS ENDED
YEAR ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------- --------------------------
1995 1996 1997 1997 1998
-------------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Log sales................................... $ 1,600,000 $25,901,000 $39,505,000 $28,296,000 $ 23,097,000
Lumber and by-product sales................. 31,409,000 36,004,000 52,623,000 38,910,000 45,213,000
Timberland and property sales............... 1,865,000 613,000 6,774,000 4,240,000 5,901,000
----------- ----------- ----------- ----------- ------------
Total revenues........................ 34,874,000 62,518,000 98,902,000 71,446,000 74,211,000
OPERATING EXPENSES:
Cost of products sold....................... 22,953,000 25,897,000 39,602,000 31,015,000 45,256,000
Cost of timberland and property sales....... 1,330,000 486,000 4,292,000 2,033,000 2,536,000
Depletion, depreciation and amortization.... 2,982,000 15,366,000 25,259,000 16,738,000 12,966,000
Selling, general and administrative
expenses.................................. 2,354,000 3,144,000 7,444,000 5,241,000 6,937,000
----------- ----------- ----------- ----------- ------------
Operating income...................... 5,255,000 17,625,000 22,305,000 16,419,000 6,516,000
OTHER INCOME (EXPENSE):
Interest expense............................ (3,062,000) (6,070,000) (8,722,000) (6,105,000) (12,505,000)
Interest income............................. 46,000 248,000 224,000 87,000 56,000
Other income (expense), net................. 343,000 -- 502,000 662,000 (780,000)
----------- ----------- ----------- ----------- ------------
Income (loss) from continuing
operations before income taxes and
minority interest................... 2,582,000 11,803,000 14,309,000 11,063,000 (6,713,000)
INCOME TAX BENEFIT (PROVISION)................ -- (978,000) 355,000 (250,000) 249,000
----------- ----------- ----------- ----------- ------------
Income (loss) from continuing
operations before minority
interest............................ 2,582,000 10,825,000 14,664,000 10,813,000 (6,464,000)
MINORITY INTEREST IN LOSS OF SUBSIDIARY....... -- 262,000 51,000 48,000 10,000
----------- ----------- ----------- ----------- ------------
Income (loss) from continuing
operations.......................... 2,582,000 11,087,000 14,715,000 10,861,000 (6,454,000)
DISCONTINUED OPERATION:
Loss from discontinued plywood operation
(less applicable tax benefits of $30,000
and $821,000 for 1996 and 1997,
respectively, and $411,000 for the nine
months ended September 30, 1997).......... -- (48,000) (1,339,000) (671,000) --
Gain (loss) on disposal of discontinued
plywood operation (less applicable tax
provision of $241,000 in 1997 and tax
benefit of $550,000 for the nine months
ended September 30, 1998)................. -- -- 394,000 394,000 (897,000)
----------- ----------- ----------- ----------- ------------
Income (loss) before extraordinary
item................................ 2,582,000 11,039,000 13,770,000 10,584,000 (7,351,000)
EXTRAORDINARY ITEM:
Loss on extinguishment of debt.............. -- (780,000) -- -- (2,106,000)
----------- ----------- ----------- ----------- ------------
Net income (loss)..................... $ 2,582,000 $10,259,000 $13,770,000 $10,584,000 $ (9,457,000)
=========== =========== =========== =========== ============
</TABLE>
- ---------------
(a) Due to the Transactions discussed in Note 1, the consolidated statements of
income for the nine-month periods ended September 30, 1997 and 1998
(unaudited) and the years ended December 31, 1996 and 1997 are not
comparable to the combined statement of income of the Predecessor for the
year ended December 31, 1995. See the accompanying notes for additional
information.
The accompanying notes are an integral part of these consolidated statements.
F-20
<PAGE> 153
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PIONEER
RESOURCES,
PREDECESSOR LLC AND
(A) SUBSIDIARIES
----------- -------------
<S> <C> <C>
MEMBERS' EQUITY, December 31, 1994.......................... $2,150,000 $ --
Member contributions...................................... 1,994,000 --
Member distributions...................................... (804,000) --
Net income................................................ 2,582,000 --
---------- -----------
MEMBERS' EQUITY, December 31, 1995.......................... $5,922,000 --
==========
Member contributions...................................... 1,159,000
Member distributions...................................... (1,678,000)
Net income................................................ 10,259,000
-----------
MEMBERS' EQUITY, December 31, 1996.......................... 9,740,000
Member contributions...................................... 4,075,000
Member distributions...................................... (7,648,000)
Net income................................................ 13,770,000
-----------
MEMBERS' EQUITY, December 31, 1997.......................... 19,937,000
Member contributions (unaudited).......................... 62,000
Member distributions (unaudited).......................... (6,104,000)
Net loss (unaudited)...................................... (9,457,000)
-----------
MEMBERS' EQUITY, September 30, 1998 (unaudited)............. $ 4,438,000
===========
</TABLE>
- ---------------
(a) Due to the Transactions discussed in Note 1, the consolidated statements of
changes in members' equity for the years ended December 31, 1996 and 1997
and the nine-month period ended September 30, 1998 (unaudited) are not
comparable to the combined statement of changes in members' equity of the
Predecessor for the year ended December 31, 1995. See the accompanying
notes for additional information.
The accompanying notes are an integral part of these consolidated statements.
F-21
<PAGE> 154
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
<TABLE>
<CAPTION>
PREDECESSOR PIONEER RESOURCES, LLC AND SUBSIDIARIES
(A) ----------------------------------------------------------
------------ NINE MONTHS ENDED
YEAR ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, --------------------------- ----------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)................................... $ 2,582,000 $ 10,259,000 $ 13,770,000 $ 10,584,000 $ (9,457,000)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities --
Extraordinary loss................................ -- 780,000 -- -- 2,106,000
(Gain)/loss on sale of assets..................... -- -- (433,000) (621,000) 212,000
Minority interest in loss of subsidiary........... -- (262,000) (51,000) (48,000) (10,000)
Depletion, depreciation, amortization, and cost of
timber and property sold........................ 4,312,000 15,852,000 29,551,000 18,771,000 15,505,000
Deferred income taxes............................. -- (387,000) (1,154,000) (497,000) (128,000)
Changes in balance sheet captions, (in 1996, net of
effects of businesses acquired during the period)
Trade accounts receivable......................... 243,000 (727,000) (1,094,000) (2,133,000) (555,000)
Inventories....................................... (393,000) (5,891,000) 136,000 184,000 702,000
Related party receivables and payables, net....... (59,000) (929,000) (31,000) (1,094,000) (778,000)
Accounts payable.................................. (262,000) 645,000 235,000 1,899,000 195,000
Net advances (reduction) on cutting contract
deposit......................................... 9,575,000 7,244,000 (16,819,000) (10,835,000) --
Changes in other asset and liability accounts,
net............................................. 452,000 222,000 639,000 (199,000) (25,000)
------------ ------------ ------------ ------------ -------------
Net cash provided by operating activities..... 16,450,000 26,806,000 24,749,000 16,011,000 7,767,000
------------ ------------ ------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for Lane acquisition...................... -- (10,062,000) -- -- --
Cash paid for Pilot Rock acquisition................ -- (30,323,000) -- -- --
Cash paid for Pioneer Aviation acquisition.......... -- (3,725,000) -- -- --
Purchase of minority interest in Pioneer Aviation... -- -- (1,173,000) (1,173,000) --
Purchases of timber and timberlands................. (3,476,000) (9,816,000) (40,308,000) (31,394,000) (162,356,000)
Purchases of real estate investments................ (19,000) (1,132,000) (3,164,000) (1,087,000) (1,414,000)
Purchases of property, plant and equipment.......... (5,480,000) (3,359,000) (4,654,000) (4,393,000) (1,885,000)
Collection (issuances) of notes receivable, net..... (2,581,000) (1,420,000) (4,541,000) (4,093,000) 1,891,000
Proceeds from sale of fixed assets.................. 1,944,000 1,051,000 6,156,000 6,156,000 1,467,000
Deposit on timber and timberlands................... -- -- 1,169,000 1,169,000 --
Contribution of Old Pioneer net assets.............. -- 524,000 -- -- --
Acquisition of Kinzua net assets.................... -- 152,000 -- -- --
------------ ------------ ------------ ------------ -------------
Net cash used by investing activities......... (9,612,000) (58,110,000) (46,515,000) (34,815,000) (162,297,000)
------------ ------------ ------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Members' contributions.............................. $ -- $ 10,000 $ -- $ -- $ 62,000
Long-term borrowings................................ 13,150,000 55,531,000 66,281,000 63,442,000 193,700,000
Repayment of borrowings............................. (19,642,000) (19,558,000) (37,212,000) (37,212,000) (32,127,000)
Deferred financing fees incurred.................... -- (150,000) (2,722,000) (2,722,000) (2,363,000)
Cash payments for members' distributions............ -- (100,000) (7,648,000) (7,648,000 (6,104,000)
------------ ------------ ------------ ------------ -------------
Net cash provided by (used in) financing
activities.................................. (6,492,000) 35,733,000 18,699,000 15,860,000 153,168,000
------------ ------------ ------------ ------------ -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS............... 346,000 4,429,000 (3,067,000) (2,944,000) (1,362,000)
CASH AND CASH EQUIVALENTS, beginning of period........ 352,000 -- 4,429,000 4,429,000 1,362,000
------------ ------------ ------------ ------------ -------------
CASH AND CASH EQUIVALENTS, end of period.............. $ 698,000 $ 4,429,000 $ 1,362,000 $ 1,485,000 $ --
============ ============ ============ ============ =============
</TABLE>
- ---------------
(a) Due to the Transactions discussed in Note 1, the consolidated statements of
cash flows for the nine-month periods ended September 30, 1997 and 1998
(unaudited) and the years ended December 31, 1996 and 1997 are not
comparable to the combined statement of cash flows of the Predecessor for
the year ended December 31, 1995. See the accompanying notes for additional
information.
The accompanying notes are an integral part of these consolidated statements.
F-22
<PAGE> 155
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
1. SALE OF PIONEER RESOURCES, LLC:
Effective October 9, 1998, a significant portion of the Company's timber
and timberland assets was sold to STP2. The acquisition was effected by the
acquisition of the ownership interests of Pioneer by STP2.
Immediately prior to the sale, certain assets and liabilities of Pioneer
(including all of the interests in Pioneer's subsidiaries) were conveyed to
Frontier Resources, LLC, a newly formed entity with the same ownership structure
as Pioneer prior to the transaction.
2. SUMMARY OF OPERATIONS AND BASIS OF PRESENTATION:
BASIS OF PRESENTATION -- PIONEER
Pioneer and subsidiaries (collectively, "the Company") was formed in
December 1995 for the purpose of acquiring certain assets and liabilities of Old
Pioneer, as defined below. Pioneer has three subsidiaries: Kinzua Resources, LLC
("Kinzua") owns and operates sawmills in Heppner and Pilot Rock, Oregon; Pioneer
Aviation, LLC ("Pioneer Aviation") owns aircraft and related buildings and
equipment; and Lane Plywood, Inc. ("Lane") owns timber and timberlands and real
estate. Pioneer, Kinzua and Pioneer Aviation are Oregon limited liability
companies. Lane is an Oregon C corporation. One member owns a controlling
interest in Pioneer. The accompanying consolidated financial statements
represent the financial position of the Company as of December 31, 1996 and 1997
and the results of operations and cash flows for the years then ended. All
significant intercompany transactions and balances have been eliminated.
On January 3, 1996, certain assets and liabilities of Old Pioneer were
contributed to Pioneer by noncontrolling members of Old Pioneer and recorded at
their historical cost. In addition, Pioneer acquired timber and timberlands from
former members of Old Pioneer at fair value. These former members of Old Pioneer
collectively represented a controlling ownership in Old Pioneer and did not
become members in Pioneer. This acquisition was made with the proceeds from debt
financing. Pioneer also acquired 99.5% of the ownership interest in Kinzua. The
purchase price of Kinzua approximated Kinzua's book value. Accordingly, the
respective assets and liabilities acquired have been recorded at Kinzua's
historical cost. This series of transactions is referred to herein as the
"Transactions". Because of the insignificant activity on January 1 and January
2, 1996, the Transactions have been reflected as if they occurred on January 1,
1996 in the accompanying financial statements.
On November 25, 1996, the owners of Pioneer Merger, Inc. ("PMI"), which
became a wholly owned subsidiary of Pioneer on the same date, transferred their
ownership interests in Lane to Pioneer. Lane then became a wholly owned
subsidiary of Pioneer. This transaction was treated as a reorganization under
common control and therefore the historical basis of the assets and liabilities
did not change. Lane had been under common ownership and management with Pioneer
since its acquisition by PMI on May 1, 1996 (see Note 9). Accordingly, the
financial position, results of operations and cash flows of Lane have been
included in the accompanying consolidated financial statements. In 1997, the
plywood operation of Lane was discontinued and the majority of Lane's
plywood-related assets were sold in December 1997. See Note 11 for additional
discussion of the discontinued plywood operation. Lane continues to manage its
timber and timberlands, and real estate investments.
NATURE OF OPERATIONS
The Company's primary products are logs and lumber. The Company owns timber
and timberlands in the western United States, principally Oregon, California and
Washington, and sells logs harvested to unrelated third parties or transfers
them to its sawmills for conversion to lumber. The sawmills also
F-23
<PAGE> 156
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purchase and convert logs from unrelated third parties. These products are
commodities whose price is significantly affected by factors outside of their
control. These factors include the availability of logs and lumber from other
markets (both domestic and foreign), the demand for new construction materials,
and general economic conditions. Lumber is sold principally to furniture
manufacturers and the construction market through wholesalers within the United
States. External third party log sales are principally made to other wood
products converters in the western United States.
BASIS OF PRESENTATION -- PREDECESSOR
In April 1994, Old Pioneer Resources, LLC ("Old Pioneer") and Kinzua were
formed for the purpose of acquiring the majority of the assets and liabilities
of Kinzua Corporation, an unrelated party. Ownership of Old Pioneer and Kinzua
consisted of five investors, none of whom held a majority ownership interest.
Kinzua had the same ownership structure as Old Pioneer. The acquisition from
Kinzua Corporation was accounted for using the purchase method of accounting.
The acquired assets of Kinzua Corporation were divided between Old Pioneer and
Kinzua -- timber and timberlands to Old Pioneer and the sawmill and related
assets to Kinzua.
Pioneer Aviation was formed in December 1995 for the purpose of acquiring
and operating certain assets of Old Pioneer, including aircraft. Old Pioneer
distributed these assets to Pioneer Aviation in December 1995. As of December
31, 1995, Pioneer Aviation had the same ownership as Old Pioneer.
Because of common ownership and management of Old Pioneer, Kinzua and
Pioneer Aviation (referred to collectively herein as the Predecessor), the
accompanying combined financial statements represent the results of operations
and cash flows of the Predecessor for the year ended December 31, 1995. All
significant intercompany transactions between Old Pioneer, Kinzua and Pioneer
Aviation have been eliminated in the accompanying combined financial statements.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The unaudited interim financial statements included herein have been
prepared pursuant to the rules and regulations of the Security and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the management of the Company believes that the
disclosures are adequate to make the information presented not misleading.
Interim financial statements are by necessity somewhat tentative; judgments are
used to estimate interim amounts for items that are normally determinable only
on an annual basis.
The accompanying consolidated balance sheet as of September 30, 1998, and
the accompanying consolidated statements of operations and cash flows for the
nine-month periods ended September 30, 1997 and 1998 and consolidated statement
of changes in members' equity for the nine-month period ended September 30, 1998
are unaudited. In the opinion of management, the accompanying unaudited
consolidated balance sheet has been prepared on the same basis as the audited
consolidated balance sheet as of December 31, 1997. The accompanying unaudited
consolidated statements of operations and cash flows for the nine-month periods
ended September 30, 1997 and 1998 and consolidated statement of changes in
members' equity for the nine-month period ended September 30, 1998 have been
prepared on the same basis as the audited consolidated statements of operations,
changes in members' equity and cash flows for the year ended December 31, 1997.
The unaudited interim consolidated financial statements include all adjustments
which are, in the opinion of management, necessary to present fairly the
consolidated balance sheet as of September 30, 1998, the statements of
operations and cash flows for the nine-month periods ended September 30, 1997
and 1998 and consolidated statement of changes in members' equity for the
nine-month period ended September 30, 1998. Operating results for the nine-
F-24
<PAGE> 157
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
month period ended September 30, 1998 are not necessarily indicative of the
results to be expected for the entire year.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments with
maturities at date of purchase of 90 days or less.
INVENTORIES
Inventories are valued at the lower of cost or market value, applied on a
last-in, first-out (LIFO) basis. The major types of inventories are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Logs............................................. $ 8,794,000 $ 7,479,000
Lumber........................................... 4,503,000 6,586,000
Supplies and other............................... 14,000 4,000
LIFO Reserve..................................... (1,688,000) (1,467,000)
----------- -----------
Total.................................. $11,623,000 $12,602,000
=========== ===========
</TABLE>
TIMBER AND TIMBERLANDS
The Company's timber and timberlands consist principally of fee timber
located in the western United States. The Company uses a composite rate for
timber depletion. Depletion rates are based on estimated remaining merchantable
volume; these estimates are subject to change based on periodic timber cruises.
REAL ESTATE INVESTMENTS
Real estate investments consist primarily of undeveloped commercial real
estate located in Eugene, Oregon, as well as ranch property. A substantial
portion of the commercial real estate was obtained as part of the Lane
acquisition (see Note 9).
The Company anticipates selling a portion of its commercial real estate
within one year of the balance sheet date. Accordingly, the cost basis
associated with parcels anticipated to be sold within one year has been
reflected as a current asset in the accompanying consolidated balance sheets.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists principally of land, buildings,
machinery and equipment located on the Heppner and Pilot Rock sawmill sites.
Aircraft consists of planes and a helicopter owned by Pioneer Aviation and used
by the Company as part of its business and timber management activities.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets,
F-25
<PAGE> 158
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately 5 to 15 years for manufacturing equipment, 15 to 40 years for
buildings and 5 to 10 years for vehicles and aircraft.
OTHER ASSETS
Other assets consist principally of unamortized deferred financing fees.
Deferred financing fees are being amortized over the term of the underlying
debt.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash and cash equivalents, accounts
receivable, accounts payables and debt instruments approximates market value as
of December 31, 1996 and 1997.
F-26
<PAGE> 159
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF CASH FLOWS
Supplemental cash flow information and significant noncash transactions are
included as follows:
<TABLE>
<CAPTION>
PIONEER RESOURCES, LLC AND SUBSIDIARIES
PREDECESSOR(A) ---------------------------------------------------
-------------- NINE MONTHS ENDED
YEAR ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------ ------------------------
1995 1996 1997 1997 1998
-------------- ----------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid for interest.......... $ $ 5,059,000 $8,497,000 $6,142,000 $12,153,000
Cash paid for income taxes...... -- 258,000 960,000 960,000 76,000
SIGNIFICANT NONCASH TRANSACTIONS:
Distributions declared but not
paid......................... 804,000 -- -- -- --
Reduction of member notes
receivable in consideration
for timber and timberlands... -- 10,862,000 -- -- --
Issuance of long-term debt in
consideration for timber and
timberlands.................. -- 23,000,000 -- -- --
Reduction of member notes
receivable in consideration
of ownership interest in
Kinzua....................... -- 969,000 -- -- --
Issuance of note payable to
seller in connection with
Pilot Rock acquisition....... -- 5,000,000 -- -- --
Reduction of member note
receivable in consideration
for interest in Pioneer
Aviation..................... -- 1,300,000 -- -- --
Reduction of member note
receivable in lieu of
member's distribution........ -- 1,578,000 -- -- --
Reduction of member note
receivable in consideration
for real estate
investments.................. -- 980,000 -- -- --
Contribution of timber deposit
and equipment for equity
interest..................... -- -- 4,075,000 -- --
Application of timber deposit to
purchase of timber........... -- -- -- -- 3,793,000
</TABLE>
- ---------------
(a) Due to the Transactions discussed in Note 1, the consolidated statements of
cash flows for the years ended December 31, 1996 and 1997 and the
nine-month periods ended September 30, 1997 and 1998 (unaudited) are not
comparable to the combined statement of cash flows of the Predecessor for
the year ended December 31, 1995. See the accompanying notes for additional
information.
F-27
<PAGE> 160
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the current year's presentation.
4. LONG-TERM DEBT AND SUBSEQUENT REFINANCING:
On February 26, 1998, the Company refinanced a substantial portion of its
outstanding debt as of December 31, 1997. The current portion of long-term debt
in the accompanying consolidated balance sheet as of December 31, 1997 reflects
the terms of the new agreement with the Bank of Montreal (the Lending
Commitment). The debt outstanding as of December 31, 1997 consists of
$125,232,000 of borrowings pursuant to a Credit Agreement with the Bank of
Montreal and certain other banks. As a part of the refinancing, unamortized
deferred financing fees related to refinanced borrowings were written off. These
fees totaled $2,249,000 as of December 31, 1997.
LENDING COMMITMENT TERMS
The Lending Commitment provides for a senior secured revolving Credit
Facility of up to $350,000,000 for a term of seven years. The Lending Commitment
will allow the Company to refinance the majority of its outstanding debt and,
under conditions defined in the Lending Commitment, will allow the Company to
borrow additional funds for acquisitions or other general business purposes. The
amount available for borrowing is based on the value of the Company's assets,
computed in accordance with terms set forth in the Lending Commitment.
Interest rates will be based on either a base rate (computed as the higher
of the Federal Funds rate plus 0.5% or the Bank of Montreal's prime commercial
lending rate) or LIBOR, plus a margin. The margin is contingent upon the
Company's EBITDDA (earnings before interest, taxes, depletion, depreciation and
amortization) to debt ratio.
The amount available for borrowing will be permanently reduced, on a
quarterly basis, according to the following schedule:
<TABLE>
<CAPTION>
TOTAL ANNUAL
COMMITMENT CUMULATIVE
YEAR REDUCTION REDUCTION
- ---- ------------ ----------
<S> <C> <C>
2002.......................................... 15% 15%
2003.......................................... 20% 35%
2004.......................................... 30% 65%
2005.......................................... 35% 100%
</TABLE>
In addition, all payments received related to the timber harvesting
contract discussed in Note 5 must be applied against the principal portion of
outstanding borrowings.
The Lending Commitment contains covenants which require the Company to
maintain certain financial ratios. The Company was in compliance with these
covenants based on the consolidated financial statement balances as of December
31, 1997. The Lending Commitment is collateralized by essentially all assets of
the Company.
F-28
<PAGE> 161
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER DEBT
Other debt consists of the following:
<TABLE>
<CAPTION>
1996 1997
---------- --------
<S> <C> <C>
Term note, payable in monthly installments of approximately
$31,000 including interest. Interest is variable (8.25% as
of December 31, 1997). Debt is secured by aviation
equipment................................................. $2,450,000 $ --
Term note, payable in annual installments of $250,000,
including interest at 8.0%. Debt is secured by real
property.................................................. 1,000,000 830,000
Term note, payable in annual installments of $81,000,
including interest at 5.0%. Debt is secured by timber and
timberlands............................................... 323,000 242,000
Term note, payable in monthly installments of $6,100,
including interest Interest is variable. Debt is secured
by aviation equipment..................................... -- 497,000
Other term notes with varying maturities and interest rates.
Debt is secured by timber and timberlands................. -- 140,000
</TABLE>
REPAYMENT SCHEDULE
As the majority of the Company's long-term debt was refinanced subsequent
to year-end, the following debt payout schedule is computed based on the terms
of the Lending Commitment with the Bank of Montreal, as well as the repayment
terms of the debt instruments not refinanced.
These amounts include estimated principal payments required by the sale of
timber under the long-term cutting contract as discussed above and in Note 4,
which management estimates to be $17,700,000 for 1998 based on timber harvesting
plans. These principal amounts are in addition to the regularly scheduled
payments required by the Lending Commitment. As this long-term cutting contract
expires in 1998, no payments for periods beyond 1998 are included in the debt
repayment schedule.
Principal payments due on long-term debt as of December 31, 1997
(considering the effect of the subsequent refinancing and including the impact
of harvest estimates for 1998 as previously discussed) are as follows:
<TABLE>
<S> <C>
1998.................................................. $ 18,000,000
1999.................................................. 615,000
2000.................................................. 336,000
2001.................................................. 275,000
2002.................................................. 16,153,000
Thereafter............................................ 91,562,000
------------
$126,941,000
============
</TABLE>
As discussed in Note 12, "Acquisitions", the Company acquired timber and
timberland properties subsequent to December 31, 1997. These acquisitions were
funded primarily through advances on the Credit Facility.
On October 9, 1998, the Company's outstanding balance under the Credit
Facility was paid off as a part of the sale of a significant portion of the
Company's timber and timberland assets to STP2. This sale is also discussed in
Note 11.
F-29
<PAGE> 162
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTEREST RATE SWAPS
To hedge its exposure to adverse fluctuations in interest rates, the
Company entered into loan swap arrangements with two financial institutions in
1997. The interest rate differential on interest rate swap contracts used to
hedge underlying debt obligations is reflected as an adjustment to interest
expense over the life of the swaps.
Pursuant to these arrangements, the Company swapped a portion of its
variable rate debt for fixed rate debt. The notional amount swapped totaled
$70,000,000, which consists of $50,000,000 expiring in 2000 ($40,000,000 of
which can be extended to 2002 at the financial institutions' option) and
$20,000,000 expiring in 2002.
5. LONG-TERM CUTTING CONTRACT:
The Company has rights to a cutting contract with an unrelated third party
customer. This contract requires periodic advance deposits to the Company prior
to harvesting the timber. The purchase price of timber removed under this
contract is applied against the advance at the time of harvest according to
prices specified in the agreement. During 1997, the deposit balance was fully
utilized and the customer began paying the Company for volume removed on a
current basis. As discussed in Note 4, these payments will be applied as
principal payments against the Company's long-term debt.
6. INCOME TAXES:
Pioneer, Kinzua and Pioneer Aviation are limited liability companies. As
owners of a limited liability company, members of Pioneer, Kinzua and Pioneer
Aviation are taxed on their respective share of income and there is no entity
level tax. Accordingly, no income tax accounts for Pioneer, Kinzua and Pioneer
Aviation have been reflected in the accompanying consolidated financial
statements.
PMI and Lane are C corporations and are, therefore, subject to income
taxes. Both companies account for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). Under the liability method specified by SFAS 109, the deferred tax assets
and liabilities are determined based on the temporary differences between the
financial statement and tax bases of assets and liabilities as measured by the
enacted tax rates for the years in which the taxes are expected to be paid. As
discussed further in Note 11, the plywood operations of Lane were discontinued
in September 1997. The components of deferred taxes related to the continuing
operations of PMI and Lane included in Pioneer's consolidated balance sheets as
of December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Current liabilities:
Land...................................................... $ 901,000 $ 515,000
========== ==========
Long-term liabilities:
Timber.................................................... $1,284,000 $ 483,000
Land...................................................... 1,079,000 1,205,000
---------- ----------
$2,363,000 $1,688,000
========== ==========
</TABLE>
Deferred tax liabilities of $93,000 and $301,000, respectively related to
temporary differences between the financial statement and tax bases related to
Lane's inventory are included in net current assets of discontinued operation in
the accompanying consolidated balance sheets as of December 31, 1996 and 1997.
F-30
<PAGE> 163
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On a stand-alone basis, Lane's effective tax rate was approximately 38% for
the period from acquisition (May 1, 1996) through December 31, 1996 and 1997.
These rates differ from the federal statutory due primarily to state taxes.
Lane's tax benefit (provision) has been allocated between continuing and
discontinued operations in the statements of operations for the period from
acquisition (May 1, 1996) through December 31, 1996 and 1997.
7. MEMBERS' EQUITY AND RELATED PARTY TRANSACTIONS:
The liability of the individual members of the Company is limited to the
balances of their respective members' equity accounts.
The members of the Company are actively involved in managing the Company
and are paid regular salaries which are included in selling, general and
administrative expenses in the accompanying consolidated statements of
operations. Greg Demers owns or controls a majority of the Company's ownership
interest and five other individuals or entities own the balance.
The Company has had transactions with several of its members and entities
affiliated with its members. Related party receivables and payables as of
December 31, 1996 and 1997 consist primarily of receivables and payables to
members or to entities affiliated with members.
MINORITY INTEREST
Greg Demers owns the 0.5% ownership interest in Kinzua not owned by
Pioneer. This ownership is reflected as minority interest in the accompanying
consolidated financial statements.
OTHER RELATED PARTY TRANSACTIONS
Various related parties have used the services of Pioneer Aviation's
aircraft and have been charged accordingly for such services at a rate which
approximates fair market value ($135,000, $571,000 and $258,000 in 1995, 1996
and 1997, respectively).
Beginning in 1996, the Company engaged a forest products trading company to
market its lumber products. One of the Company's members also has an ownership
interest in the trading company. Sales commissions paid to this entity (which
approximated market value) were $248,000 and $700,000 in 1996 and 1997,
respectively.
8. CONTINGENCIES:
LAND OWNERSHIP DISPUTE
In 1994, Old Pioneer filed a lawsuit against an unrelated third party for
$6,000,000, alleging that this party was erroneously deeded certain tracts of
timber and timberlands (the Township 7 and 8 tracts, valued at $6,000,000) in
April 1994. The other party then counter-sued Old Pioneer for $6,000,000.
Discovery and trial proceedings occurred through 1997.
In January 1998, an Oregon Circuit/District Court ruled in Old Pioneer's
favor and ordered that the other party reconvey the timber and timberlands to
Old Pioneer and compensate Old Pioneer for the value of timber harvested during
the period the disputed property was under the other party's control. The other
party's claims were denied.
As the Company believes the other party is likely to appeal the Court's
decision, and as the Company has not yet assumed possession of the property or
collected damages, the Company has not recorded the gain contingency in the
accompanying consolidated financial statements. Any ultimate recoveries from the
F-31
<PAGE> 164
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
lawsuit will be allocated among the owners of Old Pioneer at the time of the
related transaction. Pioneer's share of any recoveries would be approximately
27% of total recoveries accruing to Old Pioneer.
OTHER CLAIMS
The Company is subject to ongoing litigation and claims as part of its
normal business operations. In the opinion of management, none of these claims
will have a material adverse effect on the Company.
9. ACQUISITIONS:
Three acquisitions have been reflected in the accompanying consolidated
financial statements. In May 1996, Lane was acquired by a group of investors who
also have ownership interests in Pioneer. The investors' ownership interests
were transferred to Pioneer in November 1996. In June 1996, Pioneer and Kinzua
acquired timber and timberlands and a sawmill in Pilot Rock, Oregon. In August
1996, Pioneer acquired a majority ownership interest in Pioneer Aviation.
LANE PLYWOOD ACQUISITION
Lane was formed in 1952. PMI was formed in 1996 by members of Pioneer for
the purpose of acquiring Lane. Lane was acquired by PMI on May 1, 1996. Lane's
operating assets principally consisted of timber-related operations and a
plywood operation. The acquisition was accounted for using the purchase method
of accounting; the purchase price was $10,100,000. The results of operations of
Lane are included in the accompanying consolidated financial statements for all
periods beginning May 1, 1996. As discussed in Note 11, Lane's plywood operation
was discontinued in 1997. Thus, the results of the plywood operation are
reflected as discontinued for all periods presented in the consolidated
financial statements.
On November 25, 1996, the ownership of PMI was transferred to Pioneer. This
transaction was accounted for as a reorganization of entities under common
control and, accordingly, the carrying values of Lane's accounts were not
adjusted as a result of the ownership transfer to Pioneer.
The following table presents the unaudited pro forma results of
discontinued operations for the years ended December 31, 1995 and 1996 as if the
Lane acquisition had been consummated at the beginning of the period. These pro
forma results have been prepared for comparative purposes only and do not
purport to be indicative of what would have occurred had the Lane acquisition
been consummated at the beginning of the period.
<TABLE>
<CAPTION>
PIONEER RESOURCES
PREDECESSOR LLC AND
YEAR ENDED SUBSIDIARIES
DECEMBER 31, DECEMBER 31,
1995(A) 1996
-------------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenue from discontinued operation................ $39,027,000 $39,363,000
Loss from discontinued operation................... (497,000) (142,000)
</TABLE>
- ---------------
(a) Due to the Transactions discussed in Note 1, consolidated revenue from
discontinued operation and loss from discontinued operation for 1996 are not
comparable to the combined revenue from discontinued operation and loss from
discontinued operation of the Predecessor for 1995.
Pro forma revenues and results of operations of continuing operations were
not materially different than those reported in the historical consolidated
results of operations.
F-32
<PAGE> 165
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PILOT ROCK ACQUISITION
In June 1996, Kinzua acquired a sawmill in Pilot Rock, Oregon ("Pilot
Rock") for $5,500,000. Concurrently, Pioneer purchased timber and timberlands in
northeastern Oregon from the same seller for $28,500,000. The acquisition was
accounted for using the purchase method of accounting. Results of operations of
the acquired sawmill and timber operations for the period from July 1, 1996
through December 31, 1996 and for the year ended December 31, 1997 are included
in the accompanying consolidated financial statements.
The following table presents the unaudited pro forma revenues and income
from continuing operations for the years ended December 31, 1995 and 1996 as if
the Pilot Rock acquisition had been consummated at the beginning of the period.
These pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of what would have occurred had the Pilot Rock
acquisition been consummated at the beginning of the period.
<TABLE>
<CAPTION>
PIONEER RESOURCES
PREDECESSOR LLC AND
YEAR ENDED SUBSIDIARIES
DECEMBER 31, DECEMBER 31,
1995(A) 1996
----------------- ---------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenue.......................................... $52,195,000 $74,355,000
Income from continuing operations................ 878,000 8,649,000
</TABLE>
- ---------------
(a) Due to the Transactions discussed in Note 1, consolidated revenue from
continuing operation and income from continuing operation for 1996 are not
comparable to the combined revenue from continuing operation and loss from
continuing operation of the Predecessor for 1995.
PIONEER AVIATION ACQUISITION
As discussed in Note 1, Pioneer Aviation was a related entity to Pioneer
prior to Pioneer acquiring a majority interest in Pioneer Aviation in August
1996. Through a series of purchases, capital contributions and ownership
exchanges in 1996 and 1997, Pioneer acquired all of the ownership interest in
Pioneer Aviation. The combined total of capital contributions, purchases of
other owners' interests and ownership exchanges totaled $5,000,000 and
$1,246,000 in 1996 and 1997, respectively. These acquisitions were accounted for
by the purchase method of accounting, except exchanges which have been recorded
at historical cost. Results of operations have been included in the accompanying
consolidated financial statements for each of the periods presented.
10. SEGMENT AND SIGNIFICANT CUSTOMER INFORMATION:
The Company operates in two industry segments -- timber operations and
lumber operations. The timber operations segment consists of sales of logs to
both outside customers and to the lumber operations segment. The lumber
operations segment consists of lumber and byproducts produced by the Company's
two sawmills. Operating income from the timber operations segment includes
timberland and property sales of $1,865,000, $613,000 and $6,774,000 in 1995,
1996, and 1997, respectively.
F-33
<PAGE> 166
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the Company's sales to certain customers as a
percentage of total sales for the applicable period. Other than as reflected in
the table, there were no other customers with sales equal to or in excess of 10%
of total sales in the applicable periods.
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Customer A.................................................. 25% -- --
Customer B.................................................. -- 33% 29%
Customer C.................................................. 18% 13% --
Customer D.................................................. 10% -- --
</TABLE>
While many of the Company's logs and lumber products are of export-quality,
the Company does not directly export any logs or other products.
Income statement segment information for the years ended December 31, 1995,
1996 and 1997:
<TABLE>
<CAPTION>
PIONEER RESOURCES, LLC
PREDECESSOR(A) AND SUBSIDIARIES
-------------- --------------------------
YEAR ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------
1995 1996 1997
-------------- ----------- ------------
<S> <C> <C> <C>
Revenues:
Timber operations......................... $11,236,000 $40,244,000 $ 60,303,000
Lumber operations......................... 31,409,000 30,004,000 52,624,000
Intersegment sales to lumber operations... (7,771,000) (7,730,000) (14,025,000)
----------- ----------- ------------
$34,874,000 $62,518,000 $ 98,902,000
=========== =========== ============
Operating Income:
Timber operations......................... $ 4,156,000 $13,618,000 $ 18,771,000
Lumber operations......................... 1,099,000 4,007,000 3,534,000
----------- ----------- ------------
$ 5,255,000 $17,625,000 $ 22,305,000
=========== =========== ============
Depreciation, depletion and amortization:
Timber operations......................... $ 1,555,000 $13,443,000 $ 23,171,000
Lumber operations......................... 340,000 639,000 781,000
General corporate assets.................. 1,087,000 1,284,000 1,307,000
----------- ----------- ------------
$ 2,982,000 $15,366,000 $ 25,259,000
=========== =========== ============
Capital Expenditures(b):
Lumber operations......................... $ 725,000 $ 350,000 $ 917,000
General corporate assets.................. 4,755,000 3,009,000 3,737,000
----------- ----------- ------------
$ 5,480,000 $ 3,359,000 $ 4,654,000
=========== =========== ============
</TABLE>
- ---------------
(a) Due to the Transactions discussed in Note 1, the consolidated revenues,
operating income, depreciation, depletion and amortization and capital
expenditures for the years ended December 31, 1996 and 1997 are not
comparable to the combined revenues, operating income, depreciation,
depletion and amortization and capital expenditures of the Predecessor for
the year ended December 31, 1995. See the accompanying notes for additional
information.
(b) Capital expenditures do not include the cost of acquiring additional timber
and timberland properties.
F-34
<PAGE> 167
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Balance sheet segment information as of December 31:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Identifiable Assets:
Timber operations...................................... $ 92,625,000 $108,690,000
Lumber operations...................................... 22,614,000 25,442,000
General corporate assets............................... 16,821,000 20,298,000
------------ ------------
$132,060,000 $154,430,000
============ ============
</TABLE>
11. DISCONTINUED OPERATION:
In September 1997, the Company decided to dispose of its plywood
manufacturing operation, as owned and operated by Lane. This operation ceased in
November 1997.
The net losses of the plywood operation for all periods presented are
included in the consolidated statements of operations under discontinued
operation. Revenues from the plywood operation were $27,788,000 in 1996 and
$36,818,000 in 1997. Except for certain receivables, inventories, and other
current assets carried at a total estimated net realizable value of $3,209,000
and expected to be recovered in 1998, all assets of the plywood operation were
disposed of prior to December 31, 1997.
The gain in 1997 on disposal of the discontinued operation reflected in the
consolidated statement of operations includes gains on the sale of equipment
used in the plywood operation, less estimated closure-related costs, net of tax
provision on the gain. The loss in 1998 related to the disposal of this
operation principally represents costs incurred in excess of those estimated in
1997 for closure-related expenses.
12. ACQUISITIONS:
TIMBER AND TIMBERLAND ACQUISITIONS
In 1998, the Company acquired several timber and timberland properties. The
most significant properties acquired in 1998 were the Riffe Lake tract in
January 1998 (for approximately $15,000,000), the Aloha tract in March 1998 (for
approximately $17,000,000) and the Coastal tract in July 1998 (for approximately
$131,000,000).
F-35
<PAGE> 168
[INSIDE BACK COVER]
[PHOTO A]
Mid-rotation, intensively-managed
Southern pine plantation.
Life Cycle of A Tree
STT owns and manages a diversified portfolio of
commercial timber, a renewable natural resource.
<TABLE>
<S> <C>
[PHOTO B] [PHOTO C]
Fast-growing 5 year-old Southern Mature Southern pine ready for
pine plantation in Louisiana. harvest. Clear, straight and
large diameter sawtimber has
many high-value end uses.
</TABLE>
<PAGE> 169
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
16,600,000 SHARES
STRATEGIC TIMBER TRUST, INC.
COMMON STOCK
[LOGO]
------------------
PROSPECTUS
, 1999
------------------
SALOMON SMITH BARNEY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 170
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Unless otherwise defined, all capitalized terms contained in this Part II
shall have the meanings ascribed to them in the prospectus which forms a part of
this Registration Statement. The Company is sometimes referred to herein as the
"Registrant."
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses expected to be incurred
by the Company in connection with the sale and distribution of the securities
being registered hereby, other than underwriting discounts and commissions. All
amounts are estimated except the Securities and Exchange Commission registration
fee and the National Association of Securities Dealers, Inc. filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $111,448
National Association of Securities Dealers, Inc. filing
fee....................................................... 30,500
New York Stock Exchange listing fee......................... 175,000
Blue Sky fees and expenses.................................. 5,000
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Printing and engraving expenses............................. *
Registrar and Transfer Agent's fees......................... *
Directors' and Officers' liability insurance................ 155,000
Miscellaneous fees and expenses............................. *
--------
Total............................................. *
========
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 32. SALES TO SPECIAL PARTIES.
In connection with the Formation Transactions, the following sales of the
Company's and the Partnership's securities have occurred within the past six
months or will occur upon the completion of this offering:
(i) In accordance with the terms of the STP2 partnership units held by
the Former Pioneer Members and the STP2 partnership units held by Mach One,
the Former Pioneer Members will receive $24.1 million in cash and 2,170,086
Partnership units having a value of $43.4 million, based on an initial
public offering price of $20 per share, and Mach One will receive $10.0
million in cash (assuming this offering is consummated on March 31, 1999)
and 100,110 Partnership units having a value of $2.0 million, based on the
initial public offering price of $20 per share, in connection with the
merger of STP2 into the Partnership. The Former Pioneer Members acquired
their STP2 partnership units in connection with STP2's acquisition of
Pioneer. Mach One acquired its interest in STP2 in exchange for $10.0
million cash that was used to finance STP2's acquisition of Pioneer.
(ii) In accordance with the terms of the Partnership units held by
LTP, LTP will receive $12.9 million in cash and will own 1,762,974
Partnership units having a value of $35.3 million, based on an initial
public offering price of $20 per share, as of the completion of the
offering. LTP acquired its Partnership units in exchange for the
contribution to the Partnership of a contract (valued by the parties at
$50.0 million) to acquire the Louisiana Property.
(iii) At the completion of this offering, the shareholders of the
Company who formed STT2 will receive 933,035 Partnership units in
connection with the merger of STT2, STP2 and STTOC into the Partnership.
II-1
<PAGE> 171
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.
In addition to the issuances described in Item 32, the Company and the
Partnership have issued the following securities:
(i) In April 1998, the Company issued an aggregate of 16,065 (or
587,798 shares adjusted for the Company's 36.59-for-1 stock split) shares
of Common Stock to six individuals for services rendered to the Company: C.
Edward Broom, Christopher J. Broom, Thomas P. Broom, Charles W. Godfrey,
Vladimir Harris and Joseph E. Rendini.
(ii) In April 1998, the Partnership issued 500 Class B Partnership
units and 4,500 Class C Partnership units to Louisiana Timber Partners, LLC
in exchange for assignment to the Partnership of a contract to acquire the
Louisiana Property. The parties valued the contract at $50.0 million. In
connection with the completion of this offering, these units will be
converted into an aggregate of 1,762,974 Partnership units and $12.9
million in cash.
(iii) In April 1998, the Company issued 1,275 shares (or 46,651 shares
adjusted for the stock split) of Common Stock to Sutherland Asbill &
Brennan LLP in consideration of legal services rendered to the Company.
(iv) In June 1998, the Company issued 1,020 (or 37,321 shares adjusted
for the stock split) shares of Common Stock to Nicholas C. Brunet for
services rendered to the Company.
With respect to the issuances of Common Stock, options and Partnership
units convertible into Common Stock described in Item 32 above and in this Item
33, the Registrant relied upon the exemption provided by section 4(2) of the
Securities Act, and in all but the issuance of shares to Mr. Brunet, Regulation
D, Rule 506, promulgated thereunder.
Each recipient of the securities described above and in Item 32 represented
his or its intention to acquire the securities for investment only and not with
a view to distribution thereof. Appropriate legends were affixed to the stock
certificates issued in such transactions. Each recipient had adequate access to
information about the Company.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
GEORGIA BUSINESS CORPORATION CODE
Section 14-2-851 of the GBCC empowers a corporation to indemnify a director
(including a former director and including a director who is or was serving at
the request of the corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise) against liability
arising from official acts if the director acted in good faith and reasonably
believed that his or her conduct was in the best interests of the corporation.
For all other acts, the corporation may indemnify a director who acted in good
faith and reasonably believed that the conduct was not opposed to the best
interests of the corporation. The corporation may indemnify a director with
respect to criminal proceedings if the director acted in good faith and had no
reasonable cause to believe the conduct was unlawful. A corporation may not
indemnify a director adjudged liable for conduct involving receipt of an
improper personal benefit.
In addition, section 14-2-856 of the GBCC permits the articles of
incorporation, bylaws, a contract, or resolution approved by the shareholders to
authorize the corporation to indemnify a director against claims to which the
director was a party, including claims by the corporation or in the right of the
corporation (e.g., a shareholder derivative action). However, the corporation
may not indemnify the director for liability to the corporation for any
appropriation of a corporate opportunity, intentional misconduct or knowing
violation of law, unlawful distributions or receipt of an improper benefit.
Section 14-2-852 of the GBCC provides for mandatory indemnification against
reasonable expenses incurred by a director who is wholly successful in defending
an action to which the director was a party due to his or her status as a
director of the Company on the merits or otherwise. Section 14-2-854 allows
II-2
<PAGE> 172
a court, upon application by a director, to order indemnification and
advancement of expenses if it determines that the director is entitled to
indemnification under the GBCC or if it determines that indemnification is fair
and reasonable even if the director has failed to meet the statutory standard of
conduct under section 14-2-851. However, the court may not order indemnification
in excess of reasonable expenses for liability to the corporation or for receipt
of an improper benefit.
Section 14-2-857 of the GBCC permits a corporation to indemnify an officer
(including a former officer and including an officer who is or was serving at
the request of the corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise) to the same extent as
a director. A corporation may indemnify an officer who is not a director to a
further extent by means of articles of incorporation, bylaw, board resolution,
or contract. However, the corporation may not indemnify an officer for liability
arising from conduct involving appropriation of a corporate opportunity,
intentional misconduct or knowing violation of law, unlawful distributions, or
receipt of an improper personal benefit. An officer who is not a director is
also entitled to mandatory indemnification and may apply for court-ordered
indemnification.
Section 14-2-858 of the GBCC permits a corporation to purchase and maintain
insurance on behalf of directors and officers against liability incurred by them
in their capacities or arising out of their status as directors and officers of
the corporation, regardless of whether the corporation would have the power to
indemnify or advance expenses to the director or officer for the same liability
under the GBCC.
ARTICLES OF INCORPORATION
Article V of the Articles of Incorporation exculpates the directors of the
Company from personal liability for money damages to the Company or its
shareholders to the fullest extent permitted by the GBCC, as it may be amended
from time to time. Currently, the directors are exculpated from all liability to
the Company or its shareholders except for liability arising from conduct
involving appropriation of a corporate opportunity, intentional misconduct or
knowing violation of law, unlawful distributions, or receipt of an improper
personal benefit. The Articles of Incorporation also provide that any repeal or
modification of Article V of the Articles of Incorporation by the shareholders
of the Company shall not adversely affect any right or protection of a director
of the Company existing at the time of such repeal or modification.
BYLAWS
Article VI of the Company's Bylaws provides that the Company shall
indemnify to the fullest extent permitted under the GBCC any person who is or
was a director or an officer of the Company, including a director or an officer
who is or was serving at the request of the Company as a director, officer,
partner, trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
No amendment, termination, or other elimination of Article VI of the Bylaws
or of any relevant provisions of the GBCC or of any other applicable law shall
affect or diminish in any way the rights to indemnification under the Bylaws
with respect to any action, suit or proceeding arising out of, or relating to,
any event or act or omission occurring or fact or circumstance existing prior to
such amendment, termination or other elimination. The indemnification and
advancement of expenses provided by, or granted pursuant to, the Company's
Bylaws are not exclusive of any other rights permitted by applicable law to
which a person seeking indemnification or advancement of expenses may be
entitled, whether by contract or otherwise. All rights to indemnification under
Article VI of the Bylaws continue as to a person who has ceased to be a director
or officer and shall be deemed to be a contract between the Company and each
such person.
INDEMNIFICATION AGREEMENTS
The Registrant will enter into indemnification agreements with each of its
directors and executive officers prior to completion of this offering, and
intends to enter into similar agreements with its prospective directors upon
completion of the offering. The indemnification agreements provide for
II-3
<PAGE> 173
indemnification to the fullest extent permitted by applicable law, the Articles
of Incorporation, the Bylaws and any resolutions of the Board of Directors and
shareholders of the Company as in effect on the date of execution of each such
indemnification agreement, and to such greater extent as applicable law may
thereafter from time to time permit. The terms of these indemnification
agreements are consistent with the terms of Article VI of the Registrant's
Bylaws and Article V of the Articles of Incorporation.
INSURANCE
The Company intends to purchase a policy of insurance providing
reimbursement of indemnification payments to officers and directors of the
Company and reimbursement of certain liabilities incurred by directors and
officers of the Company in their capacities as such, to the extent that they are
not otherwise indemnified by the Company.
UNDERWRITING AGREEMENT
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
the underwriters of the Registrant, its directors and its officers, and by the
Registrant of the underwriters, for certain liabilities, including liabilities
arising under the Securities Act, and affords certain rights of contribution
with respect thereto.
PARTNERSHIP AGREEMENT
The Partnership Agreement (Exhibit 3.5.4) provides for indemnification of
the Company, STOC, and the directors and officers of the Company, as well as any
other persons STOC, as general partner, may designate. The Partnership shall
indemnify any of these indemnitees against any losses, claims, damages,
liabilities, judgments, fines, settlements and expenses arising from the
operations of the Partnership so long as the indemnitee acted in good faith and
in a manner it reasonably believed to be in, or not opposed to, the best
interest of the Partnership, and in the case of any criminal proceeding, the
indemnitee had no reasonable cause to believe that its conduct was unlawful.
This indemnification is limited to the assets of the Partnership and no partner
in the Partnership shall be personally liable for such indemnification. The
Partnership may reimburse reasonable expenses incurred by any such indemnitee in
defense of an action relating to the operations of the Partnership, if the
Partnership receives certain written affirmations and undertakings from the
indemnitee. The Partnership may purchase and maintain insurance on behalf of
such indemnitees against liabilities incurred by them in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify the indemnitee for the same liability under the Partnership
Agreement.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not applicable.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
See Index to Financial Statements on page F-1 of the prospectus which
forms a part of this Registration Statement.
(b) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
1.1* Form of Underwriting Agreement
2.1.1+ Contract for the Purchase and Sale of Real Property, dated
April 15, 1998, by and between Griffin Logging, Inc. and
Louisiana Timber Partners, LLC
2.1.2+ Partial Assignment and Assumption of Contract, dated April
23, 1998, by and between Louisiana Timber Partners, LLC and
Strategic Timber Partners, LP
</TABLE>
II-4
<PAGE> 174
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
2.1.3+ Contribution Agreement, dated April 23, 1998, by and among
Strategic Timber Partners, LP, Strategic Timber Operating
Co., the Registrant and Louisiana Timber Partners, LLC
2.2+ Acquisition and Contribution Agreement, dated October 9,
1998, by and among Strategic Timber Trust II, LLC, Strategic
Timber Two Operating Co., LLC, Strategic Timber Partners II,
LP, Frontier Resources, LLC and all of the former owners of
the membership interests of Pioneer Resources, LLC
2.3* Plan and Agreement of Merger with respect to the Merger of
Strategic Timber Trust II, LLC, Strategic Timber Two
Operating Co., LLC, and Strategic Timber Partners II, LP
with and into Strategic Timber Partners, LP, dated as of
January 25, 1999
3.1.1 Articles of Incorporation of the Registrant
3.1.2* Form of Amended and Restated Articles of Incorporation of
the Registrant to be effective on or prior to the
consummation of this offering
3.2.1 Bylaws of the Registrant
3.2.2* Form of Amended and Restated Bylaws of the Registrant to be
effective on or prior to the consummation of this offering
3.3 Certificate of Incorporation of Strategic Timber Operating
Co.
3.4 Bylaws of Strategic Timber Operating Co.
3.5.1 Agreement of Limited Partnership of Strategic Timber
Partners, LP
3.5.2 First Amended and Restated Agreement of Limited Partnership
of Strategic Timber Partners, LP
3.5.3 First Amendment to First Amended and Restated Agreement of
Limited Partnership of Strategic Timber Partners, LP
3.5.4 Form of Second Amended and Restated Agreement of Limited
Partnership of Strategic Timber Partners, LP, to be
effective on or prior to the consummation of this offering
3.6.1 Agreement of Limited Partnership of Strategic Timber
Partners II, LP
3.6.2 First Amended and Restated Agreement of Limited Partnership
of Strategic Timber Partners II, LP
3.7 Operating Agreement of Strategic Timber Trust II, LLC
3.8 Operating Agreement of Strategic Timber Two Operating Co.,
LLC
3.9 Fourth Amended and Restated Operating Agreement of Pioneer
Resources, LLC
4.1* Form of Common Stock Certificate
5.1* Opinion of Sutherland Asbill & Brennan LLP as to certain
matters regarding the shares of Common Stock offered hereby
8.1 Opinion of Sutherland Asbill & Brennan LLP as to tax matters
(included in the prospectus that forms part of this
Registration Statement under "Federal Income Tax
Consequences")
10.1* Form of 1999 Strategic Timber Trust Omnibus Incentive Plan
10.2* Form of Indemnification Agreement to be executed between
Registrant and certain of its officers and directors
10.3* Form of Stock Option Agreement
10.4* Form of Stock Option Agreement for Outside Directors
</TABLE>
II-5
<PAGE> 175
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
10.5+ Replacement Credit Agreement, dated October 9, 1998, by and
among Pioneer Resources, LLC, First Union National Bank, ABN
AMRO Bank N.V., NationsBank, N.A., and the other lenders
which are or become parties thereto
10.6+ Loan Agreement, dated April 27, 1998, by and among Strategic
Timber Partners, LP, ABN AMRO Bank N.V., and the other
lenders which are or become parties thereto
10.7+ Bridge Loan Agreement, dated April 27, 1998, by and among
the Registrant, ABN AMRO Bank N.V. and the lenders named
therein
10.8+ Bridge Loan Agreement, dated October 9, 1998, by and among
Strategic Timber Trust II, LLC, ABN AMRO Bank N.V. and the
lenders named therein
10.9.1* Timber Purchase Agreement, dated December 29, 1998, between
Kinzua Resources, LLC and Pioneer Resources, LLC
10.9.2* Statutory Bargain and Sale Timber Deed between Kinzua
Resources, LLC and Pioneer Resources, LLC, dated December
29, 1998
10.10* Employment and Non-Competition Agreement between the
Registrant and C. Edward Broom
10.11* Employment and Non-Competition Agreement between the
Registrant and Christopher J. Broom
10.12* Employment and Non-Competition Agreement between the
Registrant and Thomas P. Broom
10.13* Employment and Non-Competition Agreement between the
Registrant and Kenneth L. Chute
10.14* Employment and Non-Competition Agreement between the
Registrant and Vladimir Harris
10.15* Employment and Non-Competition Agreement between the
Registrant and Nicholas C. Brunet
10.16* Employment and Non-Competition Agreement between the
Registrant and Joseph E. Rendini
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Sutherland Asbill & Brennan LLP
23.3 Consent of Mason, Bruce & Girard, Inc.
23.4 Consent of Canal Forest Resources, Inc.
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
99.1 Consent of Prospective Director Starling W. Childs, II
99.2 Consent of Prospective Director Jay S. Lucas
99.3 Consent of Prospective Director Hanns A. Pielenz
99.4 Consent of Prospective Director Richard P. Urfer
</TABLE>
- ---------------
* To be filed by amendment.
+ Schedules and similar attachments to this exhibit have been omitted. A list of
these omitted schedules has been provided in this exhibit, and the Registrant
agrees to furnish supplementally to the Commission a copy of any omitted
schedule upon request.
II-6
<PAGE> 176
ITEM 37. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and this offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) It will provide to the underwriters at the closing(s) specified in
the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
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<PAGE> 177
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New London, State of New Hampshire, on the 26th day
of January, 1999.
STRATEGIC TIMBER TRUST, INC.
By: /s/ C. EDWARD BROOM
----------------------------------
C. Edward Broom
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints C. Edward Broom and Christopher J. Broom, and
each of them, his true and lawful attorneys-in-fact and agents, each with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments, including
post-effective amendments, to this Registration Statement, and any registration
statement relating to this offering covered by this Registration Statement and
filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission (or with any other governmental or
regulatory authority), granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that each of
said attorneys-in-fact and agents or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ C. EDWARD BROOM President, Chief Executive January 26, 1999
- ----------------------------------------------------- Officer and Chairman of
C. Edward Broom the Board of Directors
(Principal Executive
Officer)
/s/ KENNETH L. CHUTE Senior Vice President and January 26, 1999
- ----------------------------------------------------- Chief Financial Officer
Kenneth L. Chute (Principal Financial and
Accounting Officer)
/s/ CHRISTOPHER J. BROOM Executive Vice President, January 26, 1999
- ----------------------------------------------------- Chief Investment Officer
Christopher J. Broom and Director
/s/ THOMAS P. BROOM Executive Vice President, January 26, 1999
- ----------------------------------------------------- Chief Operating Officer
Thomas P. Broom and Director
</TABLE>
II-8
<PAGE> 178
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
1.1* Form of Underwriting Agreement
2.1.1+ Contract for the Purchase and Sale of Real Property, dated
April 15, 1998, by and between Griffin Logging, Inc. and
Louisiana Timber Partners, LLC
2.1.2+ Partial Assignment and Assumption of Contract, dated April
23, 1998, by and between Louisiana Timber Partners, LLC and
Strategic Timber Partners, LP
2.1.3+ Contribution Agreement, dated April 23, 1998, by and among
Strategic Timber Partners, LP, Strategic Timber Operating
Co., the Registrant and Louisiana Timber Partners, LLC
2.2+ Acquisition and Contribution Agreement, dated October 9,
1998, by and among Strategic Timber Trust II, LLC, Strategic
Timber Two Operating Co., LLC, Strategic Timber Partners II,
LP, Frontier Resources, LLC and all of the former owners of
the membership interests of Pioneer Resources, LLC
2.3* Plan and Agreement of Merger with respect to the Merger of
Strategic Timber Trust II, LLC, Strategic Timber Two
Operating Co., LLC and Strategic Timber Partners II, LP with
and into Strategic Timber Partners, LP, dated as of January
25, 1999
3.1.1 Articles of Incorporation of the Registrant
3.1.2* Form of Amended and Restated Articles of Incorporation of
the Registrant to be effective on or prior to the
consummation of this offering
3.2.1 Bylaws of the Registrant
3.2.2* Form of Amended and Restated Bylaws of the Registrant to be
effective on or prior to the consummation of this offering
3.3 Certificate of Incorporation of Strategic Timber Operating
Co.
3.4 Bylaws of Strategic Timber Operating Co.
3.5.1 Agreement of Limited Partnership of Strategic Timber
Partners, LP
3.5.2 First Amended and Restated Agreement of Limited Partnership
of Strategic Timber Partners, LP
3.5.3 First Amendment to First Amended and Restated Agreement of
Limited Partnership of Strategic Timber Partners, LP
3.5.4 Form of Second Amended and Restated Agreement of Limited
Partnership of Strategic Timber Partners, LP, to be
effective on or prior to the consummation of this offering
3.6.1 Agreement of Limited Partnership of Strategic Timber
Partners II, LP
3.6.2 First Amended and Restated Agreement of Limited Partnership
of Strategic Timber Partners II, LP
3.7 Operating Agreement of Strategic Timber Trust II, LLC
3.8 Operating Agreement of Strategic Timber Two Operating Co.,
LLC
3.9 Fourth Amended and Restated Operating Agreement of Pioneer
Resources, LLC
4.1* Form of Common Stock Certificate
5.1* Opinion of Sutherland Asbill & Brennan LLP as to certain
matters regarding the shares of Common Stock offered hereby
8.1 Opinion of Sutherland Asbill & Brennan LLP as to tax matters
(included in the prospectus that forms part of this
Registration Statement under "Federal Income Tax
Consequences")
10.1* Form of 1999 Strategic Timber Trust Omnibus Incentive Plan
10.2* Form of Indemnification Agreement to be executed between
Registrant and certain of its officers and directors
10.3* Form of Stock Option Agreement
10.4* Form of Stock Option Agreement for Outside Directors
</TABLE>
<PAGE> 179
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
10.5+ Replacement Credit Agreement, dated October 9, 1998, by and
among Pioneer Resources, LLC, First Union National Bank, ABN
AMRO Bank N.V., NationsBank, N.A., and the other lenders
which are or become parties thereto
10.6+ Loan Agreement, dated April 27, 1998, by and among Strategic
Timber Partners, LP, ABN AMRO Bank N.V., and the other
lenders which are or become parties thereto
10.7+ Bridge Loan Agreement, dated April 27, 1998, by and among
the Registrant, ABN AMRO Bank N.V. and the lenders named
therein
10.8+ Bridge Loan Agreement, dated October 9, 1998, by and among
Strategic Timber Trust II, LLC, ABN AMRO Bank N.V. and the
lenders named therein
10.9.1* Timber Purchase Agreement, dated December 29, 1998, between
Kinzua Resources, LLC and Pioneer Resources, LLC
10.9.2* Statutory Bargain and Sale Timber Deed between Kinzua
Resources, LLC and Pioneer Resources, LLC, dated December
29, 1998
10.10* Employment and Non-Competition Agreement between the
Registrant and C. Edward Broom
10.11* Employment and Non-Competition Agreement between the
Registrant and Christopher J. Broom
10.12* Employment and Non-Competition Agreement between the
Registrant and Thomas P. Broom
10.13* Employment and Non-Competition Agreement between the
Registrant and Kenneth L. Chute
10.14* Employment and Non-Competition Agreement between the
Registrant and Vladimir Harris
10.15* Employment and Non-Competition Agreement between the
Registrant and Nicholas C. Brunet
10.16* Employment and Non-Competition Agreement between the
Registrant and Joseph E. Rendini
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Sutherland Asbill & Brennan LLP
23.3 Consent of Mason, Bruce & Girard, Inc.
23.4 Consent of Canal Forest Resources, Inc.
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
99.1 Consent of Prospective Director Starling W. Childs, II
99.2 Consent of Prospective Director Jay S. Lucas
99.3 Consent of Prospective Director Hanns A. Pielenz
99.4 Consent of Prospective Director Richard P. Urfer
</TABLE>
- ---------------
* To be filed by amendment.
+ Schedules and similar attachments to this exhibit have been omitted. A list of
these omitted schedules has been provided in this exhibit, and the Registrant
agrees to furnish supplementally to the Commission a copy of any omitted
schedule upon request.
<PAGE> 1
EXHIBIT 2.1.1
CONTRACT FOR THE PURCHASE AND SALE
OF REAL PROPERTY
THIS CONTRACT made and entered into as of the 15th day of April, 1998,
between GRIFFIN LOGGING, INC., an Arkansas corporation (hereinafter referred to
as "Seller"), LOUISIANA TIMBER PARTNERS, LLC, a Georgia limited liability
company (hereinafter referred to as "Purchaser"),
W I T N E S S E T H:
In consideration of the mutual benefits and covenants herein
contained, Seller does hereby agree to sell and Purchaser does hereby agree to
purchase all those certain tracts or parcels of land located in Beauregard,
Allen, Jefferson Davis and Calcasieu Parishes, Louisiana, as more particularly
described in those certain documents described on Exhibit A attached hereto and
hereby made a part hereof (the "Real Property"), together with all personal
property, intangible property, rights, interests and privileges granted, sold,
assigned, transferred and conveyed to Seller pursuant to the documents
described on Exhibit A attached hereto relating to the Real Property (the Real
Property, together with such personal property, intangible property, rights,
interests and privileges are hereinafter referred to collectively as the
"Property"), on the following terms and conditions:
1. Purchase Price. The purchase price for the Property shall be ONE
HUNDRED NINETY-TWO MILLION EIGHT HUNDRED FOURTEEN THOUSAND NINE HUNDRED FORTY
AND 79/100 DOLLARS ($192,814,940.79), subject to decrease or increase, as the
case may be, by an amount equal to the difference between the purchase price
paid by Seller to acquire the Property and the above stated amount.
2. Warranties and Representations. Seller does hereby warrant and
represent to, and covenant and agree with, Purchaser both as of the date hereof
and as of the date of closing as follows:
(a) That Seller is or, as of the date of closing, will be the
owner of good and marketable fee simple title to the Property;
(b) That so long as this Contract remains in force, Seller
will not lease, rent, encumber or convey all or any portion of the Property or
any interest therein, or enter into any agreement granting to any person or
entity any right with respect to the Property, or any portion thereof;
(c) That during Seller's period of ownership of the Property,
Seller shall not remove or permit the removal of any trees, shrubs or other
plantings from the Property and shall
<PAGE> 2
not grade, excavate or otherwise change, or permit to be changed, the contour
or landscaping of the Property;
(d) To Seller's knowledge, neither the execution and delivery
of this Contract by Seller nor the consummation of the transaction herein
contemplated shall immediately, or, if applicable, after notice or lapse of
time or otherwise, result in a breach of any of the terms or provisions of or
constitute a default under any article, indenture, agreement, instrument or
obligation to which Seller is a party or by which Seller or the Property or any
portion thereof is bound or encumbered, or constitute a violation of any order,
rule or regulation applicable to Seller or the Property;
(e) That Seller will take, or cause to be taken, all action
necessary to cause the foregoing warranties, representations, covenants and
agreements to remain true, correct and unbreached in all respects from the date
hereof through the date of closing and will refrain from taking any action
which would cause, or threaten to cause, any such warranties and representa
tions to become incorrect or untrue at any time during such period, unless this
Contract specifically contemplates the taking of such action and the consequent
modification of certain warranties or representations; and
(f) Purchaser acknowledges and agrees that, except as
expressly set forth herein, Purchaser is acquiring the Property As-Is, Where-Is
and with all faults and without any express or implied warranty of suitability
for any particular use or purpose.
3. Conditions Precedent to Closing. The obligation of Purchaser to
purchase the Property is hereby expressly made subject to the following
conditions:
(a) The truth, accuracy and completeness as of this date and
as of the closing of the warranties and representations herein made by Seller;
and
(b) The due and prompt performance by Seller of each and
every one of Seller's obligations under this Contract, time being of the
essence.
Each of the foregoing conditions is solely for the benefit of Purchaser and
may, at the option of Purchaser, be waived by written notice to Seller given at
any time at or before the closing.
4. Closing. The purchase and sale hereunder shall be closed on or
before April 30, 1998, and in any event shall occur simultaneously with
Seller's acquisition of the Property. At the closing each party shall execute
and deliver all documents necessary to effect and complete the closing,
including but not limited to Seller's act of sale in substantially the same
form as the act of sale pursuant to which Seller acquires title to the
Property, a bill of sale and act of assignment. Purchaser shall pay the cost of
recording said act of sale, the premium for Purchaser's and Purchaser's
lender's title insurance policies. Ad valorem taxes on the Property for the
year in which the purchase and sale hereunder is closed shall be the sole
responsibility of Purchaser. Seller shall deliver possession of the Property to
Purchaser immediately upon Seller's acquiring the same.
-2-
<PAGE> 3
5. Default and Remedies. If the purchase and sale hereunder is not
closed by reason of Seller's inability, failure or refusal to perform any of
Seller's obligations hereunder, or because any warranty or representation made
herein by Seller proves untrue and is not waived by Purchaser, Purchaser may
thereupon take advantage of any and all remedies at law or in equity under the
laws of the State of Louisiana, including but not limited to a suit for
specific performance of this Contract. If the purchase and sale hereunder is
not closed because of the default of Purchaser, Seller may thereupon take
advantage of any and all remedies at law or in equity under the laws of the
State of Louisiana, including, but not limited to damages or a suit for
specific performance.
6. Notices. All notices and elections permitted or required to be made
under this Contract shall be in writing, signed by the party giving such notice
or election and shall be delivered personally, by facsimile or sent by
registered or certified mail to the other party hereto. The date of personal
delivery, facsimile transmission or the date of such mailing, as the case may
be, shall be the date that such notice or election shall be deemed to have been
given. For the purposes of this Contract:
The address of Seller is: Griffin Logging, Inc.
2315 N. Vine
Magnolia, Arkansas 71753
Attention: Todd M. Griffin
Facsimile No.: (870) 234-3210
The address of Purchaser is: Louisiana Timber Partners, LLC
21 South Avonlea Circle
The Woodlands, Texas 77382
Attention: Larry J. Woodard
Facsimile No.: (409) 273-5543
with a copy to: Deb Machamer
263 Captain's Quarter
Hilton Head Island, SC 29928
Facsimile No.: (803) 686-4529
Any party hereto may change its address for notices or copies thereof hereunder
by notice given as aforesaid.
7. Brokerage. Seller hereby represents and warrants to Purchaser that
Seller has not engaged or dealt with any broker or agent, other than as set
forth on Exhibit B attached hereto and hereby made a part hereof, in regard to
this Contract or to the sale and purchase of the Property contemplated hereby,
and Seller shall indemnify, defend and hold Purchaser harmless against any
liability, loss, cost, damage, claims and expense (including, but not limited
to attorney fees and expenses and costs of litigation) which Purchaser shall
suffer, incur or be threatened with because of any claim by any broker, agent
or other person or entity claiming by, through or under Seller, whether or not
meritorious, for any such fee, commission or other
-3-
<PAGE> 4
compensation with respect hereto or to the purchase and sale of the Property.
Seller agrees that Seller, at its sole cost and expense, shall pay the
brokerage commissions set forth on Exhibit B which are owed by Seller with
respect to Seller's acquisition of the Property.
8. Successors and Assigns. This Contract shall be binding upon and
shall inure to the benefit of Seller and Purchaser, their respective heirs,
successors, successors-in-title, legal representatives and assigns and said
terms "Seller" and "Purchaser" shall be deemed to include any such heirs,
successors, successors-in-title, legal representatives and assigns.
9. Survival. This Contract shall not be merged into the documents
executed at closing, but shall survive the closing, and the provisions hereof
shall remain in full force and effect.
10. Applicable Laws. All rights, duties and responsibilities under
this Contract shall be enforced according to the laws of the State of
Louisiana, and this Contract shall be interpreted in accordance with said laws.
11. Captions. Titles or captions of articles, paragraphs or sections
contained in this Contract are inserted only as a matter of convenience and for
reference and in no way define, limit, extend or describe the scope of this
Contract or the intent of any provision hereof.
12. Entire Agreement. This Contract embodies the entire agreement
between the parties and cannot be waived or amended except by written agreement
of Purchaser and Seller.
13. Counterparts. This Contract may be executed in any number of
counterparts, each of which shall be an original, but such counterparts shall
together constitute one and the same instrument.
14. Facsimile Execution. A facsimile of this Contract containing the
signature of each of the parties hereto shall constitute an original document
for all purposes.
15. Enforcement of Certain Rights for the Benefit of Purchaser. As
used herein, the "Bel/Quatre Contract Rights" shall mean all contractual rights
or claims Seller may have under or by virtue of (i) that certain Agreement to
Purchase and Sell by and among Estate of Albert B. Fay, Belfay, Inc., Bayou
Breeze, Inc. of Texas, MFM Cloche, Inc., Ernest Bel Fay Louisiana Trust,
Shadowfax Corporation of Texas, Marie Bel Fay Properties, Inc., Trust Under the
Will of James Ware Gardiner, Bel Bois Corporation, JBB Properties, Inc.,
Belwood, Inc., Ernest F. Bel Trust, Della Krause Thielen Testamentary Trust A
for John Chadick Thielen, Della Krause Thielen Testamentary Trust A for
Katherine Thielen Hoffman, John Chadick Thielen Properties, Inc., Katherine
Thielen Hoffman Properties, Inc., Belarbor Corporation, Piney Woods Corp., and
Baal Land Corporation, collectively as seller, and Seller, as purchaser, having
an effective date of January 21, 1998, regarding approximately 44,991.59 acres
located in Allen, Beauregard, Calcasieu and Jefferson Davis Parishes,
Louisiana; (ii) that certain Agreement to Purchase and Sell by and among Estate
of Albert B. Fay, Multi Parish, Inc., Flanders Grove, Inc., MFM Quatre, Inc.,
Ernest Bel Fay Louisiana Trust, Spotted Horse Corporation, MBF Properties,
Inc., Four Parishes, Inc., Tejeanne, Inc., Ernest F. Bel Trust, Della Krause
Thielen Testamentary Trust A for John Chadick Thielen, Della Krause Thielen
Testamentary Trust A for Katherine Thielen
-4-
<PAGE> 5
Hoffman, Della Krause Thielen Testamentary Residuary Trust for John Chadick
Thielen, Della Krause Thielen Testamentary Trust for Morgan Elizabeth Thielen,
Della Krause Thielen Testamentary Trust for Carson Chadick Thielen, Della
Krause Thielen Testamentary Trust for John Colin Thielen, Della Krause Thielen
Testamentary Trust for Katherine Anne Hoffman, Della Krause Thielen
Testamentary Trust for Taylor Ann Hoffman, Della Krause Thielen Testamentary
Trust for Robert Dean Hoffman, III, Schonervald, Inc., Idylease, Inc. Vier
Corporation and Liberty Logs Corp., collectively as seller, and Seller, as
purchaser, having an effective date of January 21, 1998, regarding
approximately 43,633.30 acres located in Allen, Beauregard, Calcasieu and
Jefferson Davis Parishes, Louisiana; and (iii) that certain Agreement to
Purchase and Sell by and between Baal Land Corporation, a Delaware corporation,
as seller, and Seller, as purchaser, dated on or about February 11, 1998, as
amended by that certain First Amendment to Agreement to Purchase and Sell,
dated on or about February 12, 1998. Seller hereby assigns to Purchaser (which
shall be deemed to mean Purchaser's assignee of this Agreement) any and all of
the Bel/Quatre Contract Rights and hereby names Purchaser (which shall be
deemed to mean Purchaser's assignee of this Agreement) as its agent and
attorney-in-fact to enforce such Bel/Quatre Contract Rights on behalf of
Seller.
16. Indemnification of Seller. Purchaser agrees that Purchaser shall
be responsible, and will reimburse Seller, for any and all losses, claims,
demands, suits, expenses, damages, obligations and liabilities of any kind or
nature, including, without limitation, reasonable attorneys' fees,
disbursements and court costs, suffered or incurred by Seller by reason of any
matter which arises during or as a result of Seller's ownership of the
Property.
17. Contingencies To Seller's Obligation. Purchaser and Seller
acknowledge and agree that Seller's obligations hereunder are expressly made
contingent upon Seller obtaining title to the Property.
* * * * * * *
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals the day and year first above written.
SELLER:
GRIFFIN LOGGING, INC., an Arkansas
corporation
By: /s/ Todd M. Griffin
-------------------------------------
Todd M. Griffin, Vice President
[Signatures Continued On Following Page]
-6-
<PAGE> 7
[Signatures Continued From Previous Page]
PURCHASER:
LOUISIANA TIMBER PARTNERS, LLC, a
Georgia limited liability company
By: /s/ Larry J. Woodard
--------------------------------------
Larry J. Woodard, Manager and Member
-7-
<PAGE> 8
Exhibit A
Description of real property
(Attachment Omitted)
-8-
<PAGE> 9
Exhibit B
Brokerage Commission Structure
(Attachment Omitted)
-9-
<PAGE> 1
EXHIBIT 2.1.2
PARTIAL ASSIGNMENT AND ASSUMPTION OF CONTRACT
THIS PARTIAL ASSIGNMENT AND ASSUMPTION OF CONTRACT (this "Assignment")
made and entered into as of the 23rd day of April, 1998, by and between
LOUISIANA TIMBER PARTNERS, LLC, a Georgia limited liability company
("Assignor") and STRATEGIC TIMBER PARTNERS, LP, a Delaware limited partnership
("Assignee"),
W I T N E S S E T H:
WHEREAS, Assignor has entered into that certain Contract for
the Purchase and Sale of Real Property dated as of April 15, 1998 by and
between Assignor, as purchaser, and Griffin Logging, Inc., an Arkansas
corporation ("Griffin"), as seller, a copy of which is attached hereto as
Exhibit A (the "Contract"), pursuant to which Assignor has contracted to
purchase certain real property, personal property, intangible property, rights,
interests and privileges, all as more particularly described therein (the
"Property"); and
WHEREAS, Assignor desires to assign, transfer and convey to
Assignee its interest in and to the Contract with respect to the Property other
than the movable property set forth on Exhibit B attached hereto and hereby
made a part hereof (the "Equipment") and Assignee desires to assume Assignor's
interest in the Contract with respect to the Property other the Equipment on
the terms and conditions contained herein.
NOW, THEREFORE, for and in consideration of the sum of Ten
and No/100 Dollars ($10.00) and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Assignment and Assumption. Assignor hereby transfers,
assigns and conveys to Assignee all of Assignor's right, title and interest in
the Contract, less and except Assignor's right, title and interest pursuant to
the Contract in and to Equipment. Assignee hereby assumes all of Assignor's
rights, duties and obligations arising under or by virtue of the Contract with
respect to the Property other than the Equipment to the same extent as though
Assignee were an original party thereto.
2. Rights of Assignee. Assignor hereby authorizes and
empowers Assignee, subject to the terms hereof, to enforce the performance of
all covenants and conditions contained in the Contract, as hereby assigned, in
the same manner and with the same effect as Assignor could have done had this
Assignment not been made.
3. Reciprocal Responsibilities. Assignee shall be
responsible, and shall reimburse Assignor, for any and all losses, costs,
damages and claims, including reasonable attorneys' fees, arising under the
Contract for matters arising from occurrences from and after the date hereof,
excepting any of the foregoing which relates to the Equipment. Assignor shall
be responsible, and shall reimburse Assignee, for all losses, costs, damages,
claims and including reasonable attorneys' fees, arising under the Contract for
matters arising from occurrences prior to and on even date hereof, excepting
any of the foregoing which relates to the Equipment.
<PAGE> 2
4. Representations and Warranties. Assignor represents and
warrants that Assignor has full power and authority to execute this Assignment,
that Assignor is not now in default in its obligations under the Contract; that
entering into this Assignment will not violate or cause a breach by Assignor
under the Contract, or any other contract, agreement or any court order, and
that no other consent or approval from any other party is necessary or required
for Assignor to enter into this Assignment or to consummate the transactions
contemplated hereunder.
5. Consent of Griffin. Griffin hereby consents to this
Assignment, and by virtue of such consent, agrees to execute and deliver to
Assignor and Assignee all such instruments, agreements, affidavits and
documents as are reasonably necessary to effect the intent of this Assignment
and consummate the transactions contemplated under the Contract, as hereby
partially assigned, including without limitation, acts of sale, assignments,
bills of sale and the like.
6. Binding Effect, Successor and Assigns. This Assignment
shall be binding upon and inure to the benefit of Assignee, its successors and
assigns. This is the entire agreement between the parties and cannot be changed
or modified without the written approval of the parties hereto.
7. Counterparts. This Assignment may be executed in any
number of counterparts, each of which shall be an original, but such
counterparts shall together constitute one and the same instrument.
8. Facsimile Execution. A facsimile of this Assignment
containing the signature of each of the parties hereto shall constitute an
original document for all purposes.
* * * * * * * *
-2-
<PAGE> 3
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment of Contract as of the day and year above first written.
ASSIGNOR:
LOUISIANA TIMBER PARTNERS, LLC, a
Georgia limited liability company
By: /s/ Larry J. Woodard
--------------------
Larry J. Woodard
Manager and Member
ASSIGNEE:
STRATEGIC TIMBER PARTNERS, LP, a
Delaware limited partnership
By: Strategic Timber Operating Co., a Delaware
corporation, its general partner
By: /s/ Joseph E. Rendini
------------------------
Name:
------------------------
Title:
------------------------
Acknowledged, consented to
and agreed upon by:
GRIFFIN LOGGING, INC., an
Arkansas corporation
By: /s/ Todd M. Griffin
--------------------
Todd M. Griffin
Vice President
-3-
<PAGE> 4
Exhibit A
Contract For the Purchase and Sale of Real Property
(Attachment Omitted)
-4-
<PAGE> 5
Exhibit B
List of Equipment
(Attachment Omitted)
-5-
<PAGE> 1
EXHIBIT 2.1.3
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is entered into as of
April 23, 1998 by and among STRATEGIC TIMBER PARTNERS, LP, a Delaware limited
partnership ("STP"), STRATEGIC TIMBER OPERATING CO., a Delaware corporation
("STOC"), STRATEGIC TIMBER TRUST, INC., a Georgia corporation ("STT"), and
LOUISIANA TIMBER PARTNERS, LLC, a Georgia limited liability company ("LTP").
BACKGROUND STATEMENT
A. LTP is, or will be as of the Closing Date, the purchaser under the
Contract, which Contract relates to the purchase of the Property.
B. STOC and STT have formed STP as a Delaware limited partnership to
acquire, hold, manage and dispose of timberland investments.
C. STP desires that LTP contribute the Contract to STP in exchange for
an ownership interest in STP, and LTP has agreed to such contribution, for the
consideration and upon the terms and conditions set forth in this Agreement.
D. In order to facilitate the acquisition of the Property, STT and STOC
desire to contribute certain monies to STP.
STATEMENT OF AGREEMENT
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained in this Agreement and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
will have the following meanings:
(a) Acquisition Financing. The acquisition financing to be
obtained by STP from Lender in connection with the Closing.
(b) Bridge Financing. The bridge financing to be obtained by
STT from Lender to fund the capital contributions of STT and STOC described in
Section 5(a) hereof.
(c) Class A Partnership Units. The partnership interests in
STP which will be issued to STOC and STT as of the Closing, as more particularly
described in the Partnership Agreement.
<PAGE> 2
(d) Class B Partnership Units. The limited partner interests
in STP which will be issued to LTP, all as more particularly described in the
Partnership Agreement.
(e) Class C Partnership Units. The limited partner interests
in STP which will be issued to LTP, all as more particularly described in the
Partnership Agreement.
(f) Closing. The consummation of the purchase and sale of the
Property by STP pursuant to the terms of the Contract and this Agreement.
(g) Closing Date. The date upon which the Closing will occur,
which date will occur no later than April 28, 1998.
(h) Company. Collectively, STP, STT and STOC.
(i) Contract. That certain Contract for the Purchase and Sale
of Real Property dated as of April 15, 1998 by and among Griffin Logging, Inc.,
an Arkansas corporation and LTP.
(j) Financing. The Acquisition Financing and the Bridge
Financing, which Financing will be on substantially the same terms as set forth
in the Loan Commitment attached hereto as Exhibit D.
(k) IPO. The contemplated underwritten initial public offering
of the shares in STT, registered under the Securities Act of 1933.
(l) Lender. A syndicate of lenders with ABN AMRO Bank N.V. as
agent for the syndicate of lenders.
(m) LTP Loan. A loan in the principal amount of $16,400,000,
plus accrued interest thereon as of Closing, which was assumed by STP and is
being satisfied in full at Closing.
(n) LTP Reimbursement. An amount equal to $18,109,484.84,
payable to LTP at Closing to reimburse LTP for costs and expenses incurred in
connection with acquiring its rights under the Contract and to repay the LTP
Loan.
(o) Partnership Agreement. The First Amended and Restated
Agreement of Limited Partnership of STP, a copy of which is attached hereto as
Exhibit C.
(p) Permitted Encumbrances. Those items affecting title to the
Property and which are set forth on Exhibit B attached hereto.
(q) Phase I. That certain Phase I Environmental Site
Assessment performed on the Property by Harding Lawson Associates dated April
25, 1998.
2
<PAGE> 3
(r) Property. That certain real property located in Allen,
Beauregard, Calcasieu and Jefferson Davis Parishes, Louisiana, and being more
particularly described on Exhibit A attached hereto.
(s) Property Costs. The $205,000,000 of cash that STP will pay
for the purchase of the Property, which includes the consideration to the seller
under the Contract and the LTP Reimbursement, together with all other costs of
Closing, except as may be set forth in Paragraph 5(b) below.
(t) Units. Collectively, the Class C Partnership Units and the
Class B Partnership Units.
2. QUALIFICATION OF STP. On or before the Closing Date, STP will be
duly qualified to conduct business in the State of Louisiana.
3. FINANCING. STP and STT will use their good faith diligent efforts to
obtain the Financing to fund the Property Costs on substantially the same terms
as set forth in the Loan Commitment attached hereto as Exhibit D.
4. DUE DILIGENCE. LTP represents to STP that LTP has delivered to STP
copies of all documents and exceptions regarding title to the Property. STP
acknowledges receipt of same and agrees to accept the Property subject to all of
the Permitted Encumbrances. STP acknowledges receipt of the Phase I and
acknowledges that it has reviewed same. Based on its review of the Phase I, if
STP reasonably determines that additional environmental tests and/or remediation
on the Property is reasonably necessary, STP may cause such additional work to
be performed. LTP will have the right to approve the contractors, consultants,
proposals and bids for performing such additional work, such approval not to be
unreasonably withheld. The reasonable cost of such additional work will be
shared equally by STP and LTP.
5. CLOSING.
(a) Deliveries. On the Closing Date, the following will occur:
(i) LTP will contribute and assign the Contract to STP,
which will assume all of the purchaser's obligations thereunder.
(ii) STT and STOC will contribute the amount shown on
Exhibit A of the Partnership Agreement in the form of cash and costs incurred
for the benefit of the Partnership.
(iii) STP will pay the Property Costs pursuant to the
instructions of LTP.
(iv) LTP will cause title to the Property to be conveyed
to STP pursuant to the Act of Sale contemplated by the Contract and STP will
accept title to the Property.
3
<PAGE> 4
(v) LTP will deliver to STP an original title insurance
commitment, marked to constitute a final policy, insuring STP's fee simple title
to the Property subject only to the Permitted Encumbrances.
(vi) STP will issue to LTP the Class B Partnership Units
and the Class C Partnership Units in STP, as more particularly set forth in
paragraph 6 below.
(vii) STP will issue to STT and STOC the Class A
Partnership Units in STP.
(viii) STP and LTP will execute such other documents as may
be required in order to consummate the Closing in accordance with all applicable
laws and with the Contract and this Agreement.
(b) Closing Costs. The costs to consummate the Closing will be
allocated as follows:
(i) LTP will pay the following costs of Closing:
(A) the cost of the Phase I;
(B) the cost of that certain cruise of the Property
performed by Larson & McGowin dated March, 1998; and
(C) twenty percent (20%) of all other costs of
Closing, including without limitation the cost of STP's title insurance policy
and all local counsel fees.
(ii) STP will pay the following costs of Closing:
(A) the cost of that certain Appraisal of the
Property performed by F&W Forestry Consultants at the request of STT; and
(B) eighty percent (80%) of all other costs of
Closing, including without limitation the cost of STP's title insurance policy
and all local counsel fees.
(C) All costs and expenses related to the Financing,
including without limitation, Lender's attorneys' fees and loan fees.
(iii) Each party will pay its own attorneys' fees and
expenses.
6. CONSIDERATION. LTP and STP agree that for the purpose of the
transaction contemplated by this Agreement, the unencumbered agreed value of the
Property is $255,000,000.00. STP will issue to LTP the Units in consideration
for LTP's contribution of the
4
<PAGE> 5
Contract to STP. LTP's Capital Account (as defined in the Partnership Agreement)
will be credited with the agreed fair market value of the Contract, $50,000,000.
7. REPRESENTATIONS AND WARRANTIES.
(a) LTP hereby represents and warrants to the Company as follows:
(i) Authority.
(A) LTP is a limited liability company duly formed
and validly existing under the laws of the State of Georgia, and LTP has the
full capacity, power and authority to enter into the Contract and this Agreement
and fully perform its obligations thereunder and hereunder.
(B) LTP has the full right, power, and authority to
enter into and perform under the Contract and this Agreement; no consent,
approval, order or authorization of any court or other governmental entity is
required to be obtained by LTP in connection with the execution and delivery of
this Agreement or the performance thereof by LTP; and the Contract and this
Agreement and the performance thereof by LTP will not contravene any law or
contractual restriction binding on LTP.
(C) This Agreement has been duly executed and
delivered by LTP and constitutes the valid and binding obligation of LTP,
enforceable against LTP in accordance with its terms.
(ii) Accredited Investor Status.
(A) LTP is a limited liability company, not formed
for the specific purpose of acquiring the Units, with total assets in excess of
$5,000,000.
(B) As to each of the equity owners of LTP, (1) he
has an individual net worth or joint net worth with his spouse in excess of
$1,000,000.00, and/or (2) his individual income in the two most recent years has
been in excess of $200,000.00 per year, or his joint income with his spouse in
the two most recent years has been in excess of $300,000.00 per year, and he has
a reasonable expectation of reaching the same income level in the current year.
(iii) Understanding of Investment Risks. LTP
understands that:
(A) Inasmuch as the Company is a new venture, the
Units represent a highly speculative and risky investment, and there can be no
assurance as to the success of the Company;
5
<PAGE> 6
(B) There may be dilution in the net tangible book
value per share compared to the per Unit purchase price;
(C) The price for the Units has been arbitrarily
determined, should not be considered an indication of the actual value of the
Units, and may not have any relation to any applicable criterion of value; and
(D) There is at present no market for the Units or
the common shares of STT into which the Units may be converted, (the "STT
Shares") and it is uncertain whether a market will develop.
(iv) Understanding of Nature of Units. LTP
understands that:
(A) Neither the Units nor the STT Shares have been
registered under the Securities Act of 1933 (the "Act"), or any state securities
laws (the "State Acts") and are being issued in reliance upon certain of the
exemptions contained in the Act and the State Acts, and the representations and
warranties of LTP contained herein are essential to the claim of exemption by
the Company under the Act and the State Acts;
(B) The Units and the STT Shares are "restricted
securities" as that term is defined in Rule 144 promulgated under the Act;
(C) The Units and the STT Shares cannot be sold or
transferred without registration under the Act and any applicable State Acts or
unless the Company receives an opinion of counsel acceptable to it (as to both
counsel and the opinion) that such registration is not necessary;
(D) The documents or certificates evidencing the
Units and the STT Shares shall bear a legend to the effect that the securities
represented thereby have not been registered under the Act or any state
securities acts and may not be sold, transferred or otherwise disposed of unless
a registration statement under the Act and any applicable state securities acts
with respect to such securities is effective or unless the Company is in receipt
of an opinion of counsel satisfactory to it to the effect that such securities
may be sold without registration under the Act and such acts, in addition to any
other legend required by law or otherwise;
(E) Only the Company can register the Units and the
STT Shares under the Act and any of the State Acts;
(F) There are stringent conditions for LTP's
obtaining an exemption for the resale of the Units or the STT Shares under the
Act and any State Acts; and
(G) The Company may from time to time make stop
transfer notations in its transfer records to ensure compliance with the Act and
any State Acts.
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<PAGE> 7
(v) Investment Intent. LTP represents and warrants
that:
(A) LTP is acquiring the Units for LTP's own
account and not on behalf of any other person;
(B) LTP is acquiring the Units for investment
and not with a view to or for sale in connection with any distribution of the
Units or the STT Shares (if any) or with the intent to divide LTP's
participation with others or resell or otherwise participate in a distribution
of the Units or the STT Shares (if any), directly or indirectly;
(C) Neither LTP nor anyone acting on LTP's
behalf has paid or will pay any commission or other similar remuneration to any
person in connection with LTP's acquisition of the Units or STT Shares (if any);
and
(D) LTP will not sell the Units or any STT
Shares (if any), (1) without registration under the Act and the applicable State
Acts or unless the Company receives an opinion of counsel acceptable to it (as
to both counsel and the opinion) to the effect that such registration is not
necessary, or (2) without compliance with any restrictions imposed by the Act or
any applicable State Acts.
(b) STP hereby represents and warrants to LTP as follows:
(i) STP is a limited partnership duly formed and validly
existing under the laws of the State of Delaware, and STP has the full capacity,
power and authority to enter into this Agreement and fully perform its
obligations hereunder.
(ii) STP has the full right, power, and authority to enter
into and perform this Agreement; no consent, approval, order or authorization of
any court or other governmental entity is required to be obtained by STP in
connection with the execution and delivery of this Agreement or the performance
thereof by STP; and this Agreement and the performance thereof by STP will not
contravene any law or contractual restriction binding on STP.
(iii) This Agreement has been duly executed and delivered
by STP and constitutes the valid and binding obligation of STP, enforceable
against STP in accordance with its terms.
(c) STT hereby represents and warrants to LTP as follows:
(i) STT is a corporation duly formed and validly existing
under the laws of the State of Georgia, and STT has the full capacity, power and
authority to enter into this Agreement and fully perform its obligations
hereunder.
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<PAGE> 8
(ii) STT has the full right, power, and authority
to enter into and perform this Agreement; no consent, approval, order or
authorization of any court or other governmental entity is required to be
obtained by STT in connection with the execution and delivery of this Agreement
or the performance thereof by STT; and this Agreement and the performance
thereof by STT will not contravene any law or contractual restriction binding on
STT.
(iii) This Agreement has been duly executed and
delivered by STT and constitutes the valid and binding obligation of STT,
enforceable against STT in accordance with its terms.
(d) STOC hereby represents and warrants to LTP as
follows:
(i) STOC is a corporation duly formed and
validly existing under the laws of the State of Delaware, and STP has the full
capacity, power and authority to enter into this Agreement and fully perform its
obligations hereunder.
(ii) STOC has the full right, power, and
authority to enter into and perform this Agreement; no consent, approval, order
or authorization of any court or other governmental entity is required to be
obtained by STOC in connection with the execution and delivery of this Agreement
or the performance thereof by STOC; and this Agreement and the performance
thereof by STOC will not contravene any law or contractual restriction binding
on STOC.
(iii) This Agreement has been duly executed and
delivered by STOC and constitutes the valid and binding obligation of STOC,
enforceable against STOC in accordance with its terms.
8. BROKERS. Each party represents and warrants that it has not
dealt with any broker, agent or finder in connection with the Contract or this
Agreement, and each party will indemnify and hold the other harmless from any
claims made by any such brokers, agents or finders alleging to have dealt with
the indemnifying party. In addition to, and without limiting the generality of,
the foregoing, LTP will indemnify and hold the Company harmless from any claims
or actions of any brokers, agents, finders or any other parties claiming a right
to participate in the transactions contemplated by the Contract and by this
Agreement or claiming any interest in the Property.
9. NOTICE. Any and all notices, elections and communications
required or permitted by this Agreement will be made or given in writing and
will be delivered in person or by reputable overnight courier (such as FedEx or
UPS) or sent by facsimile followed by postage prepaid United States mail,
certified or registered, return receipt requested, to the other parties at the
addresses set forth below, or such other address as may be furnished by notice
in accordance with this paragraph. The date of notice given by personal
delivery, facsimile or overnight courier will be the date of such delivery. The
effective date of notice by mail will be the date such notice is mailed.
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<PAGE> 9
the Company: 5 North Pleasant Street
New London New Hampshire 03257
Attn: C. Edward Broom
Facsimile: (603) 526-7811
with a copy to: Sutherland, Asbill & Brennan LLP
999 Peachtree Street, N.E.
Atlanta, Georgia 30309-3996
Attn: Haynes Roberts
Facsimile: (404) 853-8806
LTP: 21 South Avonlea Circle
The Woodlands, Texas 77382
Attn: Larry J. Woodard
Facsimile:______________________
with a copy to: Sutherland, Asbill & Brennan LLP
999 Peachtree Street, N.E.
Atlanta, Georgia 30309-3996
Attn: Victor P. Haley
Facsimile: (404) 853-8806
10. ASSIGNMENT. No party may assign this Agreement without the
consent of the other.
11. CONFIDENTIALITY. Each party will keep the existence and terms
of this Agreement confidential and will not disclose this Agreement or any
portion hereof to any person or entity without the consent of the other party,
and will so instruct their employees and representatives; provided, however, the
Company will have the right to disclose this Agreement to (a) Lender, (b) any
other lenders to whom Lender may elect to disclose this Agreement for purposes
of syndicating the Financing, and (c) underwriters, investment bankers, advisors
and consultants to whom the Company may disclose this Agreement in connection
with the IPO; provided further, that either party will have the right to
disclose this Agreement if required by applicable law or the rules of any
national stock exchange or interdealer quotation system.
12. MISCELLANEOUS. This Agreement will be governed by the laws of
the State of Georgia. This Agreement contains the entire agreement among the
parties hereto with respect to the subject matter hereof and cannot be amended
or supplemented except by a written agreement signed by all parties. The
captions of paragraphs in this Agreement are for convenience and reference only
and are not part of the substance hereof. In the event that any one or more of
the provisions contained in this Agreement, or the application thereof in any
circumstance is held invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of any such provision in every
other respect and of the remaining provisions of this Agreement, will not be in
any way impaired, it being the intention of the parties that this Agreement will
be enforceable to the
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<PAGE> 10
fullest extent permitted by law. This Agreement may be executed in counterparts
which will be construed together as one instrument. Subject to the terms of
Paragraph 10 above, this Agreement will bind the parties hereto and their
respective heirs, legal representatives, successors and assigns.
13. INCORPORATION OF EXHIBITS. All exhibits referred to herein are
hereby incorporated in this Agreement by this reference.
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<PAGE> 11
IN WITNESS WHEREOF, this Agreement has been duly executed,
sealed and delivered by the parties hereto the day and year written above.
STP:
STRATEGIC TIMBER PARTNERS, LP
By: Strategic Timber Operating Co., a Delaware
corporation, its general partner
By: /s/ Joseph E. Rendini
--------------------------------------
Name: Joseph E. Rendini
---------------------------------
Its: Vice President
---------------------------------
STT:
STRATEGIC TIMBER TRUST, INC.
By: /s/ Joseph E. Rendini
--------------------------------------
Name: Joseph E. Rendini
---------------------------------
Its: Vice President
---------------------------------
STOC:
STRATEGIC TIMBER OPERATING CO.
By: /s/ Joseph E. Rendini
--------------------------------------
Name: Joseph E. Rendini
---------------------------------
Its: Vice President
---------------------------------
LTP:
LOUISIANA TIMBER PARTNERS, LLC
By:/s/ Larry J. Woodard
--------------------------------------
Larry J. Woodard
Manager
11
<PAGE> 12
EXHIBIT A
COPY OF CONTRACT
(Attachment Omitted)
<PAGE> 13
EXHIBIT B
PERMITTED ENCUMBRANCES
(Attachment Omitted)
<PAGE> 14
EXHIBIT C
PARTNERSHIP AGREEMENT
(Attachment Omitted)
<PAGE> 15
EXHIBIT D
LOAN COMMITMENT
(Attachment Omitted)
<PAGE> 1
EXHIBIT 2.2
ACQUISITION AND CONTRIBUTION AGREEMENT
THIS ACQUISITION AND CONTRIBUTION AGREEMENT (this
"Agreement") dated as of October 9, 1998 by and among STRATEGIC TIMBER TRUST
II, LLC, a Georgia limited liability company ("STTII"), STRATEGIC TIMBER TWO
OPERATING CO., LLC, a Georgia limited liability company ("STTOC"), STRATEGIC
TIMBER PARTNERS II, LP, a Georgia limited partnership ("STPII"), and GREGORY M.
DEMERS, T. YATES EXLEY, KING INVESTMENT GROUP, INC., OLD PIONEER, LLC, DARRICK
SALYERS and JAMES A. YOUEL (collectively, "Members" and each, individually, a
"Member"), owners of all the membership interests of Pioneer Resources, LLC, an
Oregon limited liability company, and FRONTIER RESOURCES, LLC, an Oregon
limited liability company ("Frontier"). STTOC, STTII, STPII, Members and
Frontier, in consideration of the mutual agreements set forth below (the
mutuality, adequacy and sufficiency of which are acknowledged), agree with the
intent to be legally bound as follows:
ARTICLE 1
BACKGROUND AND PURPOSE; DEFINITIONS
1.1 BACKGROUND AND PURPOSE. Pioneer (hereinafter defined) holds
certain assets including the Timberlands (hereinafter defined). STPII desires
to purchase certain Interests (hereinafter defined) and the Members desire to
contribute the remaining Interests to STPII following the withdrawal from
Pioneer of the Excluded Assets (hereinafter defined) for the consideration set
forth and pursuant to the terms of this Agreement.
1.2 DEFINITIONS. For purposes of this Agreement:
- The "Act" is defined in Section 5.9(b)(ii).
- "affiliate" of, or person "affiliated" with a specified
person, means a person that directly, or indirectly through
one or more intermediaries, controls or is controlled by, or
is under common control with, the persons specified.
- "this Agreement" includes this Agreement and any amendments
or other modifications and supplements to this Agreement, and
all exhibits, schedules and other attachments to it, as
executed and delivered by the parties thereto.
- "Applicable Law" means all applicable provisions of any
constitution, statute, law, ordinance, code, rule,
regulation, decision, order, decree, judgment, release,
license, permit, stipulation or other official pronouncement
enacted or issued by any Governmental Authority or arbitrator
or arbitration panel.
- "August 31, 1998 Appraisal" is defined in Section 2.8.
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<PAGE> 2
- "Class B Units" mean those partnership Class B Units in STPII
which have the rights, privileges and obligations set forth
in the Partnership Agreement.
- "Closing" is defined in Section 3.1.
- "Closing Appraisal" is defined in Section 2.8.
- "Closing Date" is defined in Section 3.2.
- The "Companies" means, collectively, STTOC, STPII and STTII.
- "Companies Delivered Agreements" is defined in Section 5.2.
- "control" (including the terms "controlling," "controlled by"
and "under common control with") means the possession, direct
or indirect, of the power to direct or cause the direction of
the management and policies of a person, whether through the
ownership of voting securities, by contract or otherwise.
- "contract" means any contract, agreement, commitment,
arrangement, undertaking or understanding of any kind
whatsoever, written or oral, together with all related
amendments, modifications, supplements, waivers and consents.
- "Effective Time" is defined in Section 3.2.
- "Environmental Laws" is defined in Section 4.3(j)(i).
- "ERISA" means the Employee Retirement Income Security Act of
1974, and regulations promulgated thereunder.
- "Excluded Assets" means all assets of Pioneer other than (i)
the Timberlands; (ii) the Timberlands Related Assets; (iii)
the Retained Contracts; (iv) the Permits relating to the
Timberlands; (v) all warranty, indemnification and other
rights with respect to any of the Timberlands other than the
Excluded Assets under contracts or conveyancing documents
pursuant to which Pioneer acquired the asset in question;
(vi) all claims and rights of action against any third party
which relate to or arise out of Pioneer's ownership, use or
possession of the Timberlands (except such claims and rights
of action which may offset liabilities of Frontier or any of
the Members under this Agreement); (vii) the Financial
Statements; (viii) Pioneer's (a) minute books, (b) tax
records and (c) other books and records relating to the
Timberlands, the Timberlands Related Assets and the Retained
Contracts; and (ix) the personal property described on
Schedule 4.3(f). "Excluded Assets" also include such other
assets described on Schedule 1.2. Schedule 1.2 in part
defines the parties' rights and obligations with respect to
the Excluded Assets.
- "Excluded Liabilities" is defined in Section 2.5.
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<PAGE> 3
- "Existing Credit Agreement" means that certain Amended and
Restated Credit Agreement dated March 26, 1998, as amended to
the date hereof, evidencing the Existing Credit Facility
among Pioneer, as borrower, Lane Plywood, Inc., Kinzua
Resources, L.L.C., Pioneer Aviation, LLC and Pioneer Merger,
Inc., as guarantors, Bank of Montreal, individually and as
administrative agent and the lenders which are parties
thereto.
- "Existing Credit Facility" means all of the obligations and
other indebtedness outstanding under and pursuant to the
Existing Credit Agreement.
- "Escrow Agreement" means the Escrow Agreement among the
Member Representative, STPII and First Union National Bank as
escrow agent dated as of the date of this Agreement relating
to the Purchase Price Adjustment.
- "Financial Statements" is defined in Section 4.3(e).
- "Financing" means, collectively, (a) the Replacement Credit
Facilities evidenced by the Replacement Credit Agreement and
(b) that senior secured bridge loan in the aggregate
committed amount of $35,000,000 and evidenced by, among other
loan documentation, that certain Bridge Loan Agreement dated
as of the date of this Agreement, among STTII, as borrower,
the lenders party thereto, and ABN AMRO Bank N.V., as
administrative agent for the lenders.
- "Frontier Delivered Agreements" is defined in Section
4.3(o)(v).
- "Frontier Indemnitees" is defined in Section 7.4.
- "Governmental Authority" means any federal, state, local or
foreign legislative, executive, judicial, quasi-judicial or
other public authority, agency, department, bureau, division,
unit, court or other public body, person or entity.
- "Harvest Certificate" is defined in Section 3.5(k).
- "Interests" means all of the outstanding membership units in
Pioneer.
- "IPO" means any one of the following (i) STT's initial
underwritten offering of its shares to the public pursuant to
an effective registration statement filed with the SEC; (ii) a
private placement of Partnership units or STT shares to equity
investors; or (iii) a debt offering of debt securities by the
Partnership pursuant to a registration statement that has been
declared effective by the SEC.
- "IRC" means the Internal Revenue Code of 1986, as amended,
and any successor statute.
- "Joinder Agreement" is defined in Section 3.6(b).
- "knowledge" is defined in Section 4.3, Section 4.5, Section
5.8 and Section 7.1 (b).
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<PAGE> 4
- "Lien" means any mortgage, deed to secure debt, deed of
trust, security interest, lien, pledge, charge, right of
refusal, encumbrance or adverse claim of any kind and any
other security arrangement of any nature whatsoever,
including any conditional sale or title retention
arrangement, and any assignment, deposit arrangement or lease
intended as, or having the effect of, security and the
interest of a lessor or lessee under a lease treated as a
capitalized lease under generally accepted accounting
principles.
- "Loss" is defined in Section 7.l(a).
- "Mach One" means Mach One Partners, LLC, a Georgia limited
liability company.
- "MBG" means Mason, Bruce & Girard, Inc., forestry consultants
to Pioneer and STPII
- "Member Delivered Agreements" is defined in Section 4.2(b).
- "Member Representative" means Gregory M. Demers, or such
other person appointed pursuant to Article 11.
- "Partnership Agreement" means that certain First Amended and
Restated Agreement of Limited Partnership of STPII, in
substantially the form as the attached Exhibit A.
- "Permits" is defined in Section 4.3(i).
- "Permitted Encumbrances" means all reforestation obligations,
ad valorem taxes not yet due and payable; all general and
special exceptions listed on the Title Policies, those
matters shown on Schedule 1.3; and other existing Liens,
easements, restrictions and leases which do not, individually
or in the aggregate, adversely affect Pioneer's reasonable
use and enjoyment of the Timberlands for the planting,
growing and harvesting of timber or otherwise materially
impair the value or marketability of the Timberlands.
- "person" means any individual, sole proprietorship,
partnership, joint venture, estate, trust, unincorporated
organization, association, corporation, limited liability
company, institution or other entity, including any that is a
Governmental Authority.
- "Pioneer" means Pioneer Resources, LLC, an Oregon limited
liability company, without its Subsidiaries or its
affiliates.
- "plan" means any plan, program, policy or arrangement and all
related amendments, modifications, supplements, waivers and
consents.
- "Pre-Closing Period" is defined in Section 6.8(a).
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<PAGE> 5
- "Purchase Price" is defined in Section 2.2(a).
- "Purchase Price Adjustment" is defined in Section 2.8.
- "Replacement Credit Agreement" means that certain Replacement
Credit Agreement dated as of the date of this Agreement,
among Pioneer, as borrower, the lenders party thereto, First
Union National Bank, as administrative agent for the lenders,
ABN AMRO Bank N.V., as syndication agent for the lenders, and
NationsBank, N.A. as documentation agent for the lenders.
- "Replacement Credit Facilities" means those senior secured
credit facilities in the aggregate committed amount of
$270,000,000 in favor of Pioneer and evidenced by, among
other loan documentation, the Replacement Credit Agreement,
which would at Closing replace the Existing Credit Facility
in its entirety.
- "Retained Contracts" is defined in Section 2.4(d).
- "Retained Liabilities" is defined in Section 2.4.
- "State Acts" is defined in Section 5.9(b)(ii).
- "STPII" means Strategic Timber Partners II, LP, a Georgia
limited partnership.
- "STT" means Strategic Timber Trust, Inc., a Georgia
corporation that will elect to be classified as a real estate
investment trust as defined in IRC s. 856.
- "STTII" means Strategic Timber Trust II, LLC, a Georgia
limited liability company.
- "STTOC" means Strategic Timber Two Operating Co., LLC., a
Georgia limited liability company.
- "STTOC Indemnitees" is defined in Section 7.2.
- "Subsidiary" means, with respect to any person, a corporation
or other organization, whether incorporated or
unincorporated, of which at least a majority of the
securities or interests having by the terms thereof voting
power to elect a majority of the board of directors or others
performing similar functions with respect to such
corporation or other organization is at that time, directly
or indirectly, owned or controlled by such person, or by one
or more of its Subsidiaries, or by such person and one or more
of its Subsidiaries.
- "Taxes" means all taxes, assessments, charges, duties, fees,
levies or other governmental charges, including all federal,
state, local or other income, unitary, business, franchise,
capital stock, real property, personal property, intangible,
withholding, FICA, unemployment compensation, disability,
transfer, sales, severance, harvest, yield, use, excise and
other taxes, assessments, charges, duties,
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<PAGE> 6
fees or levies of any kind whatsoever imposed by a
Governmental Authority (whether or not requiring the filing
of returns), and all deficiency assessments, additions to
tax, penalties and interest thereon.
- "Title Policies" means (a) a standard coverage policy or
policies of title insurance insuring Pioneer that title to
the Timberlands is vested in Pioneer (except that title to
the lands described on Schedule 4.3(d) is vested in various
third parties, subject to the rights of Pioneer to some or
all of the timber on such lands) and insuring that such title
is free and clear of Liens except for the Permitted
Encumbrances, the total insurance amount of which is
$360,000,000 (the "Pioneer Policy"), and (b) a standard
coverage policy or policies of title insurance insuring
Frontier and the Members as to title to the Timberlands in
form, content and amount identical to, and issued by the same
insurers as, the Pioneer Policy (the "Frontier Policy"). If
and to the extent required by each of the title insurers,
some or all of the Title Policies may contain (i) a provision
to the effect that remaining coverage under the Frontier
Policy as to a particular parcel or parcels shall be reduced
by the amount of any loss payment as to such parcel or
parcels under the Pioneer Policy (commonly called a "pro
tanto" provision), (ii) an allocation of value/coverage limits
among various parcels which is acceptable to the title
insurers, and (iii) such other customary provisions as are
reasonably required by the title insurers as a condition to
issuance of insurance. It is contemplated that the Pioneer
Policy will include a "nonimputation" endorsement in favor of
Pioneer to the effect that the knowledge or acts of the
Members (and of employees for the Pioneer Policy as it relates
to the real property in Washington and Oregon and if
available, in California) shall not be imputed to Pioneer,
provided that the Members shall not be required to sign any
affidavit or other document creating personal liability for
any such Member as a condition to issuance of such
endorsement. It is additionally contemplated that reinsurance
will be involved in the issuance of the Title Policies,
provided that all reinsurance agreements allow direct access
by all insureds to all insurers pursuant to the 1994 ALTA
Faculative Reinsurance Agreement.
- "Timberlands" means those certain tracts or parcels of land
more particularly described on Schedule 1.1, including all
timber and such rights as Pioneer may have in minerals or
other resources located thereon or appertaining thereto, all
buildings, fixtures, and other improvements and appurtenances
and all related easements.
- "Timberlands Related Assets" means all of Pioneer's rights
with respect to items of personal property relating to the
Timberlands, including any maps, timber harvest plans, plats,
GIS data and other proprietary information pertaining to such
tracts, all title insurance policies, timber and other
contracts which at the Effective Time affect any of the
Timberlands, excepting those assets listed on Schedule 1.2.
- "Value Shortfall" is defined in Section 2.8.
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<PAGE> 7
1.3 CERTAIN RULES OF CONSTRUCTION. The following rules of
construction shall apply to this Agreement:
(a) Including. "Including" and other words or
phrases of inclusion, if any, shall not be construed as terms of limitation, so
that references to "included" matters shall be regarded as non-exclusive,
non-characterizing illustrations and equivalent to the terms "including, but
not limited to," and "including, without limitation."
(b) Ordinary Course of Business. The phrases
"ordinary course of business" and "ordinary and regular course of business"
means action consistent with the past practices of Pioneer and action taken in
the ordinary course of the normal day-to-day operations of Pioneer and
specifically includes transactions with Kinzua Resources, LLC, Pioneer Merger,
Inc., Pioneer Aviation, LLC, and Lane Plywood, Inc.
(c) Negotiated Agreement. STTOC, STTII, STPII,
Frontier and each of the Members acknowledge that it has been advised and
represented by counsel in the negotiation, execution and delivery of this
Agreement and accordingly agrees that if any ambiguity exists with respect to
any provision of this Agreement, such provision shall not be construed against
any party solely because such party or its representatives were the drafters of
any such provision.
ARTICLE 2
CONTRIBUTION; SALE OF PIONEER INTERESTS
2.1 PARTNERSHIP CONTRIBUTION. At Closing, (i) STTII, STTOC, Mach
One and Members will execute the Partnership Agreement; and (ii) after the
purchase described in Section 2.2 below, the Members shall contribute all of
their remaining Interests (737,113 Interests - as described below) to STPII in
exchange for 100% of the Class B Units:
<TABLE>
<CAPTION>
Certificate No. No. of Interests Held By
<S> <C> <C>
13 90,586 Gregory M. Demers
15 36,856 T. Yates Exley
17 50,050 King Investment Group, Inc.
19 473,379 Old Pioneer, LLC
21 71,500 Darrick Salyers
23 14,742 James Youel
</TABLE>
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<PAGE> 8
2.2 PURCHASE AND SALE OF INTERESTS.
(a) STPII will purchase the following 396,907
Interests for $35,000,000 U.S. funds (the "Purchase Price"), payable as
provided in subsections (b) below:
<TABLE>
<CAPTION>
Certificate No. No. of Interests Held By
<S> <C> <C>
12 48,777 Gregory M. Demers
14 19,845 T. Yates Exley
16 26,950 King Investment Group, Inc.
18 254,897 Old Pioneer, LLC
20 38,500 Darrick Salyers
22 7,938 James Youel
</TABLE>
(b) At the Closing, STPII will pay (i) to the
Member Representative $33,000,000 in immediately available U.S. funds via wire
transfer and (ii) into escrow $2,000,000 in accordance with the Escrow
Agreement.
2.3 TRANSFER TAXES. STPII and Frontier will share equally in and
promptly pay any transfer taxes, sales taxes or other similar charges, if any,
imposed under the laws of any state, county, city or the United States, in
connection with the transactions contemplated by this Agreement.
Notwithstanding the foregoing, Frontier will pay all transfer taxes, sales taxes
or other similar charges imposed on the transfer of any of the Excluded Assets
or Excluded Liabilities to Frontier.
2.4 RETAINED LIABILITIES. It is the intent of the parties that
Pioneer shall only be responsible for the following obligations and liabilities
(collectively, the "Retained Liabilities") on or after the Effective Time:
(a) Timberland Liabilities. Any liabilities
arising from or related to the ownership or use by Pioneer of the Timberlands
and the Timberlands Related Assets to the extent such liabilities either (i)
arise from and after the Effective Time and relate, whether in whole or in
part, to the period after the Effective Time but only such portion of such
liability which exclusively relates to the period after the Effective Time, or
(ii) relate to a Lien which arose prior to the Effective Time and the existence
of which does not constitute a breach of Section 4.3(d).
(b) SWAPs and Hedging Obligations. (i)
$2,000,000 of any liabilities, obligations, costs or fees associated with the
mark-to-market exposure in unwinding the interest rate hedging or SWAP programs
relating to the Existing Credit Facility and described on Schedule 2.4(e) and
(ii) any hedging obligations to be entered into by Pioneer pursuant to the
Replacement Credit Facilities.
(c) Replacement Credit Facilities. All evidence
of indebtedness and other obligations, including costs and fees, relating to
the Replacement Credit Facilities.
(d) Contract Obligations. The liabilities and
obligations of Pioneer after the Effective Time under the Retained Contracts
(as defined below) to which it is a party,
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<PAGE> 9
except to the extent such obligations arise from a default or breach by Pioneer
prior to the Effective Time (including any such default or breach resulting
from the consummation of the transactions contemplated hereby). For purposes of
this Agreement, the term "Retained Contracts" means those contracts described
on Schedule 4.3(g).
(e) Taxes. All Taxes accruing after the Closing
Date other than Taxes for which the Members or Frontier have ultimate
responsibility under Section 2.5 or 2.6 and other than as provided under
Section 2.3.
(f) Other Liabilities. The liabilities and
obligations of Pioneer as set forth on Schedule 2.4(e).
No obligations or liabilities of Pioneer relating to
the Excluded Assets shall be part of the Retained Liabilities.
2.5 EXCLUDED LIABILITIES. Notwithstanding any other provision in
this Agreement to the contrary, it is the intent of the parties hereto that
from and after the Effective Time, Pioneer shall not be responsible for (i) any
of the liabilities and obligations of pre-Closing Pioneer, other than Retained
Liabilities, or (ii) any obligations, or liabilities arising out of or in
connection with, or relating to the Excluded Assets (including, without
limitation, environmental liabilities), whether pre-Closing or post-Closing, in
each case, whether such liabilities or obligations relate to payment,
performance or otherwise, whether matured or unmatured, known or unknown,
contingent or otherwise, fixed or absolute, present, future or otherwise (the
"Excluded Liabilities"), including any Taxes arising out of, relating to or in
connection with any period ending on or prior to the Closing Date.
2.6 TRANSFERS TO AND ASSUMPTION BY FRONTIER. At or prior to the
Closing, (a) the Members shall have caused Pioneer to transfer without recourse
to Frontier all of the Excluded Assets, and (b) Frontier shall have assumed or
paid all obligations of the Excluded Liabilities, including all liabilities and
obligations under workers compensations laws, ERISA, employee benefit plans,
other plans, employment agreements or employment arrangements maintained by
Pioneer prior to the Closing or otherwise related to the severance or
termination of employees by Pioneer prior to Closing. In cases where tax
returns of Pioneer relate to a period beginning before and ending after the
Effective Time, Frontier and the Members shall be responsible for the portion
of the Taxes due with respect to such tax return to the extent such Taxes are
Excluded Liabilities under Section 2.5, determined on the basis of an assumed
closing of the books of Pioneer as of the Closing Date.
2.7 EXISTING CREDIT AGREEMENT. Contemporaneously with the
Closing, the Existing Credit Facility will be terminated and replaced by the
Replacement Credit Facilities as follows: (x) $260,000,000 in debt at Closing
comprised of indebtedness outstanding under the Existing Credit Facility; and
(y) $2,000,000 in aggregate costs associated with the mark-to-market exposure
in unwinding the hedging obligations maintained by Pioneer in respect of the
Existing Credit Facility; provided, however, that the $260,000,000 amount shall
be reduced dollar-for-dollar to the extent
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<PAGE> 10
(i) the mark-to-market exposure exceeds $2,000,000 as at Closing, and (ii) the
estimated value of the "Merchantable Timber" as at the Closing, as derived from
the Harvest Certificate (using values based on the August 31, 1998 Appraisal)
is less than $410,000,000.
2.8 POST-CLOSING ADJUSTMENT. Within ten business days
after Closing, Frontier will provide MBG, STPII and post-Closing Pioneer with
harvest activity information of pre-Closing Pioneer, including volume depletion
by species and property, for the period beginning on September 1, 1998 and
ending on the Closing Date. Harvest volumes will be determined by load/log
slips received and dated as of the Closing. Within five business days of
receipt of such information, MBG shall prepare in consultation with Member
Representative and STPII and shall deliver to the Member Representative, STPII
and post-Closing Pioneer, a timberland appraisal through the Closing Date
("Closing Appraisal"). The Closing Appraisal will be prepared using the
methodology and pricing assumptions used by MBG to prepare its Valuation of
Pioneer Resources, LLC Timberlands dated as of August 31, 1998 ("August 31,
1998 Appraisal"). The Closing Appraisal will exclude the Excluded Assets and
Excluded Liabilities. If the "Appraised Total Timber Value" in the Closing
Appraisal is below $410,000,000 (such deficit, the "Value Shortfall"), the
Purchase Price shall be reduced by the amount of the Value Shortfall ("Purchase
Price Adjustment"). Within two business days of receipt the Closing Appraisal,
STPII and the Member Representative shall determine the Value Shortfall and
prepare,-execute and deliver the Joint Notice to the escrow agent in accordance
with the Escrow Agreement and this Agreement. To the extent the Value Shortfall
exceeds the escrowed funds, Frontier agrees to promptly pay such amount to
STPII.
ARTICLE 3
THE CLOSING
3.1 THE CLOSING. The purchase and contribution of the Interests
(the "Closing") shall take place at the offices of Chapman & Cutler, 111 West
Monroe Street, Chicago, Illinois, on the date this Agreement is executed and
delivered by all parties.
3.2 CLOSING DATE; EFFECTIVE TIME. For purposes of this
Agreement, the term "Closing Date" means the date on which the Closing occurs.
For purposes of this Agreement, the term "Effective Time" means 12:01 PM
Chicago time on the Closing Date.
3.3 [INTENTIONALLY LEFT BLANK].
3.4 [INTENTIONALLY LEFT BLANK].
3.5 DELIVERIES BY MEMBERS AND FRONTIER. At the Closing, the
Members and Frontier shall deliver to STPII, in addition to all other items
specified elsewhere in this Agreement, the following:
(a) Certificate(s) representing all of the
Interests duly endorsed by Members for the transfer of the Interests to STPII;
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<PAGE> 11
(b) Evidence of the payment, release or
assumption by Frontier of the Existing Credit Facility and all other
indebtedness of Pioneer secured by any of the post-Closing assets of Pioneer
other than in respect to the Replacement Credit Facilities;
(c) Pioneer's minute book, the Financial
Statements, tax records and other books and records relating to the
Timberlands, the Timberlands Related Assets and the Retained Contracts;
(d) Certificates of existence with respect to
Pioneer and Frontier from the Secretary of State or other appropriate official
of their respective state of incorporation or organization and each other
jurisdiction in which Pioneer is qualified as a foreign limited liability
company dated no earlier than ten business days before the Closing Date;
(e) The Escrow Agreement, duly executed by the
Member Representative, STPII and the escrow agent;
(f) [INTENTIONALLY LEFT BLANK];
(g) A certificate of the secretary of Pioneer,
certifying that the copy of the limited liability company operating agreement
of Pioneer, as amended to Closing, attached to such certificate is a true and
complete copy as then in effect;
(h) An opinion of counsel to the Members and
Frontier, opining as to the organization, existence and authority of Pioneer
and Frontier and each of the entity Members, the enforceability of this
Agreement and all other documents pertaining to this Agreement, in form and
substance reasonably satisfactory to STPII and its counsel;
(i) The Partnership Agreement, duly executed by
the Members;
(j) Copies of bills of sale, other transfer
instruments and one or more instruments of assumption, in form and substance
reasonably satisfactory to STPII and its counsel, pursuant to which Pioneer
transfers the Excluded Assets to Frontier and Frontier assumes the Excluded
Liabilities, duly executed by Pioneer and Frontier;
(k) A certificate of accounting prepared by the
Chief Financial Officer of Pioneer indicating (i) actual harvests through
September 15, 1998; (ii) an estimate of harvest for the period September 16,
1998 through September 30, 1998; and (iii) an estimate of harvest for the
period October 1, 1998 through the Closing Date ("Harvest Certificate");
(1) Resignations of all of the officers and
managers of Pioneer; and
(m) Such other documents as may be reasonably
requested by STPII to effect the transactions contemplated by this Agreement.
3.6 DELIVERIES BY STTOC, STTII AND STPII. At the Closing, STTOC,
STTII and STPII shall deliver to Frontier and the Member Representative for the
Members the following:
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<PAGE> 12
(a) The Purchase Price to be paid pursuant to
Section 2.2(b) hereof;
(b) The Joinder Agreement under which
post-Closing Pioneer agrees to indemnify Frontier and the Members for Section
7.4(c) claims.
(c) The Partnership Agreement, duly executed by
STTOC, Mach One and STTII;
(d) A copy of the Replacement Credit Agreement,
duly executed by the parties thereto, and evidence satisfactory to the Member
Representative that the Existing Credit Facility has been terminated in
accordance with Section 2.7 and that all evidence of indebtedness and Liens
relating to the Existing Credit Facility have been canceled or terminated;
(e) An opinion from the Companies' counsel,
opining as to the due formation, good standing and authority of each of the
Companies, the enforceability of this Agreement, the Partnership Agreement and
all other documents pertaining to this Agreement, the valid issuance of the
Class B Units and providing comfort as to counsel's knowledge of any breach
under this Agreement and other documents pertaining to this Agreement, in form
and substance reasonably satisfactory to the Members and Frontier and their
counsel;
(f) Appointment Agreement dated as of October
9, 1998 between Pioneer and Frontier which enables Frontier to collect,
assert, transfer or enforce any right or claim relating to the Excluded Assets
and Excluded Liabilities, in form and substance reasonably satisfactory to the
Members, Frontier, STTOC, STTII and STPII and their counsel; and
(g) Such other documents as may be reasonably
requested by the Members to effect the transactions contemplated by this
Agreement.
3.7 TITLE POLICIES PREMIUMS. STPII and Frontier will share
equally in the costs of the Title Policies.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
BY MEMBERS AND FRONTIER
4.1 NO JOINT AND SEVERAL LIABILITY; PERSONAL LIABILITY. No Member
shall be personally liable for a breach of this Agreement by another Member or
Members or Frontier. Notwithstanding any other provision hereof, each Member
shall be personally liable only for such Member's representations and
warranties set forth in Section 4.2 and related specific indemnification
obligations under Section 7.3. Except as provided otherwise in this subsection,
Frontier shall have sole responsibility for any breaches of the
representations, warranties, covenants, obligations, Excluded Liabilities and
matters relating thereto pursuant to this Agreement.
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<PAGE> 13
4.2 REPRESENTATIONS AND WARRANTIES BY MEMBERS. Each Member,
severally, hereby represents and warrants to STTOC, STTII and STPII and, upon
the effectiveness of the Joinder Agreement, Pioneer, as of the date of this
Agreement as follows:
(a) Ownership. Such Member owns of record and
beneficially the percentage interest in Pioneer set opposite the name of such
Member in Schedule 4.2(a) and as indicated in Sections 2.1 and 2.2 to this
Agreement and no other Interests are outstanding. Each such Member owns all
right, title and interest in and to such Interest free and clear of all Liens,
claims, pledges, options, rights of refusal or similar rights or other transfer
restrictions or adverse claims and charges of any nature whatsoever (excluding
transfer restrictions that may arise from federal or state securities laws and
the Third Amended and Restated Operating Agreement of Pioneer). At the Effective
Time, such Member's transfer of its Interests to STPII pursuant to this
Agreement at the Effective Time shall pass to STPII all right, title and
interest to and in such Interests free of any Lien or any adverse interest,
claim or charge whatsoever (excluding transfer restrictions that may arise from
federal or state securities laws and the Third Amended and Restated Operating
Agreement of Pioneer).
(b) Authorization. With respect to this
Agreement and any other agreements, instruments and documents executed and
delivered by such Member pursuant to this Agreement (this Agreement and such
other agreements, instruments and documents, collectively the "Member Delivered
Agreements"): (i) such Member has the right, power and authority to enter into
the Member Delivered Agreements executed and delivered by it and to consummate
the transactions contemplated by, and otherwise to comply with and perform its
obligations under, them; (ii) the execution and delivery by such Member of the
Member Delivered Agreements executed and delivered by it and the consummation by
such Member of the transactions contemplated by, and other compliance with and
performance of its obligations under, them have been duly authorized by all
necessary action on the part of such Member and compliance with governing or
applicable agreements, instruments or other documents; and (iii) the Member
Delivered Agreements will, when delivered, constitute valid and binding
agreements of such Member that are enforceable against such Member in accordance
with their terms, except as such terms may be affected by applicable bankruptcy,
insolvency, reorganization, moratorium or similar debtor relief laws from time
to time in effect or general principles of equity, regardless of whether such
enforceability is considered in equity or at law. By executing this Agreement,
each Member consents to the sale and contribution of the Interests by the other
Members in accordance with this Agreement, to the transfer of the Excluded
Assets to Frontier and to the assumption of Frontier of the Excluded Liabilities
and to all other transactions contemplated by this Agreement.
(c) Absence of Violations or Conflicts. Except
as set forth in Schedule 4.2(a), the execution and delivery of the Member
Delivered Agreements by the Member and the consummation by such Member of the
transactions contemplated by, or other compliance with the performance under,
them do not and will not with the passing of time or giving of notice: (i)
constitute a violation of, be in conflict with, constitute a default or require
any consent or payment under, permit a termination of, or result in the creation
or imposition of any Lien or other adverse claim or interest upon any of the
Interests under (A) any contract (including rights of refusal or similar rights
or other transfer restrictions) to which such Member is a party or the Interests
are subject or bound, (B) any judgment, decree or order of any Governmental
Authority
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<PAGE> 14
to which such Member is a party or its Interests are subject or bound, (C) any
Applicable Law applicable to such Member or Interests, or (D) any governing or
applicable agreements, instruments or other documents to which such Member is a
party or the Interests are subject or bound, or (ii) create, or cause the
acceleration of the maturity of any debt, obligation or liability of such Member
that would result in any Lien or other claim upon its Interests.
(d) Accredited Investor Status.
(i) Nature of the Members. If such Member is an
individual, (1) he has an individual net worth or joint net worth with his
spouse in excess of $1,000,000, and/or (2) his individual income in the two
most recent years has been in excess of $200,000 per year, or his joint income
with his spouse in the two most recent years has been in excess of $300,000 per
year, and he has a reasonable expectation of reaching the same income level in
the current year. If such Member is a corporation or limited liability company,
either (i) all of its equity owners are individuals described in clauses (1) or
(2) above or (ii) the entity was not formed for the specific purpose of
acquiring the Class B Units and has total assets in excess of $5,000,000.
(ii) Nature of the Class B Units. Such Member
understands that:
(1) Inasmuch as each of the Companies
is a new venture, the Class B Units to be acquired by the Member represent a
highly speculative and risky investment, and there can be no assurance as to
the success of the Companies;
(2) There is at present no market for
the Class B Units and it is uncertain whether a market will develop;
(3) The Class B Units have not been
registered under the Act or any State Acts and are being issued in reliance
upon certain of the exemptions contained in the Act and the State Acts, and the
representations and warranties of Members contained herein are essential to the
claim of exemption by the Companies under the Act and the State Acts;
(4) The Class B Units are "restricted
securities" as that term is defined in Rule 144 promulgated under the Act;
(5) The Class B Units cannot be sold
or transferred without registration under the Act and any applicable State Acts
or unless the Companies receives an opinion of counsel acceptable to it (as to
both counsel and the opinion) that such registration is not necessary;
(6) The documents or certificates
evidencing the Class B Units shall bear a legend to the effect that the
securities represented thereby have not been registered under the Act or any
State Acts and may not be sold, transferred or otherwise disposed of unless a
registration statement under the Act and any State Acts with respect to such
securities is effective or unless the Companies are in receipt of an opinion of
counsel satisfactory to it to the effect that such securities may be sold
without registration under the Act and State Acts, in addition to any other
legend required by law or otherwise;
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<PAGE> 15
(7) Only the Companies can register the Class B
Units under the Act and any of the State Acts;
(8) There are stringent conditions for Member's
obtaining an exemption for the resale of the Class B Units under the Act and
any State Acts; and
(9) The Companies may from time to time make
stop transfer notations in its transfer records to ensure compliance with the
Act and any State Acts.
(iii) Investment Intent. (A) Such Member is acquiring the
Class B Units for its own account and not on behalf of any other person; (B)
Such Member is acquiring the Class B Units for investment and not with a view
to or for sale in connection with any distribution of the Class B Units or with
the intent to divide such Member's participation with others or resell or
otherwise participate in a distribution of the Class B Units, directly or
indirectly; (C) Such Member has not paid and will not pay any commission or
other similar remuneration to any person in connection with the Member's
acquisition of the Class B Units; and (D) Such Member will not sell the Class B
Units, (1) without registration under the Act and the applicable State Acts or
unless the Companies receives an opinion of counsel acceptable to it (as to
both counsel and the opinion) to the effect that such registration is not
necessary, or (2) without compliance with any restrictions imposed by the Act
or any applicable State Acts.
4.3 REPRESENTATIONS AND WARRANTIES BY FRONTIER. Frontier hereby
represents and warrants to STTOC, STPII and STTII, and, upon the effectiveness
of the Joinder Agreement, Pioneer, as of the date of this Agreement as follows
(where any representation or warranty contained in this Section 4.3 refers to
the knowledge of Members or Frontier, Frontier shall be imputed to have the
knowledge of such Members):
(a) Existing Credit Facility. At Closing,
excluding the Retained Liabilities, the Existing Credit Facility will not
exceed $260,000,000 less the adjustments set forth in Section 2.7.
(b) Non-Contravention. The execution and
delivery of this Agreement by Frontier do not, and the consummation by Frontier
of the transactions contemplated hereby does not and will not, (i) violate or
conflict with any provision of the operating agreement of Pioneer or Frontier,
or (ii) violate or conflict with, or result (with the giving of notice or the
lapse of time or both) in a violation of or constitute a default under any
provision of, or result in the acceleration or termination of or entitle any
party to accelerate or terminate (whether after the giving of notice or lapse
of time or both), any obligation or benefit under, or result in the creation or
imposition of any Lien upon any of the assets or properties of Pioneer or
Frontier pursuant to any provision of any contract, law, ordinance, regulation,
order, arbitration award, judgment or decree to which Pioneer or Frontier is a
party or by which Pioneer or Frontier or their respective assets or properties
are bound, and do not and will not violate or conflict with any other material
restriction of any kind or character to which Pioneer or Frontier is subject or
by which any of their respective assets or properties may be bound, and the
same does not and will not constitute an event permitting termination of any
contract to which Pioneer or Frontier is a party, except where such violation,
conflict, default, acceleration, termination, entitlement, creation or
imposition of a
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<PAGE> 16
Lien or other event would not have a material adverse effect on the business of
Pioneer or Frontier. No such violation, conflict, default, acceleration,
termination, entitlement, creation or imposition of a Lien or other event,
shall cause any material damage, additional cost or expense (including any
payments or expenses incurred to obtain consents or waivers), to Pioneer,
STTOC, STTII or STPII.
(c) Consents. Except as disclosed in Schedule
4.3(c) or in any way relating to the Existing Credit Facility or Replacement
Credit Facilities (i) no consent, authorization, clearance, order or approval
of, or filing or registration with, any Governmental Authority or any other
person is required for or in connection with the execution and delivery of this
Agreement by the Members and Frontier and the consummation by the Members and
Frontier of the transactions contemplated hereby; and (ii) Members and Frontier
have obtained (without additional material payment or expense) all consents and
waivers necessary to avoid any violation, acceleration, entitlement to
accelerate, creation or imposition of a Lien, conflict or termination event
upon any of the assets or properties of Pioneer or Frontier pursuant to any
provision of any contract, law, ordinance, regulation, order, arbitration
award, judgment or decree to which Pioneer or Frontier is a party or by which
Pioneer or Frontier or their respective assets or properties are bound, or any
other restriction of any kind or character to which Pioneer or Frontier is
subject or by which any of their respective assets or properties may be bound,
except where the failure to obtain such consent or waiver would not have a
material adverse effect on the consummation of the transactions contemplated by
this Agreement.
(d) Title, Liabilities and Liens. Except as
disclosed on Schedule 4.3(d), Pioneer has fee simple title to all of the
Timberlands. Except for the Permitted Encumbrances, there are no (A) Liens on
the Timberlands created by Pioneer during its ownership or (B) leases,
instruments or other contracts executed and delivered by Pioneer granting any
interest in the Timberlands.
(e) Certain Delivered Documents. Members have
delivered to STPII true, correct and complete copies of the audited
consolidated balance sheets of Pioneer as of December 31, 1996 and 1997, the
related consolidated audited statements of income, changes in members' equity
and cash flows for each of the three years in the period ended December 31,
1997, and the notes to such financial statements, prepared by Pioneer and
audited by Arthur Andersen LLP, certified public accountants (the "Financial
Statements"). The Financial Statements are based on and consistent with the
books and records of Pioneer. In addition, Members have delivered or promptly
after the execution and delivery hereof will deliver to STPII copies of all
timber cruises commissioned by or on behalf of Pioneer with respect to any of
the Timberlands.
(f) Properties. Schedule 1.1 sets forth a
complete description of all real property in which Pioneer will have an
interest in the Timberlands as of the Effective Time. Except for the
Timberlands Related Assets, Retained Contracts, the Permitted Encumbrances or
as set forth on Schedule 4.3(f), as of the Effective Time, Pioneer will not (i)
own or lease any items of tangible personal property, (ii) lease or sublease
any real or personal property from a third party, or (iii) have a future right
to acquire or lease any real or personal property pursuant to any outstanding
contract or option to purchase or lease.
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<PAGE> 17
(g) Contracts. To Frontier's knowledge, Schedule
4.3(g) contains a complete list of all material contracts affecting the
Timberlands and all other material contracts, if any, to which Pioneer is a
party that are not included within the Excluded Assets. With respect to each
Retained Contract, Pioneer is not, and to Frontier's knowledge, the other party
or parties thereto, are not in material breach or default under such Retained
Contract.
(h) No Litigation. Except as described on
Schedule 4.3(h) there is no litigation, action, claim, proceeding or
governmental investigation pending or, to the knowledge of any of the Members
or Frontier, threatened against Pioneer. There has been no reservation of
rights by any insurance carrier, and to the knowledge of any of the Members or
Frontier, no such reservation is threatened, concerning the coverage of Pioneer
with respect to any matter required to be disclosed pursuant to this Section.
(i) Operations Conducted Lawfully. Excluding
matters covered within Section 4.3(j), neither Pioneer nor any Member has
received any written notice that Pioneer is in violation of any Applicable Law
applicable to Pioneer, and to the knowledge of any Member or Frontier, Pioneer
is not under investigation by a Governmental Authority with respect to any
failure or alleged failure to comply with any provision of Applicable Law
applicable to Pioneer. To each Member's or Frontier's knowledge, (i) Pioneer
has all state-required licenses, permits, authorizations and certifications
required by any Governmental Authority having appropriate jurisdiction
("Permits") required to conduct existing logging and timbering operations,
including, where required, timber harvesting plans filed with the applicable
state; (ii) all of the Permits are in full force and effect; and (iii) Pioneer
is in compliance in all material respects with its Permits; except where the
failure to obtain, maintain or comply with such Permit would not have a
material adverse effect on Pioneer's ability to conduct its post-Closing
Timberland business in substantially the same manner as conducted prior to the
Closing.
(j) Environmental Protection.
(i) Definitions. For purposes of this Agreement
the term "Environmental Laws" shall mean all federal, state, local and foreign
laws (as may be applicable) relating to pollution or protection of the
environment and any regulation, code, plan, order, decree, judgment or
injunction related thereto in effect on or prior to the Effective Time,
including without limitation: (a) the Resource Conservation and Recovery Act,
42 U.S.C. ss. 6901, et seq.; (b) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. ss. 9601 et seq.; (c) the
Substances Amendments and Reauthorization Act of 1986 et seq.; (d) the Clean
Air Act, 42 U.S.C. ss. 7401 et seq.; (e) the Clean Water Act, 33 U.S.C. ss.
1251 et seq.; (f) the Safe Drinking Water Act, 42 U.S.C. ss. 300f et seq.; (g)
the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq.; (h) the
Hazardous Materials Transportation Act, 49 U.S.C. ss. 1501 et seq.; and (i) the
Endangered Species Act, 16 U.S.C. ss. 1531 et seq.
(ii) Certain Environmental Matters. Except as
disclosed on Schedule 4.3(i)(ii), neither Pioneer nor any Member has received
any written notice from a Governmental Authority or other third party that
Pioneer is, or the Timberlands are, in violation of any of the Environmental
Laws. To the knowledge of any Member or Frontier, Pioneer is not in violation
in any material respect of any of the Environmental Laws applicable to Pioneer.
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(k) Tax Matters. Except as disclosed on Schedule
4.3(k), Pioneer has (i) properly completed and filed all tax returns required to
be filed by it, and no filing extensions for any such returns are in effect, and
(ii) paid and satisfied on or before the respective due dates all Taxes (whether
or not requiring the filing of returns). All Taxes which either Pioneer is or
was required by Applicable Law to withhold or collect, including sales,
unemployment and payroll taxes, have been duly withheld and collected and paid
over to the proper Governmental Authority or held by Pioneer in separate bank
accounts for such payment. Except as set forth on Schedule 4.3(k), (i) no audit
of any tax return of Pioneer is currently being conducted (nor has any such
audit been conducted since 1997), and Pioneer has not received any notice that
any Governmental Authority intends to conduct such an audit and (ii) Pioneer has
not received any notice of proposed adjustment, notice of deficiency or
assessment from any Governmental Authority with respect to Taxes of Pioneer that
has not been previously resolved. No payment that will not be deductible under
Code Section 280G has been made by, or that is allocable to Pioneer.
(l) Insurance Policies. As of the date of this
Agreement, Pioneer maintains, and will maintain until the Effective Time,
liability insurance policies on the Timberlands and such policies are on an
"occurrences" basis rather than a "claims made" basis.
(m) Casualty. Since August 31, 1998, neither the
Timberlands nor any part thereof has been destroyed or damaged by fire or other
casualty.
(n) [INTENTIONALLY LEFT BLANK].
(o) Organization and Standing of Pioneer and
Frontier; Authority.
(i) Organization and Status. Pioneer is
a limited liability company duly organized and validly existing under the laws
of Oregon. Frontier is a limited liability company duly organized and validly
existing under the laws of Oregon. Pioneer and Frontier have a requisite power
and authority necessary to own and operate their properties and otherwise to
conduct their respective businesses as they are presently conducted.
(ii) Qualification. Pioneer is qualified
to do business in all jurisdictions in which the Timberlands exist.
(iii) Subsidiaries and Investments. As of
the Effective Time, Pioneer will not have any Subsidiaries and will not,
directly or indirectly, own or have the right to acquire any capital stock or
other equity interest in any other corporation, partnership, joint venture,
limited liability company, limited liability partnership or other entity or
person. Except in the ordinary course of business, Pioneer has not made, nor
has any plan or commitment to make, any advances to or investments in any
business entity or other person.
(iv) Operating Agreements. A correct and
complete copy of the Third Amended and Restated Operating Agreement of Pioneer,
together with the minute book of Pioneer, has been made available to STPII. A
correct and complete copy of the operating agreement of Frontier has been made
available to STPII.
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(v) Authorization. With respect to this
Agreement and any other agreements, instruments and documents executed and
delivered by Frontier pursuant to this Agreement (this Agreement and such other
agreements, instruments and documents, collectively the "Frontier Delivered
Agreements"): (i) Frontier has the right, power and authority to enter into the
Frontier Delivered Agreements executed and delivered by it and to consummate
the transactions contemplated by, and otherwise to comply with and perform its
obligations under, them; (ii) the execution and delivery by Frontier of the
Frontier Delivered Agreements executed and delivered by it and the consummation
by Frontier of the transactions contemplated by, and other compliance with and
performance of its obligations under, them have been duly authorized by all
necessary action on the part of Frontier and compliance with governing or
applicable agreements, instruments or other documents; and (iii) the Frontier
Delivered Agreements will, when delivered, constitute valid and binding
agreements of Frontier that are enforceable against Frontier in accordance with
their terms, except as such terms may be affected by applicable bankruptcy,
insolvency, reorganization, moratorium or similar debtor relief laws from time
to time in effect or general principles of equity, regardless of whether such
enforceability is considered in equity or at law.
(p) Disclosure. Excepting the Timberlands, the
Excluded Assets and the Excluded Liabilities, for which no representation or
warranty is made under this subsection of the Agreement, to the knowledge of
any Member or Frontier, there is no information (other than information of
changes in general economic or political conditions or in the timber industry
generally) concerning Pioneer which has not heretofore been disclosed to STPII,
STTII or STTOC, which information would have a material adverse effect on the
financial condition, results of operations or current business of Pioneer.
4.4 AS-IS. Except for the express representations, warranties and
indemnifications made by Members and Frontier in this Agreement, neither
Frontier nor any Member has made any representation or warranty, express or
implied, concerning the Interests, the Timberlands, the Timberlands Related
Assets, Retained Contracts, Retained Liabilities, prospects for future
improvements or future development, economic feasibility, marketability or any
other matter. Neither Frontier nor Members makes any warranties, express or
implied regarding merchantability, fitness for use or a particular purpose or
condition, of any of the Timberlands, the Timberlands Related Assets, Retained
Contracts or Retained Liabilities. Notwithstanding any other provision in this
Agreement to the contrary, the Timberlands, Timberlands Related Assets and
Retained Contracts are "AS-IS," without representations or warranties of any
nature (except as expressly provided in Sections 4.3(d), 4.3(f), 4.3(g),
4.3(h), 4.3(i), 4.30(j), 4.3(m), and 4.3(p)). Each of the Companies acknowledges
that neither Frontier, any of the Members nor their agents have made any
representations or warranties as to the volume, grade, species mix, value,
costs associated with harvesting and removing the timber, any other aspect of
the timber which is the subject of this Agreement or as to the completeness or
accuracy of Pioneer's draft Form S-1, timber cruises, timber inventories,
timber or timberland valuations, appraisal reports, cost summaries or
projections, and all similar items. With respect to such items, each of the
Companies has relied on its own and its agents due diligence. At the Effective
Time, each of the Companies acknowledges that it has been provided with all
information it has requested concerning the subject timber, Timberlands,
Timberlands Related Assets, Retained Contracts, Interests and the Retained
Liabilities and that it has had sufficient opportunity to inspect the same.
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4.5 KNOWLEDGE. As used in this Article 4, "knowledge" means the
actual knowledge of each Member and the Chief Financial Officer of pre-Closing
Pioneer and Frontier, without any requirement of inquiry or due diligence.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF STTOC, STTII AND STPII
Each of STTOC, STTII and STPII represents and warrants to
Members and Frontier as of the date of this Agreement as follows:
5.1 EXISTENCE. STTOC is a limited liability company duty formed
and validly existing under the laws of the State of Georgia, and STTOC has the
full capacity, power and authority to enter into this Agreement and fully
perform its obligations hereunder. STTII is a limited liability company duly
formed and validly existing under the laws of the State of Georgia, and has the
full capacity, power and authority to enter into this Agreement and fully
perform its obligations hereunder. STPII is a limited partnership duly formed
and validly existing under the laws of the State of Georgia, and STPII has the
full capacity, power and authority to enter into this Agreement and fully
perform its obligations hereunder. The sole asset to be held by STPII is the
Interests.
5.2 AUTHORIZATION. With respect to this Agreement and any other
agreements, instruments and documents executed and delivered by any of the
Companies pursuant to this Agreement (this Agreement and such other agreements,
instruments and documents, collectively the "Companies Delivered Agreements"):
(i) Each of the Companies has the right, power and authority to enter into the
Companies Delivered Agreements executed and delivered by it and to consummate
the transactions contemplated by, and otherwise to comply with and perform its
obligations under, them; (ii) the execution and delivery by each of the
Companies of the Companies Delivered Agreements executed and delivered by it
and the consummation by Companies of the transactions contemplated by, and
other compliance with and performance of its obligations under, them have been
duly authorized by all necessary action on the part of each of the Companies
and compliance with governing or applicable agreements, instruments or other
documents; and (iii) each of the Companies Delivered Agreements will, when
delivered, constitute valid and binding agreements of the Companies that are
enforceable against the Companies in accordance with their terms, except as
such terms may be affected by applicable bankruptcy, insolvency,
reorganization, moratorium or similar debtor relief laws from time to time in
effect or general principles of equity, regardless of whether such
enforceability is considered in equity or at law.
5.3 NON-CONTRAVENTION. The execution and delivery of this
Agreement by any of the Companies do not, and the consummation by such
Companies of the transactions contemplated hereby does not and will not, (i)
violate or conflict with any provision of Certificates of Organization,
operating agreements, Certificates of Limited Partnership or partnership
agreement of any of the Companies, (ii) violate or conflict with, or result
(with the giving of notice or the lapse of time or both) in a violation of or
constitute a default under any provision of, or result in the acceleration or
termination of or entitle any party to accelerate or terminate (whether after
the
20. - ACQUISITION AND CONTRIBUTION AGREEMENT
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giving of notice or lapse of time or both), any obligation or benefit under, or
result in the creation or imposition of any Lien upon any of the assets or
properties of any of the Companies pursuant to any provision of any contract,
law, ordinance, regulation, order, arbitration award, judgment or decree to
which any of the Companies is a party or by which any of the Companies or their
respective assets or properties are bound, and do not and will not violate or
conflict with any other material restriction of any kind or character to which
any of the Companies is subject or by which any of their respective assets or
properties may be bound, and the same does not and will not constitute an event
permitting termination of any contract to which any of the Companies is a
party, except where such violation, conflict, default, acceleration,
termination, entitlement, creation or imposition of a Lien or other event would
not have a material adverse effect on the business of any of the Companies. No
such violation, conflict, default, acceleration, termination, entitlement,
creation or imposition of a Lien or other event, shall cause any material
damage, additional cost or expense (including any payments or expenses incurred
to obtain consents or waivers) to pre-closing Pioneer, any Member or Frontier.
5.4 CONSENTS. (i) No consent, authorization, clearance, order or
approval of, or filing or registration with, any Governmental Authority or any
other person is required for or in connection with the execution and delivery
of this Agreement by any of the Companies and the consummation by any of the
Companies of the transactions contemplated hereby; and (ii) the Companies have
obtained all consents and waivers necessary to avoid any violation,
acceleration, entitlement to accelerate, creation or imposition of a Lien,
conflict or termination event upon any of the assets or properties of any of
the Companies pursuant to any provision of any contract, law, ordinance,
regulation, order, arbitration award, judgment or decree to which any of the
Companies is a party or by which any of the Companies or their respective
assets or properties are bound, or any other restriction of any kind or
character to which any of the Companies is subject or by which any of their
respective assets or properties may be bound, except where the failure to
obtain such consent or waiver would not have a material adverse effect on the
consummation of the transactions contemplated by this Agreement.
5.5 NO LITIGATION. There is no litigation, action, claim,
proceeding, or governmental investigation pending or, to STTOC's, STTII's or
STPII's knowledge, threatened against any of the Companies which may affect any
of the Companies ability to perform its obligations hereunder or under any
agreement or instruments contemplated by this Agreement, and to STTOC's,
STTII's and STPII's knowledge, there is no basis for any such action.
5.6 FINANCING. A true and complete copy of documents evidencing
the Financing have been delivered to Frontier and the Members.
5.7 RELATED PARTY AGREEMENTS. A true and complete copy of each of
the following has been delivered to Frontier and the Members: (i) Certificates
of Organization and operating agreements of STTII and STTOC; (ii) Certificate
of Limited Partnership and Partnership Agreement of STPII, and (iii) financing
agreements entered into by any of the Companies and STTII. None of the Companies
is in default of the terms of the financing documents or its company or
partnership documents and no event has occurred which, upon the giving of
notice, the passage of time or otherwise, would become a default thereunder.
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5.8 KNOWLEDGE. As used in this Article 5, "knowledge" means the
actual knowledge of the officers or the principals of STTII, STTOC and STPII,
without any requirement of inquiry or due diligence.
5.9 INVESTMENT REPRESENTATIONS.
(a) Nature of the Companies.
(i) STTII. STTII (a) owns all of the equity
interests in STTOC; and (b) each of STTII's members is an "accredited
investor," as that term is defined in 17 CFR ss. 230.501(a).
(ii) STPII. Each of the equity owners, other than
the Members, of STPII is an "accredited investor," as that term is defined in
17 CFR ss. 230.501(a).
(b) Nature of Interests. STTII, STTOC and STPII
understand that:
(i) The Interests represent a highly
speculative and risky investment and there can be no assurance as to the
success of Pioneer;
(ii) The Interests have not been registered under
the Securities Act of 1933, as amended (the "Act"), or any state securities
laws (the "State Acts") and are being sold in reliance upon certain resale
exemptions contained in the Act and the State Acts, and the representations and
warranties of STTII, STTOC and STPII contained herein are essential to the
claim of exemption by the Members under the Act and the State Acts;
(iii) The Interests are "restricted securities" as
that term is defined in Rule 144 promulgated under the Act;
(iv) The Interests cannot be sold or transferred
without registration under the Act and any applicable State Acts or unless an
exemption from registration under the Act and any applicable State Acts is
available;
(v) The documents or certificates evidencing the
Interests will bear a legend to the effect that the securities represented
thereby have not been registered under the Act or any State Acts and may not be
sold, transferred or otherwise disposed of unless a registration statement
under the Act and any applicable State Acts with respect to such securities is
effective or unless an exemption from the registration requirements of the Act
and any applicable State Acts is available, in addition to any other legend
required by law or otherwise; and
(vi) There are stringent conditions for STTOC,
STTII or STPII obtaining an exemption for the resale of the Interests under the
Act and any State Acts.
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(c) Investment Intent. STTII, STTOC and STPII
represent and warrant that:
(i) STPII is acquiring the Interests for its own
account and not on behalf of any other person;
(ii) STPII is acquiring the Interests for
investment and not with a view to or for sale in connection with any public
distribution of the Interests or with the intent to divide STPII's
participation with others or resell or otherwise participate in a public
distribution of the Interests, directly or indirectly;
(iii) Neither STTOC, STTII, STPII nor any
affiliate has paid or will pay any commissions or other similar remuneration to
any person in connection with the acquisition of the Interests by STPII; and
(iv) STPII will not transfer the Interests, (1)
without registration under the Act and any applicable State Acts or unless an
exemption from registration under the Act and any applicable State Acts is
available, or (2) without compliance with any restrictions imposed by the Act
or any applicable State Acts.
5.10 DISCLOSURE. To the knowledge of any of STTOC, STPII and STTII,
there is no information (other than information of changes in general economic
or political conditions or in the timber industry generally) concerning any of
the Companies which has not heretofore been disclosed to the Members and
Frontier which information would have a material adverse effect on the
financial condition, results of operations, business or prospects of the
Companies.
ARTICLE 6
ADDITIONAL COVENANTS
6.1 MINIMUM BOOK NET WORTH. Members shall cause Frontier to
maintain a minimum book net worth of $3,000,000 for three years after the
Closing Date.
6.2 COOPERATION. Subject to the other provisions in this
Agreement, the parties hereto shall each use its reasonable, good faith efforts
to perform its respective obligations herein and to take, or cause to be taken
or do, or cause to be done, all things necessary, proper or advisable under
Applicable Law to cause the transactions contemplated by this Agreement to be
carried out promptly in accordance with the terms hereof, and shall cooperate
fully with each other and their respective officers, directors, members,
managers, employees, agents, counsel, accountants and other designees in
connection with any steps required to be taken as part of their respective
obligations under this Agreement.
6.3 [INTENTIONALLY LEFT BLANK].
6.4 PUBLIC ANNOUNCEMENTS. Neither STTII, STTOC, STPII, Frontier,
Pioneer nor any of the Members shall disclose, and STTOC, STPII and STTII shall
cause the Companies not to disclose, to the public the terms of the
transactions contemplated by this Agreement without
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the prior written consent of the other party (which consent shall not be
unreasonably withheld), except as may be required by Applicable Law.
Notwithstanding the foregoing, STTII and STPII will have the right to make a
public announcement stating that such transactions have closed and that STPII
is the new owner of Pioneer.
6.5 EXPENSES. Except as otherwise specifically provided in this
Agreement, all costs and expenses (including attorneys' and accountants' fees)
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses (except that Pioneer
may pay prior to Closing or Frontier may pay the fees incurred by Members).
6.6 RELEASES. Each of the Members releases Pioneer and STPII, as
the sole member of Pioneer, from any and all claims, rights and causes of
action that such Member may have or may have had against Pioneer or STPII, as
the sole member of Pioneer, prior to, or arising with respect to any acts or
omissions occurring prior to the Effective Time; provided, however, that
nothing in this Section waives, releases or restricts in any manner whatsoever
any of the rights of the Members arising out of this Agreement or the other
agreements, instruments and documents delivered pursuant to this Agreement.
Pioneer and STPII, as the sole member of Pioneer, after Closing release the
Members individually and in their capacities as members, managers and officers
of Pioneer from any and all claims, rights and causes of action that Pioneer or
STPII may have or may have had against the Members individually or in their
capacities as members, managers or officers of Pioneer prior to, or arising
with respect to any acts or omissions occurring prior to the Effective Time;
provided, however, that nothing in this Section waives, releases or restricts in
any manner whatsoever any of the rights of STPII or Pioneer arising out of
this Agreement or the other agreements, instruments and documents delivered
pursuant to this Agreement.
6.7 EMPLOYEE MATTERS. As of the Effective Time, Pioneer has no
employees. All liabilities and obligations relating to the employment of any
person prior to the Effective Time, including severance costs and obligations
under IRC Section 4980B, are Excluded Liabilities.
6.8 TAX MATTERS.
(a) Tax Return. The Tax Matters Member (as
defined in the Fourth Amended and Restated Operating Agreement of Pioneer dated
as of October 9, 1998) shall prepare or cause to be prepared for filing the
income tax return of Pioneer (including any amendments thereto) with respect to
Pioneer's 1998 fiscal year ("1998 Tax Year"). The Tax Matters Member also shall
cause Pioneer to make an election pursuant to IRC ss. 754 on such return. The
Tax Matters Member shall deliver the tax return to the Member Representative
for review by the Members no later than thirty (30) days prior to the filing
date.
(b) Short Period Allocations. For purposes of
this Agreement and for federal, state or local income tax purposes, all income,
gains, losses, deductions and credits of Pioneer accrued during the period
beginning on January 1, 1998 and ending on the Closing Date (the "Pre-Closing
Period"), shall be allocated to the Pre-Closing Period and not pro rata with
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respect to Pioneer's entire 1998 Tax Year. In no event shall income, gains,
losses, deductions or credits accruing from events following the Closing Date
be allocated to the Pre-Closing Period.
(c) Control of Tax Proceedings. Except with
respect to any audit, examination or other administration or court proceeding
relating to any Taxes of Pioneer relating to the Pre-Closing Period as to
which the Members shall have the right to control any such proceedings and as
to which the Members shall bear the benefit or burden of the consequences
thereof (in which case the Members shall take no position or action adverse to
STPII without STPII's express consent), in the case of any audit, examination or
other administrative or court proceeding relating to any Taxes of Pioneer,
STPII shall have the right to control any such tax proceeding and to initiate
any claim for refund, file any amended return or take any other action which it
deems appropriate; provided, however, that STPII shall not take any position or
action adverse to the Members or file any claim, amended return or enter into
any final settlement or closing agreement that would increase any Taxes that
are Excluded Liabilities without the consent of the Members, which consent
shall not be unreasonably withheld.
(d) Assistance. After the Effective Time, STPII,
on the one hand, and the Members, on the other hand, shall provide each other
with such assistance as may be reasonably requested in connection with the
preparation of any income tax return, any audit or other examination by any
taxing authority, or any judicial or other administrative proceeding relating
to liability for Taxes of Pioneer. The party requesting assistance hereunder
shall reimburse the other for reasonable out-of-pocket expenses incurred in
providing such assistance. No party shall request an income tax audit of
Pioneer.
(e) Disclaimer. The Members acknowledge that
neither STPII nor any of its affiliates makes any representation or warranty to
the Members as to the federal or state income tax consequences of the
transactions contemplated by this Agreement.
6.9 [INTENTIONALLY LEFT BLANK].
6.10 FINANCIAL STATEMENTS. STTOC, STTII and STPII acknowledge that
they must obtain the consent of Arthur Andersen LLP prior to using the
Financial Statements and underlying records in connection with the IPO or any
Financing.
6.11 FINANCING AND IPO ASSISTANCE. Frontier has and will cooperate
as reasonably requested to assist STTOC, STTII and STPII in the preparation of
financial and operational information on the Timberlands for the IPO and the
Financing. In addition, post-Closing, Frontier may provide transitional
assistance to STPII, STTOC and STTII. Frontier will be compensated by STTOC,
STTII or STPII for any reasonable out-of-pocket expenses incurred or staff time
expended in rendering such assistance.
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ARTICLE 7
INDEMNIFICATION
7.1 GENERAL INDEMNIFICATION OBLIGATIONS.
(a) Loss. The term "Loss" means any liability,
loss, cost, damage, expense or payment (including (i) related reasonable
attorneys', accountants' and other professional advisors' fees and expenses and
incidental damages, (ii) reasonable attorneys' fees incurred in enforcing the
indemnification provisions of this Agreement, (iii) amounts paid in settlement
(made in accordance with the procedures of Section 7.6) of a dispute with a
person not a party to this Agreement that if resolved in favor of such third
person would constitute a matter to which a party is indemnified pursuant to
this Agreement, even though such settlement does not acknowledge that the
underlying facts or circumstances constitute a violation of law or a breach of
a representation and warranty or other matter as to which the party is
indemnified, and (iv) reasonable costs and expenses necessary to avoid having a
claim for indemnification against another party pursuant to this Agreement, to
mitigate any such claim, or to correct facts and circumstances that would have
resulted in its having a claim for indemnification against another party
pursuant to this Agreement).
(b) Waiver and Estoppel. No party will be
entitled to assert after the Closing any claim based upon a breach of any
representation, warranty or covenant under this Agreement, to the extent such
representation, warranty or covenant otherwise would survive the Closing, if
the party asserting such a claim had knowledge of the facts constituting the
breach prior to the Effective Time and any such claim will be deemed waived and
the party asserting such claim will be estopped from asserting at or after the
Closing, any claim or remedy based upon such breach. For purposes of this
Section 7. 1(b), (i) "knowledge" of a party will include the knowledge of its
legal counsel and consultants, with respect to their representation of the
party in connection with this Agreement; and (ii) the pre-Closing knowledge of
the Members will not be imputed to STTII, STPII, STTOC or Pioneer.
(C) Cooperation. Frontier and the Companies
shall cooperate fully with each other and their respective attorneys,
accountants and other representatives in connection with the defense or
settlement of a matter for which a party has an indemnification obligation
pursuant to this Article 7.
7.2 INDEMNITY BY FRONTIER. Frontier shall indemnify and hold
harmless STTOC, STTII, STPII and Pioneer and their respective affiliates,
shareholders, partners, officers, directors, employees and agents, and their
respective legal representatives, successors and assigns (the "STTOC
Indemnitees"), from and against any Loss arising out of, in connection with or
resulting from:
(a) any breach of or failure to comply with any
covenant or agreement made by the Members and/or Frontier in this Agreement or
in any agreement delivered pursuant hereto;
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(b) any inaccuracy in or breach of any of the
representations or warranties made by the Members and/or Frontier herein or in
any schedule, certificate or agreement delivered pursuant hereto;
(c) any of the Excluded Liabilities; or
(d) any claim by any person for a brokerage or
finder's fee or a commission or similar payment based upon any agreement or
understanding alleged to have been made by any such person with the Members,
pre-Closing Pioneer or Frontier (or any person acting on the Members',
Frontier's or pre-Closing Pioneer's behalf) in connection with the transactions
contemplated by this Agreement.
Subsections 7.2(a) through 7.2(d) above shall be deemed to be
independent bases for indemnification, and the STTOC Indemnitees shall be
entitled to indemnification under each subsection. The indemnification provided
by this Section shall encompass claims of the STTOC Indemnitees against the
Members and Frontier for any Loss sustained by the STTOC Indemnitees whether or
not involving any claim, action or proceeding by a third party.
7.3 INDEMNITY BY EACH MEMBER. Each Member shall severally (and not
jointly and severally) indemnify and hold harmless the STTOC Indemnitees from
and against any Loss arising out of, in connection with or resulting from any
inaccuracy in or breach of any of the representations or warranties made by
such Member in Section 4.2 herein. The indemnification provided by this Section
shall encompass claims of the STTOC Indemnitees against such Member for any
Loss sustained by the STTOC Indemnitees under Section 4.2 whether or not
involving any claim, action or proceeding by a third party.
7.4 INDEMNIFICATION BY STTOC, STTII AND STPII. STTOC, STTII and
STPII shall indemnify and hold harmless Frontier and each Member against any
Loss suffered by Frontier, each Member and their shareholders, officers,
directors, affiliates, members, managers, employees and agents, and respective
heirs, devisees, legal representatives, successors and assigns (the "Frontier
Indemnitees"), arising out of, in connection with or resulting from:
(a) any breach of or failure to comply with any
covenant or agreement made by any of the Companies in this Agreement or in any
agreement delivered pursuant hereto;
(b) any inaccuracy in or breach of any of the
representations or warranties made by any of the Companies herein or in any
schedule, certificate or agreement delivered pursuant hereto;
(c) any claim arising directly or indirectly
from the alleged failure of Pioneer to discharge the Retained Liabilities,
provided, that the Frontier Indemnitees agree to first seek indemnification for
any Loss under this Section 7.4(c) from post-Closing Pioneer in accordance
with the Joint Agreement;
(d) any claim by any person for a brokerage or
finder's fees or a commission or similar payment based upon any agreement or
understanding alleged to have been
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made by such person with the Companies (or any person acting on any of the
Companies behalf) in connection with the transactions contemplated by this
Agreement;
(e) any Loss (other than a market loss as a
holder of Class B Units) from any third party claim arising out of the use of
any pre-Closing Pioneer materials or information in any IPO or Financing, other
than as a result of a breach of a representation or warranty by Frontier or the
Members under this Agreement; or
(f) any Loss arising out of the assistance
provided in Section 6.11.
Subsections 7.4(a) through 7.4(f) above shall be deemed to be
independent bases for indemnification and Frontier Indemnitees shall be
entitled to indemnification under each subsection. The indemnification provided
by this Section shall encompass claims by the Frontier Indemnitees against any
of the Companies for any Loss sustained by the Frontier Indemnitees whether or
not involving any claim, action or proceeding by a third party.
7.5 TAX IMPACT; INSURANCE AND CONTRACTS. The parties agree that
any Loss for which indemnity is sought pursuant to the provisions of this
Article 7 shall be computed after deduction (or increase) of any net tax
benefit (or disadvantage) which may accrue to the party seeking indemnity after
giving effect to the incurrence by such party of the Loss giving rise to the
claim for indemnification, the payment by such party of any such Loss and the
receipt by such party of any indemnity pursuant hereto, but only to the extent
such tax benefit (or disadvantage) is actually realized. In connection with any
indemnity claim, the parties agree to first seek recovery of any Loss under any
available insurance policy or third party contract. The amount of any Loss for
which indemnification is provided under this Article 7 shall be reduced by the
insurance proceeds received and any other amounts, if any, recovered from third
parties by the Indemnitee (or its affiliates) with respect to any Loss. If any
Indemnitee (or its affiliates) received any indemnification payment pursuant to
this Article 7 with respect to any Loss, such Indemnitee shall, upon written
request by the Indemnitor, assign to such Indemnitor (to the extent of the
indemnification payment) any claim which such Indemnitor may have under any
applicable insurance policy or contract which provided coverage for such Loss.
Such Indemnitee shall reasonably cooperate (at the expense of the Indemnitor)
to collect under such insurance policy or contract. If any Indemnitee (or its.
affiliates) receives any payment pursuant to this Article 7 with respect to any
Loss and subsequently receives insurance proceeds or other amounts with respect
to such Loss, the Indemnitee (or its affiliates) shall promptly pay over to the
Indemnitor the amount so recovered (after deducting the amount of the expenses
incurred by it in procuring such recovery), but not in excess of the amount
previously so paid by the Indemnitor.
7.6 CLAIMS PROCEDURE.
(a) Notice. A party seeking indemnification
pursuant to this Agreement (the "Indemnitee") shall, within a reasonable time
after receiving notice of a Loss, notify the party providing indemnification
pursuant to this Agreement (the "Indemnitor") in writing of the facts that are
the basis of such Loss which the Indemnitee has determined has given or may
give rise to a right of indemnification under this Agreement (a "Claim").
Notwithstanding
28
<PAGE> 29
the foregoing, a delay in providing any notice of a Claim shall not prejudice
any right to indemnification under this Agreement except to the extent that the
Indemnitor is actually prejudiced by such failure. The amount of the Claim as
set forth in the notice shall be based upon the Indemnitee's good faith opinion
of the reasonable maximum exposure to the Indemnitor but shall not limit the
Indemnitee's right to indemnification if the Loss resulting exceeds the amount
set forth in the notice.
(b) Third Party Claims. If any Claim relates to
a claim or demand by a third party against any STTOC indemnitee or Frontier
Indemnitee, and the Indemnitor acknowledges its obligation to indemnify the
Indemnitee with respect to such claim or demand, the Indemnitor shall have the
right to settle any such third party claim or demand (at the Indemnitor's
expense and without admitting that the Indemnitee had any liability with
respect thereto and provided the sole relief is monetary damages to be paid in
full by Indemnitor) or to employ counsel reasonably acceptable to the Indemnitee
to defend any such third party claim or demand, and the Indemnitee shall have
the right to participate in the defense of any such claim or demand with
counsel of the Indemnitee's selection and at the Indemnitee's cost. So long as
the Indemnitor is defending in good faith any such third party claim or demand,
the Indemnitee will not settle such claim or demand. The Indemnitee shall make
available to the Indemnitor or its representatives, at the Indemnitor's
expense, all records and other materials required by it for its use in
contesting any such claim or demand asserted by a third party against such
Indemnitee. If the Indemnitor is not entitled to defend or settle a third party
claim or demand because the Indemnitor does not acknowledge its indemnification
obligation with respect to the Claim, or if the Indemnitor does not otherwise
assume the defense of a third party claim or demand or abandons the defense of
a third party claim or demand, the Indemnitor shall be deemed to have waived
its right to defend or settle such a third party claim or demand and the
Indemnitee shall have the right to defend or settle such third party claim or
demand, and the Indemnitee shall continue to be entitled to indemnification
pursuant to this Article 7. The Indemnitee may only settle a third party claim
or demand in which it is entitled to defend or settle upon delivery to the
Indemnitor of a statement by counsel for the Indemnitee that any such proposed
settlement would be reasonable and in good faith under the circumstances of
such third party claim or demand. If the Indemnitor objects to such proposed
settlement, it may either assume the defense of such third party claim or
demand or pay the Indemnitee's attorneys' fees and other out-of-pocket costs
incurred thereafter in continuing to defend such third party claim or demand.
If the Indemnitor rejects any such proposed settlement, it shall be liable to
the Indemnitee for any amount paid by the Indemnitee in excess of the
settlement amount included in the rejected settlement offer, whether or not the
Indemnitor would otherwise be liable to indemnify the Indemnitee with respect
to such third party claim or demand.
(C) Other Claims. If a STTOC Indemnitee or
Frontier Indemnitee suffers a Loss other than that arising from a claim or
demand asserted by a third party, the Indemnitee shall in its notice of Claim
propose a course of remedial action. The Indemnitor shall notify the Indemnitee
whether it disputes its obligation to indemnify the Indemnitee or the amount of
the Indemnitee's Loss, and shall propose a course of remedial action to satisfy
the Claim. The Indemnitee shall allow the Indemnitor to undertake its proposed
course of remedial action, if, and only if, such proposed course of remedial
action (i) provides for the satisfaction of the claim in a manner consistent
with Applicable Law and with applicable industry standards and (ii) will not be
29
<PAGE> 30
more disruptive of the Indemnitee's operations at the affected site than the
remedial action proposed by the Indemnitee. If the Indemnitor disputes such
Claim or any portion thereof, the Indemnitor shall specify in detail the
portion of such Loss (if less than all) which is disputed and the facts relied
upon by the Indemnitor as a basis for such dispute.
(d) Notice of Fixed or Determined Loss. When a
Loss is paid or is otherwise fixed or determined, then the Indemnitee shall give
the Indemnitor notice of such Loss, in reasonable detail and specifying the
amount of such Loss, and the sections of this Agreement upon which the claim
for indemnification for such Loss is based. If the Indemnitor desires to
dispute such claim, it shall, within thirty (30) days after receipt of such
notice, give counternotice, setting forth the basis for disputing such claim, to
the other party. If no such counternotice is given within such thirty-day
period or if the Indemnitor acknowledges liability for indenmification, then
such Loss shall be promptly satisfied as provided in Section 7.7. If, within
thirty (30) days after the receipt of counternotice by the Indemnitee the
parties shall not have reached agreement as to the claim in question, then the
claim for indemnification shall be submitted to and settled by arbitration as
provided below (it being expressly understood and agreed that if such
counternotice is duly given, it is the intention of the parties that any such
claim shall be resolved by arbitration as provided in this Section).
7.7 SATISFACTION OF CLAIM. If the Indemnitor has acknowledged its
obligation to indemnify Indemnitee with respect to a Claim and does not
dispute the amount of such Claim, Indemnitee shall be entitled to immediate
satisfaction in cash of any related Loss. If the Indemnitor disputes its
obligation to indemnify Indemnitee with respect to a Claim, the Indemnitor
shall pay the amount of any Loss related to the Claim in cash upon a final
determination that the Indemnitor is obligated to indemnify Indemnitee with
respect to such Claim. If the Indemnitor disputes the amount of a Claim,
Indemnitee shall be entitled to immediate satisfaction in cash of any
undisputed Loss related to the Claim and the Indemnitor shall pay in cash the
amount of any disputed Loss upon a final determination of the indemnifiable
amount of such Loss. No Indemnitee (or its affiliate) shall be entitled to
offset the amount of any Loss to which it is entitled to indemnification
hereunder against any obligation due by it to the Indemnitor (or its affiliate).
7.8 NATURE AND SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS
AND INDEMNITIES. The representations, warranties, covenants, indemnities and
agreements of the parties contained herein shall survive the Effective Time for
a period of two (2) years (except as to any matters with respect to which a
bona fide written Claim has been made before such date, in which event survival
shall continue, but only with respect to, and to the extent of, such Claim);
provided, however, that (i) Frontier's indemnification of the STTOC Indemnitees
for any claim resulting indirectly or directly from the Excluded Liabilities or
any breach of Section 6.1, and (ii) any Claims against the STTOC Indemnitees
under Sections 7.4 (c), (e) and (f), shall survive the Closing until the
running of the applicable statutes of limitation.
7.9 PURCHASE PRICE ADJUSTMENT. Any amount paid by STTOC, STTII or
STPII on the one hand, or Frontier or the Members on the other hand, to the
other pursuant to this Article 7 will be treated for tax purposes as an
adjustment to the Purchase Price.
30
<PAGE> 31
7.10 LIMITATIONS ON AMOUNT. Neither Frontier nor the Companies
taken together will have any liability (for indemnification or otherwise) with
respect to the matters described in Sections 7.2(a) and (b) or 7.4(a) and
7.4(b), as the case may be, until the total of all Losses with respect to such
matters exceeds $200,000 and then only for the amount by which such Losses
exceeds such amount but in no event for an amount exceeding $20,000,000.
However, this Section 7.10 will not apply to any intentional breach of any of
party's representations, warranties, covenants or obligations.
ARTICLE 8
[INTENTIONALLY LEFT BLANK].
ARTICLE 9
(INTENTIONALLY LEFT BLANK].
ARTICLE 10
MISCELLANEOUS
10.1 NOTICES. Any notice, communication or request under this
Agreement to either of the parties shall be in writing and shall be effectively
delivered if delivered personally or sent by overnight courier service (with
all fees prepaid), or by telecopy as follows:
If to STTOC, STTII or STPII:
5 North Pleasant Street
New London, New Hampshire 03257
Attn: C. Edward Broom
Facsimile: (603) 526-7811
with a copy to: Sutherland, Asbill & Brennan LLP
999 Peachtree Street, N.E.
Atlanta, Georgia 30309-3996
Attention: William H. Bradley
Facsimile: (404) 853-8806
or to Member Representative or Frontier:
25310 Jeans Road, PO Box 876
Veneta, OR 97487
Attention: Gregory M. Demers
Facsimile: (541) 935-4749
with a copy to: Schwabe Williamson & Wyatt, P.C.
1211 SW 5th Avenue
Portland, Oregon 97204-3795
31
<PAGE> 32
Attention: Kirk Johansen
Facsimile: (503)796-2900
Any such notice, request, demand or other communication shall
be deemed to be given (i) if delivered in person, on the date delivered; (ii)
if made by facsimile transmission, upon confirmation of receipt (including
electronic confirmation), or, (iii) if sent by overnight courier service, on
the first business day after the date sent. Any party sending a notice,
request, demand or other communication by facsimile transmission shall also
send a hard copy of such notice, request, demand or other communication by one
of the other means of providing notice set forth in this Section. Any notice,
request, demand or other communication shall be given to such other
representative or at such other address as a party to this Agreement may
furnish to the other parties in writing pursuant to this Section.
10.2 HEADINGS; CAPTIONS. The captions and other headings contained
in this Agreement as to the contents of particular articles, sections,
paragraphs or other subdivisions contained herein are inserted for convenience
of reference only and are in no way to be construed as part of this Agreement
or as limitations on the scope of the particular articles, sections, paragraphs
or other subdivisions to which they refer and shall not affect the
interpretation or meaning of this Agreement.
10.3 EXCLUSIVE REMEDIES; COSTS. The remedies of the parties set
forth in Article 7 shall be deemed to be the exclusive remedy for breaches of
any representation, warranty or covenant contained in this Agreement, including
any statutory, equitable, or common law remedy or theory. A party who prevails
in prosecuting or defending an action with respect to this Agreement shall (in
addition to any other relief hereunder) be paid by the other party all costs,
fees and expenses, including reasonable attorneys' fees, incurred by the
prevailing party in such action, including in arbitration, at trial or on
appeal or review, and in any bankruptcy proceeding.
10.4 SEVERABILITY. If any term or other provision of this Agreement
is determined by a court of competent jurisdiction or in arbitration to be
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all of the terms and provisions of this Agreement will nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner or adverse
to any party hereto.
10.5 INCORPORATION OF SCHEDULES AND EXHIBITS. This Agreement shall
be deemed to have incorporated by reference all of the schedules and exhibits
referred to herein to the same extent as if such schedules and exhibits were
fully set forth herein. Each reference herein to "the Agreement" or "this
Agreement" shall be construed to include each such schedule and exhibit.
10.6 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement, the
agreements referenced herein and the schedules and exhibits attached hereto
represent the entire understanding and agreement among the parties with respect
to the subject matter hereof and shall supersede any prior agreements and
understandings between the parties with respect to that subject matter. This
Agreement may not be amended or modified except by a written instrument
executed by the parties. The granting of any waiver with respect to any failure
to comply with
32
<PAGE> 33
any provision of this Agreement shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure to comply with any provision
of this Agreement.
10.7 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of and be enforceable by the parties hereto, and their respective
successors and permitted assigns, but no assignment shall relieve any party of
its obligations hereunder. Neither this Agreement nor any rights, interests or
obligations shall be assigned without the prior written consent of all parties,
provided that the Companies' and Pioneer's rights and interests under this
Agreement may be collaterally assigned to secure the Replacement Credit
Facilities. Except for Pioneer or as contemplated in the preceding sentence,
there are no third party beneficiaries to this Agreement.
10.8 GOVERNING LAW. This Agreement shall be controlled, construed
and enforced in accordance with the internal laws of the State of Oregon
without regard to the conflict of laws thereof.
10.9 ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, including without limitation, the making,
performance or interpretation of this Agreement, will be settled by
arbitration. The arbitration shall be (i) in the event the Loss or amount in
dispute is less than $250,000, by a single arbitrator, mutually selected by
STTOC and Frontier (or the Member involved) or (ii) if the Loss or amount in
dispute equals or exceeds $250,000, by a panel of three arbitrators, one
arbitrator selected by each of STTOC and Frontier (or the Member involved) and
the two arbitrators in turn selecting a third arbitrator to act with them in
a panel. Each arbitrator shall be experienced in the matters at issue. The
arbitration shall be held in such place in the metropolitan Portland, Oregon
area as may be specified by the arbitrator or the panel (or any place agreed to
by Frontier or the Member involved, STTOC and the arbitrator or panel), and
shall be conducted in accordance with the Commercial Arbitration Rules existing
at the date thereof of the American Arbitration Association to the extent not
inconsistent with this Agreement. The decision of the arbitrator or panel shall
be final and binding as to any matters submitted under this Agreement, and to
the extent the decision is that a Loss has been suffered for which either party
is to be indemnified under this Agreement, it shall be satisfied as provided in
Section 7.7; provided, however, that, if necessary, such decision and
satisfaction procedure may be enforced by either STTOC or Frontier, or the
Member involved in any court of record having jurisdiction over the subject
matter or over any of the parties. The determination of which party (or
combination of them) bears the costs and expenses incurred in connection with
any such arbitration proceeding shall be determined by the arbitrator or panel.
The parties agree that the arbitrator or panel shall have no jurisdiction to
consider evidence with respect to or render an award or judgment for punitive
damages (or any other amount awarded for the purpose of imposing a penalty).
The parties agree that that all facts and other information relating to any
arbitration arising under this Agreement will be kept confidential to the
fullest extent permitted by law.
10.10 WAIVER OF JURY TRIAL. EACH OF THE PARTIES IRREVOCABLY WAIVES
ANY RIGHT TO A JURY TRIAL WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT.
10.11 TIME OF ESSENCE. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
33
<PAGE> 34
10.12 COUNTERPARTS. This Agreement may be executed simultaneously
and in any number of counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
10.13 FURTHER ASSURANCES. At any time or from time to time after the
Closing Date, the parties agree (a) to furnish upon request to each other such
further information, (b) to execute and deliver to each other such other
documents, and (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the documents referred to in this Agreement.
10.14 ACCESS TO PIONEER RECORDS AFTER CLOSING. Following the Closing
Date, each of the Companies will, and each of the Companies will cause Pioneer
to, exercise reasonable care in the safekeeping of all books, records, agreement
and other documents relating to Pioneer and will allow the Members and Frontier
and their agents reasonable access to such books, records, agreements and other
documents relating to pre-Closing Pioneer, the Timberlands, the Timberlands
Related Assets and the Retained Contracts in order to inspect and make copies
thereof
ARTICLE II
MEMBER REPRESENTATIVE
11.1 APPOINTMENT & ACCEPTANCE. By executing this Agreement, each
Member hereby irrevocably constitutes and appoints Gregory M. Demers and the
successors of him, acting as hereinafter provided, as his exclusive
attorney-in-fact and agent in his name, place and stead, for and on behalf of
each of them, in connection with the transactions and agreements contemplated
by this Agreement (the "Member Representative"), and acknowledges that such
appointment, being relied upon by STTOC, STTII, STPII and Pioneer, is coupled
with an interest. By executing and delivering this Agreement, Mr. Demers hereby
(a) accepts his appointment and authorization to act as the Member
Representative as attorney-in-fact and agent on behalf of the Members in
accordance with the terms of this Agreement and (b) agrees to perform his
obligations under, and otherwise comply with, this Article 11.
11.2 AUTHORITY. Each Member by executing this Agreement fully and
completely, without restriction:
(a) Execution and Delivery of Agreement.
Authorizes and empowers the Member Representative (i) to prepare, finalize,
approve and authorize all exhibits, schedules and other attachments to this
Agreement, and the other agreements, instruments and documents delivered by or
on behalf of the Members pursuant to this Agreement, (ii) to deliver on the
Member's behalf to STPII, STTII or STTOC as provided in this Agreement the
certificates representing all of the Member's Interest duly endorsed by the
Member and otherwise as provided in this Agreement and all other materials to
be delivered in connection with such certificates, (iii), to execute, deliver
and accept on the Member's behalf the other contracts, instruments and
documents to be delivered by or on behalf of the Member pursuant to this
Agreement, (iv) to execute and deliver, and to accept delivery, on the Member's
behalf of such amendments as may
34
<PAGE> 35
be deemed by the Member Representative in his sole discretion to be appropriate
under this Agreement, and the other contracts, instruments and documents to be
delivered by or on behalf of the Members pursuant to this Agreement, and (v) to
execute and deliver, and to accept delivery, on the Member's behalf of such
waivers, consents, contracts, instruments and other documents as may be deemed
by the Member Representative in his sole discretion to be appropriate under
this Agreement, or the other Member Delivered Agreements;
(b) Notices of Determinations. Agrees to be
bound by all notices received and contracts and determinations made by and
documents executed and delivered by the Member Representative under this
Agreement, and the other contracts, instruments and documents to be delivered
by or on behalf of the Member pursuant to this Agreement;
(C) Disputes & Consents. Authorizes the Member
Representative (i) to dispute or to refrain from disputing any claim made by
STTOC, STPII, Pioneer or STTII under this Agreement, and the other contracts,
instruments and documents to be delivered by or on behalf of Frontier and the
Members pursuant to this Agreement, (ii) to negotiate and compromise any
dispute which may arise under, and to exercise or refrain from exercising
remedies available under this Agreement, and the other Member and Frontier
Delivered Agreements and to sign any releases or other documents with respect to
such dispute or remedy, (iii) to waive any condition contained in this
Agreement, and the other Member and Frontier Delivered Agreements, (iv) to give
any and all consents under this Agreement and the other Member and Frontier
Delivered Agreements, (v) to give such instructions, and (vi) to do such other
things and refrain from doing such other things as the Member Representative in
his sole discretion may consider necessary or proper or convenient in connection
with or to carry out the provisions of this Agreement, and the other Member and
Frontier Delivered Agreements; and
(d) Payments-Receipt & Disbursements. Authorizes
and directs the Member Representative: (i) to receive any payments made to such
Members or to the Member Representative on such Member's behalf pursuant to any
of the Member Delivered Agreements, (ii) to invest such funds pending their
disbursement in such manner as the Member Representative in his sole discretion
deems appropriate, and (iii) to disburse to the Members payments made to the
Member Representative under any of the Member Delivered Agreements.
11.3 CERTAIN LIMITATION. Notwithstanding the foregoing or anything
else in this Agreement, the Member Representative shall have no authority with
respect to a breach by a Member of a representation or warranty in Section 4.2,
as to which such Member shall have the sole authority to exercise rights or
remedies.
11.4 SUCCESSORS. If the Member Representative resigns or ceases to
function in his capacity as such for any reason whatsoever, then the Members
who owned at least twenty percent (20%) of the interests of pre-Closing Pioneer
may appoint a successor, and provided, further, that if for any reason no
successor has been appointed pursuant to the foregoing proviso within thirty
(30) days, then STPII or any Member shall have the right to petition a court of
competent jurisdiction for appointment of a successor.
35
<PAGE> 36
11.5 INDEMNIFICATION. The Members hereby jointly and severally
agree to indemnify, defend and hold the Member Representative harmless for any
and all liability, loss, cost, damage or expense (including attorneys' fees)
reasonably incurred or suffered as a result of the performance of his duties
under this Agreement, except for gross negligence or willful misconduct.
11.6 SURVIVAL OF AUTHORIZATIONS. EACH MEMBER INTENDS FOR THE
AUTHORIZATIONS AND CONTRACTS IN THIS SECTION TO REMAIN IN FORCE AND NOT BE
AFFECTED IF SUCH MEMBER SUBSEQUENTLY BECOMES MENTALLY OR PHYSICALLY DISABLED OR
INCOMPETENT AS PROVIDED UNDER OREGON LAW, DOES HEREBY AUTHORIZE SUCH RECORDINGS
AND FILINGS HEREOF AS A HOLDER MAY DEEM APPROPRIATE, AND DOES HEREBY DIRECT
THAT NO POSTING OF A SURETY BOND SHALL BE REQUIRED. All powers granted to the
Member Representative under this Agreement shall survive the Closing of this
Agreement.
36
<PAGE> 37
IN WITNESS WHEREOF, STTOC, STPII, STTII, Frontier and each of
the Members has each executed this Agreement, all as of the day and year first
above written.
STRATEGIC TIMBER TWO
OPERATING CO., LLC
/s/ Joseph E. Rendini
-----------------------------------------
Joseph E. Rendini, Vice President
STRATEGIC TIMBER PARTNERS II,
LP
By: Strategic Timber Two Operating Co.
LLC
Its: General Partner
/s/ Joseph E. Rendini
-----------------------------------------
Joseph E. Rendini, Vice President
STRATEGIC TIMBER TRUST II, LLC
/s/ Joseph E. Rendini
-----------------------------------------
Joseph E. Rendini, Vice President
FRONTIER RESOURCES, LLC
/s/ Gregory M. Demers
-----------------------------------------
Gregory M. Demers, President
MEMBERS
/s/ Gregory M. Demers
-----------------------------------------
Gregory M. Demers, President
/s/ T. Yates Exley
-----------------------------------------
T. Yates Exley
/s/ Darrick Salyers
-----------------------------------------
Darrick Salyers
<PAGE> 38
/s/ James Youel By: /s/ Gregory M. Demers
----------------------------------------------------
James A. Youel, As Attorney In Fact
Old Pioneer, LLC
/s/ Gregory M. Demers
----------------------------------------------
Gregory M. Demers, Authorized Member
King Investment Group, Inc.
/s/ Edward King By: /s/ Gregory M. Demers
----------------------------------------------------
Edward King, President As Attorney In Fact
<PAGE> 39
/s/ James A. Youel
-----------------------------------------
James A. Youel
Old Pioneer, LLC
-----------------------------------------
Gregory M. Demers, Authorized Member
King Investment Group, Inc.
-----------------------------------------
Edward King, President
<PAGE> 1
EXHIBIT 3.1.1
ARTICLES OF INCORPORATION
OF
STRATEGIC TIMBER TRUST, INC.
ARTICLE I.
The name of the corporation is "Strategic Timber Trust, Inc."
ARTICLE II.
The corporation shall have the authority, acting through its board of
directors, to issue not more than 100,000 shares of a single class having a par
value of $0.01 per share which shall be referred to as "common shares." The
common shares (a) shall be one and the same class, (b) shall have unlimited
voting rights (with each share having one vote on each matter submitted to
shareholders for vote), (c) shall have equal rights of participation in
dividends and other distributions, and (d) shall be entitled to receive the net
assets of the corporation ratably upon dissolution.
ARTICLE III.
The street address of the initial registered office of the corporation
is 999 Peachtree Street, N.E., Suite 2300, Atlanta, Fulton County, Georgia,
30309, and the initial registered agent of the corporation at such address is
William H. Bradley.
ARTICLE IV.
The name and address of the incorporator are:
Robert J. Pile
Sutherland, Asbill & Brennan LLP
999 Peachtree Street, N.E., Suite 2300
Atlanta, Georgia 30309
ARTICLE V.
The mailing address of the corporation's initial principal office will
be:
5 North Pleasant Street
New London, New Hampshire 03257
<PAGE> 2
ARTICLE VI.
Any action required by the Georgia Business Corporation Code ("GBCC")
to be taken at a meeting of the shareholders of the corporation or any action
which may be taken at a meeting of the shareholders may be taken without a
meeting if a written consent, setting forth the action so taken, shall be signed
by the persons who would be entitled to vote at a meeting shares having voting
power to cast not less than the minimum number (or numbers, in the case of
voting by groups) of votes that would be necessary to authorize or take such
action at a meeting at which all shareholders entitled to vote were present and
voted.
ARTICLE VII.
A director of the corporation shall not be personally liable to the
corporation or to its shareholders for monetary damages for any action taken, or
any failure to take any action, as a director, except liability: (a) for any
appropriation, in violation of his or her duties, of any business opportunity of
the corporation, (b) for acts or omissions which involve intentional misconduct
or a knowing violation of law, (c) for any type of liability set forth in
section 14-2- 832 of the GBCC, or (d) for any transaction from which the
director derived an improper personal benefit. If the GBCC is hereafter amended
to eliminate or limit the personal liability of directors, then the liability of
a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the GBCC, as so amended. Any repeal or modification of this
Article VII by the shareholders of the corporation shall not adversely affect
any right or protection of a director of the corporation existing at the time of
such repeal or modification.
* * *
Pursuant to GBCC ss.14-2-201.1, the incorporator does hereby undertake
to publish a notice of the filing with the Secretary of State of the State of
Georgia of these articles of incorporation as required by GBCC ss.14-2-201.1(b).
DULY EXECUTED and delivered by the undersigned incorporator on
April 21, 1998.
/s/ Robert J. Pile
-------------------------------
Robert J. Pile, as Incorporator
* * * * *
<PAGE> 1
EXHIBIT 3.2.1
BYLAWS
OF
STRATEGIC TIMBER TRUST, INC.
(a Georgia corporation)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1
DEFINITIONS..............................................................................................1
ARTICLE 2
SHARE CERTIFICATES.......................................................................................2
2.1 Share Certificates..............................................................................2
2.2 List of Shareholders............................................................................2
2.3 Transfers of Shares.............................................................................2
2.4 Lost Certificates...............................................................................2
ARTICLE 3
SHAREHOLDERS' MEETINGS...................................................................................3
3.1 Annual Meetings of Shareholders.................................................................3
3.2 Special Meetings of Shareholders................................................................3
3.3 Notice..........................................................................................3
(a) Method; Time; Content..................................................................3
(b) Waiver of Notice.......................................................................3
3.4 Voting..........................................................................................3
3.5 Presiding Officer...............................................................................4
3.6 Quorum; Voting Requirements; Adjournment........................................................4
3.7 Written Consent of Shareholders.................................................................4
ARTICLE 4
BOARD OF DIRECTORS.......................................................................................4
4.1 Powers of Board.................................................................................4
4.2 Number and Election of Board....................................................................4
4.3 Board Vacancies.................................................................................4
4.4 Quorum and Conduct of Meetings of Directors.....................................................5
4.5 Meetings of Board; Notice.......................................................................5
(a) Meetings and Timing and Content of Notice..............................................5
(b) Waiver of Notice.......................................................................5
4.6 Written Consent of Board........................................................................6
4.7 Telephonic Meetings of Board....................................................................6
4.8 Removal of Board................................................................................6
ARTICLE 5
OFFICERS.................................................................................................6
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
5.1 Officers........................................................................................6
5.2 Chief Executive Officer.........................................................................6
5.3 President.......................................................................................7
5.4 Secretary.......................................................................................7
5.5 Treasurer.......................................................................................7
5.6 Vice Presidents.................................................................................7
5.7 Removal of Officers and Agents..................................................................8
5.8 Vacancies.......................................................................................8
ARTICLE 6
SEAL.....................................................................................................8
ARTICLE 7
INDEMNIFICATION AND INSURANCE............................................................................8
7.1 Indemnification.................................................................................8
(a) General................................................................................8
(b) Non-Officer/Non-Director Agents and Employees..........................................9
(c) Subsequent Amendment...................................................................9
(d) Other Rights; Indemnification Agreements; Certain Limitations..........................9
(e) Continuation of Right to Indemnification...............................................9
(f) Savings Clause.........................................................................9
7.2 Insurance......................................................................................10
ARTICLE 8
AMENDMENT...............................................................................................10
</TABLE>
* * *
ii
<PAGE> 4
BYLAWS
OF
STRATEGIC TIMBER TRUST, INC.
ARTICLE 1
DEFINITIONS
The following terms used in these Bylaws shall have the meanings set
forth below:
(a) "Articles of Incorporation" means the Articles of
Incorporation of the Corporation as amended from time to time.
(b) "Board" means the Board of Directors of the Corporation.
(c) "Bylaws" means these Bylaws as amended from time to time.
(d) "Corporation" means Strategic Timber Trust, Inc.
(e) "GBCC" means the Georgia Business Corporation Code or any
successor law of the State of Georgia and a reference to a
particular section of the GBCC shall refer to successor
sections of such law or successor law.
(f) "Section" means a section of these Bylaws.
(g) "Shareholders" means the shareholders of the Corporation.
For purposes of the Bylaws: (i) titles and captions in, and the table of
contents of, the Bylaws are inserted only as a matter of convenience and for
reference and in no way define, limit, extend or describe the scope of the
Bylaws or the intent of any of their provisions; and (ii) "including" and other
words or phrases of inclusion, if any, shall not be construed as terms of
limitation, so that references to "included" matters shall be regarded as
non-exclusive, non-characterizing illustrations.
<PAGE> 5
ARTICLE 2
SHARE CERTIFICATES
2.1 Share Certificates. Share certificates shall be issued in
consecutive order and shall be numbered in the order in which they are issued.
They shall be signed by the Chief Executive Officer, if any, the President or a
Vice President and the Secretary or an Assistant Secretary, and if there is a
seal of the Corporation, such seal (or a facsimile of it) shall be affixed to
share certificates. On the stub of each share certificate, which stubs shall be
kept in the share records of the Corporation, shall be entered the name and
address of the owner of the shares, the number of shares, and the date of issue.
Each share certificate exchanged or returned shall be cancelled and placed with
its stub in the share records of the Corporation.
2.2 List of Shareholders. The Corporation shall maintain at its
principal place of business or registered office a record of the names and
addresses of its Shareholders and the number of shares held by each, which shall
be maintained and made available in accordance with Georgia law.
2.3 Transfers of Shares. Transfers of shares of the Corporation shall
be made in the share records of the Corporation upon surrender of the
certificate for such shares signed by the person in whose name the certificate
is registered or on his behalf by a person legally authorized to so sign (or
accompanied by a separate stock transfer power so signed) and otherwise in
accordance with and subject to the applicable provisions of the Uniform
Commercial Code as in effect in the State of Georgia, and subject to such other
reasonable and lawful conditions and requirements as may be imposed by the
Corporation or the Bylaws. Unless the Corporation has established a procedure by
which a beneficial owner of shares held by a nominee is to be recognized by the
Corporation as the owner of such shares, the person in whose name shares are
registered on the share records of the Corporation shall be deemed by the
Corporation to be the owner thereof for all purposes.
2.4 Lost Certificates. The Chief Executive Officer, if any, or the
President may issue a new share certificate in place of any certificate
previously issued by the Corporation and alleged to have been lost or destroyed
upon the making of an affidavit of that fact by the person claiming the
certificate to be lost or destroyed and, if he in his sole discretion deems it
appropriate, the delivery of a commercial indemnity bond issued by a company
approved by him in such sum as he may direct as indemnity against any claim that
may be made against the Corporation with respect to the certificate alleged to
have been lost or destroyed.
2
<PAGE> 6
ARTICLE 3
SHAREHOLDERS' MEETINGS
3.1 Annual Meetings of Shareholders. The annual meeting of the
Shareholders shall be held within the first four months after the end of each
fiscal year of the Corporation at such time and place, within or without the
State of Georgia, as may from time to time be fixed by the Board. The failure to
hold the annual meeting shall not work a forfeiture of or otherwise affect valid
corporate acts.
3.2 Special Meetings of Shareholders. Special meetings of the
Shareholders may be called at any time by the Board, the Chief Executive
Officer, if any, or the President, or by the Corporation upon the written
request of the holder or holders of at least 25 percent of the outstanding
shares of the Corporation entitled to vote on any issue proposed to be
considered at the proposed special meeting. Special meetings of the Shareholders
shall be held at such time and place, within or without the State of Georgia, as
may be determined by the person or persons calling the meeting.
3.3 Notice.
(a) Method; Time; Content. The Secretary or an Assistant
Secretary or the officer or persons calling the meeting shall deliver a written
notice of the place, day and time of each meeting of the Shareholders, not less
than ten (10) nor more than sixty (60) days before the date of the meeting and
otherwise in accordance with applicable law, to each Shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail with first class postage
prepaid, addressed to the Shareholder at his address as it appears on the share
records of the Corporation. The notice of a special meeting of Shareholders
shall state the purpose or purposes for which the meeting is called.
(b) Waiver of Notice. Notice of a meeting of the Shareholders
need not be given to any Shareholder who signs a waiver of notice, either before
or after the meeting, which is filed in the minutes of the proceedings of the
Shareholders. Attendance of a Shareholder at a meeting, either in person or by
proxy, shall of itself constitute waiver of notice of such meeting and waiver of
any and all objections to the place of the meeting, the time of the meeting, and
the manner in which it has been called or convened, except when a Shareholder
attends the meeting solely for the purpose of stating, at the beginning of the
meeting, any such objection or objections to the transaction of business.
3.4 Voting. Except as otherwise required by law, by the Articles of
Incorporation, by filings with the Georgia Secretary of State fixing and
determining the voting rights of shares of the Corporation, or by the Bylaws, at
any meeting of the Shareholders, each Shareholder entitled to vote at such
meeting shall have one vote, in person or by proxy, for
3
<PAGE> 7
each share having voting rights held by him and registered in his name on the
books of the Corporation at the record date fixed or otherwise determined for
such meeting.
3.5 Presiding Officer. The Chief Executive Officer shall preside at
meetings of the Shareholders or, if the Chief Executive Officer is absent or if
the Corporation has not elected a Chief Executive Officer, the President shall
preside at meetings of the Shareholders; provided, however, that the Chief
Executive Officer or the President may delegate his authority to preside at
meetings of the Shareholders pursuant to Section 5.2 or 5.3.
3.6 Quorum; Voting Requirements; Adjournment. At all meetings of the
Shareholders, a majority of the outstanding shares of the Corporation entitled
to vote, represented in person or by proxy, shall constitute a quorum for the
transaction of business, and, if a quorum exists, action on a matter is approved
if the votes cast favoring the action exceed the votes cast opposing the action,
unless the Articles of Incorporation, a bylaw adopted by the Shareholders under
GBCC ss. 14-2-1021 or the GBCC requires a greater number of affirmative votes.
The holders of a majority of the shares represented at a meeting, whether or not
a quorum is present, may adjourn such meeting from time to time.
3.7 Written Consent of Shareholders. Any action required by the GBCC to
be taken at a meeting of the shareholders of the corporation or any action which
may be taken at a meeting of the shareholders may be taken without a meeting if
a written consent, setting forth the action so taken, shall be signed by the
persons who would be entitled to vote at a meeting shares having voting power to
cast not less than the minimum number (or numbers, in the case of voting by
groups) of votes that would be necessary to authorize or take such action at a
meeting at which all shareholders entitled to vote were present and voted
ARTICLE 4
BOARD OF DIRECTORS
4.1 Powers of Board. Subject to the Bylaws or any lawful agreement
between or among the Shareholders, the business and affairs of the Corporation
shall be managed under the direction of the Board.
4.2 Number and Election of Board. The Board shall consist of such
number of directors as is established from time to time by the Shareholders.
Each director shall be elected at an annual or special meeting of the
Shareholders or otherwise as provided by the Bylaws or applicable law, to serve
until the next succeeding annual meeting and until his successor is elected and
qualified, or until his earlier death, resignation or removal.
4.3 Board Vacancies. Except as otherwise provided in this Section 4.3,
any vacancy occurring in the Board may be filled by the affirmative vote of a
majority of the
4
<PAGE> 8
remaining directors though less than a quorum of the Board, or by the sole
remaining director, as the case may be, or, if the vacancy is not so filled, or
if no director remains, by the Shareholders. Any vacancy arising as a result of
the removal of a director by the Shareholders may be filled by the Shareholders
or, if the Shareholders so authorize, by the remaining director or directors,
but only for the unexpired term of his predecessor in office. The Board may fill
a vacancy created by an increase in the number of directors as provided for in
Section 4.2, but only for a term of office continuing until the next annual
election of directors by the Shareholders and the election and qualification of
a successor.
4.4 Quorum and Conduct of Meetings of Directors. A majority of the
directors shall constitute a quorum for the transaction of business. Except as
otherwise provided in the Bylaws, all resolutions adopted and all business
transacted by the Board shall require the affirmative vote of a majority of the
directors present at a meeting at which a quorum is present. The Chief Executive
Officer, if he is a director or, in his absence, or if the Corporation has not
elected a Chief Executive Officer and if the President is a director, the
President shall preside at all meetings of the Board; provided, however, that
each of the Chief Executive Officer or the President may delegate his authority
to preside at Board meetings pursuant to Section 5.2 or 5.3, respectively. If
neither the Chief Executive Officer nor the President is a director, or if
neither is present, the Board shall select a director as chairman for each
meeting.
4.5 Meetings of Board; Notice.
(a) Meetings and Timing and Content of Notice. The Board shall
meet annually immediately following the annual meeting of the Shareholders;
provided, however, that the failure to hold the annual meeting shall not work a
forfeiture or otherwise affect valid corporate acts. A special meeting of the
Board may be called at any time by the President, the Chief Executive Officer,
if any, or by any two directors, on at least two days' notice, which may be
given orally or by personal delivery, first class mail, telegram, cablegram,
facsimile transmission or private courier. The notice shall be deemed given the
earlier of (a) five days after its deposit in the mail, with first class postage
prepaid and correctly addressed, (b) when received, or (c) when delivered in
writing to the director at his last known principal place of business or
residence. Any meeting of the Board may be held within or without the State of
Georgia at such place as may be determined by the person or persons calling the
meeting.
(b) Waiver of Notice. Notice of a special meeting may be
waived by an instrument in writing signed by the director waiving notice and
filed with the minutes of the proceedings of the Board. Attendance of a director
at a meeting shall constitute a waiver of notice of the meeting and waiver of
any and all objections to the place of the meeting, the time of the meeting and
the manner in which it has been called or convened, except when a director
states, at the beginning of the meeting, any such objection or objections to the
transaction of business.
5
<PAGE> 9
4.6 Written Consent of Board. Any action required to be taken at a
meeting of the Board, or any action that may be taken at a meeting of the Board,
may be taken without a meeting if a consent in writing setting forth the action
taken shall be signed by all the directors and shall be filed with the minutes
of the proceedings of the Board.
4.7 Telephonic Meetings of Board. Any action required to be taken at a
meeting of the Board, or any action that may be taken at a meeting of the Board,
may be taken at a meeting held by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in such a meeting shall constitute
presence in person at such meeting. In all other respects the provisions of
Article 4 of the Bylaws with respect to meetings of the Board shall apply to
such a meeting.
4.8 Removal of Board. At any meeting of the Shareholders with respect
to which notice of such purpose has been given, the entire Board or any
individual director may be removed, with or without cause, by the affirmative
vote of the holders of a majority of the shares of the Corporation entitled to
vote.
ARTICLE 5
OFFICERS
5.1 Officers. The Board shall appoint a President, a Secretary and a
Treasurer and may appoint a Chief Executive Officer, one or more Vice
Presidents, and such other officers, assistant officers and agents as the Board
shall determine. The Chief Executive Officer, if any, or the President may
appoint one or more Vice Presidents and such other officers, assistant officers
and agents as such officer may determine. Appointment of an officer, an
assistant officer or an agent shall not of itself create any contract rights.
Any such officers, assistant officers or agents so appointed shall perform such
duties as are set forth in the Bylaws and as the appointing action provides,
and, unless such action otherwise provides, such appointed officers and
assistant officers shall perform such duties as are generally performed by
officers or assistant officers, appointed by the Board, having the same title.
Any two or more offices may be held by the same person.
5.2 Chief Executive Officer. The Chief Executive Officer, if any, shall
preside at all meetings of the Shareholders and, if he is a director, at
meetings of the Board. He may delegate his authority to preside at such meetings
to any other director or to an officer of the Corporation. The Chief Executive
Officer shall have the power to enter into and execute contracts on behalf of
the Corporation and to sign certificates, contracts or other instruments on
behalf of the Corporation and shall have and exercise all such other duties and
powers as are incident to this office or properly prescribed by the Board. The
Chief Executive Officer
6
<PAGE> 10
may exercise any powers, authorities or functions granted or designated to be
performed by the President under the Bylaws or by applicable law.
5.3 President. The President, subject to the direction of the Board and
the Chief Executive Officer, if any, shall be responsible for the administration
of the Corporation, including general supervision of the policies of the
Corporation, general and active management of the financial affairs of the
Corporation, and supervision and direction of the actions of the other officers
of the Corporation. He shall have the authority to execute bonds, mortgages or
other contracts, agreements or instruments on behalf of the Corporation. If
there is no Chief Executive Officer, or if the Chief Executive Officer is absent
and has not delegated his authority to preside, the President shall preside at
meetings of the Shareholders and, if he is a director, at meetings of the Board
or he may delegate his authority to preside at such meetings to any other
director or to an officer of the Corporation. The President shall have the
authority to institute or defend legal proceedings when the directors are
deadlocked.
5.4 Secretary. The Secretary shall keep minutes of all meetings of the
Shareholders and the Board, shall have charge of the minute books, share records
and seal of the Corporation, shall have the authority to certify as to the
corporate books and records, and shall perform such other duties and have such
other powers as may from time to time be delegated to him by the President or
the Board.
5.5 Treasurer. The Treasurer shall be charged with the management of
the financial affairs of the Corporation. He shall, in general, perform all of
the duties incident to the office of treasurer and such other duties as from
time to time may be assigned to him by the President or the Board.
5.6 Vice Presidents. The Vice Presidents, if any, shall perform such
duties and exercise such powers as the President or the Board shall request or
delegate and, unless the Board or the President otherwise provides, shall
perform such other duties as are generally performed by vice presidents with
equivalent restrictions, if any, on title. In the absence of the President or in
the event of his death or inability to act, the Vice Presidents shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President; provided, however,
that if there is more than one Vice President, any Vice President shall have the
authority to execute bonds, mortgages or other contracts, agreements or
instruments on behalf of the Corporation, subject to all the restrictions upon
the President relating to such functions, but all other duties of the President
shall be performed by the Vice President designated to perform such duties at
the time of his appointment, or in the absence of any designation, then by the
Vice President with the most seniority in office (or if more than one Vice
President is appointed at the same meeting, by the Vice President first listed
in the resolution appointing them), and when so acting shall have all the powers
of and be subject to all the restrictions upon the President.
7
<PAGE> 11
5.7 Removal of Officers and Agents. Any officer, assistant officer or
agent appointed by the Board may be removed, with or without cause, by the
Board. Any officer, assistant officer or agent appointed by the Chief Executive
Officer or the President may be removed, with or without cause, by the officer
appointing him or by the Board. Any removal shall be without prejudice to the
contract rights, if any, of the person so removed.
5.8 Vacancies. Any vacancy, however occurring, in any office may be
filled by the Board.
ARTICLE 6
SEAL
The seal of the Corporation, if any, shall be in such form as the Board
may from time to time determine. In the event it is inconvenient to use such a
seal at any time, the words "Corporate Seal" or the word "Seal" accompanying the
signature of an officer signing for and on behalf of the Corporation shall be
the seal of the Corporation. The seal shall be in the custody of the Secretary
and affixed by him on the share certificates and such other papers as may be
directed by law, by the Bylaws or by the Board.
ARTICLE 7
INDEMNIFICATION AND INSURANCE
7.1 Indemnification.
(a) General. Pursuant to GBCC ss.14-2-859(a), the Corporation
shall indemnify, and shall advance funds to pay for or reimburse expenses to,
each person who:
(i) is or was a director or officer of the
Corporation (including the heirs, executors, administrators or estate
of such person); or
(ii) while holding a status described in (a) above,
is or was serving at the request of the Corporation as a director,
officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise
to the fullest extent permitted under, and in accordance with the procedures
required by, the GBCC.
8
<PAGE> 12
(b) Non-Officer/Non-Director Agents and Employees. The Board
may indemnify, or advance expenses in connection with a proceeding that may be
the subject of indemnification to, a non-officer or non-director agent or
employee of the Corporation if, to the extent and on such terms as the Board may
from time to time determine.
(c) Subsequent Amendment. No amendment, termination or other
elimination of this Article 7 or of any relevant provisions of the GBCC or any
other applicable law shall affect or diminish in any way the rights to
indemnification under this Article 7 with respect to any action, suit or
proceeding arising out of, or relating to, any event, act or omission occurring
or fact or circumstance existing prior to such amendment, termination or other
elimination.
(d) Other Rights; Indemnification Agreements; Certain
Limitations. The indemnification and advancement of expenses provided by, or
granted pursuant to, other subsections of this Section 7.1 shall not be deemed
exclusive of any other rights to which a person seeking indemnification or
advancement of expenses may be entitled pursuant to any applicable law
(including court-ordered indemnification pursuant to GBCC ss.14-2-854), to any
agreement, or to any vote of shareholders (including a vote pursuant to GBCC
ss.14-2-856) or of disinterested directors or otherwise, both as to action in
such person's official capacity and as to action in any other capacity while an
officer or director. Nothing contained in this Article 7 shall be deemed to
prohibit, and the Corporation is specifically authorized to enter into,
agreements which provide indemnification rights and procedures permitted by the
GBCC. Notwithstanding the foregoing or any other provision of the Bylaws, the
Corporation's Articles of Incorporation or applicable law, indemnification of a
director shall not be permitted (i) for any appropriation, in violation of the
director's duties, of any business opportunity of the Corporation, (ii) for acts
or omissions which involve intentional misconduct or a knowing violation of law,
(iii) for the types of liability set forth in GBCC ss. 14-2-832, or (iv) for any
transaction from which he or she received an improper personal benefit; and
indemnification of officers shall not be permitted if inconsistent with public
policy.
(e) Continuation of Right to Indemnification. All rights to
indemnification under this Article 7 shall continue as to a person who has
ceased to be a director or officer, shall inure to the benefit of heirs,
executors, administrators and the estate of such person, and shall be deemed to
be a contract between the Corporation and each such person or entity. This
Article 7 shall be binding upon any successor corporation to the Corporation,
whether by way merger, consolidation, liquidation, dissolution or otherwise.
(f) Savings Clause. If this Article 7 or any portion of it
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify persons specified in this Article 7
to the full extent permitted by any applicable portion of this Article 7 that
shall not have been invalidated and to the full extent permitted by applicable
law.
9
<PAGE> 13
7.2 Insurance. The Corporation may purchase and maintain insurance at
its expense, to protect itself and any person or entity described in subsection
(a) of Section 7.1 against any such liability, cost, payment or expense whether
or not the Corporation would have the power to indemnify such person or entity
against such liability, cost, payment or expense.
ARTICLE 8
AMENDMENT
Subject to the Articles of Incorporation and the GBCC, the
Bylaws may be amended at any meeting of the Shareholders at which a quorum
exists if the votes in favor of the amendment exceed the votes opposed to the
amendment, or at any meeting of the Board by an affirmative vote of a majority
of the number of directors fixed in or pursuant to the Bylaws. The Shareholders
may prescribe that any bylaws adopted by them shall not be altered, amended or
repealed by the Board.
* * * * *
10
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF INCORPORATION
OF
STRATEGIC TIMBER OPERATING CO.
FIRST: The name of the corporation is "Strategic Timber Operating Co."
SECOND: The address of the registered office of the corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, County of
New Castle, Delaware 19801. The name of the registered agent of the corporation
at such address is The Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation shall have
authority to issue is one thousand (1,000) shares of common stock having a par
value of $.01 per share (the "Common Stock"). The Common Stock (a) shall be one
and the same class, (b) shall have full and unlimited voting rights (with each
share having one vote on each matter submitted to the stockholders for vote),
(c) shall have equal rights of participation in dividends and other
distributions, and (d) shall be entitled to receive the net assets of the
corporation ratably upon dissolution.
FIFTH: The incorporator is Robert J. Pile, whose mailing address is Suite 2300,
999 Peachtree Street, N.E., Atlanta, Georgia 30309-3996.
SIXTH: Election of directors need not be by ballot.
SEVENTH: In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the board of directors is expressly authorized
to adopt, amend or repeal the bylaws of the corporation.
EIGHTH: A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Delaware General Corporation Law ss. 174,
or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after the
date of this certificate of incorporation to further eliminate or limit
<PAGE> 2
Certificate of Incorporation
Strategic Timber Operating Co.
Page 2
the personal liability of directors, then the liability of a director
of the corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended. Any
repeal or modification of this Article by the stockholders of the
corporation shall not adversely affect any right or protection of a
director of the corporation existing at the time of such repeal or
modification.
NINTH: The corporation reserves the right to amend and repeal any
provision contained in the certificate of incorporation in the manner
prescribed by the laws of the State of Delaware. All rights herein
conferred are granted subject to this reservation.
DULY EXECUTED and delivered by the incorporator, for the purpose of
forming a corporation under the laws of the State of Delaware and making,
filing and recording this certificate of incorporation, and who does hereby
certify that the facts stated in this certificate of incorporation are true,
all on April 21, 1998.
/s/ Robert J. Pile
------------------------
Robert J. Pile, as
incorporator
* * * * *
<PAGE> 1
EXHIBIT 3.4
BYLAWS
OF
STRATEGIC TIMBER OPERATING CO.
(A Delaware Corporation)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1: DEFINITIONS..................................................................1
1.1 Definitions....................................................................1
ARTICLE 2: STOCK CERTIFICATES...........................................................2
2.1 Stock Certificates.............................................................2
2.2 List of Stockholders...........................................................2
2.3 Transfers of Stock.............................................................2
2.4 Lost Certificates..............................................................2
ARTICLE 3: STOCKHOLDERS' MEETINGS.......................................................2
3.1 Annual Meetings of Stockholders................................................2
3.2 Special Meetings of Stockholders...............................................3
3.3 Notice.........................................................................3
3.4 Quorum.........................................................................3
3.5 Voting.........................................................................3
3.6 Adjournment....................................................................4
3.7 Presiding Officer..............................................................4
3.8 Written Consent of the Stockholders............................................4
ARTICLE 4: BOARD OF DIRECTORS...........................................................4
4.1 Powers of Board................................................................4
4.2 Number of Board................................................................4
4.3 Removal of Board...............................................................5
4.4 Board Vacancies................................................................5
4.5 Meetings.......................................................................5
(a) Time and Location.................................................5
(b) Notice............................................................5
(c) Quorum............................................................5
(d) Voting............................................................6
(e) Presiding Officer.................................................6
4.6 Written Consent of Board.......................................................6
4.7 Telephonic Meetings of Board...................................................6
ARTICLE 5: OFFICERS.....................................................................6
5.1 Officers; Election.............................................................6
5.2 Chairman of the Board..........................................................6
5.3 President......................................................................6
5.4 Secretary......................................................................7
5.5 Treasurer......................................................................7
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C>
5.6 Vice Presidents................................................................7
5.7 Appointment of Officers and Agents.............................................8
5.8 Removal of Officers and Agents.................................................8
5.9 Vacancies......................................................................8
ARTICLE 6: SEAL.........................................................................8
6.1 Seal.........................................................................8
ARTICLE 7: INDEMNIFICATION AND INSURANCE................................................8
7.1 Indemnification................................................................8
(a) General...........................................................8
(b) Interim Payment of Expenses.......................................8
(c) Procedure.........................................................9
(d) Subsequent Amendment..............................................9
(e) Other Rights......................................................9
(f) Continuation of Right to Indemnification.........................10
(g) Savings Clause...................................................10
7.2 Insurance.....................................................................10
ARTICLE 8: MISCELLANEOUS.............................................................10
8.1 Voting of Securities Owned by the Corporation.............................10
8.2 Offices...................................................................10
8.3 Fiscal Year...............................................................11
ARTICLE 9: AMENDMENT.................................................................11
9.1 Amendment................................................................11
</TABLE>
* * * * *
iii
<PAGE> 4
BYLAWS
OF
STRATEGIC TIMBER OPERATING CO.
(A Delaware Corporation)
ARTICLE 1: DEFINITIONS
1.1 Definitions. The following terms used in the Bylaws have the
meanings set forth below:
(a) "Certificate of Incorporation" means the certificate of
incorporation of the Corporation as amended from time to
time.
(b) "Board" means the Board of Directors of the Corporation.
(c) "Bylaws" means these bylaws as amended or restated from time
to time.
(d) "Corporation" means the Delaware corporation named Strategic
Timber Operating Co.
(e) "DGCL" refers to the General Corporation Law of the State of
Delaware or any successor law of the State of Delaware, and a
reference to a particular section of the DGCL is a reference
to successor sections of such law or successor law.
(f) "Section" means a section of the Bylaws.
(g) "Stockholders" means the stockholders of the Corporation.
For purposes of the Bylaws: (i) titles and captions of or in, and the table of
contents of, the Bylaws are inserted only as a matter of convenience and for
reference and in no way define, limit, extend or describe the scope of the
Bylaws or the intent of any of their provisions; and (ii) "including" and other
words or phrases of inclusion, if any, shall not be construed as terms of
limitation, so that references to "included" matters shall be regarded as
non-exclusive, non- characterizing illustrations.
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ARTICLE 2: STOCK CERTIFICATES
2.1 Stock Certificates. Stock certificates shall be issued in
consecutive order and shall be numbered in the order in which they are issued.
They shall be signed by the Chairman of the Board, if any, the President or a
Vice President and the Secretary or an Assistant Secretary (any of which
signatures may be a facsimile), and the seal of the Corporation or a facsimile
of it (if the Corporation has a seal) shall be affixed to the stock
certificates. On the stub of each stock certificate, which stubs shall be kept
in the stock records of the Corporation, shall be entered the name and address
of the owner of the stock, the number of shares of stock, and the date of
issue. Each stock certificate exchanged or returned shall be cancelled and
placed with its stub in the stock records of the Corporation.
2.2 List of Stockholders. The Corporation shall maintain an
alphabetical record of the names and addresses of its Stockholders and the
number of shares of stock held by each, which shall be maintained and made
available in accordance with the DGCL.
2.3 Transfers of Stock. Transfers of stock of the Corporation shall be
made in the stock records of the Corporation upon surrender of the certificate
for such stock signed by the person in whose name the certificate is registered
or on his behalf by a person legally authorized to so sign (or accompanied by a
separate stock transfer power so signed) and otherwise in accordance with and
subject to the applicable provisions of the Uniform Commercial Code as in
effect in the State of Delaware, and subject to such other reasonable and
lawful conditions and requirements as may be imposed by the Corporation.
2.4 Lost Certificates. The Chairman of the Board, if any, or the
President may issue a new stock certificate in place of any certificate or
certificates previously issued by the Corporation and alleged to have been lost
or destroyed upon the making of an affidavit of that fact by the person
claiming the certificate to be lost or destroyed and, if the Chairman of the
Board in his sole discretion deems it appropriate, the delivery of a commercial
indemnity bond issued by a company approved by him in such sum as he may direct
as indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost or destroyed.
ARTICLE 3: STOCKHOLDERS' MEETINGS
3.1 Annual Meetings of Stockholders. The annual meeting of the
Stockholders of the Corporation shall be held at such time and place, within or
without the State of Delaware, as may from time to time be fixed by the Board;
provided that the failure to hold the annual meeting shall not work a
forfeiture of or otherwise affect valid corporate acts.
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3.2 Special Meetings of Stockholders. Special meetings of the
Stockholders may be called at any time by the Board, the Chairman of the Board,
if any, or the President, or by the Corporation upon the written request of the
holder or holders of at least 25 percent of the outstanding shares of stock of
the Corporation. Special meetings of the Stockholders shall be held at such
time and place, within or without the State of Delaware, as may be determined
by the person or persons calling the meeting.
3.3 Notice. The Secretary or an Assistant Secretary or the officer or
persons calling the meeting shall deliver a written notice of the place, day
and time of each meeting of the Stockholders, not less than ten (10) nor more
than sixty (60) days before the date of the meeting, either personally or by
first class mail, to each Stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail with first class postage thereon prepaid, addressed
to the Stockholder at his address as it appears on the stock records of the
Corporation. The notice of a special meeting of the Stockholders shall state
the purpose or purposes for which the meeting is called. Notice of a meeting of
the Stockholders need not be given to any Stockholder who signs a waiver of
notice, either before or after the meeting. Attendance of a Stockholder at a
meeting, either in person or by proxy, shall of itself constitute waiver of
notice of such meeting and waiver of any and all objections to the place of the
meeting, the time of the meeting, and the manner in which it has been called or
convened, except when a Stockholder attends the meeting solely for the purpose
of stating, at the beginning of the meeting, any such objection or objections
to the transaction of business.
3.4 Quorum. At all meetings of the Stockholders, a majority of the
outstanding shares of stock of the Corporation entitled to vote, represented in
person or by proxy, shall constitute a quorum for the transaction of business.
3.5 Voting. Except as otherwise required by law or by the Bylaws, all
resolutions adopted and business transacted shall require the favorable vote of
a majority of the shares of stock represented at the meeting and entitled to
vote on the subject matter. Except as otherwise required by applicable law, by
the Certificate of Incorporation, by filings with the Delaware Secretary of
State fixing and determining the voting rights of the stock of the Corporation
or by the Bylaws, at any meeting of the Stockholders, each Stockholder of the
Corporation entitled to vote shall have one vote, in person or by proxy, for
each share of stock having voting rights standing in his name on the books of
the Corporation at the record date fixed or otherwise determined for such
meeting.
3.6 Adjournment. The holders of a majority of the shares of stock
represented at a meeting, whether or not a quorum is present, may adjourn such
meeting from time to time. If a quorum is not present, the holders of the
shares of stock present in person or represented by proxy at the meeting, and
entitled to vote, shall have the power, by the affirmative vote of the holders
of such shares of stock which represent a majority of the votes which may be
cast by
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the holders of such shares of stock, to adjourn the meeting to another time
and/or place. Unless the adjournment is for more than thirty (30) days or
unless a new record date is set for the adjourned meeting, no notice of the
adjourned meeting need be given to any Stockholder provided that the time and
place of the adjourned meeting were announced at the meeting at which the
adjournment was taken. At the adjourned meeting, the Corporation may transact
any business which might have been transacted at the original meeting.
3.7 Presiding Officer. The Chairman of the Board shall preside at
meetings of the Stockholders or, if there is no Chairman of the Board or if the
Chairman of the Board is absent, the President shall preside at meetings of the
Stockholders; provided, however, that the Chairman of the Board or President
may delegate his authority to preside at meetings of the Stockholders pursuant
to Section 5.2 or 5.3.
3.8 Written Consent of the Stockholders. Any action required to be
taken at a meeting of the Stockholders of the Corporation, or any action that
may be taken at a meeting of the Stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing
setting forth the action so taken shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted.
ARTICLE 4: BOARD OF DIRECTORS
4.1 Powers of Board. Subject to these Bylaws or any lawful agreement
between or among the Stockholders, the business and affairs of the Corporation
shall be managed by the Board.
4.2 Number of Board. The Board shall initially consist of one
director, who shall be elected at an annual meeting of the Stockholders, to
serve until the next succeeding annual meeting and until his successor is
elected and qualified, or until his earlier death, resignation or removal. The
size of the Board may be increased or decreased at any time by the
Stockholders, by the affirmative vote of the holders of a majority of the
shares of stock of the Corporation entitled to vote.
4.3 Removal of Board. At any meeting of the Stockholders with respect
to which notice of such purpose has been given, the entire Board or any
individual director may be removed, with or without cause, by the affirmative
vote of the holders of a majority of the shares of stock of the Corporation
entitled to vote.
4.4 Board Vacancies. Except as otherwise provided in this Section
4.4, any vacancy occurring in the Board may be filled by the affirmative vote
of a majority of the remaining
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directors though less than a quorum of the Board, or by the sole remaining
director, as the case may be, or, if the vacancy is not so filled, or if no
director remains, by the Stockholders. Any vacancy arising as a result of the
removal of a director by the Stockholders may be filled by the Stockholders or,
if the Stockholders so authorize, by the remaining director or directors, but
only for the unexpired term of his predecessor in office.
4.5 Meetings.
(a) Time and Location. The Board shall meet annually immediately
following the annual meeting of the Stockholders; provided that the failure to
hold the annual meeting shall not work a forfeiture or otherwise affect valid
corporate acts. A special meeting of the Board may be called at any time by the
President, the Chairman of the Board, if any, or by any two directors, (or, if
the Corporation has three or fewer directors, by any director) on five days'
notice, which may be given by personal delivery or by first class mail or
telegram.
(b) Notice. The notice shall be deemed given when mailed or when the
telegram is sent, addressed to the director at his address as it appears on the
stock records of the Corporation or, if he is not a Stockholder, at his
business address. Notice of a special meeting may be waived by an instrument in
writing. Attendance of a director at a meeting shall constitute a waiver of
notice of the meeting and waiver of any and all objections to the place of the
meeting, the time of the meeting and the manner in which it has been called or
convened, except when a director states, at the beginning of the meeting, any
such objection or objections to the transaction of business. Any meeting of the
Board may be held within or without the State of Delaware at such place as may
be determined by the person or persons calling the meeting.
(c) Quorum. A majority of said directors shall constitute a quorum for
the transaction of business.
(d) Voting. Except as otherwise provided in the Bylaws, all
resolutions adopted and all business transacted by the Board shall require the
affirmative vote of a majority of the directors present at a meeting at which a
quorum is present.
(e) Presiding Officer. The Chairman of the Board or, in his absence,
and if the President is a director, the President shall preside at all meetings
of the Board; provided, however, that each of the Chairman of the Board or the
President may delegate his authority to preside at Board meetings pursuant to
Section 5.2 or 5.3, respectively. If the Chairman of the Board is not present
and if the President is not a director, the Board shall select a director as
chairman for each meeting.
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4.6 Written Consent of Board. Any action required to be taken at a
meeting of the Board, or any action that may be taken at a meeting of the
Board, may be taken without a meeting if a consent in writing setting forth the
action taken shall be signed by all the directors and shall be filed with the
minutes of the proceedings of the directors.
4.7 Telephonic Meetings of Board. Any action required to be taken at a
meeting of the Board, or any action that may be taken at a meeting of the
Board, may be taken at a meeting held by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other. Participation in such a meeting shall
constitute presence in person at such meeting. In all other respects the
provisions of Article 4 of the Bylaws with respect to meetings of the Board
shall apply to such a meeting.
ARTICLE 5: OFFICERS
5.1 Officers; Election. The Board shall elect a President, and a
Secretary and may elect a Chairman of the Board (who shall be a member of the
Board), one or more Vice Presidents, a Treasurer and such other officers,
assistant officers or agents as the Board shall determine. Any two or more
offices may be held by the same person. A failure to elect officers shall not
dissolve or otherwise affect the Corporation.
5.2 Chairman of the Board. The Chairman of the Board, if any, shall
preside at all meetings of the Stockholders and of the Board or he may delegate
his authority to preside at such meetings to any other director or to an
officer of the Corporation.
5.3 President. The President shall be the chief executive officer of
the Corporation, and shall be responsible for the administration of the
Corporation, including general supervision of the policies of the Corporation
and general, active management of the financial affairs of the Corporation, and
supervision and direction of the actions of the other officers of the
Corporation. He shall have the authority to execute bonds, mortgages or other
contracts, agreements or instruments on behalf of the Corporation. If there is
no Chairman of the Board, or if the Chairman of the Board is absent and has not
delegated his authority to preside, the President shall preside at meetings of
the Stockholders and, if he is a director, at meetings of the Board of the
Corporation or he may delegate his authority to preside at such meetings to any
other director or to an officer of the Corporation. The President shall have
the authority to institute or defend legal proceedings when the directors are
deadlocked.
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5.4 Secretary. The Secretary shall keep minutes of all meetings of the
Stockholders and Board, shall have charge of the minute books, stock records
and seal of the Corporation, shall have the authority to certify as to the
corporate books and records, and shall perform such other duties and have such
other powers as may from time to time be delegated to him by the President or
the Board.
5.5 Treasurer. The Treasurer shall be charged with the management of
the financial affairs of the Corporation. He shall in general perform all of
the duties incident to the office of Treasurer and such other duties as from
time to time may be assigned to him by the President or the Board.
5.6 Vice Presidents. The Vice Presidents, if any, shall perform such
duties and exercise such powers as the President or the Board shall request or
delegate and, unless the Board or the President otherwise provides, shall
perform such other duties as are generally performed by Vice Presidents with
equivalent restrictions, if any, on title. In the absence of the President or
in the event of his death or inability to act, the Vice Presidents shall
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President; provided,
however, that if there is more than one Vice President, any Vice President
shall have the authority to execute bonds, mortgages or other contracts,
agreements or instruments on behalf of the Corporation, subject to all the
restrictions upon the President relating to such functions, but all other
duties of the President shall be performed by the Vice President designated to
perform such duties at the time of his election, or in the absence of any
designation, then by the Vice President with the most seniority in office (or
if more than one Vice President is elected at the same meeting, by the Vice
President first listed in the resolution electing them), and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President.
5.7 Appointment of Officers and Agents. The Board or the President may
appoint one or more Vice Presidents and such other officers, assistant officers
and agents as the Board or the President may determine. Any such officers,
assistant officers or agents so appointed shall perform such duties as are set
forth in the Bylaws and as the action appointing him provides, and, unless such
action otherwise provides, such appointed officers and assistant officers shall
perform such duties as are generally performed by elected officers or assistant
officers having the same title.
5.8 Removal of Officers and Agents. Any officer, assistant officer or
agent elected or appointed by the Board may be removed by the Board. Any
officer, assistant officer or agent appointed by the President may be removed
by the President or by the Board whenever in his or its judgment the best
interests of the Corporation will be served thereby.
5.9 Vacancies. Any vacancy, however occurring, in any office may be
filled by the Board.
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ARTICLE 6: SEAL
6.1 Seal. The seal of the Corporation (if any) shall be in such form
as the Board may from time to time determine. In the event it is inconvenient
to use such a seal at any time, the words "Corporate Seal" or the word "Seal"
accompanying the signature of an officer signing for and on behalf of the
Corporation shall be the seal of the Corporation. The seal shall be in the
custody of the Secretary and affixed by him on the stock certificates and such
other papers as may be directed by law, by the Bylaws or by the Board.
ARTICLE 7: INDEMNIFICATION AND INSURANCE
7.1 Indemnification.
(a) General. The Corporation shall indemnify each person who is or was
a director or officer of the Corporation (including the heirs, executors,
administrators or estate of such person) or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise to the full
extent permitted under DGCL ss. 145(a), (b) and (c) or any other provisions of
the laws of the State of Delaware.
(b) Interim Payment of Expenses. Expenses incurred by a person who is
or was a director or officer of the Corporation (including the heirs,
executors, administrators or estate of such person) or is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise in defending a civil or
criminal action, suit, or proceeding may be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding, as authorized by
the Board, upon receipt of an agreement or an undertaking by or on behalf of
such person to repay such amount, unless it is ultimately determined that he or
she is entitled to be indemnified by the Corporation as authorized in, or as
permitted by, this Article 7. If such a person or entity requests reimbursement
of expenses pursuant to the foregoing, then the Board shall consider such
request, and if they conclude that it is reasonably probable that such person
or entity would be entitled to indemnification or if they conclude the
interests of the Corporation would be served thereby, then the Board shall
direct the payment of the expenses subject to the receipt of an agreement or
undertaking as required by the foregoing. The Board may pay such expenses of
such person upon such other terms and conditions as the Board deems
appropriate.
(c) Procedure. If any such indemnification is requested pursuant to
the foregoing, the Board shall cause a determination to be made (unless a court
has ordered the indemnification or indemnification is required by DGCL ss.
145(c)) pursuant to DGCL ss. 145(d) as to whether indemnification of the party
requesting indemnification is proper in the
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circumstances because he has met the applicable standard of conduct set forth
in DGCL ss.ss. 145(a) or (b). Upon any such determination that such
indemnification is proper, the Corporation shall make indemnification payments
of liability, cost, payment or expense asserted against, or paid or incurred
by, him in his capacity as such a director, officer, employee or agent to the
maximum extent permitted by said sections of such laws.
(d) Subsequent Amendment. No amendment, termination or other
elimination of this Article 7 or of any relevant provisions of the DGCL or any
other applicable laws shall affect or diminish in any way the rights to
indemnification under this Article 7 with respect to any action, suit or
proceeding arising out of, or relating to, any event or act or omission
occurring or fact or circumstance existing prior to such amendment, termination
or other elimination.
(e) Other Rights. The indemnification and advancement of expenses
provided by, or granted pursuant to, the other subsections of this Section 7.1
shall not be deemed exclusive of any other rights to which a director or
officer seeking indemnification or advancement of expenses may be entitled
under any applicable law, agreement, vote of Stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in any other capacity while holding office of the Corporation; provided,
however, that indemnification shall not be permitted (i) for any breach of the
director's duty of loyalty to the Corporation or its Stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) for liability under DGCL ss.174, or (iv) for
any transaction from which the director derived an improper personal benefit.
Nothing contained in this Article 7 shall be deemed to prohibit, and the
Corporation is specifically authorized to enter into, agreements which provide
indemnification rights and procedures permitted by the DGCL.
(f) Continuation of Right to Indemnification. All rights to
indemnification under this Article 7 (including those arising pursuant to
subsection (e) above) shall continue as to a person who has ceased to be a
director, officer, employee or agent, shall inure to the benefit of heirs,
executors, administrators and the estate of such person, and shall be deemed to
be a contract between the Corporation and each such person or entity. This
Article 7 shall be binding upon any successor to the Corporation, whether by
way of merger, consolidation or otherwise.
(g) Savings Clause. If this Article 7 or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify persons or entities specified in this
Article 7 to the full extent permitted by any applicable portion of this
Article 7 that shall not have been invalidated and to the full extent permitted
by applicable law.
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7.2 Insurance. The Corporation may purchase and maintain insurance at
its expense, to protect itself and any such person or entity against any such
liability, cost, payment or expense whether or not the Corporation would have
the power to indemnify such person or entity against such liability, cost,
payment or expense.
ARTICLE 8: MISCELLANEOUS
8.1 Voting of Securities Owned by the Corporation. The Chairman of the
Board, if any, the President, any Vice-President, the Secretary, or the
Treasurer of the Corporation or such other person or entity designated by the
Board shall have authority to vote such shares of stock and to execute proxies
and written waivers and consents in relation thereto.
8.2 Offices. The registered office of the Corporation in the State of
Delaware and name of the Corporation's registered agent (other than that
designated in the Certificate of Incorporation) shall be designated from time
to time by resolution of the Board of the Corporation. The Corporation may also
have offices at such other places, both within and without the State of
Delaware, as the Board may from time to time determine or the business of the
Corporation may require.
8.3 Fiscal Year. The Corporation shall have such fiscal year as the
officers of the Corporation shall from time to time determine.
ARTICLE 9: AMENDMENT
9.1 Amendment. The Bylaws may be amended at any meeting of the
Stockholders by the Stockholders or by the Board either by written consent or
approved at a meeting, in each case in accordance with the provisions of the
Bylaws and applicable law. The Stockholders may prescribe that any or all
provisions of the Bylaws adopted by them shall not be altered, amended or
repealed by the Board.
* * * * *
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EXHIBIT 3.5.1
AGREEMENT OF LIMITED PARTNERSHIP
OF
STRATEGIC TIMBER PARTNERS, LP
This is a Limited Partnership Agreement, made and entered into as of
April 21, 1998, by and between STRATEGIC TIMBER OPERATING CO., a Delaware
corporation (hereinafter referred to as the "General Partner") and STRATEGIC
TIMBER TRUST, INC., a Georgia corporation (hereinafter sometimes referred to as
"Limited Partner").
STATEMENT OF BACKGROUND INFORMATION
The parties desire to form Strategic Timber Partners, LP as a Delaware limited
partnership (the "Partnership") and to enter into this limited partnership
agreement.
STATEMENT OF AGREEMENT
The parties hereto desire to do business as a limited partnership
pursuant to the provisions of the Revised Uniform Limited Partnership Act (the
"Act"), as enacted in Delaware, and in consideration of the mutual covenants and
agreements herein contained, the parties do hereby agree as follows:
ARTICLE 1: GENERAL PROVISIONS.
1.1 NAME OF THE PARTNERSHIP. The name of the Partnership is Strategic
Timber Partners, LP, or such other name as the General Partner may from time to
time determine.
1.2 BUSINESS OF THE PARTNERSHIP. The Partnership shall acquire, hold,
own, manage and transfer timberlands; sell and otherwise dispose of the timber
grown on such property; and engage in such other activities as shall be
necessary, desirable or appropriate to effectuate the foregoing purposes.
1.3 PLACE OF BUSINESS; AGENT FOR SERVICE OF PROCESS. The location of
the principal place of business of the Partnership shall be at 5 North Pleasant
Street, New London, New Hampshire 03257, or such other location as shall be
selected from time to time by the General Partner in its sole discretion. The
Corporation Trust Company shall act as registered agent of the Partnership and
the Registered Office of the Partnership shall be Corporation Trust Center, 1209
Orange Street, Wilmington, Delaware. The registered office and registered agent
may be changed from time to time
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as the General Partner deems advisable by filing notice of such changes with the
Secretary of State in accordance with the Act.
1.4 DURATION OF THE PARTNERSHIP. The Partnership shall commence upon
the date hereof and shall continue until the occurrence of an act or event
specified in this Agreement or by law as one effecting dissolution.
1.5 PARTNERS' ADDRESSES. The address of each partner is as follows:
(a) The General Partner's address is 5 North Pleasant Street,
New London, New Hampshire 03257.
(b) The Limited Partner's address is 5 North Pleasant Street,
New London, New Hampshire 03257.
1.6 NATURE OF PARTNERS' INTERESTS. The interest of the partners in the
Partnership shall be personal property for all purposes. All property owned by
the Partnership, whether real or personal, tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no partner,
individually, shall have any ownership of such property.
1.7 GENERAL PARTNER. In no event shall the filing of a certificate of
dissolution with respect to the General Partner or the revocation of its charter
(after lapse of time or otherwise) cause the General Partner to cease to be the
general partner of the Partnership.
ARTICLE 2: FINANCIAL MATTERS
2.1 CAPITAL CONTRIBUTIONS. One hundred dollars shall constitute the
capital contribution of the partners, and the partners agree to contribute their
respective shares (determined in accordance with the percentages set forth in
Section 2.2 hereof) of such capital contribution promptly upon the receipt of a
request therefor from the General Partner. The partners shall not at any time be
obligated or required to make any other contributions of capital to the
Partnership, notwithstanding any other provision of this Agreement.
2.2 PROFITS AND LOSSES; CAPITAL ACCOUNTS; FISCAL YEAR. Except as
otherwise provided in this Agreement, the net profits and the net losses of the
Partnership shall be allocated to the partners in the following percentages:
<TABLE>
<S> <C>
General Partner 1%
Limited Partner 99%
</TABLE>
All items of depreciation, gain, loss, deduction or credit shall, for tax
purposes, be allocated in the same percentage in which the partners share
profits and losses, except as otherwise provided herein. The fiscal year of the
Partnership shall be the calendar year.
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2.3 IRC SS.704(c). In accordance with IRC ss.704(c) and the Treasury
Regulations thereunder, income, gain, loss and deduction with respect to any
property contributed to the capital of the Partnership, or after the assets of
the Partnership have been revalued under Regulation ss.1.704- 1(b)(2)(iv)(g),
shall, solely for tax purposes, be allocated among the Partners so as to take
into account any variation between the adjusted basis of such property to the
Partnership for federal income tax purposes and its fair market value as of the
date of contribution or revaluation including, but not limited to, special
allocations to a contributing partner that are required under IRC ss.704(c) to
be made upon distribution of such property to any of the non-contributing
partners. Any elections or other decisions relating to such allocations shall be
made by the General Partner. Allocations pursuant to this Section 2.3 are solely
for purposes of federal, state and local taxes and shall not affect, or in any
way be taken into account in computing, any partner's capital account or share
of profit, loss, other items, or distributions pursuant to any provision of this
Agreement.
2.4 TAX MATTERS PARTNER. For purposes of IRC ss.ss. 6621 through 6623,
the General Partner shall be the tax matters partner of the Partnership.
2.5 FINANCING. The General Partner is hereby authorized to arrange such
financing as the General Partner may deem appropriate to the conduct of the
Partnership business. The General Partner is hereby expressly authorized to
arrange such financing and in the name of the Partnership to borrow money and as
security therefor to encumber all or any part of the Partnership assets and to
refinance any indebtedness secured by any of the Partnership assets or to
increase, modify, consolidate, extend or prepay the same in whole or in part.
2.6 DISTRIBUTIONS. In the sole discretion of the General Partner,
available cash of the Partnership will be distributed in accordance with the
respective percentage shares of the partners in the net profits and net losses
of the Partnership.
ARTICLE 3: ASSIGNABILITY OF INTERESTS.
3.1 ASSIGNMENT AND SUBSTITUTION OF LIMITED PARTNER'S INTEREST. The
interest of the Limited Partner may not be assigned in whole or in part.
3.2 ASSIGNMENT OF GENERAL PARTNER'S INTEREST. The General Partner may
not assign its interest (or any part thereof) in the Partnership or admit a new
General Partner or a new Limited Partner without the consent of all of the
Limited Partners of the Partnership.
ARTICLE 4: DISSOLUTION AND TERMINATION.
4.1 EVENTS OF DISSOLUTION. The Partnership shall be dissolved:
(a) upon the mutual consent of all the partners;
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(b) upon the occurrence of an event specified under the laws
of the State of Delaware as one effecting dissolution;
(c) in any event, at 12:00 midnight on December 31, 2097.
4.2 DISSOLUTION AND WINDING UP. Upon the dissolution of the
Partnership, the General Partner shall proceed with reasonable promptness to
wind up the affairs of the Partnership. After payment of liabilities owing to
creditors, including partners, the General Partner or liquidator shall set up
such reserves as the General Partner or liquidator deems reasonably necessary or
appropriate for any contingent or unforeseen liabilities or obligations of the
Partnership. Such reserves may be paid over by the General Partner or liquidator
to a bank or an attorney at law, to be held in escrow for the purpose of paying
any such contingent or unforeseen liabilities or obligations and, at the
expiration of such period as the General Partner or liquidator may deem
advisable, such reserves shall be distributed to the partners or their assigns
in accordance with their respective percentage interests in profits and losses.
After paying such liabilities and setting up such reserves, the General Partner
or liquidator shall cause the remaining net assets of the Partnership to be
distributed to the partners or their assigns in accordance with their respective
percentage interests in profits and losses. In the event any of the net assets
consist of notes receivable or other non-cash assets, the cash shall be
distributed first and the notes receivable and non-cash assets last.
[signatures on next page]
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<PAGE> 5
IN WITNESS WHEREOF, the partners have executed this agreement, under
seal, as of the date first above written.
GENERAL PARTNER:
STRATEGIC TIMBER OPERATING CO., a Delaware
corporation
By: /s/
-----------------------------------------
Its: Vice-President
----------------------------------------
LIMITED PARTNER:
STRATEGIC TIMBER TRUST, INC., a Georgia
corporation
By: /s/
-----------------------------------------
Its: Vice-President
----------------------------------------
5
<PAGE> 1
EXHIBIT 3.5.2
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
STRATEGIC TIMBER PARTNERS, LP
DATED AS OF
APRIL 23, 1998
<PAGE> 2
Table of Contents
<TABLE>
<S> <C> <C> <C>
ARTICLE I
Definitions...............................................................................................2
1.1 Definitions......................................................................................2
ARTICLE II.........................................................................................................8
Organization of Partnership...............................................................................8
2.1 Organization.....................................................................................8
2.2 Name.............................................................................................8
2.3 Location of Principal Place of Business..........................................................8
2.4 Registered Agent and Registered Office...........................................................8
2.5 Term.............................................................................................8
ARTICLE III........................................................................................................8
Purpose and Powers........................................................................................8
3.1 Purpose and Business.............................................................................8
3.2 Powers...........................................................................................9
ARTICLE IV.........................................................................................................9
Capital Contributions.....................................................................................9
4.1 Capital Contributions, Partnership Interests and Percentage
Interests of Partners............................................................................9
4.2 Contribution of Proceeds.........................................................................9
4.3 No Third Party Beneficiaries....................................................................10
4.4 No Interest on or Return of Capital Contribution................................................10
4.5 Loans to Partnership............................................................................10
4.6 Issuance of Additional Partnership Interests....................................................10
4.7 Adjustment to Units in the Event of REIT Stock Split, Etc.......................................10
ARTICLE V.........................................................................................................11
Distributions............................................................................................11
5.1 Distributions...................................................................................11
5.2 Amounts Withheld................................................................................11
5.3 Distributions Upon Liquidation..................................................................11
5.4 Tax Distributions...............................................................................11
ARTICLE VI........................................................................................................12
Allocations and Other Tax and Accounting Matters.........................................................12
6.1 Allocations for Capital Account Purposes........................................................12
6.2 Books of Account................................................................................12
6.3 Reports.........................................................................................12
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
6.4 Tax Elections and Returns.......................................................................13
6.5 Tax Matters Partner.............................................................................13
6.6 Withholding Payments Required By Law............................................................13
6.7 Fiscal Year.....................................................................................15
ARTICLE VII.......................................................................................................15
Rights, Duties and Restrictions of the General Partner and the REIT......................................15
7.1 Powers and Duties of General Partner............................................................15
7.2 Reimbursement of the General Partner and the REIT...............................................17
7.3 Outside Activities of the General Partner.......................................................17
7.4 Contracts with Affiliates.......................................................................17
7.5 Title to Partnership Assets.....................................................................18
7.6 Reliance by Third Parties.......................................................................18
7.7 Indemnification by Partnership..................................................................19
7.8 Liability of the General Partner................................................................20
7.9 Other Matters Concerning the General Partner....................................................21
ARTICLE VIII......................................................................................................22
Dissolution, Winding-Up and Liquidation..................................................................22
8.1 Events of Dissolution...........................................................................22
8.2 Accounting......................................................................................22
8.3 Distribution on Dissolution.....................................................................22
8.4 Timing Requirements.............................................................................23
8.5 Documentation of Liquidation....................................................................23
ARTICLE IX........................................................................................................24
Transfer of Partnership Interests........................................................................24
9.1 Transfer........................................................................................24
9.2 General Partner Transfer........................................................................24
9.3 Transfers by Limited Partners...................................................................24
9.4 Certain Restrictions on Transfer................................................................26
9.5 Effective Dates of Transfers....................................................................26
9.6 Pledges Required by Financing...................................................................26
ARTICLE X.........................................................................................................27
Rights and Obligations of the Limited Partners...........................................................27
10.1 No Participation in Management..................................................................27
10.2 Bankruptcy of a Limited Partner.................................................................27
10.3 No Withdrawal...................................................................................27
10.4 Conflicts.......................................................................................27
10.5 Provision of Information........................................................................27
10.6 Power of Attorney...............................................................................28
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
ARTICLE XI........................................................................................................29
Grant of Certain Rights to Limited Partners..............................................................29
11.1 Grant of Rights.................................................................................29
11.2 Right of REIT to Assume.........................................................................29
ARTICLE XII.......................................................................................................30
Amendment of Partnership Agreement; Meetings.............................................................30
12.1 Amendments......................................................................................30
ARTICLE XIII......................................................................................................31
Meetings of the Partners.................................................................................31
13.1 Call of a Meeting...............................................................................31
13.2 Written Consent.................................................................................31
13.3 Proxy...........................................................................................31
ARTICLE XIV.......................................................................................................31
General Provisions.......................................................................................31
14.1 Notices.........................................................................................31
14.2 Controlling Law.................................................................................32
14.3 Execution in Counterparts.......................................................................32
14.4 Provisions Separable............................................................................32
14.5 Entire Agreement................................................................................32
14.6 Titles and Captions.............................................................................32
14.7 Pronouns and Plurals............................................................................32
14.8 Number of Days..................................................................................32
14.9 Assurances......................................................................................32
14.10 Binding Effect..................................................................................33
</TABLE>
<PAGE> 5
THE LIMITED PARTNERSHIP INTERESTS REFERRED TO IN THIS AGREEMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. REFERENCE IS MADE TO ARTICLE IX OF THIS AGREEMENT FOR PROVISIONS RELATING
TO VARIOUS RESTRICTIONS ON THE SALE OR OTHER TRANSFER OF THESE INTERESTS.
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
STRATEGIC TIMBER PARTNERS, LP
THIS AGREEMENT OF LIMITED PARTNERSHIP is made and entered into
as of April 23, 1998 by and among the General Partner and the Limited Partners
(as those terms are defined below).
R E C I T A L S:
On April 21, 1998, the General Partner and Strategic Timber
Trust, Inc., as the sole Limited Partner (collectively the "Original Partners")
formed Strategic Timber Partners, LP, as a limited partnership under the Revised
Uniform Limited Partnership Act of the State of Delaware pursuant to the
Certificate and an Agreement of Limited Partnership of Strategic Timber
Partners, LP, dated as of April 21, 1998 ("Original Agreement").
The Original Partners now desire to admit Louisiana Timber
Partners, LLC ("LTP") as a Class B and Class C Limited Partner in consideration
of the contribution specified in that Contribution Agreement by and among the
Partnership, the Original Partners and LTP, dated as of April 23, 1998.
The parties hereto desire to amend and restate the Original
Agreement in accordance with the terms set forth herein:
<PAGE> 6
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration on, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the parties
hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. Except as otherwise expressly provided herein
and in Exhibits B, C and D, the following terms and phrases shall have the
meanings as set forth below:
"Accountants" shall mean the firm or firms of independent
certified public accountants selected by the General Partner on behalf of the
Partnership to audit the books and records of the Partnership and to prepare
statements and reports in connection therewith.
"Act" shall mean the Revised Uniform Limited Partnership Act
of the State of Delaware, as the same may hereafter be amended from time to
time.
"Additional Partner" means a Person admitted to the
Partnership pursuant to the provisions hereof after the date of this Agreement.
"Affiliate" shall mean, with respect to any Partner (or as to
any other person the affiliates of whom are relevant for purposes of any of the
provisions of this Agreement), (i) any member of the Immediate Family of such
Partner; (ii) any beneficiary of a Limited Partner that is a trust; (iii) any
trust for the benefit of any Person referred to in the preceding clauses (i) and
(ii); or (iv) any Entity which directly or indirectly through one or more
intermediaries, Controls, is Controlled by, or is under common Control with, any
Person referred to in the preceding clauses (i) through (iii).
"Agreement" shall mean this First Amended and Restated Limited
Partnership Agreement, as originally executed and as amended, modified,
supplemented or restated from time to time, as the context requires.
"Assignee" means a Person to whom one or more Partnership
Units have been transferred in a manner permitted under this Agreement, but who
has not become a substituted Limited Partner, and who has the rights set forth
in Section 9.3(d).
"Audited Financial Statements" shall mean financial statements
(balance sheet, statement of income, statement of partners' equity and statement
of cash flows) prepared in accordance with GAAP and accompanied by an
independent auditor's report containing an opinion thereon.
2
<PAGE> 7
"Bankruptcy" shall mean, with respect to any Partner, (i) the
commencement by such Partner of any petition, case or proceeding seeking relief
under any provision or chapter of the federal Bankruptcy Code or any other
federal or state law relating to insolvency, bankruptcy or reorganization, (ii)
an adjudication that such Partner is insolvent or bankrupt; (iii) the entry of
an order for relief under the federal Bankruptcy Code with respect to such
Partner, (iv) the filing of any such petition or the commencement of any such
case or proceeding against such Partner, unless such petition and the case or
proceeding initiated thereby are dismissed within ninety (90) days from the date
of such filing or (v) the filing of an answer by such Partner admitting the
allegations of any such petition.
"Bridge Loan" means a loan provided to the REIT by the lenders
under that Bridge Loan Agreement dated as of April 27, 1998 among the REIT, the
lenders party thereto and ABN AMRO Bank N.V. as agent for the lenders (as the
same may be amended, modified or restated and any refinancing thereof by those
lenders) having an 18-month term and in the original principal amount of
$85,000,000.
"Capital Account" shall mean the separate "book" account which
the Partnership shall establish and maintain for each Partner in accordance with
Exhibit B of this Agreement.
"Capital Contribution" shall mean the amount of money and the
initial Gross Asset Value of any Contributed Property, net of liabilities
assumed by the Partnership in connection with such contribution or as to which
each property is subject when contributed.
"Certificate" shall mean the Certificate of Limited
Partnership establishing the Partnership, as filed with the office of the
Delaware Secretary of State, as it may be amended from time to time in
accordance with the terms of this Agreement and the Act.
"Class A Partner" shall mean a Partner that owns one or more
Class A Partnership Units.
"Class A Partnership Units" shall mean the Partnership Units
issued to the General Partner and the REIT in exchange for their initial Capital
Contribution. The Class A Partnership Units do not have any Redemption Rights.
"Class B Partner" shall mean a Partner that owns one or more
Class B Partnership Units.
"Class B Partnership Units" shall mean the Partnership Units
having the Redemption Rights and the other rights specified in Exhibit D.
"Class C Partner" shall mean a Partner that owns one or more
Class C Partnership Units.
3
<PAGE> 8
"Class C Partnership Units" shall mean the Partnership Units
having the Redemption Rights and the other rights specified in Exhibit D.
"Code" shall mean the Internal Revenue Code of 1986, as
amended and in effect from time to time. Any reference herein to a specific
section of the Code shall be deemed to include a reference to any corresponding
provision of succeeding laws.
"Consent" shall mean the written consent or approval of a
proposed action given in accordance with Section 13.2 hereof.
"Contributed Property" shall mean each property or other
asset, in such form as may be permitted by the Act (but excluding cash)
contributed to the Partnership by a Partner.
"Control" shall mean the ability, whether by the direct or
indirect ownership of shares or other equity interests, by contract or
otherwise, to elect a majority of the directors of a corporation, to select the
managing partner of a partnership, or otherwise to select, or have the power to
remove and then select, a majority of those persons exercising governing
authority over an Entity. In the case of a limited partnership, the sole general
partner, all of the general partners to the extent each has equal management
control and authority, or the managing general partner or managing general
partners thereof shall be deemed to have control of such partnership and, in the
case of a trust, any trustee thereof or any Person having the right to select
any such trustee shall be deemed to have control of such trust.
"Depletion" shall mean, with respect to standing timber owned
by the Partnership, the recovery (as a noncash expense) of the costs associated
with the acquisition or establishment of timber stands, as determined under Code
section 611 and the Regulations thereunder; provided, however, if there is a
difference between the Gross Asset Value and adjusted tax basis of such timber,
Depletion means "book" depletion as determined under the Code section 704(b)
Regulations.
"Depreciation" shall mean, with respect to any asset of the
Partnership for any fiscal year or other period, the depreciation or
amortization, as the case may be, allowed or allowable for Federal income tax
purposes in respect of such asset for such fiscal year or other period;
provided, however, that if there is a difference between the Gross Asset Value
and the adjusted tax basis of such asset, Depreciation shall mean "book"
depreciation or amortization as determined under the Code section 704(b)
Regulations.
"Entity" shall mean any general partnership, limited
partnership, limited liability company, corporation, joint venture, trust,
business trust, real estate investment trust, association or other business
entity.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time (or any corresponding provisions of
succeeding laws).
4
<PAGE> 9
"Financing" means the Bridge Loan and the Senior Revolver.
"Financing Documents" means the documents executed by the
Partnership and the REIT in connection with the Financing.
"GAAP" shall mean generally accepted accounting principles as
in effect from time to time.
"General Partner" means Strategic Timber Operating Co., a
Delaware corporation, its duly admitted successors and assigns and any other
Person who is a general partner of the Partnership at the time of reference
thereto.
"Gross Asset Value" shall mean the value at which the assets
of the Partnership are carried on its books as required by the Regulations under
Code section 704(b) and as determined in accordance with Exhibit B.
"Immediate Family" shall mean, with respect to any Person,
such Person's spouse, parents, descendants, brothers and sisters.
"Indemnitee" shall mean (i) any Person made a party to a
proceeding by reason of his status as (A) the General Partner, (B) a trustee,
director, or officer of the General Partner or (c) a Liquidating Trustee of the
Partnership or the General Partner, and (ii) such other Persons (including
Affiliates of the General Partner or the Partnership) as the General Partner may
designate from time to time in its sole and absolute discretion.
"Limited Partners" shall mean those Persons listed under the
heading "Limited Partners" on Exhibit A attached hereto, as amended from time to
time to reflect the admission of additional Persons and any permitted successors
or assigns, who are admitted as a limited partner in the Partnership.
"Liquidating Trustee" shall mean such individual or entity as
is selected as the Liquidating Trustee hereunder by the General Partner, which
individual or Entity may include an Affiliate of the General Partner, provided
such Liquidating Trustee agrees in writing to be bound by the terms of this
Agreement. The Liquidating Trustee shall be empowered to give and receive
notices, reports and payments in connection with the dissolution, liquidation
and/or winding up of the Partnership and shall hold and exercise such other
rights and powers as are necessary or required to authorize and permit all
parties to deal with the Liquidating Trustee in connection with the dissolution,
liquidation and/or winding-up of the Partnership.
"LTP" is defined in the Recitals.
"Net Income" means for any period, the excess, if any, of the
Partnership's items of income and gain for such period over the Partnership's
items of loss and
5
<PAGE> 10
deduction for such period. The items included in the calculation of Net Income
shall be determined in accordance with Exhibit B.
"Net Loss" means, for any period, the excess, if any, of the
Partnership's items of loss and deduction for such period over the Partnership's
items of income and gain for such period. The items included in the calculation
of Net Loss shall be determined in accordance with Exhibit B.
"Net Operating Cash Flow" shall mean, with respect to any
fiscal period of the Partnership, the excess, if any, of "Receipts" over
"Expenditures". For purposes hereof, the term "Receipts" means the sum of all
cash receipts of the Partnership from all sources for such period, (including
the net proceeds of borrowings but excluding Capital Contributions) and any
amounts that are held as reserves as of the last day of such period that the
General Partner reasonably deems to be in excess of reserves that are necessary
or appropriate for the Partnership, as specified in the definition of
Expenditure. The term "Expenditures" means the sum of (a) all cash expenses of
the Partnership for such period, (b) the amount of all payments of principal and
interest on account of any indebtedness of the Partnership including payments of
principal and interest on account of loans from the General Partner, or amounts
due on such indebtedness during such period, and (c) such cash reserves as of
the last day of such period as the General Partner deems necessary or
appropriate for any capital, operating or other expenditure, including, without
limitation, contingent liabilities.
"Partner(s)" shall mean the General Partner and/or the Limited
Partners, their duly admitted successors or assigns and any additional Person
who has been admitted as a partner of the Partnership at the time of reference
thereto.
"Partnership" shall mean Strategic Timber Partners, LP, a
Delaware limited partnership, as such limited partnership may from time to time
be constituted.
"Partnership Interest" shall mean the ownership interest of a
Partner in the Partnership representing a Capital Contribution by either a
Limited Partner or the General Partner and includes any and all benefits to
which the holder of such an interest may be entitled under this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Partnership Interest may be expressed as a
number of Partnership Units.
"Partnership Record Date" means the record date established by
the General Partner for distribution of Net Operating Cash Flow pursuant to
Section 5.1 hereof, which record date shall be the same as the record date
established by the REIT for distribution to its shareholders of some or all of
its portion of such distribution.
"Partnership Unit" means a fractional, undivided share of the
Partnership Interests of all the Partners issued pursuant to Section 4.1 of this
Agreement, and as specified on Exhibit A, as amended from time to time. The
ownership of Partnership Units may be evidenced
6
<PAGE> 11
by such form of certificate for units as the General Partner adopts from time to
time on behalf of the Partnership. Partnership Units may be divided into two or
more classes.
"Percentage Interest" shall mean, with respect to any Partner,
its interest determined by dividing the Partnership Units owned by such Partner
by the total number of Partnership Units then outstanding and as specified in
Exhibit A hereto, as such Exhibit may be amended from time to time.
"Person" shall mean any natural person or Entity.
"Redeeming Partner" means a Class B Limited Partner or
Assignee who issues a Notice exercising its Redemption Rights in accordance with
Article XI and Exhibit D.
"Redemption Rights" shall have the meaning set forth in
Section 11.1 hereof.
"Regulations" shall mean the Income Tax Regulations
promulgated under the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
"REIT" shall mean Strategic Timber Trust, Inc., a Georgia
corporation, that will elect to be classified as a real estate investment trust
as defined in Section 856 of the Code.
"REIT Expenses" shall mean (i) costs and expenses relating to
the formation and continuity of existence of the REIT and its subsidiaries
including taxes, fees and assessments associated therewith, any and all costs,
expenses or fees payable to any director or trustee of the REIT or its
subsidiaries, (ii) costs and expenses relating to any offer or registration of
securities by the REIT and all statements, reports, fees and expenses incidental
thereto, including underwriting discounts and selling commissions applicable to
any such offer of securities, (iii) costs and expenses associated with the
preparation and filing of any periodic reports by the REIT under federal, state
or local laws or regulations, including filings with the SEC, (iv) costs and
expenses associated with compliance by the REIT with laws, rules and regulations
promulgated by any regulatory body, including the SEC, and (v) all other
operating or administrative costs of the REIT and its subsidiaries incurred in
the ordinary course of their business on behalf of the Partnership. The
reimbursement of REIT Expenses shall not constitute a distribution under Article
V of this Agreement.
"SEC" shall mean the United States Securities and Exchange
Commission.
"Senior Revolver" means a loan to the Partnership by the
lenders under that Loan Agreement, dated as of April 27, 1998 among the
Partnership, the lenders party thereto and ABN AMRO Bank N.V. as agent for the
lenders, (as the same may be amended, modified or
7
<PAGE> 12
restated or any refinancing thereof by those lenders) in the form of a 5-year
senior secured revolving credit facility and in the original stated amount of
$215,000,000.
"Shares" shall mean the shares of the common stock of the
REIT.
ARTICLE II
ORGANIZATION OF PARTNERSHIP
2.1 Organization. The parties have organized the Partnership
as a limited partnership by filing the Certificate pursuant to the provisions of
the Act for the purposes and upon the terms and conditions hereinafter set
forth. The Partners agree that the rights and liabilities of the Partners shall
be as provided in the Act, except as otherwise herein expressly provided.
2.2 Name. The name of the Partnership shall be Strategic
Timber Partners, LP, or such other name as shall be chosen from time to time by
the General Partner in its sole discretion.
2.3 Location of Principal Place of Business. The location of
the principal place of business of the Partnership shall be at 5 North Pleasant
Street, New London, New Hampshire 03257, or such other location as shall be
selected from time to time by the General Partner in its sole discretion.
2.4 Registered Agent and Registered Office. The Corporation
Trust Company shall act as registered agent of the Partnership and the
Registered Office of the Partnership shall be Corporation Trust Center, 1209
Orange Street, Wilmington, Delaware. The registered office and registered agent
may be changed from time to time as the General Partner deems advisable by
filing notice of such changes with the Secretary of State in accordance with the
Act.
2.5 Term. The Partnership's term commenced upon the filing of
the Certificate with the Secretary of State of Delaware on April 21, 1998 and
shall continue until December 31, 2097, unless the Partnership is sooner
terminated as provided in Article VIII or as provided by law.
ARTICLE III
PURPOSE AND POWERS
3.1 Purpose and Business. The purpose of the Partnership shall
be to acquire, hold, own, manage and transfer timberlands; to sell and otherwise
dispose of the timber grown on such property; to acquire an ownership interest
in Entities engaged in similar or related
8
<PAGE> 13
activities; and to engage in such other activities as shall be necessary,
desirable or appropriate to effectuate the foregoing purposes.
3.2 Powers. Subject to any limitations imposed by the
Financing Documents, the Partnership shall have all powers necessary, desirable
or appropriate to accomplish the purposes enumerated. In connection with the
foregoing, the Partnership shall have full power and authority, directly to
enter into, perform, and carry out contracts of any kind, to borrow money and to
issue evidences of indebtedness, whether or not secured by mortgages, security
interests or other liens, and to enter into any and all indentures and other
agreements and documents relating to such evidence of indebtedness, directly or
indirectly, and to acquire such assets as may be necessary or useful in
connection with its business. Notwithstanding the foregoing, the Partnership
shall not take, or refrain from taking, any action which, in the judgment of the
General Partner, in its sole and absolute discretion, (i) could adversely affect
the ability of the REIT to qualify as a real estate investment trust under the
Code, (ii) could subject the REIT to any taxes under section 857 (other than for
capital gains that the REIT has elected to retain) or section 4981 of the Code
or have other potentially adverse consequences under the Code, or (iii) could
violate any law or regulation of any governmental body or agency having
jurisdiction over the REIT, its subsidiaries or its securities, unless such
action (or inaction) shall have been specifically consented to by the REIT in
writing.
ARTICLE IV
CAPITAL CONTRIBUTIONS
4.1 Capital Contributions, Partnership Interests and
Percentage Interests of Partners.
(a) At the time of the execution of this Agreement, the
Partners shall make the Capital Contributions set forth in Exhibit A and shall
own the Partnership Units and have the Percentage Interests in the Partnership
as set forth in such Exhibit. Initially, the Partnership will issue 25,500
Partnership Units, which will be divided into Class A, Class B, and Class C, as
set forth in Exhibit A. Exhibit A may be amended from time to time by the
General Partner to the extent necessary to properly reflect redemptions of
Partnership Units, Capital Contributions, the authorized issuance of additional
Partnership Units, or for any other similar event having an effect on a
Partner's Percentage Interest.
(b) Except as provided in Sections 4.2 and 6.6, no Partner
shall have an obligation to make any additional Capital Contributions or loans
to the Partnership.
4.2 Contribution of Proceeds. In connection with the initial
underwritten public offering of Shares by the REIT, the REIT shall first use the
net proceeds of such offering to fully satisfy any unpaid amounts under the
Bridge Loan and the remaining amount shall be
9
<PAGE> 14
transferred to the Partnership as a Capital Contribution. The REIT shall be
deemed to have made a Capital Contribution to the Partnership in the amount of
any underwriter's discount, placement fees, commissions or other expenses paid
or incurred in connection with such issuance and the Partnership shall be deemed
simultaneously to have reimbursed the REIT pursuant to Section 7.2 for the
amount of such expenses.
4.3 No Third Party Beneficiaries. No creditor or other third
party shall have the right to enforce any right or obligation of any Partner to
make Capital Contributions or loans or to pursue any other right or remedy
hereunder or at law or in equity, it being understood and agreed that the
provisions of this Agreement shall be solely for the benefit of, and may be
enforced solely by, the parties hereto and their respective successors and
assigns.
4.4 No Interest on or Return of Capital Contribution. No
Partner shall be entitled to interest on its Capital Contribution or, except as
otherwise specifically provided herein, have any right to demand or receive the
return of its Capital Contribution.
4.5 Loans to Partnership At the option of the General Partner,
any Partner (including, without limitation, the General Partner) may make loans
to the Partnership on terms deemed by the General Partner to be commercially
reasonable.
4.6 Issuance of Additional Partnership Interests.
In exchange for the contribution of property to the
Partnership, the General Partner is hereby authorized to cause the Partnership
from time to time to issue to one or more Persons additional Partnership Units
in one or more classes, or one or more series of any of such classes, with such
designations, preferences and participating, optional or other special rights,
powers and duties, including rights, powers and duties which may be senior to
interests in the Partnership theretofore issued, except such additional issuance
of Partnership Units will not diminish the rights granted to the Class C Limited
Partner in Paragraph 3 of Exhibit D, all as shall be determined by the General
Partner in its sole and absolute discretion and without the approval of any of
the Limited Partners, including, without limitation, (i) the allocations of
items of Partnership income, gain, loss, deduction and credit to each such class
or series of Partnership Units: (ii) right of each such class or series of
Partnership Units to share in Partnership distributions; and (iii) the rights of
each such class or series of Partnership Interests upon dissolution and
liquidation of the Partnership.
4.7 Adjustment to Units in the Event of REIT Stock Split, Etc.
If the REIT at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) or combines (by reverse stock split or otherwise)
the Shares, each Partnership Unit outstanding on the record date (or such other
date as is used to determine the affected Shares) for such subdivision or
recapitalization shall be automatically subdivided or combined in the same
manner as the Shares, so that subdivisions and combinations of the Shares affect
the Units in a parallel manner.
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<PAGE> 15
ARTICLE V
DISTRIBUTIONS
5.1 Distributions.
(a) Except as provided in Section 8.3, the General Partner
shall cause the Partnership to distribute all or any portion of Net Operating
Cash Flow to the Partners from time to time as determined by the General
Partner, but in any event not less frequently than quarterly in such amounts as
the General Partner shall determine.
(b) Except as provided for in Section 5.4, prior to the
complete satisfaction of the Bridge Loan, all distributions of Net Operating
Cash Flow will be made to the REIT. Thereafter, Net Operating Cash Flow will be
distributed to LTP until LTP has received distributions equal to: (A) the amount
that LTP would have received if all distributions that were made during the
period that the Bridge Loan was outstanding had been made in accordance with the
Partners' Percentage Interests, less (B) the amount actually distributed to LTP
under Section 5.4 Thereafter, all such distributions shall be made pro rata in
accordance with the Partners' Percentage Interests as of the Partnership Record
Date; provided that in no event may a Partner receive a distribution of Net
Operating Cash Flow with respect to a Partnership Unit if such Partner is
entitled to receive a distribution out of such Net Operating Cash Flow with
respect to a Share for which such Partnership Unit has been redeemed or
exchanged.
5.2 Amounts Withheld. All amounts withheld pursuant to the
Code or any provision of any state or local tax law pursuant to Section 6.6
hereof with respect to any allocation, payment or distribution to the General
Partner, the Limited Partners or Assignees shall be treated as amounts
distributed to such Persons pursuant to Section 5.1 for all purposes under this
Agreement.
5.3 Distributions Upon Liquidation. Proceeds from the sale or
other disposition of all or substantially all of the assets of the Partnership,
or related series of transactions that, taken together, result in the sale or
other disposition of all or substantially all of the assets of the Partnership,
including reductions and reserves made after commencement of the liquidation of
the Partnership, shall be distributed to the Partners in accordance with Section
8.3.
5.4 Tax Distributions. During the period that the Bridge Loan
is outstanding, the Partnership shall use its best efforts to distribute cash to
LTP to enable the members of LTP to fund their U.S. federal income tax
liabilities (including any estimated payments thereof) attributable to income
reported (or to be reported) on the tax returns of the Partnership that is
allocated to LTP, including without limitation amounts allocable under Code
section 704(c). For purposes of making the determination of the amount of
distribution under this Section 5.4, items of ordinary income or short-term
capital gain will be assumed to be taxed at a tax rate of 39.6%, and items of
long-term capital gain will be assumed to be taxed at a tax rate of either 20%
or
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28%, as determined by the General Partner upon advice of tax counsel; provided,
however, the maximum amount distributable under this Section 5.4 is $999,999.
ARTICLE VI
ALLOCATIONS AND OTHER TAX AND ACCOUNTING MATTERS
6.1 Allocations for Capital Account Purposes. For purposes of
maintaining the Capital Accounts and determining the rights of the Partners
among themselves, the Partnership's items of income, gain, loss and deduction
(computed in accordance with Exhibit B hereof), shall be allocated among the
Partners in each taxable year (or a portion thereof) as provided in this Section
6.1:
(a) After giving effect to the special allocation rules
contained in Exhibit C, Net Income shall be allocated: (i) first, to the General
Partner to the extent of the amount by which Net Losses previously allocated to
the General Partner pursuant to the last sentence of Section 6.1(b) exceed Net
Income previously allocated to the General Partner pursuant to this clause (i)
of this Section 6.1(a), and (ii) thereafter, Net Income shall be allocated to
all the Partners in accordance with their respective Percentage Interests.
(b) After giving effect to the special allocation rules
contained in Exhibit C, Net Losses shall be allocated to the Partners in
accordance with their respective Percentage Interests, provided that Net Losses
shall not be allocated to any Partner, other than the General Partner, to the
extent that such allocation would cause such Partner to have an Adjusted Capital
Account Deficit (as defined in Exhibit C) at the end of such taxable year (or
increase any existing Adjusted Capital Account Deficit). All Net Losses in
excess of the limitation set forth in the preceding sentence of this Section
6.1(b) shall be allocated to the General Partner.
6.2 Books of Account. At all times during the continuance of
the Partnership, the General Partner shall maintain, or cause to be maintained,
full, true, complete and correct books of account. In addition, the Partnership
shall keep all records required to be maintained by the Act.
6.3 Reports. The General Partner shall cause to be sent to the
Limited Partners promptly after receipt of the same from the Accountants and in
no event later than 105 days after the close of each fiscal year of the
Partnership, copies of Audited Financial Statements for the Partnership, or of
the REIT if such statements are prepared solely on a consolidated basis with the
REIT, for the immediately preceding fiscal year of the Partnership. The
Partnership shall also cause to be maintained such other information as is
necessary for the REIT to determine its qualification as a real estate
investment trust under the Code, as may be required by applicable law or
regulation, or as the General Partner determines to be appropriate.
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6.4 Tax Elections and Returns.
(a) All elections required or permitted to be made by the
Partnership under any applicable tax law shall be made by the General Partner in
its sole discretion.
(b) The General Partner shall be responsible for preparing, or
causing to be prepared, and filing all federal and state tax returns for the
Partnership and furnishing copies thereof to the Partners, together with
required Partnership schedules showing allocations of tax items, all within the
period of time prescribed by law including extensions.
6.5 Tax Matters Partner.
(a) The General Partner is hereby designated as the Tax
Matters Partner (within the meaning of section 6231(a)(7) of the Code) for the
Partnership.
(b) Pursuant to Code section 6223(c)(3), upon receipt of
notice from the Internal Revenue Service of the beginning of an administrative
proceeding with respect to the Partnership, the tax matters partner shall
furnish the IRS with the name, address and profit interest of each Limited
Partner and any Assignees to the extent that the Partnership has such
information available to it.
(c) The taking of any action and the incurring of any expense
by the tax matters partner in connection with any federal, state or local tax
controversy or proceeding, except to the extent required by law, is in the sole
and absolute discretion of the tax matters partner. The provisions relating to
indemnification of the General Partner, set forth in Section 7.7 of this
Agreement, shall be fully applicable to the tax matters partner in its capacity
as such.
(d) All third-party costs and expenses incurred by the tax
matters partner in performing its duties as such (including legal and accounting
fees and expenses) shall be borne by the Partnership. Nothing contained herein
shall be construed to restrict the Partnership from engaging tax consultants to
assist the tax matters partner in discharging its duties hereunder.
6.6 Withholding Payments Required By Law.
(a) Each Limited Partner hereby authorizes the Partnership to
withhold from or pay on behalf of or with respect to such Limited Partner any
amount of federal, state, local or foreign taxes that the General Partner
determines that the Partnership is required to withhold or pay with respect to
any amount distributable or allocable to such Limited Partner pursuant to this
Agreement, including without limitation, any taxes required to be withheld or
paid by the Partnership pursuant to sections 1441, 1442, 1445 or 1446 of the
Code. ("Withholding Obligation"). Unless treated as a Tax Payment Loan (as
hereinafter defined), any amount paid by the Partnership for or with respect to
any Limited Partner on account of any Withholding Obligation shall be treated as
a distribution to such Limited Partner for all purposes of this Agreement,
consistent with the character or source of the Withholding Obligation.
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(b) To the extent that the amount required to be remitted by
the Partnership with respect to a Withholding Obligation exceeds the amount then
otherwise distributable to a Limited Partner, the excess of the Withholding
Obligation shall constitute a loan ("Tax Payment Loan") from the Partnership to
such Limited Partner. Any Tax Payment Loan shall be repaid by the Limited
Partner to whom it was deemed made within fifteen (15) days after notice from
the General Partner that a Tax Payment Loan has been made on behalf of such
Limited Partner. Each Limited Partner hereby unconditionally and irrevocably
grants to the Partnership a security interest in such Limited Partner's
Partnership Interest to secure such Limited Partner's obligation to pay to the
Partnership any amounts required to be paid pursuant to this Section 6.6, which
security interest is subordinate in right of payment and enforcement to any
security interest or other lien granted by such Limited Partner to secure the
Financing. In the event that a Limited Partner fails to pay any amount owed to
the Partnership pursuant to this Section 6.6 when due, the General Partner may,
in its sole and absolute discretion, elect to make the payment to the
Partnership on behalf of such defaulting Limited Partner, and in such event
shall be deemed to have loaned such amount to such defaulting Limited Partner.
In such event, the General Partner shall have the right to receive distributions
that otherwise would be distributable to such defaulting Limited Partner until
such time as such loan, together with all interest thereon, has been paid in
full; and any such distributions so received by the General Partner shall be
treated as having been distributed to the Defaulting Limited Partner and
immediately paid by the defaulting Limited Partner to the General Partner in
repayment of such loan. Any amounts payable by a Limited Partner hereunder shall
bear interest at the lesser of (A) the base rate on corporate loans at large
United States money center commercial banks, as published from time to time in
the Wall Street Journal, plus 4 percentage points, or (B) the maximum lawful
rate of interest on such obligation. Such interest shall accrue from the date
such amount is due (i.e., 15 days after demand) until such amount is paid in
full. Each Limited Partner shall take such actions as the Partnership or the
General Partner shall request in order to perfect or enforce the security
interest created hereunder.
(c) The General Partner shall have the authority to take all
actions necessary to enable the Partnership to comply with the statutes, laws or
obligations that create a Withholding Obligation and to carry out the provisions
of this Section 6.6. Nothing in this Section 6.6 shall create any obligation on
the General Partner to advance funds to the Partnership or to borrow funds from
third parties in order to make any payments on account of any liability of the
Partnership for a Withholding Obligation.
(d) Any Partner who is a nonresident alien, foreign
corporation, foreign partnership, foreign trust or foreign estate (as those
terms are defined in the Code and the Regulations) is hereafter referred to as a
Foreign Partner. A Partner who is not a Foreign Partner shall deliver to the
General Partner a Certification of Non-Foreign Status in the form prescribed by
the General Partner for withholding purposes under sections 1445 and 1446 of the
Code. In the event that a Partner (i) is a Foreign Partner, or (ii) does not
furnish a certification of Non-Foreign Status to the General Partner, then the
withholding provisions in this Section 6.6 shall apply.
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6.7 Fiscal Year. The fiscal year of the Partnership shall be
the calendar year.
ARTICLE VII
RIGHTS, DUTIES AND RESTRICTIONS OF THE
GENERAL PARTNER AND THE REIT
7.1 Powers and Duties of General Partner.
(a) Except as otherwise expressly provided in this Agreement,
all management powers over the business and affairs of the Partnership are and
shall be exclusively vested in the General Partner, and no Limited Partner shall
have any right to participate in or exercise control or management power over
the business and affairs of the Partnership. The General Partner may not be
removed by the Limited Partners with or without cause. In addition to the powers
now or hereafter granted a general partner of a limited partnership under
applicable law or which are granted to the General Partner under any other
provisions of this Agreement, the General Partner shall have full power and
authority to do all things deemed necessary or desired by it to conduct the
business of the Partnership, to exercise all powers of the Partnership as set
forth in Section 3.2 hereof and to effectuate the purposes set forth in Section
3.1 hereof, including without limitation:
(1) to acquire, directly or indirectly, interests in real
estate that is growing or is suitable for growing timber, and any and all kinds
of interests therein, and any and all related property; to manage and protect
any of the Partnership's assets, interests therein or parts thereof; to improve
any such real estate consistent with the purposes of the Partnership; to
participate in the ownership of property; to dedicate a portion of a property
for public use; to convey, to mortgage, pledge or otherwise encumber said
property, or any part thereof; to lease said property or any part thereof from
time to time, upon any terms and for any period of time, and to renew or extend
leases, to amend, change or modify the terms and provisions of any leases and to
grant options to lease and options to renew leases and options to purchase; to
partition or to exchange said real property, or any part thereof, for other real
property; to grant easements or charges of any kind; to release, convey or
assign any right, title or interest in or about or easement appurtenant to said
property or any part thereof; to insure any Person having an interest in or
responsibility for the care or management of such property;
(2) to employ, engage or contract with or dismiss from
employment or engagement Persons to the extent deemed necessary by the General
Partner for the operation and management of the Partnership business, including
but not limited to, contractors, subcontractors, engineers, foresters,
surveyors, consultants, accountants, attorneys, real estate brokers and others;
(3) to enter into contracts on behalf of the Partnership and
to cause all expenses related thereto to be paid;
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(4) to borrow and lend money and make and obtain loans and
advances to or from any Person for Partnership purposes; to contract liabilities
and obligations of every kind and nature with or without security; and to repay,
discharge, settle, adjust, compromise, or liquidate any such loan, advance,
obligation or liability;
(5) to grant security interests, mortgage, assign, pledge,
hypothecate, deposit, deliver, enter into sale and leaseback arrangements or
otherwise give as security or for sale or other disposition any and all
Partnership property, tangible or intangible, including, but not limited to,
personal property and real estate and interests; to sign, execute and deliver
any and all assignments, deeds, bills of sale and instruments in writing; to
enter into, make, execute, deliver and receive agreements, undertakings and
instruments of every kind and nature; and generally to do any and all other acts
and things incidental to any of the foregoing;
(6) to, acquire and enter into any contract of insurance
(including, without limitation, general partner liability and partnership
reimbursement insurance policies) which the General Partner may deem necessary
or appropriate;
(7) to conduct any and all banking transactions on behalf of
the Partnership; to draw, sign, execute, accept, endorse, guarantee, deliver,
receive and pay any checks, drafts, bills of exchange, acceptances, notes,
obligations, undertakings and other instruments for or relating to the payment
of money in, into, or from any account in the Partnership's name; to make
deposits and withdraw the same and to negotiate or discount commercial paper and
acceptances;
(8) to demand, sue for, receive, and otherwise take steps to
collect all debts, rents, proceeds, interests, dividends, goods, income from
property, damages and all other property, to which the Partnership may be
entitled or which are or may become due the Partnership from any Person; to
commence, prosecute or enforce, or to defend, answer or oppose, contest and
abandon all legal proceedings in which the Partnership is or may hereafter be
interested; and to settle, compromise or submit to arbitration any claims,
disputes and matters which may arise between the Partnership and any other
Person and to grant an extension of time for the payment or satisfaction thereof
on any terms, with or without security;
(9) to acquire interests in and contribute property to any
limited or general partnerships, joint ventures, subsidiaries or other entities
as the General Partner deems desirable;
(10) to maintain the Partnership's books and records; and
(11) to prepare and deliver, or cause to be prepared and
delivered by the Accountants, all financial and other reports with respect to
the operations of the Partnership, and preparation and filing of all tax returns
and reports.
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(b) Except as otherwise provided herein, to the extent the
duties of the General Partner require expenditures of funds to be paid to third
parties, the General Partner shall not have any obligations hereunder except to
the extent that Partnership funds are reasonably available to it for the
performance of such duties, and nothing herein contained shall be deemed to
require the General Partner, in its capacity as such, to expend its individual
funds for payment to third parties or to undertake any specific liability on
behalf of the Partnership.
(c) Notwithstanding the powers granted to the Partnership in
Section 3.2 and to the General Partner in Section 7.1(a), neither the
Partnership nor the General Partner will undertake, or refrain from taking, any
action that would be contrary to the terms and conditions of the Financing
Documents.
7.2 Reimbursement of the General Partner and the REIT.
(a) Except as provided in this Section 7.2 and elsewhere in
this Agreement (including the provisions of Articles 5 and 6 regarding
distributions and allocations to which it may be entitled), the General Partner
shall not be compensated for its services as general partner of the Partnership.
(b) Prior to the complete satisfaction of the Bridge Loan, the
REIT shall be reimbursed by the Partnership on a quarterly basis for all the
REIT Expenses that it incurs and the General Partner shall be reimbursed on a
quarterly basis for any administrative expenses that it incurs. The Limited
Partners acknowledge that the primary business of the General Partner and the
REIT is the ownership of interests in and operation of the Partnership and that
all of the expenses incurred by the General Partner and the REIT are for the
benefit of the Partnership. Such reimbursements shall be in addition to any
reimbursement to the General Partner as a result of indemnification pursuant to
Section 7.7 hereof. After satisfaction of the Bridge Loan, the reimbursement
under this Section 7.2(b) shall be monthly or such other period the General
Partner determines.
(c) The General Partner and the REIT shall also be reimbursed
for all expenses they incur relating to the organization of the Partnership, the
General Partner and the REIT. The REIT shall be reimbursed for all expenses
related to the initial public offering of the Shares and any subsequent issuance
of additional Shares if the proceeds thereof are contributed to the Partnership.
7.3 Outside Activities of the General Partner. Without the
prior approval of the REIT, the General Partner shall not directly or indirectly
enter into or conduct any business, other than in connection with the ownership,
acquisition and disposition of Partnership Interests as a General Partner and
the management and operation of the business of the Partnership, and such
activities as are incidental thereto.
7.4 Contracts with Affiliates. The Partnership may lend or
contribute to its subsidiaries or other Persons in which it has an equity
investment, and such Persons may borrow
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funds from the Partnership, on terms and conditions established in the sole and
absolute discretion of the General Partner. The foregoing authority shall not
create any right or benefit in favor of any Person. The Partnership may also
engage in other transactions and enter into contracts with Affiliates of the
General Partner which are on terms fair and reasonable to the Partnership and no
less favorable to the Partnership than would be obtained from unaffiliated third
parties.
7.5 Title to Partnership Assets. Title to Partnership assets,
whether real, personal or mixed and whether tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner, individually
or collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby acknowledges and confirms that any Partnership assets
for which legal title is held in the name of the General Partner or any nominee
or Affiliate of the General Partner shall be held by the General Partner for the
use and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use its best
efforts to cause beneficial and record title to such assets to be vested in the
Partnership as soon as reasonably practicable. All Partnership assets shall be
recorded as the property of the Partnership in its books and records,
irrespective of the name in which legal title to such Partnership assets is
held.
7.6 Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority to
encumber, sell or otherwise use in any manner any and all assets of the
Partnership and to enter into any contracts on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner as if it were the
Partnership's sole party in interest, both legally and beneficially. Each
Limited Partner hereby waives any and all defenses or other remedies which may
be available against such Person to contest, negate or disaffirm any action of
the General Partner in connection with any such dealing. In no event shall any
Person dealing with the General Partner or its representatives be obligated to
ascertain that the terms of this Agreement have been complied with or to inquire
into the necessity or expedience of any act or action of the General Partner or
its representatives. Each and every certificate, document or other instrument
executed on behalf of the Partnership by the General Partner shall be conclusive
evidence in favor of any and every Person relying thereon or claiming thereunder
that (i) at the time of the execution and delivery of such certificate, document
or instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and (iii)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.
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7.7 Indemnification by Partnership.
(a) The Partnership shall indemnify an Indemnitee from and
against any and all losses, claims, damages, liabilities, joint or several,
expenses (including legal fees and expenses), judgments, fines, settlements, and
other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, that relate to
the operations of the Partnership as set forth in this Agreement in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise; however, the Partnership shall not indemnify an Indemnitee with
respect to (i) an act or omission of the Indemnitee that was material to the
matter giving rise to the proceeding and either was the result of intentional
misconduct or a knowing violation of law; or (ii) for any transaction for which
such Indemnitee received a personal benefit in violation or breach of any
provision of this Agreement. The termination of any proceeding by judgment,
order or settlement does not create a presumption that the Indemnitee did not
meet the requisite standard of conduct set forth in this Section 7.7(a);
provided, however, the termination of any criminal proceeding by conviction of
an Indemnitee or upon a plea of nolo contendere or its equivalent by Indemnitee
creates a rebuttable presumption that such Indemnitee acted in a manner contrary
to that specified in this Section 7.7(a) with respect to the subject matter of
such proceeding. Any indemnification pursuant to this Section 7.7 shall be made
only out of the assets of the Partnership and no Partner shall have any personal
liability therefor.
(b) Reasonable expenses incurred by an Indemnitee who is a
party to a proceeding may be paid or reimbursed by the Partnership in advance of
the final disposition of the proceeding upon receipt by the Partnership of (i) a
written affirmation by the Indemnitee of the Indemnitee's good faith belief that
the standard of conduct necessary for indemnification by the Partnership, as
authorized in this Section 7.7, has been met, and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount paid or reimbursed if it
shall ultimately be determined that such standard of conduct has not been met.
(c) The indemnification provided by this Section 7.7 shall be
in addition to any other rights to which an Indemnitee or any other Person may
be entitled under any agreement, as a matter of law or otherwise, and shall
continue as to an Indemnitee who has ceased to serve in such capacity unless
otherwise provided in a written agreement with such Indemnitee or in the writing
pursuant to which such Indemnitee is indemnified.
(d) The Partnership may, but shall not be obligated to,
purchase and maintain insurance, on behalf of the Indemnitees and such other
Persons as the General Partner shall determine, against any liability that may
be asserted against or expenses that may be incurred by such Persons in
connection with the Partnership's activities, regardless of whether the
Partnership would have the power to indemnify any such Person against such
liability under the provisions of this Agreement.
(e) Any liabilities which an Indemnitee incurs as a result of
acting on behalf of the Partnership or the General Partner (whether as a
fiduciary or otherwise) in
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connection with the operation, administration or maintenance of an employee
benefit plan or any related trust or funding mechanism (whether such liabilities
are in the form of excise taxes assessed by the Internal Revenue Service,
penalties assessed by the Department of Labor, restitutions to such a plan or
trust or other funding mechanism or to a participant or beneficiary of such
plan, trust or other funding mechanism, or otherwise) shall be treated as
liabilities or judgments or fines under this Section 7.7 unless such liabilities
arise as a result of (i) such Indemnitee's intentional misconduct or knowing
violation of the law, or (ii) any transactions in which such Indemnitee received
a personal benefit in violation or breach of any provision of this Agreement or
applicable law.
(f) An Indemnitee shall not be denied indemnification in whole
or in part under this Section 7.7 solely because the Indemnitee had an interest
in the transaction with respect to which the indemnification applies if the
transaction was otherwise permitted by the terms of this Agreement.
(g) The provisions of this Section 7.7 are for the benefit of
the Indemnitees, their heirs, successors, assigns, personal representatives and
administrators, and shall not be deemed to create any rights for the benefit of
any other Persons. Any amendment, modification or repeal of this Section 7.7 or
any provision hereof shall be prospective only and shall not in any way effect
the limitations on the Partnership's liability to any Indemnitee under this
Section 7.7 as in effect immediately prior to such amendment, modification or
repeal with respect to claims arising from or relating to matters occurring, in
whole or in part, prior to such amendment, modification or repeal, regardless of
when such claims may arise or be asserted.
7.8 Liability of the General Partner
(a) Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary or other damages
to the Partnership, any of the Partners or any Assignees for losses sustained or
liabilities incurred as a result of errors in judgment or of any act or omission
if the General Partner acted or did not act in good faith and such action or
inaction was not the result of intentional misconduct, a knowing violation of
law, or a transaction for which the General Partner received a personal benefit
that was in violation or breach of any provision of this Agreement.
(b) The Limited Partners expressly acknowledge that the
General Partner is acting on behalf of the Partnership and the General Partner's
shareholders collectively, that the General Partner is under no obligation to
consider the separate interests of the Limited Partners (including, without
limitation, the tax consequences to Limited Partners or any assignees thereof)
in deciding whether to cause the Partnership to take (or decline to take) any
actions, and that the General Partner shall not be liable for monetary damages
for losses sustained, liabilities incurred, or benefits not derived by Limited
Partners in connection with such decisions, provided that the General Partner
acted in good faith with respect thereto and such action or inaction was not the
result of intentional misconduct, a knowing violation of law,
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or a transaction for which the General Partner received a personal benefit that
was in violation or breach of any provision of this Agreement.
(c) Subject to its obligations and duties as General Partner
set forth in Section 7.1 hereof, the General Partner may exercise any of the
powers granted to it by this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its agents. The General
Partner shall not be responsible for any misconduct or negligence on the part of
any such agent appointed by it in good faith.
(d) The General Partner shall not be deemed to have any
limitations or obligations, or be subject to any restrictions, of a partner of a
general partnership, if it otherwise would not have such limitations or
obligations or be subject to such restrictions under the terms of the Act, any
other applicable law and this Agreement.
(e) Any amendment, modification or repeal of this Section 7.8
or any provision hereof shall be prospective only and shall not in any way
affect the limitations on the General Partner's liability to the Partnership and
the Limited Partners under this Section 7.8 as in effect immediately prior to
such amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
7.9 Other Matters Concerning the General Partner
(a) The General Partner may rely and shall be protected in
acting or refraining from acting upon any resolution, certificate, consent,
statement, instrument, opinion, report, or other document believed by it to be
genuine and to have been signed or presented by the proper party or parties.
(b) The General Partner may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers and other
consultants and advisers selected by it, and any act taken or omitted to be
taken in reliance upon the opinion of such Persons as to matters which the
General Partner reasonably believes to be within such Person's professional or
expert competence shall be conclusively presumed to have been done or omitted in
good faith and in accordance with such opinion.
(c) The General Partner shall have the right, in respect of
any of its powers or obligations hereunder, to act through any of its duly
authorized officers and any attorney or attorneys-in-fact duly appointed by the
General Partner. Each such attorney shall, to the extent provided by the General
Partner in the power of attorney, have full power and authority to do and
perform all and every act and duty which is permitted or required to be done by
the General Partner hereunder.
(d) Notwithstanding any other provisions of this Agreement or
the Act, any action of the General Partner on behalf of the Partnership or any
decision of the General
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Partner to refrain from acting on behalf of the Partnership, undertaken in the
good faith belief that such action or omission is necessary or advisable in
order (i) to protect or further the ability of the REIT to qualify as a real
estate investment trust under the Code or (ii) to avoid the REIT incurring any
taxes under section 857 (other than for capital gains that the REIT has elected
to retain) or section 4981 of the Code, is expressly authorized under this
Agreement and is deemed approved by all of the Limited Partners.
ARTICLE VIII
DISSOLUTION, WINDING-UP AND LIQUIDATION
8.1 Events of Dissolution. The Partnership shall continue
until dissolved upon the occurrence of the earliest of the following events:
(a) the dissolution, termination, withdrawal, retirement or
Bankruptcy of the General Partner, subject to the Partnership being continued as
provided in Section 9.2 hereof;
(b) the election to dissolve the Partnership made in writing
by the General Partner with the Consent of the Limited Partners;
(c) the sale or other disposition of all or substantially all
of the assets of the Partnership, unless the General Partner elects to continue
the Partnership business for the purpose of the receipt and the collection of
indebtedness or the collection of any other consideration to be received in
exchange for the assets of the Partnership (which activities shall be deemed to
be part of the winding up of the affairs of the Partnership);
(d) the entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act, which decree is final and not
subject to appeal; or
(e) December 31, 2097.
8.2 Accounting. In the event of the dissolution, winding-up
and liquidation of the Partnership, a proper accounting shall be made of the
Capital Account of each Partner and of the Net Income or Net Loss of the
Partnership from the date of the last previous accounting to the date of
dissolution.
8.3 Distribution on Dissolution. In the event of the
dissolution and liquidation of the Partnership for any reason, the assets of the
Partnership shall be liquidated and the net proceeds therefrom shall be
distributed in the following rank and order:
(a) Payment of creditors of the Partnership in the order of
priority as provided by law;
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<PAGE> 27
(b) Establishment of reserves as provided by the General
Partner to provide for contingent and other Partnership liabilities, if any; and
(c) To the Partners in accordance with the positive balances
in their Capital Accounts after giving effect to all contributions,
distributions and allocations for all periods, other than distributions under
this Section 8.3(c).
Whenever the Liquidating Trustee reasonably determines that any reserves
established pursuant to paragraph (b) above are in excess of the reasonable
requirements of the Partnership, the amount determined to be excess shall be
distributed to the Partners in accordance with the provisions of this Section
8.3.
8.4 Timing Requirements.
(a) In the event that the Partnership is "liquidated" within
the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations, any and all
distributions to the Partners pursuant to Section 8.3(c) hereof shall be made no
later than the later to occur of (i) the last day of the taxable year of the
Partnership in which such liquidation occurs or (ii) ninety (90) days after the
date of such liquidation.
(b) Notwithstanding the provisions of Section 8.3 hereof which
require liquidation of the assets of the Partnership, but subject to the order
of priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidating Trustee determines that an immediate sale of part or
all of the Partnership's assets would be impractical or would cause undue loss
to the Partners, the Liquidating Trustee may, in its sole and absolute
discretion, defer for a reasonable time the liquidation of any assets except
those necessary to satisfy liabilities of the Partnership (including to those
Partners which are creditors of the Partnership) and/or distribute to the
Partners, in lieu of cash, as tenants in common and in accordance with the
provisions of Section 8.3 hereof, undivided interests in such Partnership assets
as the Liquidating Trustee deems not suitable for liquidation. Any such
distributions in kind shall be made only if, in the good faith judgment of the
Liquidating Trustee, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidating Trustee deems reasonable
and equitable and to any agreements governing the operation of such properties
at such time. The Liquidating Trustee shall determine the fair market value cf
any property distributed in kind using such reasonable method of valuation as it
may adopt.
8.5 Documentation of Liquidation. Upon the completion of the
dissolution and liquidation of the Partnership, the Partnership shall terminate
and the Liquidating Trustee shall have the authority to execute and record any
and all documents or instruments required to effect the dissolution, liquidation
and termination of the Partnership.
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ARTICLE IX
TRANSFER OF PARTNERSHIP INTERESTS
9.1 Transfer.
(a) The term "transfer", when used in this Article IX with
respect to a Partnership Interest, shall be deemed to refer to a transaction by
which a Partner purports to assign its Partnership Interest or any portion
thereof to another Person, and includes a sale, assignment, gift, pledge,
encumbrance, hypothecation, mortgage, exchange or any other disposition by law
or otherwise; provided however, that the term "transfer", when used in this
Article IX does not (except when such term is used in Section 9.4) include any
redemption of Partnership Interests from a Limited Partner or acquisition of
Partnership Interests from a Limited Partner by the General Partner pursuant to
Section 11.1.
(b) No Partnership Interest shall be transferred, in whole or
in part, except in accordance with the terms and conditions set forth in this
Article IX. Any transfer or purported transfer of a Partnership Interest not
made in accordance with this Article IX shall be null and void ab initio.
9.2 General Partner Transfer.
(a) Except for transfers to its Affiliates, the General
Partner shall not withdraw from the Partnership and shall not sell, assign,
pledge, encumber or otherwise dispose of all or any portion of its interest in
the Partnership as a General Partner without the Consent of the Limited Partners
at any time that the Limited Partners (other than the General Partner and its
Affiliated Entities in their capacity as a Limited Partner) own in the aggregate
more than 10% of the issued and outstanding Partnership Units.
(b) In the event the General Partner withdraws from the
Partnership in violation of this Agreement or otherwise dissolves, terminates or
upon the Bankruptcy of the General Partner, all the remaining Partners, within
90 days after such withdrawal, dissolution, termination or Bankruptcy, may elect
to continue the business of the Partnership and appoint a successor general
partner effective as of the date of such withdrawal, dissolution, termination or
Bankruptcy.
9.3 Transfers by Limited Partners.
(a) Subject to the provisions of Sections 9.3(b) and 9.3(d),
no Limited Partner shall have the right to transfer all or any portion of its
Partnership Interest without the prior written consent of the General Partner,
which consent may be given or withheld by the General Partner in its sole and
absolute discretion. The General Partner shall be deemed to have consented to
the transfers described in Exhibit D.
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<PAGE> 29
(b) Notwithstanding the provisions of Section 9.3(a) (but
subject to the provisions of Section 9.4), a Limited Partner may transfer, with
or without the consent of the General Partner, all or a portion of its
Partnership Interests to (i) a member of such transferor's Immediate Family, or
a trust for the benefit of a member of such transferor's Immediate Family in a
donative transfer that does not involve the receipt of any consideration and
(ii) if such Limited Partner is a trust, to one or more beneficiaries thereof;
provided, that any Partnership Interest permitted to be transferred pursuant to
this Section 9.3(b) shall remain subject to all provisions of this Agreement,
including, without limitation, this Article IX.
(c) No Limited Partner shall have the right to substitute a
transferee as a Limited Partner in its place. The General Partner shall,
however, have the right to consent to the admission of a transferee of the
interest of a Limited Partner pursuant to this Section 9.3 as a substituted
limited partner (as such term is used in the Act), which consent may be given or
withheld by the General Partner in its sole and absolute discretion; provided,
however, the General Partner will be deemed to have consented to the admission
of an Assignee described in Section 9.3(b) of this Agreement. The General
Partner's failure or refusal to permit a transferee of any such interests to
become a substituted limited partner shall not give rise to any cause of action
against the Partnership or any Partner. A transferee who has been admitted as a
substitute Limited Partner in accordance with this Article IX shall have all the
rights and powers and be subject to all the restrictions and liabilities of a
Limited Partner under this Agreement.
(d) If the General Partner, in its sole and absolute
discretion, does not consent to the admission of any Person that is a permitted
transferee under Sections 9.3(a) or 9.3(b), as a substituted limited partner,
such transferee shall be considered an assignee ("Assignee") for purposes of
this Agreement. An Assignee shall be deemed to have had assigned to it, and
shall be entitled to receive, distributions from the Partnership and the share
of Net Income, Net Losses, and any other items of income, gain, loss, deduction
and credit of the Partnership attributable to the Partnership Interests assigned
to it and shall have all of the Redemption Rights referred to in Section 11.1 of
this Agreement attributable to such Partnership Interests, but shall not be
deemed to be a holder of Partnership Interests for any other purpose under this
Agreement, and shall not be entitled to vote such Partnership Interests in any
matter presented to the Limited Partners for a vote (such Partnership Interests
being deemed to have been voted on such matter in the same proportion as all
other Partnership Interests held by Limited Partners are voted). In the event
any Assignee desires to make a further assignment of any such Partnership
Interests, such Assignee shall be subject to all the provisions of this Article
IX to the same extent and in the same manner as a Limited Partner desiring to
make an assignment of Partnership Interests.
(e) The Limited Partners acknowledge that the Partnership
Interests have not been registered under any federal or state securities laws
and, as a result thereof, they may not be sold or otherwise transferred, except
in compliance with such laws. Notwithstanding anything to the contrary contained
in this Agreement, no Partnership Interest may be sold or otherwise transferred
unless such transfer is exempt from registration under any applicable securities
laws or such transfer is registered under such laws, it being acknowledged that
the
25
<PAGE> 30
Partnership has no obligation to take any action which would allow any such
Partnership Interests to be registered.
9.4 Certain Restrictions on Transfer. In addition to any other
restrictions on transfer herein contained, in no event may a Partner transfer a
Partnership Interest (i) to any Person who lacks the legal right, power or
capacity to own a Partnership Interest; (ii) if such transfer would cause the
REIT to cease to qualify as a real estate investment trust under the Code; (iii)
if such transfer is effectuated through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the meaning of
section 7704(b) of the Code; (iv) if such transfer would cause the Partnership
to become, with respect to any employee benefit plan, subject to Title 1 of
ERISA, a "party-in-interest" (as defined in Section 3(14) of ERISA) or a
"disqualified person" (as defined in section 4975(c) of the Code); (v) if such
transfer would, in the opinion of counsel to the Partnership, cause any portion
of the assets of the Partnership to constitute assets of any employee benefit
plan pursuant to Department of Labor Regulations Section 2510.2-101; or (vi)
except with respect to Partnership Interests pledged in connection with the
Financing, to a lender to the Partnership or any Person who is related to any
lender to the Partnership (within the meaning of Section 1.752-4(b) of the
Regulations), unless in the opinion of counsel to the Partnership, such transfer
and ownership of the Partnership Interest by the lender (or related person) will
not have adverse federal income tax consequence to the Partners.
9.5 Effective Dates of Transfers.
(a) Transfers pursuant to this Article IX may only be made as
of the first day of a fiscal quarter of the Partnership, unless the General
Partner otherwise agrees.
(b) If any Partnership Interest is transferred or assigned in
compliance with the provisions of this Article IX, or redeemed pursuant to
Section 11.1, on any day other than the first day of a calendar year, then Net
Income, Net Loss, each item thereof and all other items attributable to such
Partnership Interest for such year shall be allocated to the transferor Partner,
or the redeemed Partner, as the case may be, and the transferee Partner, by
taking into account their varying interests during such year in accordance with
section 706(d) of the Code using such method as is elected by the General
Partner. All distributions of Net Operating Cash Flow attributable to such
Partnership Interest with respect to which the Partnership Record Date is before
the date of such transfer, assignment or redemption shall be made to the
transferring, assigning or redeemed Partner, and all distributions of Net
Operating Cash Flow thereafter attributable to such Partnership Interest shall
be made to the transferee Partner.
9.6 Pledges Required by Financing. Nothing contained in this
Article IX shall be deemed to limit the ability of the Partners to pledge and
grant a security interest in their Partnership Interests as may be required by
the Financing.
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<PAGE> 31
ARTICLE X
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
10.1 No Participation in Management. No Limited Partner, in
its capacity as such, shall take part in the management of the Partnership's
business, transact any business in the Partnership's name or have the power to
sign documents for or otherwise bind the Partnership. Any rights expressly
granted to the Limited Partners in this Agreement shall not be deemed to be
rights relating to the management of the Partnership's business.
10.2 Bankruptcy of a Limited Partner. The Bankruptcy of any
Limited Partner shall not cause a dissolution of the Partnership, but the rights
of such Limited Partner to share in the Net Profits or Net Losses of the
Partnership and to receive distributions of Partnership funds shall, on the
happening of such event, devolve on its successors or assigns, subject to the
terms and conditions of this Agreement, and the Partnership shall continue as a
limited partnership. However, in no event shall such assignee(s) become a
substituted Limited Partner except in accordance with Article IX hereof.
10.3 No Withdrawal. No Limited Partner may withdraw its
Capital Contribution from the Partnership without the prior written consent of
the General Partner, other than as expressly provided in this Agreement.
10.4 Conflicts. Subject to any agreements or arrangements
relating to rights of first opportunity, and the restriction contained in any
employment and consulting agreements, the Limited Partners and their Affiliates
(other than the REIT) are entitled to carry on such other business interests,
activities and investments, including business interest and activities that are
in direct competition with the Partnership or that are enhanced by the
activities of the Partnership. Neither the Partnership nor any Partner shall
have any right, by virtue of this Agreement, in or to such other activities of a
Limited Partner, or the income or profits derived therefrom.
10.5 Provision of Information.
(a) In addition to other rights provided by this Agreement or
by the Act, and except as limited by Section 10.5(b) hereof, each Limited
Partner shall have the right, for a purpose reasonably related to such Limited
Partner's interest in the Partnership, upon written request with a statement of
the purpose of such request and at such Limited Partner's own expense (including
such copying and administrative charges as the General Partner may establish
from time to time):
(1) to obtain a copy of the most recent annual
and quarterly reports filed with the
Securities and Exchange Commission by the
REIT pursuant to the Securities Exchange Act
of 1934;
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<PAGE> 32
(2) to obtain a copy of the Partnership's
federal, state and local income tax returns
for each Partnership Year;
(3) to obtain a current list of the names and
last known business, residence or mailing
address of each Partner; and
(4) to obtain a copy of this Agreement and the
Certificate and all amendments thereto,
together with executed copies of all powers
of attorney pursuant to which this
Agreement, the Certificate and all
amendments thereto have been executed.
(b) Notwithstanding any other provisions of this Section 10.5,
the General Partner may keep confidential from the Limited Partners, for such
period of time as the General Partner determines in its sole and absolute
discretion to be reasonable, any information that (i) the General Partner
reasonably believes to be in the nature of trade secrets or other information
the disclosure of which the General Partner in good faith believes is not in the
best interest of the Partnership or its business or (ii) the Partnership is
required by law or by agreement with an unaffiliated third party to keep
confidential.
10.6 Power of Attorney.
(a) Each Limited Partner constitutes and appoints the General
Partner, any Liquidating Trustee, and authorized officers and attorneys-in-fact
of each, and each of those acting singly, in each case with full power of
substitution, as its true and lawful agent and attorney-in-fact, with full power
and authority in its name, place and stead to: execute, swear to, acknowledge,
deliver, file and record in the appropriate public offices (i) all certificates,
documents and other instruments (including, without limitation, this Agreement
and the Certificate and all amendments or restatements thereof) that the General
Partner or the Liquidating Trustee deems appropriate or necessary to form,
qualify or continue the existence or qualification of the Partnership as a
limited partnership (or a partnership in which the limited partners have limited
liability) in the State of Delaware and in all other jurisdictions in which the
Partnership may conduct business or own property; (ii) all instruments that the
General Partner deems appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement in accordance with its terms;
(iii) all conveyances and other instruments or documents that the General
Partner deems appropriate or necessary to reflect the dissolution and
liquidation of the Partnership pursuant to the terms of this Agreement,
including, without limitation, a certificate of cancellation; and (iv) all
instruments relating to the admission, withdrawal, removal or substitution of
any Partner pursuant to the provisions of this Agreement, or the Capital
Contribution of any Partner.
(b) The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, in recognition of the fact
that each of the Partners will be relying upon the power of the General Partner
to act as contemplated by this Agreement in any filing or other action by it on
behalf of the Partnership, and it shall survive the
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<PAGE> 33
death or incompetency of a Limited Partner to the effect and extent permitted by
law and the transfer of all or any portion of such Limited Partner's Partnership
Interests and shall extend to such Limited Partner's heirs, successors, assigns
and personal representatives.
(c) Nothing contained in this Section 10.6 shall be construed
as authorizing the General Partner to amend this Agreement except in accordance
with Article XII hereof.
ARTICLE XI
GRANT OF CERTAIN RIGHTS TO LIMITED PARTNERS
11.1 Grant of Rights. Subject to the provisions of Exhibit D,
each Limited Partner shall have the right (the "Redemption Right") to require
the Partnership to redeem, no later than 30 days after receipt by the General
Partner of a Notice electing redemption ("Redemption Notice"), all or a portion
of the Partnership Units held by such Limited Partner at a redemption price
equal to, and in the form of, the consideration determined in accordance with
Exhibit D ("Redemption Amount"). A Limited Partner shall have no right, with
respect to any Partnership Units so redeemed, to receive any distributions paid
with respect to a Partnership Record Date that is after such Limited Partner
delivers a Redemption Notice. An Assignee may exercise the Redemption Rights
that were applicable to the Partnership Interest that was assigned. In
connection with any exercise of such rights by an Assignee, the Redemption
Amount shall be paid by the Partnership directly to such Assignee. The
Redemption Rights of the Class B and Class C Limited Partners are further
governed by the terms and conditions of Exhibit D prior to the initial
underwritten public offering of the Shares.
11.2 Right of REIT to Assume. Notwithstanding the provisions
of Section 11.1, the REIT may, in its sole and absolute discretion, assume and
directly satisfy a Redemption Right. Upon satisfaction of the Redemption Right,
the REIT shall acquire the Partnership Units specified in the Redemption Notice
and shall be treated for all purposes of this Agreement as the owner of such
Partnership Units. In the event the REIT exercises its right to satisfy the
Redemption Right in the manner described in the preceding sentence, the
Partnership shall have no obligation to pay any amount to the Redeeming Partner
with respect to such Redeeming Partner's exercise of the Redemption Right, and
each of the Redeeming Partner, the Partnership, and the REIT shall treat the
transaction between the REIT and the Redeeming Partner as a sale of the
Redeeming Partner's Partnership Units to the REIT for federal income tax
purposes. Each Redeeming Partner agrees to execute such documents as the REIT
may reasonably require in connection with the issuance of Shares upon exercise
of the Redemption Right.
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<PAGE> 34
ARTICLE XII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
12.1 Amendments.
(a) Except as provided in paragraphs (b) and (c) of this
Section 12.1, this Agreement may not be amended unless such amendment is
approved by the General Partner and Limited Partners holding a majority of the
Partnership Units held by the Limited Partners.
(b) Notwithstanding Section 12.1(a), the General Partner shall
have the power, without the consent of any of the Limited Partners, to amend
this Agreement as may be required to facilitate or implement any of the
following purposes:
(1) to add to the obligations of the General Partner
or surrender any right or power granted to the General Partner or any Affiliate
of the General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution,
termination, or withdrawal of Partners in accordance with this Agreement;
(3) to reflect a change that does not adversely
affect the Limited Partners in any material respect, or to cure any ambiguity,
correct or supplement any provision in this Agreement that is not inconsistent
with law or with other provisions of this Agreement; and
(4) to satisfy any requirements, conditions, or
guidelines contained in any order, directive, opinion, ruling or regulation of a
federal or state agency or contained in federal or state law.
The General Partner will provide notice to the Limited Partners promptly after
any action under this Section 12.1(b) is taken, other than amendments under
Section 12.1(b)(2).
(c) Notwithstanding Section 12.1(a) hereof, this Agreement
shall not be amended without the consent of each Partner adversely affected if
such amendment would (i) convert a Limited Partner's interest in the Partnership
into a general partner's interest, (ii) modify the limited liability of a
Limited Partner, (iii) alter rights of the Partners to receive allocations and
distributions pursuant to Articles V or VI hereof (except as permitted pursuant
to Paragraph 5 of Exhibit B, Section 4.6 and Section 12.1(b)(3) hereof), (iv)
prior to any initial public underwritten offering of the Shares, alter or modify
the Redemption Rights set forth in Article XI hereof and Exhibit D hereto, or
(v) amend this Section 12.1(c).
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<PAGE> 35
ARTICLE XIII
MEETINGS OF THE PARTNERS
13.1 Call of a Meeting.
(a) Meetings of Partners may be called by the General Partner
and shall be called upon the receipt by the General Partner of a written request
by Limited Partners holding 25 percent or more of the Partnership Units. The
call shall state the nature of the business to be transacted. Notice of any such
meeting shall be given to all Partners not less than seven (7) and not more than
thirty (30) days prior to the date of such meeting. Partners may vote in person
or by proxy at such meeting. Whenever the vote or Consent of Partners is
permitted or required under this Agreement, such vote or Consent may be given at
a meeting of Partners or as provided for in Section 13.2.
13.2 Written Consent. Any action required or permitted to be
taken at a meeting of the Partners may be taken without a meeting if a written
consent setting forth the action so taken is signed (in counterpart or
otherwise) by Partners holding a majority of the Percentage Interests of the
Partners (or such other percentage as is expressly required by this Agreement).
Such consent may be in one instrument or in several instruments, and shall have
the same force and effect as a vote of a majority of the Percentage Interests of
the Partners (or such other percentage as is expressly required by this
Agreement). Such consent shall be filed with the General Partner.
13.3 Proxy. Each Limited Partner may authorize any Person or
Persons to act for it by proxy on all matters in which a Limited Partner is
entitled to participate, including waiving notice of any meeting, or voting or
participating at a meeting. Every proxy must be signed by the Limited Partner or
its attorney-in-fact. No proxy shall be valid after the expiration of 11 months
from the date thereof unless otherwise provided in the proxy. Every proxy shall
be revocable at the pleasure of the Limited Partner executing it.
ARTICLE XIV
GENERAL PROVISIONS
14.1 Notices. All notices, requests, reports or other
communications required or permitted to be given to a Partner or Assignee
pursuant to this Agreement shall be in writing and may be personally served,
telecopied or sent by first class United States mail and shall be deemed to have
been given when delivered in person, upon receipt of telecopy, one Business Day
after deposit in the overnight mail or other next day delivery service or three
business days after deposit in United States mail, postage prepaid, and properly
addressed to the appropriate party. For purposes of this Section 14.1, the
addresses of the parties hereto shall be as set forth
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<PAGE> 36
in the Partnership's records. The address of any party hereto may be changed by
a notice in writing given in accordance with the provisions hereof to the
General Partner.
14.2 Controlling Law. This Agreement and all questions
relating to its validity, interpretation, performance and enforcement
(including, without limitation, provisions concerning limitations of actions),
shall be governed by and construed in accordance with the laws of the State of
Delaware, notwithstanding any conflict-of-laws doctrines of such state or other
jurisdiction to the contrary.
14.3 Execution in Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an original
and all of which shall together constitute one and the same instrument. Each
party shall become bound by this Agreement immediately upon affixing its
signature hereto.
14.4 Provisions Separable. The provisions of this Agreement
are independent of and separable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that for any
reason any other provision may be invalid or unenforceable in whole or in part.
14.5 Entire Agreement. This Agreement contains the entire
understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or written,
except as herein contained. The express terms hereof control and supersede any
course of performance and/or usage of the trade inconsistent with any of the
terms hereof. This Agreement may not be modified or amended other than by an
agreement in writing.
14.6 Titles and Captions. The Article and Section headings in
this Agreement are for convenience only; they form no part of this Agreement and
shall not affect its interpretation.
14.7 Pronouns and Plurals. Whenever the context may require,
any pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter form and the singular form of nouns, pronouns and verbs shall
include the plural and vice versa.
14.8 Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday or holiday on which federal banks are or may
elect to be closed, then the final day shall be deemed to be the next day which
is not a Saturday, Sunday or such holiday.
14.9 Assurances. Each of the Partners shall hereafter execute
and deliver such further instruments and do such further acts and things as may
be required or useful to carry out the intent and purpose of this Agreement.
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<PAGE> 37
14.10 Binding Effect. This Agreement shall be binding upon an
inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted assigns.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement or caused this Agreement to be executed on their behalf as of the date
first above written.
GENERAL PARTNER:
STRATEGIC TIMBER OPERATING CO.
By: /s/
-------------------------------------
Title: V. P.
----------------------------------
LIMITED PARTNERS:
STRATEGIC TIMBER TRUST, INC.
By: /s/
-------------------------------------
Title: V. P.
----------------------------------
LOUISIANA TIMBER PARTNERS, LLC
By: /s/
-------------------------------------
Title: Manager
----------------------------------
33
<PAGE> 38
EXHIBIT A
PARTNERS' CONTRIBUTIONS AND INTERESTS
<TABLE>
<CAPTION>
Agreed Value
Name/Address Cash of Contributed Total Partnership Percentage
of Partner Contribution Property Contribution Units Interest
---------- ------------ -------- ------------ ----- --------
<S> <C> <C> <C> <C> <C>
General Partner
---------------
Strategic Timber $1,080,000 -- $1,080,000 Class A 1.00%
Operating Co. 255
5 N. Pleasant Street
New London, NH 03257
Limited Partners
----------------
[the REIT] $88,920,000 -- $88,920,000 Class A 79.39%
5 N. Pleasant Street 20,245
New London, NH 03257
Louisiana Timber -- $5,000,000 $5,000,000 Class B 1.96%
Partners, LLC 500
999 Peachtree Street
Atlanta, GA 30309
Louisiana Timber -- $45,000,000 $45,000,000 Class C 17.65%
Partners, LLC 4,500
999 Peachtree Street
Atlanta, GA 30309
----------- ----------- ------------ ------ ---
Total $90,000,000 $50,000,000 $140,000,000 25,500 100%
</TABLE>
<PAGE> 39
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
1. Capital Account of the Partners. The Partnership shall maintain for
each Partner, a separate Capital Account in accordance with the rules of
Regulation Section 1.704-1(b)(2)(iv). Such Capital Account shall be increased by
(i) the amount of all Capital Contributions made by such Partner to the
Partnership pursuant to this Agreement and (ii) all items of Partnership income
and gain (including income and gain exempt from tax), computed in accordance
with Paragraph 2 of this Exhibit B and allocated to such Partner pursuant to
Section 6.1(a) of this Agreement and Exhibit C hereof, and decreased by (x)
the amount of cash or fair market value of any property (net of liabilities)
distributed to such partner pursuant to this Agreement and (y) items of
Partnership deduction and loss, computed in accordance with Paragraph 2 of this
Exhibit B and allocated to such Partner pursuant to Section 6.1(b) of the
Agreement and Exhibit C hereof.
2. Computation of Net Income or Net Loss. For each fiscal year or
other applicable period, the Net Income or Net Loss shall be an amount equal to
the Partnership's net income or loss for such year or period as determined for
federal income tax purposes by the Accountants, in accordance with section
703(a) of the Code. For this purpose, all items of income, gain, loss or
deduction required to be stated separately pursuant to Code section 703(a)
shall be included in taxable income or loss. The following adjustments shall
then be made:
(a) include as an item of gross income any tax-exempt income
received by the Partnership;
(b) any expenditure of the Partnership described in section
705(a)(2)(B) of the Code shall be treated as a deductible expense;
(c) in lieu of depreciation, depletion, amortization, and
other cost recovery deductions taken into account in computing Net Income or Net
Loss, there shall be taken into account Depreciation and Depletion;
(d) gain or loss resulting from any disposition of Partnership
property with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Gross Asset Value of such
property as adjusted for Depreciation and Depletion rather than its adjusted tax
basis; and
(e) in the event of an adjustment to the Gross Asset Value of
any Partnership asset, as provided for in subparagraphs (b), (c) and (d) of
Paragraph 3 of this Exhibit B, that also requires the Capital Accounts of the
Partnership to be adjusted pursuant to Regulation Section 1.704-1(b)(2)(iv)(e),
(f) and (m), the amount of such adjustment is to be taken into account as an
additional item of income or deduction, as is applicable.
<PAGE> 40
(f) Once an item of income, gain, loss or deductions is
included in the initial computation of Net Income or Net Loss but is then
subjected to the special allocation rules in Exhibit C, Net Income or Net Loss
shall be recomputed without regard to such item.
3. Contributed Property and Adjustments to Value.
With respect to any asset of the Partnership, the Gross Asset Value of
such asset shall be such asset's adjusted basis for Federal income tax purposes,
except as follows:
(a) the initial Gross Asset Value of any asset (other than cash)
contributed by a Partner to the Partnership shall be the gross fair
market value of such asset at the time of its contribution as
reasonably determined by the General Partner and as reflected in the
books and records of the Partnership as the "Agreed Value of
Contributed Property";
(b) if the General Partner reasonably determines that an
adjustment is necessary or appropriate to reflect the relative economic
interests of the Partners, the Gross Asset Values of all Partnership
assets shall be adjusted to equal their respective gross fair market
values, as reasonably determined by the General Partner, as of the
following events:
(x) immediately prior to a Capital Contribution (other
than a de minimis Capital Contribution) to the Partnership by
a new or existing Partner as consideration for a Partnership
Interest;
(y) immediately prior to the distribution by the
Partnership to a Partner of more than a de minimis amount of
Partnership property as consideration for the redemption of a
Partnership Interest; and
(z) immediately prior to the liquidation of the
Partnership within the meaning of the Regulations under Code
section 704(b);
(c) in accordance with Regulations Section 1.704-1(b)(2)(iv)(e),
the Gross Asset Values of Partnership Assets distributed in kind shall
be adjusted upward or downward to reflect any unrealized gain or loss
attributable to such Partnership property, as of the time any such
asset is distributed;
(d) the Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Sections 734(b) or 743(b) of the Code,
but only to the extent that such adjustments are taken into account in
determining Capital Accounts pursuant to the Regulations under Code
section 704(b); provided, however, that Gross Asset Values shall not be
adjusted pursuant to this paragraph to the extent that the General
Partner reasonably determines that an adjustment pursuant to paragraph
<PAGE> 41
(b) above is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to
this paragraph (d).
4. Periodic Adjustments to Gross Asset Value. As of the end of
each fiscal year or other computation period, Gross Asset Values shall be
adjusted by any Depletion or Depreciation taken into account with respect to the
Partnership's assets for purposes of computing Net Income and Net Loss.
5. Overriding Principles. The provisions of the Agreement
(including this Exhibit B and the other exhibits to this Agreement), relating to
the maintenance of capital accounts and allocations are intended to comply with
Regulation Section 1.704-1(b) and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the General Partner shall
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits thereto are computed in order to comply with such
Regulations, the General Partner may make such modifications, provided that such
modification is not likely to have a material adverse effect on the amounts
distributable to any Partner or Assignee, pursuant to Article VIII of this
Agreement, upon dissolution of the Partnership. The General Partner also shall
(i) make any adjustments that are necessary or appropriate to maintain equality
between the Capital Accounts of the Partners and the amount of Partnership
Capital reflected on the Partnership's balance sheet, as computed for book
purposes, in accordance with Regulation Section 704.-1(b)(2)(iv)(q), and (ii)
make any appropriate modifications if unanticipated events might otherwise cause
this Agreement not to comply with Regulation Section 1.704-1(b).
<PAGE> 42
EXHIBIT C
SPECIAL ALLOCATION RULES
Notwithstanding the provisions of Section 6.1 of the Agreement, the
Special Allocation Rules of this Exhibit C are controlling as to the allocation
of any items of Partnership income, gain, loss and deduction.
1. Definitions. The following terms shall, for purposes of this
Exhibit C and the Agreement, have the meanings set forth below:
"Adjusted Capital Account Deficit" shall mean, with respect to
any Partner, the deficit balance, if any, in such Partner's Capital Account as
of the end of any relevant fiscal year and after giving effect to the following
adjustments:
(a) credit to such Capital Account any amounts which such
Partner is obligated or treated as obligated to restore with
respect to any deficit balance in such Capital Account
pursuant to Section 1.704-1(b)(2)(ii)(c) of the Regulations,
or is deemed to be obligated to restore with respect to any
deficit balance pursuant to the penultimate sentences of
Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations;
and
(b) debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4),(5) and (6) of the
Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the requirements of the alternate test for economic effect contained
in Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted
consistently therewith.
"Nonrecourse Deductions" shall have the meaning set forth in
Sections 1.704-2(b)(1) and (c) of the Regulations.
"Nonrecourse Liabilities" shall have the meaning set forth in
Section 1.704-2(b)(3) of the Regulations.
"Partner Minimum Gain" shall mean "partner nonrecourse debt
minimum gain" as determined in accordance with Regulation Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" shall have the meaning set
forth in Section 1.704-2(i)(2) of the Regulations.
"Partnership Minimum Gain" shall have the meaning set forth in
Section 1.704-2(b)(2) of the Regulations.
<PAGE> 43
"Regulatory Allocations" shall mean the allocations required
by the Regulations under Code section 704(b) in order for allocations to be
deemed to have "economic effect" within the meaning of Code section 704(b) and
as provided for in subparagraphs (a) through (e) of Paragraph 2 of this Exhibit
C.
2. Special Allocations.
Notwithstanding any other provisions of the Agreement, the following
special allocations shall be made prior to any allocation under Section 6.1 of
the Agreement and in the following order:
(a) Minimum Gain Chargeback. If there is a net decrease in
Partnership Minimum Gain for any Partnership fiscal year (except as otherwise
provided in Regulation Section 1.704-2)), each Partner shall be specially
allocated items of Partnership income and gain for such year (and, if necessary,
subsequent years) in an amount equal to that Partner's share of the net decrease
in Partnership Minimum Gain. The items to be so allocated shall be determined in
accordance with Regulation Section 1.704-2(f). This paragraph (a) is intended to
comply with the minimum gain chargeback requirement of Regulation Section
1.704-2 and shall be interpreted consistently therewith. Allocations pursuant to
this paragraph (a) shall be made in proportion to the respective amounts
required to be allocated to each Partner pursuant to the Regulations.
(b) Partner Minimum Gain. If there is a net decrease in Partner
Minimum Gain during any fiscal year (except as otherwise provided in Regulation
Section 1.704-2(i)(4)), each Partner shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent years)
in an amount equal to the Partner's share of the net decrease in Partner Minimum
Gain, if any. The items to be so allocated shall be determined in accordance
with Regulation Section 1.704-2(i)(4) and (j)(2). This paragraph (b) is intended
to comply with the minimum gain chargeback requirement with respect to Partner
Nonrecourse Debt contained in the Regulations and shall be interpreted
consistently therewith. Allocations pursuant to this paragraph (b) shall be made
in proportion to the respective amounts required to be allocated to each Partner
pursuant to the Regulations.
(c) Qualified Income Offset. In the event a Partner unexpectedly
receives any adjustments, allocations or distributions described in Regulation
Section 1.704-1(b)(2)(ii)(d)(4),(5), or (6), and such Limited Partner has an
Adjusted Capital Account Deficit, items of Partnership income and gain shall be
specially allocated to such Partner in an amount and manner sufficient to
eliminate the Adjusted Capital Account Deficit as quickly as possible. This
paragraph (c) is intended to constitute a "qualified income offset under
Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently
therewith.
<PAGE> 44
(d) Nonrecourse Deductions. Nonrecourse Deductions for any fiscal
year or other applicable period shall be allocated to the Partners in accordance
with their respective Percentage Interests.
(e) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions
for any fiscal year or other applicable period shall be specially allocated to
the Partner that bears the economic risk of loss for the debt (i.e., the
Partner Nonrecourse Debt) as to which such Partner Nonrecourse Deductions are
attributable, as determined under Regulation Section 1.704-2(b)(4) and (i)(1)).
(f) Curative Allocations. The Regulatory Allocations shall be
taken into account in allocating other items of income, gain, loss, and
deduction among the Partners so that, to the extent possible, the cumulative net
amount of allocations of Partnership items under the Regulatory Allocations and
Section 6.1 of the Agreement shall be equal to the net amount that would have
been allocated to each Partner if the Regulatory Allocations had not occurred.
This subparagraph (f) is intended to minimize, to the extent possible, any
economic distortions which may result from application of the Regulatory
Allocations and shall be interpreted in a manner consistent therewith.
3. Tax Allocations.
(a) Generally. Except as provided in subparagraph (b) hereof,
items of income, gain, loss, deduction and credit-to be allocated for income tax
purposes (collectively, "Tax Items") shall be allocated among the Partners in
the same proportion as the corresponding book items (within the meaning of the
Code section 704(b) Regulations).
(b) Allocations Respecting Section 704(c) and Revaluations.
Notwithstanding paragraph (a) hereof, Tax items that relate to Partnership
property that is subject to Code section 704(c) (contributed property having a
fair market value different from its tax basis) and/or revalued pursuant to
Regulation Section 1.704-1 (b)(2)(iv)(f) (collectively "Section 704(c) Tax
Items") shall be allocated in accordance with said Code section 704(c) and
Regulation Section 1.704-3. The General Partner is authorized to select the
method under Regulation Section 1.704-3 for the allocation of Section 704(c) Tax
items.
4. Excess Nonrecourse Liabilities.
The "excess nonrecourse liabilities" of the Partnership (within the
meaning of Regulation Section 1.752-3(a)(3)) shall be allocated among the
Partners in accordance with the Partners' Percentage Interests.
<PAGE> 45
EXHIBIT D
TERMS OF THE RIGHTS OF THE CLASS B
AND CLASS C PARTNERSHIP UNITS
1. Definitions. In addition to terms defined in Section 1.1 of
the Agreement, the following terms shall, for purposes of this Exhibit and the
Agreement, have the meanings set forth below:
"Bel Ouatre Property" means the approximate 88,000 acres of
timberland in Louisiana acquired by the Partnership as a result of LTP's
contribution of contract rights to the Partnership.
"Conversion Factor" means one. From and after the IPO, the
total number of issued and outstanding Partnership Units will be adjusted to
equal the number of REIT Shares that would be issued and outstanding if all the
Class B Partnership Units were converted to Shares on a one for one basis, as
further provided for in Section 4.7 of the Agreement.
"IPO" means the REIT's initial underwritten offering of its
Shares to the public pursuant to an effective registration statement filed with
the SEC.
"IPO Deadline" means midnight Eastern time on December 31,
1998.
"LTP" means Louisiana Timber Partners, LLC.
"Redemption Amount" means the consideration paid or issued
upon the redemption of a Class B or Class C Partnership Unit.
"Redemption Notice" means a Notice issued by the Class B
Limited Partner, in which such Limited Partner elects the redemption of some or
all of its Class B Partnership Units in accordance with the terms of
Section 11.1 of the Agreement and this Exhibit D.
"Securities Laws" means the federal and state laws (including
the rules and regulations thereunder and the judicial and administrative
interpretations thereof) regulating the sale of securities including, without
limitation, the Securities Act of 1933, as amended; the Securities and Exchange
Act of 1934, as amended; State Blue Sky Laws; and the rules and regulations of
any stock exchange on which the Shares are listed for trading.
"Share Value" means, with respect to a Share, the average of
the daily market price for the ten (10) consecutive trading days immediately
preceding the date on which a
<PAGE> 46
Redemption Notice is received by the General Partner. The market price for each
such trading day shall be: (i) if the Shares are listed or admitted to trading
on any securities exchange or the Nasdaq Stock Market, the closing price on such
day, or if no such sale takes place on such day, the average of the closing bid
and asked prices on such day, or (ii) if the Shares are not listed or admitted
to trading on any securities exchange or the Nasdaq Stock Market, the last
reported sale price on such day or, if no sale takes place on such day, the
average of the closing bid and asked prices on such day, as reported by a
reliable quotation source designated by the General Partner.
"Underwriter" means the lead managing underwriter for the IPO.
2. Redemption Rights Prior to the IPO. Prior to the IPO, LTP
shall not have the right to exercise its Redemption Rights with respect to any
of its Partnership Units, except as provided in this Exhibit D.
3. Redemption Rights At and Following IPO.
(a) The Redemption Rights of LTP in connection with an IPO shall
be subject to the terms and conditions of this Exhibit D rather than Article 11.
(b) LTP shall not have the right to exercise its Redemption Rights
for the Class B Partnership Units at any time prior to the one-year anniversary
of the Agreement. As soon as possible, LTP and the Partnership will execute a
Registration Rights And Lock-Up Agreement ("Registration Agreement") to
definitively define the restrictions imposed by the Securities Laws and the
Underwriter on any Shares that may be issuable to LTP.
(c) Effective as of the closing of the IPO, all of the Class C
Units will be automatically redeemed by the Partnership. The aggregate
Redemption Amount for the Class C Partnership Units will be $45,000,000, payable
in the form of consideration specified in this Paragraph 3(c). On or before the
30th day before the REIT intends to file a registration statement with the SEC
with respect to the IPO, the General Partner shall provide LTP with a Notice of
such intent. No later than 15 days after such Notice, LTP may elect to notify
the General Partner of its preference as to one of the following forms of
consideration for the Redemption Amount of the Class C Partnership Units: (i)
cash; (ii) Class B Partnership Units, with the maximum number of Class B
Partnership Units being determined by dividing $45,000,000 by the initial price
to the public of a Share in the IPO; or (iii) a combination of cash and Class B
Partnership Units, the aggregate value of which equals $45,000,000. The General
Partner will attempt to honor in good faith the preference stated by LTP as to
the form of the Redemption Amount, subject to the constraints suggested or
imposed by the Underwriter. If LTP fails to timely provide a Notice of its
preference to the General Partner, all of the Class C Partnership Units will be
converted to Class B Partnership Units in accordance with the formula stated in
clause (ii) of this Paragraph 3(c).
(d) The Redemption Amount for a Class B Partnership Unit will be
the Share Value multiplied by the Conversion Factor. At the option of the
Partnership, or the REIT to the
2
<PAGE> 47
extent that it has assumed the Redemption Right, the Redemption Amount of a
Class B Partnership Unit will be paid in one of the following forms: (i) cash;
(ii) Shares, as determined by multiplying the number of Class B Partnership
Units specified in the Redemption Notice by the Conversion Factor; or (iii) a
combination of cash and Shares having an aggregate value equal to the Share
Value multiplied by the number of Class B Partnership Units specified in the
Redemption Notice multiplied by the Conversion Factor. With respect to any
Shares issued in redemption of Class B Partnership Units, the Company shall,
subject to the requirements of applicable Securities Laws and the provisions of
the Registration Agreement, either (x) file a registration statement covering
the conversion of Class B Partnership Units into Shares, so that the Shares
received are registered under the Securities Act of 1933, or (y) file a
registration statement with respect to the resale of the Shares to be so issued,
so that the resale of such Shares into the public market is registered under the
Securities Act of 1933, and in either case will use its reasonable efforts to
cause such registration statement to be declared effective promptly following
the first date on which the Class B Partnership Units may be redeemed for
Shares; provided that in no event shall a holder of Class B Partnership Units be
required to accept Shares in redemption for his or its Class B Partnership Units
unless such Shares have been, or can within a reasonable time be, registered as
provided in (x) or (y) above, or such Shares are, in the opinion of counsel to
the Company, immediately salable in the public market pursuant to an exemption
from registration (such as Rule 144 under the Securities Act).
4. Put/Call.
(a) If on or before the IPO Deadline: (i) a registration statement
for the IPO has not been filed with the SEC, or (ii) the General Partner has not
otherwise secured funding for the redemption of LTP's Partnership Interest for
$50 million in a manner that is consistent with the Financing Documents, LTP
shall have the right to put its Partnership Interest to the REIT and the REIT
shall have a call right on LTP's Partnership Interest. The exercise price of the
put and the call shall be $50,000,000, plus 8 1/2% per annum simple interest
from and after the date that a Notice of put or call is given until such amount
is paid ("Exercise Price"). Any purchase and sale effectuated pursuant to this
Paragraph 4(a) shall be completed on or before the later of April 30, 1999 or 30
days following the date that a put or call Notice is given and shall be
subject to the customary representations and warranties by a seller in such a
transaction. LTP's right to put its Partnership Interest to the REIT expires
upon the filing of a registration statement with the SEC for the IPO.
(b) From and after the issuance of a Notice of a put or call, LTP
shall not be entitled to any further distributions from the Partnership other
than a priority distribution from the net proceeds of the sale of the Bel Quatre
Property in an amount equal to the Exercise Price, which amount, when
distributed, shall be in full satisfaction and liquidation of all of LTP's
rights in or against the Partnership; provided, however, any such distribution
shall be subject to any terms and conditions imposed by the lenders under the
Financing Documents.
(c) If the REIT is unable to pay the Exercise Price on or before
the later of April 30, 1999 or 30 days after a put or call Notice is given, LTP
shall have the exclusive right to
3
<PAGE> 48
market the Bel Quatre Property for sale on such terms and conditions as LTP
elects, in its sole discretion, subject solely to the Financing Documents.
5. Major Decisions. Prior to the IPO and notwithstanding anything
to the contrary in the Agreement, the following actions will require the Consent
of LTP, which Consent shall not be unreasonably withheld:
(i) Selection of four candidates to be the forest manager for the Bel
Quatre Property from which the General Partner shall select the company
to act as the forest manager; provided, however, a forest management
company not included on the original list of candidates may be chosen
by the General Partner with the Consent of LTP.
(ii) A sale of any portion of the Bel Quatre Property, if the selling
price is $3,000,000 or more.
(iii) A cutting contract for the Bel Quatre Property if: (A) the
contract would permit harvest in periods extending beyond April 30,
1999, or (B) the contract provides that the dollar value of the timber
to be cut under such contract would exceed $5,000,000.
The Consent rights of LTP contained in this Paragraph 5 terminate at the closing
of the IPO.
6. Limitation on Class B and Class C Rights. The Redemption
Rights, the put right and the other rights granted to the Class B and Class C
Limited Partners and the REIT's obligations or required performance in
connection with the exercise or enforcement of any such rights are expressly
subject to the terms and provisions of the Financing Documents and any
limitations or restrictions that may be contained therein. To the extent that
the provisions of the Agreement are inconsistent with the provisions contained
in this Exhibit D, the terms and conditions of Exhibit D will control.
7. Transfer by LTP. For purposes of Article IX of the Agreement,
after the IPO, the General Partner will be deemed to have consented to LTP's
assignment of any of the Partnership Units that it holds to its members or any
of their respective Affiliates, as defined in the Agreement, and the
substitution of such Persons as Limited Partners, subject to any contractual
restrictions to which LTP is a party.
4
<PAGE> 1
EXHIBIT 3.5.3
FIRST AMENDMENT
TO
FIRST AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF
STRATEGIC TIMBER PARTNERS, LP
THIS Agreement of Amendment is made and entered into as of the 9th day
of October 1998 by and among Strategic Timber Operating Co. ("General Partner"),
Strategic Timber Trust, Inc. ("REIT"), and Louisiana Timber Partners, LLC
("LTP"), who are all of the partners of Strategic Timber Partners, LP, a
Delaware limited partnership (the "Partnership").
RECITALS
On April 21, 1998, the General Partner and the REIT, as the sole
limited partner, (collectively the "Original Partners") formed Strategic Timber
Partners, LP as a limited partnership under the Revised Uniform Limited
Partnership Act of the State of Delaware pursuant to the Certificate and
Agreement of Limited Partnership of Strategic Timber Partners, LP, dated as of
April 21, 1998.
On April 23, 1998, LTP was admitted as a Class B and Class C Limited
Partner in consideration of the contribution to capital of the Partnership
specified in that certain Contribution Agreement by and among the Partnership,
the General Partner, the REIT and LTP and executed the First Amended and
Restated Agreement of Limited Partnership of Strategic Timber Partners, LP
("Partnership Agreement.")
<PAGE> 2
In order to better reflect the intent of the parties with respect to
the rights of LTP and for other reasons, the parties hereto desire to amend the
Partnership Agreement in accordance with the terms set forth herein:
Capitalized terms used in this Agreement shall have the same meaning as
stated in the Partnership Agreement, unless provided to the contrary herein.
For and in consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
acknowledged, the parties agree as follows:
1. Amendments.
A. The definition of "REIT Expenses" appearing in Section 1.1
of the Partnership Agreement is hereby amended and restated as follows:
"REIT Expenses" mean the Partnership's allocable share, as
determined under Section 7.2(b) of this Agreement, of the
following expenses: (i) the costs and expenses relating to any
offer or registration of securities by the REIT and all
statements, reports, fees and expenses incidental thereto,
including underwriting discounts and selling commissions
applicable to any such offer of securities, (ii) costs and
expenses associated with compliance by the REIT with
laws, rules and regulations promulgated by any regulatory
body,
2
<PAGE> 3
including the SEC, and (iii) all other operating or
administrative costs of the General Partner, the REIT and its
subsidiaries reasonably allocable to the Partnership that are
incurred in the ordinary course of its business on behalf of
the Partnership, including without limitation reasonable
salaries for the officers and employees of Strategic Timber
Two Operating Co., LLC. The reimbursement of REIT Expenses
shall not constitute a distribution under Article V of this
Agreement.
B. Section 7.2(b) of the Partnership Agreement is hereby
amended by adding the following sentence at the end of such paragraph:
All operating or administrative costs of the General Partner,
the Partnership and their Affiliates shall be apportioned
among the various entities in a reasonable manner based upon
the services provided to the respective entities.
C. Paragraph 1 of Exhibit D is amended by amending and
restating the definition of IPO as follows:
"IPO" means any one or more of the following: (i) the REIT's
initial underwritten offering of its Shares to the public
pursuant to a registration statement that has been declared
effective by the SEC, or (ii) the Partnership having obtained
subscription agreements from equity investors, with
3
<PAGE> 4
adequate net worth to fund their subscriptions, in a private
placement of Partnership Units, or (iii) a public offering of
debt securities by the Partnership pursuant to a registration
statement that has been declared effective by the SEC, if any
one or more of such events will result in minimum net proceeds
of at least $210,000,000.
D. Paragraph 1 of Exhibit D is amended by adding the following
definition:
"IPO Closing" means consummation of any one or more of the
following: (i) the sale of Shares by the REIT in the IPO
including receipt of the consideration, or (ii) the funding
by the investors of their equity contribution to the
Partnership pursuant to a private placement of securities, or
(iii) a public offering of debt securities by the Partnership,
if any one or more of such events results in minimum net
proceeds of at least $210,000,000.
E. Paragraph 4 of Exhibit D is amended and restated as
follows:
2. Put/Call.
(a) If on or before the IPO Deadline, (i) one or more of the
events listed in the definition of IPO has not occurred, or (ii) the
General Partner has not otherwise secured funding for the redemption of
LTP's Partnership
4
<PAGE> 5
Interest for $50 million in a manner that is consistent with the
Financing Documents, LTP shall have the right to put its Partnership
Interest to the REIT and the REIT shall have a call right on LTP's
Partnership Interest. The exercise price of the put and the call shall
be $50,000,000, plus 8 1/2% per annum simple interest from and after
the date that a Notice of put or call is given until such amount is
paid ("Exercise Price"). Any purchase and sale effectuated pursuant to
this Paragraph 2(a) shall be completed on or before the later of April
30, 1999 or 30 days following the date that a put or call Notice is
given and shall be subject to the customary representations and
warranties by a seller in such a transaction. However, if, on or before
the IPO Deadline, either a registration statement for the sale of
Shares has been completed and filed with the SEC, or a private
placement memorandum for the sale of Partnership Interests has been
completed and submitted to potential investors, and all material steps
necessary or desirable to effect the offering of such Shares or
Partnership Interests, as the case may be, are undertaken by the REIT
or the Partnership in good faith and the REIT and the Partnership are
diligently proceeding toward completion of the IPO or private
placement, taking into account existing market conditions, then LTP's
right to put its Partnership Interest will be tolled during the period
of either of such offerings; provided, however, if either of such
offerings has not been completed and the proceeds received with respect
thereto, on or before June 20, 1999, then LTP will once again have the
right to put its Partnership Interest to the REIT in accordance with
the provisions of this paragraph 4(a).
5
<PAGE> 6
During the period of either of such offerings, the General Partner
shall regularly consult with LTP regarding the status of such offering,
and, in the event the General Partner reasonably believes, on the basis
of market response to such offerings, that the IPO Closing will take
place within a reasonable period of time (not to exceed September 30,
1999), the General Partner may request a further extension of the Put
Deadline, and LTP agrees to consider any such extension reasonably and
in good faith. Upon any such put by LTP, the purchase and sale of LTP's
Partnership Interest will be completed upon the later to occur of June
30, 1999 or ten (10) days after the date that LTP provides notice of
such put to the REIT. The date upon which the REIT is obligated to
consummate the purchase of LTP's Partnership Interest pursuant to the
exercise of LTP's put right is hereinafter referred to as the "Put
Deadline".
(b) From and after the issuance of a Notice of a put, the
Partnership shall not make any further distributions from the
Partnership (except for distributions necessary to pay debt service
under any of the Financing Documents) unless the partners otherwise
agree or LTP has assumed responsibility for the marketing of the
Property pursuant to Section 2(c) hereof.
(c) If the REIT is unable to pay the Exercise Price on or
before the applicable Put Deadline, LTP shall have the exclusive right
to market the
6
<PAGE> 7
Bel Quatre Property for sale on such terms and conditions as LTP
elects, in its sole discretion, subject solely to the Financing
Documents or refinance the indebtedness evidenced and secured by the
Financing Documents. In that event, the REIT, the General Partner, and
any of their Affiliates will execute and deliver all documents
requested by LTP that may be necessary or appropriate, as determined in
the sole judgment of LTP, in connection with such sale or refinancing
of the Bel Quatre property.
(d) Once LTP has assumed responsibility for marketing the Bel
Quatre Property pursuant to paragraph 2(c) of this Exhibit D, all funds
realized from a sale or refinance of the Bel Quatre Property will,
after payment of the indebtedness evidenced by the Financing Documents,
be paid solely and exclusively to LTP.
3. Continuation. Except as specifically modified and amended herein,
the Partnership Agreement shall be and remain in full force and effect in
accordance with its terms, all of which are expressly ratified and confirmed.
4. Counterparts. This Amendment may be signed in multiple counterparts,
each of which shall be deemed an original.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have set their hands and seals, the day
and year written above.
GENERAL PARTNER:
STRATEGIC TIMBER OPERATING CO.
By: /s/ Joseph E. Rendini
------------------------------
Title: Vice President
------------------------------
LIMITED PARTNERS:
STRATEGIC TIMBER TRUST, INC.
By: /s/ Joseph E. Rendini
------------------------------
Title: Vice President
------------------------
LOUISIANA TIMBER PARTNERS, LLC
By: /s/ Larry Woodard
------------------------------
Title: Manager
------------------------
8
<PAGE> 1
EXHIBIT 3.5.4
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
STRATEGIC TIMBER PARTNERS, LP
DATED AS OF
_________, 1999
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TABLE OF CONTENTS
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ARTICLE I.........................................................................................................2
Definitions..............................................................................................2
1.1 Definitions............................................................................2
ARTICLE II........................................................................................................9
Organization of Partnership..............................................................................9
2.1 Organization...........................................................................9
2.2 Name...................................................................................9
2.3 Location of Principal Place of Business................................................9
2.4 Registered Agent and Registered Office................................................10
2.5 Term..................................................................................10
ARTICLE III......................................................................................................10
Purpose and Powers......................................................................................10
3.1 Purpose and Business..................................................................10
3.2 Powers................................................................................10
ARTICLE IV.......................................................................................................11
Capital Contributions...................................................................................11
4.1 Capital Contributions, Partnership Interests and Percentage Interests of
Partners..............................................................................11
4.2 Issuances of Additional Partnership Interests.........................................11
4.3 Contribution of Proceeds of Issuance of REIT Shares...................................12
4.4 No Third Party Beneficiaries..........................................................12
4.5 No Interest on or Return of Capital Contributions.....................................13
4.6 Loans to Partnership..................................................................13
4.7 Incentive Plan........................................................................13
ARTICLE V........................................................................................................13
Distributions...........................................................................................13
5.1 Distributions. ......................................................................13
5.2 Amounts Withheld......................................................................14
5.3 Distributions Upon Liquidation........................................................14
ARTICLE VI.......................................................................................................14
Allocations and Other Tax and Accounting Matters........................................................14
6.1 Allocations for Capital Account Purposes..............................................14
6.2 Tax Allocations.......................................................................15
6.3 Books of Account......................................................................15
6.4 Reports...............................................................................15
6.5 Tax Elections and Returns.............................................................16
6.6 Tax Matters Partner...................................................................16
6.7 Withholding Payments Required By Law..................................................16
</TABLE>
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<TABLE>
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6.8 Fiscal Year...........................................................................17
ARTICLE VII......................................................................................................17
Rights, Duties and Restrictions of the
General Partner and the REIT...................................................................17
7.1 Powers and Duties of General Partner..................................................17
7.2 Reimbursement of the General Partner and the REIT.....................................19
7.3 Contracts with Affiliates.............................................................20
7.4 Title to Partnership Assets...........................................................20
7.5 Reliance by Third Parties.............................................................20
7.6 Indemnification by Partnership........................................................21
7.7 Liability of the General Partner and the REIT.........................................22
7.8 Other Matters Concerning the General Partner and the REIT.............................24
7.9 Other Activities of the General Partner and the REIT..................................24
ARTICLE VIII.....................................................................................................25
Dissolution, Winding-Up and Liquidation or Combination..................................................25
8.1 Events of Dissolution.................................................................25
8.2 Accounting............................................................................25
8.3 Distribution on Dissolution...........................................................25
8.4 Timing Requirements...................................................................26
8.5. Documentation of Liquidation..........................................................26
ARTICLE IX.......................................................................................................27
Transfer of Partnership.................................................................................27
9.1 Transfer..............................................................................27
9.2 Transfers by the General Partner or the REIT..........................................27
9.3 Transfers by Limited Partners.........................................................27
9.4 Certain Restrictions on Transfer......................................................28
9.5 Effective Dates of Transfers..........................................................29
ARTICLE X........................................................................................................29
Rights and Obligations of the Limited Partners..........................................................29
10.1 No Participation in Management........................................................29
10.2 No Withdrawal.........................................................................29
10.3 Conflicts.............................................................................29
10.4 Provision of Information..............................................................30
10.5 Power of Attorney.....................................................................30
ARTICLE XI.......................................................................................................31
Grant of Certain Rights to Limited Partners.............................................................31
11.1 Grant of Rights.......................................................................31
11.2 Right of REIT to Assume...............................................................32
11.3 Restriction on Redemption.............................................................32
</TABLE>
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<TABLE>
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ARTICLE XII......................................................................................................32
Amendment of Partnership Agreement; Meetings............................................................32
12.1 Amendments............................................................................32
ARTICLE XIII.....................................................................................................34
Meetings of the Partners................................................................................34
13.1 Partner Meetings......................................................................34
13.2 Written Consent.......................................................................34
13.3 Proxy.................................................................................34
ARTICLE XIV......................................................................................................35
Admission of Additional Limited ........................................................................35
14.1 Procedure for Admission...............................................................35
14.2 Allocations and Distribution to Additional Partners...................................35
ARTICLE XV.......................................................................................................35
General Provisions......................................................................................35
15.1 Notices...............................................................................35
15.2 Controlling Law.......................................................................36
15.3 Execution in Counterparts.............................................................36
15.4 Provisions Separable..................................................................36
15.5 Entire Agreement......................................................................36
15.6 Titles and Captions...................................................................36
15.7 Pronouns and Plurals..................................................................36
15.8 Number of Days........................................................................36
15.9 Assurances............................................................................36
15.10 Binding Effect........................................................................36
15.11 Arbitration...........................................................................37
15.12 Exhibits..............................................................................37
</TABLE>
<PAGE> 5
THE LIMITED PARTNERSHIP INTERESTS REFERRED TO IN THIS AGREEMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. REFERENCE IS MADE TO ARTICLE IX OF THIS AGREEMENT FOR PROVISIONS RELATING
TO VARIOUS RESTRICTIONS ON THE SALE OR OTHER TRANSFER OF THESE INTERESTS.
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
STRATEGIC TIMBER PARTNERS, LP
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is
made and entered into as of _________, 1999 by and among the General Partner and
the Limited Partners (as those terms are defined below).
R E C I T A L S:
On April 21, 1998, Strategic Timber Operating Co., ("STOC"), as the
general partner, and Strategic Timber Trust, Inc. ("REIT"), as the limited
partner (collectively the "Original Partners") formed Strategic Timber Partners,
LP, ("Partnership") as a limited partnership under the Revised Uniform Limited
Partnership Act of the State of Delaware pursuant to the Certificate of Limited
Partnership of Strategic Timber Partners, LP, dated as of April 21, 1998
("Original Agreement").
The Original Agreement was amended and restated as the First Amended
and Restated Agreement of Limited Partnership ("Restated Agreement") effective
April 23, 1998 upon the admission of Louisiana Timber Partners and the
Partnership's acquisition of timberland in the State of Louisiana. The Restated
Agreement was further amended by the First Amendment to the Restated Agreement,
effective October 9, 1998.
Immediately preceding the execution and delivery of this Agreement,
Strategic Timber Two Operating Co., LLC, Strategic Timber Trust II, LLC and
Strategic Timber Partners
<PAGE> 6
II, LP were merged into the Partnership, with the Partnership being the
surviving entity. As a result of such merger, the Partnership acquired all of
the outstanding member interests of Pioneer Resources, LLC, which owns
timberlands located in the states of Washington and Oregon.
The parties hereto desire to further amend and restate the Original
Agreement in its entirety in accordance with the terms set forth herein:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration on, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. Except as otherwise expressly provided herein and in
the Exhibits, the following terms and phrases shall have the meanings as set
forth below:
"Accountants" shall mean Arthur Andersen, LLP or such other
nationally recognized accountants as are selected by the General Partner.
"Act" shall mean the Revised Uniform Limited Partnership Act
of the State of Delaware, as the same may hereafter be amended from time to
time.
"Affiliate" shall mean, with respect to any Partner (or as to
any other person the affiliates of whom are relevant for purposes of any of the
provisions of this Agreement), (i) any member of the Immediate Family of such
Partner; (ii) any beneficiary of a Limited Partner that is a trust; (iii) any
trust for the benefit of any Person referred to in the preceding clauses (i) and
(ii); or (iv) any Entity which directly or indirectly through one or more
intermediaries, Controls, is Controlled by, or is under common Control with, any
Person referred to in the preceding clauses (i) through (iii).
"Agreement" shall mean this First Amended and Restated Limited
Partnership Agreement and the Exhibits attached thereto, as originally executed
and as amended, modified, supplemented or restated from time to time, as the
context requires.
"Agreed Value" means the cash or net fair market value of the
Capital Contributions made by the Partners, as of the time of contribution, to
the Partnership as reflected on Exhibit A to this Agreement.
"Articles of Incorporation" means the restated articles of
incorporation of the REIT filed in the State of Georgia on _____________, 1999,
as amended or restated from
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<PAGE> 7
time to time.
"Assignee" means a Person to whom one or more Partnership
Units have been transferred in a manner permitted under this Agreement, but who
has not become a substituted Limited Partner, and who has the rights set forth
in Section 9.3(d).
"Audited Financial Statements" shall mean financial statements
(balance sheet, statement of income, statement of partners' equity and statement
of cash flows) prepared in accordance with GAAP and accompanied by an
independent auditor's report containing an opinion thereon.
"Bankruptcy" shall mean, with respect to any Partner, (i) the
commencement by such Partner of any petition, case or proceeding seeking relief
under any provision or chapter of the federal Bankruptcy Code or any other
federal or state law relating to insolvency, bankruptcy or reorganization, (ii)
an adjudication that such Partner is insolvent or bankrupt; (iii) the entry of
an order for relief under the federal Bankruptcy Code with respect to such
Partner, (iv) the filing of any such petition or the commencement of any such
case or proceeding against such Partner, unless such petition and the case or
proceeding initiated thereby are dismissed within ninety (90) days from the date
of such filing or (v) the filing of an answer by such Partner admitting the
allegations of any such petition.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York, New York are authorized or
required by law to close.
"Capital Account" shall mean the separate "book" account which
the Partnership shall establish and maintain for each Partner in accordance with
Exhibit B of this Agreement.
"Capital Contribution" shall mean the amount of money and the
initial Gross Asset Value of any contributed property, net of liabilities
assumed by the Partnership in connection with such contribution or as to which
any property is subject when contributed.
"Capital Gain Amount" has the meaning set forth in Section 5.4
of this Agreement.
"Cash Amount" means an amount of cash equal to the Value of
the Shares on the Valuation Date.
"Certificate" shall mean the Certificate of Limited
Partnership establishing the Partnership, as filed with the office of the
Delaware Secretary of State, as it may be amended from time to time in
accordance with the terms of this Agreement and the Act.
"Code" shall mean the Internal Revenue Code of 1986, as
amended and in effect from time to time. Any reference herein to a specific
section of the Code shall be deemed
3
<PAGE> 8
to include a reference to any corresponding provision of succeeding laws.
"Consent" shall mean the written consent or approval of a
proposed action by Partners owning fifty-one percent (51%) or more of the
Percentage Interests given in accordance with Section 13.2 hereof.
"Continuing Limited Partners" means those Persons, other than
the REIT, that have been admitted as Limited Partners prior to the Effective
Date of this Agreement.
"Control" shall mean the ability, whether by the direct or
indirect ownership of shares or other equity interests, by contract or
otherwise, to elect a majority of the directors of a corporation, to select the
managing partner of a partnership, or otherwise to select, or have the power to
remove and then select, a majority of those persons exercising governing
authority over an Entity. In the case of a limited partnership, the sole general
partner, all of the general partners to the extent each has equal management
control and authority, or the managing general partner or managing general
partners thereof shall be deemed to have control of such partnership and, in the
case of a trust, any trustee thereof or any Person having the right to select
any such trustee shall be deemed to have control of such trust.
"Conversion Factor" means 1.0, provided however, that in the
event the REIT (i) declares or pays a dividend on its outstanding Shares in its
Shares or makes a distribution to all holders of its outstanding Shares of its
Shares, (ii) subdivides its outstanding Shares, or (iii) combines its
outstanding Shares into a smaller number of Shares, the Conversion Factor shall
be adjusted by multiplying the Conversion Factor by a fraction, the numerator of
which shall be the number of Shares issued and outstanding on the record date
for such dividend, distribution, subdivision or combination (assuming for such
purposes that such dividend, distribution, subdivision or combination has
occurred as of such time), and the denominator of which shall be the actual
number of Shares (determined without the above assumption) issued and
outstanding on the record date for such dividend, distribution, subdivision or
combination. Any adjustment to the Conversion Factor shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
"Effective Date" means the date of the closing of the initial
public offering of the common stock of the REIT pursuant to that certain
Purchase Agreement among Strategic Timber Partners, LP, Strategic Timber Trust,
Inc. and the representatives of the several underwriters dated as of ________,
1999.
"Entity" shall mean any general partnership, limited
partnership, limited liability company, corporation, joint venture, trust,
business trust, real estate investment trust, association or other business
entity.
"Financing" means the Senior Credit Facility.
4
<PAGE> 9
"Financing Documents" means any and all credit and loan
agreements and related documents evidencing or securing the Financing.
"GAAP" shall mean generally accepted accounting principles as
in effect from time to time.
"General Partner" means Strategic Timber Operating Co., a
Georgia corporation, its duly admitted successors and assigns and any other
Person who is a general partner of the Partnership at the time of reference
thereto.
"Gross Asset Value" shall mean the value at which the assets
of the Partnership are carried on its books as required by the Regulations under
Code section 704(b) and as determined in accordance with Exhibit B.
"Immediate Family" shall mean, with respect to any Person,
such Person's spouse, parents, descendants, brothers, sisters and the estate of
any such Person.
"Incentive Plan shall mean the 1999 Incentive Plan of the REIT
and any other stock option or stock incentive plan hereafter adopted by the
REIT.
"Indemnitee" shall mean (i) any Person made a party to a
proceeding by reason of his status as (A) the General Partner, (B) an employee,
independent contractor, trustee, director, or officer of the General Partner or
of an Affiliate of the General Partner, or (C) a Liquidating Trustee of the
Partnership, and (ii) such other Persons (including Affiliates of the General
Partner or the Partnership) as the General Partner may designate from time to
time in its sole and absolute discretion.
"Limited Partners" shall mean those Persons listed under the
heading "Limited Partners" on Exhibit A attached hereto, as amended from time to
time to reflect the admission of additional Persons and any permitted successors
or assigns, who are admitted as a limited partner in the Partnership.
"Liquidating Trustee" shall mean such individual or entity as
is selected as the Liquidating Trustee hereunder by the General Partner, which
individual or Entity may include an Affiliate of the General Partner, provided
such Liquidating Trustee agrees in writing to be bound by the terms of this
Agreement.
"Net Income" means for any period, the excess, if any, of the
Partnership's items of income and gain for such period over the Partnership's
items of loss and deduction for such period. The items included in the
calculation of Net Income shall be determined in accordance with Exhibit B.
5
<PAGE> 10
"Net Loss" means, for any period, the excess, if any, of the
Partnership's items of loss and deduction for such period over the Partnership's
items of income and gain for such period. The items included in the calculation
of Net Loss shall be determined in accordance with Exhibit B.
"Net Operating Cash Flow" means, with respect to any period
for which such calculation is being made,
(i) the sum of:
(a) the Partnership's Net Income or Net Loss (as the case may be) for
such period,
(b) depreciation, depletion and all other noncash charges deducted in
determining Net Income or Net Loss for such period,
(c) the amount of any reduction in the reserves of the Partnership
(including, without limitation, reductions resulting from the General Partner
determining that such amounts are no longer necessary), and
(d) all other cash received by the Partnership for such period that was
not included in determining Net Income or Net Loss for such period including,
without limitation, the proceeds of financings in excess of the current needs of
the Partnership,
(ii) less the sum of:
(a) all principal debt payments made during such period by the
Partnership,
(b) capital expenditures made by the Partnership during such period,
(c) investments in any entity (including loans made thereto) to the
extent that such investments are not otherwise described in clause (ii)(a) or
(ii)(b),
(d) all other expenditures and payments not deducted in determining Net
Income or Net Loss for such period,
(e) any amount included in determining Net Income or Net Loss for such
period that was not received by the Partnership during such period,
(f) the amount of any increase in reserves during such period which the
General Partner determines to be necessary or appropriate in its sole and
absolute discretion, and
(g) the amount of any working capital accounts and other accounts with
similar balances which the General Partner determines to be necessary or
appropriate in its sole and
6
<PAGE> 11
absolute discretion.
Notwithstanding the foregoing, Net Operating Cash Flow shall not
include any cash received or reductions in reserves or take into account any
disbursements made or reserves established after commencement of the dissolution
and liquidation of the partnership.
"Notice of Redemption" means a Notice exercising a Limited
Partner's Redemption Rights, substantially in the form of Exhibit D to this
Agreement.
"Partner(s)" shall mean the General Partner and/or the Limited
Partners, their duly admitted successors or assigns and any additional Person
who has been admitted as a partner of the Partnership at the time of reference
thereto.
"Partnership Interest" shall mean the ownership interest of a
Partner in the Partnership representing a Capital Contribution by either a
Limited Partner or the General Partner and includes any and all benefits to
which the holder of such an interest may be entitled to under this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Partnership Interest may be expressed as a
number of Partnership Units.
"Partnership Record Date" means the record date established by
the General Partner for the distribution of Net Operating Cash Flow pursuant to
Section 5.1 hereof, which record date shall be the same as the record date
established by the REIT for a distribution to its shareholders of some or all of
its portion of such distribution.
"Partnership Unit" means a fractional, undivided share of the
Partnership Interests of all the Partners issued pursuant to Section 4.1 of this
Agreement, and as specified on Exhibit A, as amended from time to time. As of
the date of this agreement, there will be ______ Partnership Units outstanding,
with each Partnership Unit representing a _____ % Percentage Interest in the
Partnership. The ownership of Partnership Units may be evidenced by such form of
certificate for units as the General Partner adopts from time to time on behalf
of the Partnership. Partnership Units may be divided into two or more classes
and series.
"Percentage Interest" shall mean, with respect to any Partner,
its interest determined by dividing the Partnership Units owned by such Partner
by the total number of Partnership Units then outstanding and as specified in
Exhibit A hereto, as such Exhibit may be amended from time to time.
"Person" shall mean any natural person or Entity.
"Redeeming Partner" has the meaning set forth in Section 11.1
hereof.
"Redemption Amount" has the meaning set forth in Section 11.1
hereof.
7
<PAGE> 12
"Redemption Right" has the meaning set forth in Section 11.1
hereof.
"Regulations" shall mean the Federal Income Tax Regulations
promulgated under the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
"REIT" means Strategic Timber Trust, Inc., a Georgia
corporation, that will have elected to be classified as a real estate investment
trust as defined in Code section 856 with the filing of its first federal income
tax return.
"REIT Expenses" mean the following expenses: (i) the costs and
expenses relating to the continuation of the REIT and its subsidiaries; (ii)
costs and expenses related to any offer or registration of securities by the
REIT and all statements, reports, fees and expenses incidental thereto,
including underwriting discounts and selling commissions applicable to any such
offer of securities; (iii) costs and expenses associated with compliance by the
REIT with laws, rules and regulations promulgated by any regulatory body,
including the SEC, and (iv) all other operating or administrative costs of the
General Partner, the REIT and its subsidiaries incurred in the ordinary course
of its business on behalf of the Partnership. The reimbursement of REIT Expenses
shall not constitute a distribution under Article V of this Agreement.
"SEC" means the US Securities and Exchange Commission.
"Securities Laws" means the federal and state laws (including
the rules and regulations thereunder and the judicial and administrative
interpretations thereof) regulating the sale of securities including, without
limitation, the Securities Act of 1933, as amended; the Securities Exchange Act
of 1934, as amended; state Blue Sky Laws; and the rules and regulations of any
stock exchange on which the Shares are listed for trading.
"Senior Credit Facility" means the senior secured credit
facility provided to the Partnership by the lenders under the Loan Agreement
dated as of ______________, 1999, among the Partnership, the lenders party
thereto, _______________, as agent for the lenders (as the same may be amended,
modified or restated from time to time) in the original committed amount of
$__________.
"Shares" shall mean the shares of the common stock of the
REIT.
"Specified Redemption Date" means the tenth (10th) Business
Day after receipt by the General Partner of a Notice of Redemption; provided
that no Specified Redemption Date shall occur before one (1) year from the date
of this Agreement.
"Stock Option" shall mean an option to purchase Shares of the
REIT granted under the Incentive Plan.
8
<PAGE> 13
"Stock Option Agreement" shall mean the form of stock option
agreement that is used under the Incentive Plan.
"Tax Matters Partner" means the Partner with the
responsibilities and authority set forth in Code section 6221 et seq. and as
provided in Section 6.5 of this Agreement.
"Valuation Date" means the date of receipt by the General
Partner of a Notice of Redemption or, if such date is not a Business Day, the
first Business Day thereafter.
"Value" means, with respect to a Share, the average of the
daily market price for the ten (10) consecutive trading days immediately
preceding the Valuation Date. The market price for each such trading day shall
be: (i) if the Shares are listed or admitted to trading on any securities
exchange or the NASDAQ-National Market System, the closing price, regular way,
on such day, or if no such sale takes place on such day, the average of the
closing bid and asked prices on such day, (ii) if the Shares are not listed or
admitted to trading on any securities exchange or the NASDAQ-National Market
System, the last reported sale price on such day or, if no sale takes place on
such day, the average of the closing bid and asked prices on such day, as
reported by a reliable quotation source designated by the General Partner, or
(iii) if the Shares are not listed or admitted to trading on any securities
exchange or the NASDAQ-National Market System and no such last reported sale
price or closing bid and asked prices are available, the average of the reported
high bid and low asked prices on such day, as reported by a reliable quotation
source designated by the General Partner, or if there shall be no bid and asked
prices on such day, the average of the high bid and low asked prices, as so
reported, on the most recent day (not more than ten (10) days prior to the date
in question) for which prices have been so reported; provided that if there are
no bid and asked prices reported during the ten (10) days prior to the date in
question, the Value of the Shares shall be determined by the General Partner,
acting in good faith on the basis of such quotations and other information as it
considers, in its reasonable judgment, appropriate. In the event the Redeeming
Partner is to receive Shares in redemption of its Partnership Interest, such
consideration shall also include rights that a holder of Shares would be
entitled to receive, and the Value of such rights shall be determined by the
General Partner, acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate.
ARTICLE II
ORGANIZATION OF PARTNERSHIP
2.1 Organization. The General Partner has organized the Partnership as
a limited partnership by filing the Certificate pursuant to the provisions of
the Act for the purposes and upon the terms and conditions hereinafter set
forth. The Partners agree that the rights and liabilities of the Partners shall
be as provided in the Act, except as otherwise herein expressly provided.
9
<PAGE> 14
2.2 Name. The name of the Partnership shall be Strategic Timber
Partners, LP, or such other name as shall be chosen from time to time by the
General Partner in its sole discretion.
2.3 Location of Principal Place of Business. The location of the
principal place of business of the Partnership shall be at 5 North Pleasant
Street, New London, New Hampshire 03257, or such other location as shall be
selected from time to time by the General Partner in its sole discretion.
2.4 Registered Agent and Registered Office. The Corporation Trust
Company shall act as registered agent of the Partnership and the Registered
Office of the Partnership shall be Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware. The registered office and registered agent may be changed
from time to time as the General Partner deems advisable by filing notice of
such changes with the Secretary of State of Delaware in accordance with the Act.
2.5 Term. The Partnership's term commenced upon the filing of the
Certificate with the Secretary of State of Delaware on April 21, 1998 and shall
continue until December 31, 2199, unless the Partnership is sooner terminated as
provided in Article VIII or as provided by law.
ARTICLE III
PURPOSE AND POWERS
3.1 Purpose and Business. The purpose of the Partnership shall be to
acquire, hold, own, manage and transfer timberlands; to sell and otherwise
dispose of the timber grown on such property; to acquire ownership interests in
Entities engaged in similar or related activities; and to engage in such other
activities as shall be necessary, desirable or appropriate to effectuate the
foregoing purposes.
3.2 Powers. Subject to any limitations imposed by the Financing
Documents and this Agreement, the Partnership shall have all powers necessary,
desirable or appropriate to accomplish the purposes enumerated. In connection
with the foregoing, the Partnership shall have full power and authority,
directly or indirectly to enter into, perform, and carry out contracts of any
kind, to borrow money and to issue other evidences of indebtedness including
guaranties of the indebtedness of Affiliates (including the Financing which
indebtedness may be secured by mortgages, pledges of partnership interests in
other Entities), security interests or other liens, and to enter into any and
all indentures and other agreements and documents relating to such evidence of
indebtedness, directly or indirectly, and to acquire such assets as may be
necessary or useful in connection with its business. Notwithstanding the
foregoing, the Partnership shall not take, or refrain from taking, any action
which, in the judgment of the General Partner, in its sole and absolute
discretion, (i) could adversely affect the ability of the REIT to qualify as a
real estate
10
<PAGE> 15
investment trust under the Code, (ii) could subject the REIT to any taxes under
section 857 (other than for capital gains that the REIT has elected to retain)
or section 4981 of the Code or have other potentially adverse consequences under
the Code, or (iii) could violate any law or regulation of any governmental body
or agency having jurisdiction over the REIT, its subsidiaries or its securities,
unless such action (or inaction) shall have been specifically consented to by
the REIT in writing.
ARTICLE IV
CAPITAL CONTRIBUTIONS
4.1 Capital Contributions, Partnership Interests and Percentage
Interests of Partners.
(a) The Continuing Limited Partners and the REIT have previously made
Capital Contributions to the Partnership. After adjustment for the Partnership
Units acquired by the REIT from the Continuing Limited Partners immediately
prior to the execution and delivery of this Agreement, the Capital Contributions
of the Partners are reflected in Exhibit A attached hereto.
(b) To the extent the Partnership acquires any property by the merger
of any other Person into the Partnership, Persons who receive Partnership
Interests in exchange for their interests in the Person merging into the
Partnership shall become Partners and shall be deemed to have made Capital
Contributions as provided in the applicable merger agreement and as set forth in
Exhibit A as amended at such time.
(c) Each Partner shall own Partnership Units in the amount set forth
for such Partner in Exhibit A and shall have a Percentage Interest in the
Partnership as set forth for such Partner in Exhibit A, which Percentage
Interest shall be adjusted on Exhibit A, from time to time, by the General
Partner to the extent necessary to reflect redemptions, Capital Contributions,
the issuance of additional Partnership Units (pursuant to any merger or
otherwise), or similar events having an effect on a Partner's Percentage
Interest. Except as provided in Section 4.2, the Partners shall have no
obligation to make any additional Capital Contributions or loans to the
Partnership.
4.2 Issuances of Additional Partnership Interests.
(a) Except as provided in paragraphs (b), (c) and (d) of this Section
4.2, the General Partner is hereby authorized to cause the Partnership from time
to time to issue to the Partners (including the REIT) or other Persons
additional Partnership Units in one or more
11
<PAGE> 16
classes, or one or more series of any of such classes, with such designations,
preferences, participation, optional or other special rights, powers and duties,
including rights, powers and duties senior to existing Limited Partner Units, as
shall be determined by the General Partner in its sole and absolute discretion
and without the approval of any of the Limited Partners, subject to Delaware
law, including, without limitation, (i) the allocations of items of Partnership
income, gain, loss, deduction and credit to each such class or series of
Partnership Units; (ii) the right of each such class or series of Partnership
Units to share in Partnership distributions; and (iii) the rights of each such
class or series of Partnership Units upon dissolution and liquidation of the
Partnership.
(b) Without limiting the powers granted to the General Partner in
Section 4.2(a), the General Partner is expressly authorized to cause the
Partnership to issue Partnership Units for less than fair market value, so long
as the General Partner concludes in good faith that such issuance is in the
interests of the REIT and the Partnership (for example, and not by way of
limitation, the issuance of Partnership Units pursuant to an employee purchase
plan providing for employee purchases of Partnership Units at a discount from
fair market value or employee options that have an exercise price that is less
than the fair market value of the Partnership Units, either at the time of
issuance or at the time of exercise).
(c) No additional Partnership Units shall be issued to the REIT, unless
either
(1) (i) the additional Partnership Units are issued in
connection with an issuance of shares of the REIT, which
shares have designations, preferences and other rights, all
such that the economic interests are substantially similar to
the designations, preferences and other rights of the
additional Partnership Units issued to the REIT in accordance
with this Section 4.2, and (ii) the REIT shall make a Capital
Contribution to the Partnership in an amount equal to the
proceeds raised in connection with the issuance of such shares
of the General Partner, or
(2) the additional Partnership Units are issued to all
Partners in proportion to their respective Percentage
Interests.
(d) Notwithstanding anything to the contrary in this Agreement, for so
long as the Continuing Limited Partners or an assignee which is an Affiliate of
a Continuing Limited Partner own fifteen percent (15%) or more of the
Partnership Units, no additional Partnership Units that have more favorable
rights, terms or conditions than the Partnership Units held by the Continuing
Limited Partners will be issued to any Person without the prior written consent
of a majority of the Partnership Units held by the Continuing Limited Partners.
4.3 Contribution of Proceeds of Issuance of REIT Shares. In connection
with the initial public offering of the Shares by the REIT, and any other
issuance of Shares pursuant to Section 4.2, the REIT, after reduction of certain
indebtedness of the REIT and its Affiliates, shall make a Capital Contribution
to the Partnership of the net proceeds raised in connection with such
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issuance, provided that if the proceeds actually received by the REIT are less
than the gross proceeds of such issuance as a result of any underwriter's
discount, or other expenses paid or incurred in connection with such issuance,
then the General Partner shall be deemed to have made a Capital Contribution to
the Partnership in the amount of the gross proceeds (less the amount used to pay
indebtness of the REIT and its Affiliates) of such issuance and the Partnership
shall be deemed simultaneously to have reimbursed the General Partner pursuant
to Section 7.2 for the amount of such underwriter's discount or other expenses.
4.4 No Third Party Beneficiaries. No creditor or other third party
shall have the right to enforce any right or obligation of any Partner to make
Capital Contributions or loans or to pursue any other right or remedy hereunder
or at law or in equity, it being understood and agreed that the provisions of
this Agreement shall be solely for the benefit of, and may be enforced solely
by, the parties hereto and their respective successors and assigns.
4.5 No Interest on or Return of Capital Contributions. Except as
otherwise specifically provided herein, no Partner shall be entitled to interest
on its Capital Contribution or have any right to demand or receive the return of
its Capital Contribution.
4.6 Loans to Partnership. At the option of the General Partner, any
Partner (including, without limitation, the General Partner) may make loans to
the Partnership on terms deemed by the General Partner to be commercially
reasonable and at then prevailing market interest rates.
4.7 Incentive Plan.
(a) If at any time, or from time to time, Stock Options granted in
connection with the Incentive Plan are exercised or restricted Shares are issued
in accordance with the terms of the Incentive Plan, the REIT shall, as soon as
practical after such exercise, contribute to the capital of the Partnership an
amount equal to the exercise price paid to the REIT by such exercising party in
connection with the exercise of the Stock Option. In addition, the REIT shall be
deemed to have contributed to the Partnership as a Capital Contribution,
pursuant to this Section 4.7(a), an amount equal to the excess of the current
per share market price (as of the trading day immediately preceding the date on
which the purchase of the Shares by such exercising party is consummated) over
the amount contributed in respect of the exercise of such Stock Options pursuant
to Section 4.7(a), multiplied by the number of Shares delivered by the REIT to
such exercising party.
(b) With respect to any issuance of restricted Shares, the REIT shall
be deemed to contribute to the Partnership an amount equal to the current per
share market price (as of the trading date immediately preceding the date on
which the restricted Shares are awarded), multiplied by the number of restricted
Shares so issued.
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ARTICLE V
DISTRIBUTIONS
5.1 Distributions.
(a) Except as provided for in Section 5.4 and Section 8.3, the General
Partner shall cause the Partnership to distribute all or any portion of the Net
Operating Cash Flow to the Partners in such amounts as the General Partner shall
determine as of the end of each calendar quarter.
(b) Amounts of Net Operating Cash Flow designated for distribution will
be paid to Partners who were Partners on a Partnership Record Date with respect
to such quarter in accordance with their respective Percentage Interests on such
Partnership Record Date; provided, however, in no event may a Partner receive a
distribution of Net Operating Cash Flow with respect to a Partnership Unit if
such Partner is entitled to receive a distribution out of Net Operating Cash
Flow with respect to a Share for which such Partnership Unit has been redeemed
or exchanged.
(c) The General Partner and the Partnership shall not have any
liability to a Limited Partner under any circumstances as a result of any
distribution to a Limited Partner being treated as proceeds of a sale under Code
Section 707 or the regulations thereunder.
(d) The General Partner shall use its reasonable efforts to cause the
Partnership to distribute amounts sufficient to enable the REIT (i) to pay such
distributions to its shareholders as will enable the REIT to meet its
distribution requirements for qualification as a real estate investment trust as
set forth in Code section 857(a)(1) and (ii) to avoid any federal income or
excise tax liabilities imposed by the Code.
5.2 Amounts Withheld. All amounts withheld pursuant to the Code or any
provision of any state or local tax law pursuant to Section 6.6 hereof with
respect to any allocation, payment or distribution to the General Partner, the
Limited Partners or Assignees shall be treated as amounts distributed to such
Persons pursuant to Section 5.1 for all purposes under this Agreement.
5.3 Distributions Upon Liquidation. Proceeds from the sale or other
disposition of all or substantially all of the assets of the Partnership, or
related series of transactions that, taken together, result in the sale or other
disposition of all or substantially all of the assets of the Partnership,
including reductions in reserves made after commencement of the liquidation of
the Partnership, shall be distributed to the Partners in accordance with Section
8.3.
5.4 Capital Gains. To the extent that the REIT notifies the General
Partner that it is making an election under Code section 857(b) to retain all or
a portion of its capital gain income ("Capital Gain Amount"), the General
Partner will withhold from the distribution of Net Operating Cash Flow
attributable to capital gains (as determined under the Code) an amount
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equal to (i) the Capital Gain Amount, plus (ii) the Capital Gain Amount divided
by the REIT's Percentage Interest, less the federal and state income taxes on
the amount to be retained computed using the REIT's effective tax rate for such
period ("Tax Amount"). The Tax Amount will be distributed to the Partners in
accordance with their Percentage Interests.
ARTICLE VI
ALLOCATIONS AND OTHER TAX AND ACCOUNTING MATTERS
6.1 Allocations for Capital Account Purposes. For purposes of
maintaining the Capital Accounts and determining the rights of the Partners
among themselves, the Partnership's items of income, gain, loss and deduction
(computed in accordance with Exhibit B hereof), shall be allocated among the
Partners in each taxable year (or a portion thereof) as provided in this Section
6.1:
(a) After giving effect to the special allocation rules contained in
Exhibit C, Net Income shall be allocated: (i) first, to the General Partner to
the extent of the amount by which Net Losses previously allocated to the General
Partner pursuant to the last sentence of Section 6.1(b) exceed Net Income
previously allocated to the General Partner pursuant to this clause (i) of
Section 6.1(a); and (ii) thereafter, Net Income shall be allocated to the
Partners in accordance with their respective Percentage Interests.
(b) After giving effect to the special allocation rules contained in
Exhibit C, Net Losses shall be allocated to the Partners in accordance with
their respective Percentage Interests, provided that Net Losses shall not be
allocated to any Partner, other than the General Partner, to the extent that
such allocation would cause such Partner to have an Adjusted Capital Account
Deficit (as defined in Exhibit C) at the end of such taxable year (or increase
any existing Adjusted Capital Account Deficit). All Net Losses in excess of the
limitation set forth in the preceding sentence of this Section 6.1(b) shall be
allocated to the General Partner.
6.2 Tax Allocations.
(a) Generally. Except as provided in subparagraph (b) hereof, items of
income, gain, loss, deduction and credit to be allocated for income tax purposes
(collectively, "Tax Items") shall be allocated among the Partners in the same
proportion as the corresponding book items (within the meaning of the Code
section 704(b) Regulations) are allocated pursuant to Section 6.1.
(b) Allocations Respecting Section 704(c) and Revaluations.
Notwithstanding paragraph (a) hereof, Tax Items that relate to Partnership
property that is subject to Code section 704(c) (contributed property having a
fair market value different from its tax basis) and/or revalued pursuant to
Regulation Section 1.704-1(b)(2)(iv)(f) (collectively "Section 704(c) Tax
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Items") shall be allocated in accordance with said Code section 704(c) and
Regulation Section 1.704-3(d).
6.3 Books of Account. At all times during the continuance of the
Partnership, the General Partner shall maintain, or cause to be maintained,
full, true, complete and correct books of account. In addition, the Partnership
shall keep all records required to be maintained by the Act.
6.4 Reports.
(a) The General Partner shall cause to be sent to the Limited Partners
promptly after receipt of the same from the Accountants and in no event later
than 105 days after the close of each fiscal year of the Partnership, copies of
Audited Financial Statements for the Partnership or the REIT, if such statements
are prepared on a consolidated basis with the REIT, for the immediately
preceding fiscal year of the Partnership.
(b) As soon as practical, but in no event later than 105 days after the
close of each calendar quarter (except the last calendar quarter of each year),
the General Partner shall cause to be sent to the Limited Partners as of the
last day of the calendar quarter, a report containing unaudited financial
statements of the Partnership or of the REIT, if such statements are prepared on
a consolidated basis with the REIT, and such other information as may be
required by applicable law or regulation, or as the General Partner determines
to be appropriate.
6.5 Tax Elections and Returns.
(a) All elections required or permitted to be made by the Partnership
under any applicable tax law shall be made by the General Partner.
(b) The General Partner shall be responsible for preparing, or causing
to be prepared, and filing all federal and state tax returns for the Partnership
and furnishing copies thereof to the Partners, together with required
Partnership schedules showing allocations of tax items, all within the period of
time prescribed by law including extensions.
6.6 Tax Matters Partner.
(a) The General Partner is hereby designated as the Tax Matters Partner
(within the meaning of section 6231(a)(7) of the Code) for the Partnership.
(b) The taking of any action and the incurring of any expense by the
Tax Matters Partner in connection with any federal, state or local tax
controversy or proceeding, except to the extent required by law, is in the sole
and absolute discretion of the Tax Matters Partner. The provisions relating to
indemnification of the General Partner, set forth in Section 7.6
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of this Agreement, shall be fully applicable to the Tax Matters Partner in its
capacity as such.
(c) All third-party costs and expenses incurred by the Tax Matters
Partner in performing its duties as such (including legal and accounting fees
and expenses) shall be borne by the Partnership. Nothing contained herein shall
be construed to restrict the Partnership from engaging tax consultants to assist
the Tax Matters Partner in discharging its duties hereunder.
6.7 Withholding Payments Required By Law.
(a) Each Limited Partner hereby authorizes the Partnership to withhold
from or pay on behalf of or with respect to such Limited Partner any amount of
federal, state, local or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to sections 1441, 1442, 1445 or 1446 of the Code
("Withholding Obligation"). Unless treated as a Tax Payment Loan (as hereinafter
defined), any amount paid by the Partnership for or with respect to any Limited
Partner on account of any Withholding Obligation shall be treated as a
distribution to such Limited Partner for all purposes of this Agreement,
consistent with the character or source of the Withholding Obligation.
(b) To the extent that the amount required to be remitted by the
Partnership with respect to a Withholding Obligation exceeds the amount then
otherwise distributable to a Limited Partner, the excess of the Withholding
Obligation shall constitute a loan ("Tax Payment Loan") from the Partnership to
such Limited Partner. Any Tax Payment Loan shall be repaid by the Limited
Partner to whom it was deemed made within fifteen (15) days after Notice from
the General Partner that a Tax Payment Loan has been made on behalf of such
Limited Partner. Each Limited Partner hereby unconditionally and irrevocably
grants to the Partnership a security interest in such Limited Partner's
Partnership Interest to secure such Limited Partner's obligation to pay to the
Partnership any amounts required to be paid pursuant to this Section 6.6. In the
event that a Limited Partner fails to pay any amount owed to the Partnership
pursuant to this Section 6.6 when due, the General Partner may, in its sole and
absolute discretion, elect to make the payment to the Partnership on behalf of
such defaulting Limited Partner, and in such event shall be deemed to have
loaned such amount to such defaulting Limited Partner. In such event, the
General Partner shall have the right to receive distributions that otherwise
would be distributable to such defaulting Limited Partner until such time as
such loan, together with all interest thereon, has been paid in full; and any
such distributions so received by the General Partner shall be treated as having
been distributed to the Defaulting Limited Partner and immediately paid by the
defaulting Limited Partner to the General Partner in repayment of such loan. Any
amounts payable by a Limited Partner hereunder shall bear interest at the lesser
of (A) the base rate on corporate loans at large United States money center
commercial banks, as published from time to time in the Wall Street Journal,
plus 4 percentage points, or (B) the maximum lawful rate of interest on such
obligation. Such interest shall accrue from the date such amount is due (i.e.,
15 days after demand) until such amount is paid in full. Each Limited Partner
shall take such actions as the Partnership or the General Partner shall
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request in order to perfect or enforce the security interest created hereunder.
(c) The General Partner shall have the authority to take all actions
necessary to enable the Partnership to comply with the statutes, laws or
obligations that create a Withholding Obligation and to carry out the provisions
of this Section 6.6. Nothing in this Section 6.6 shall create any obligation on
the General Partner to advance funds to the Partnership or to borrow funds from
third parties in order to make any payments on account of any liability of the
Partnership for a Withholding Obligation.
(d) Any Partner who is a nonresident alien, foreign corporation,
foreign partnership, foreign trust or foreign estate (as those terms are defined
in the Code and the Regulations) is hereinafter referred to as a Foreign
Partner. A Partner who is not a Foreign Partner shall deliver to the General
Partner a Certification of Non-Foreign Status in the form prescribed by the
General Partner for withholding purposes under sections 1445 and 1446 of the
Code. In the event that a Partner (i) is a Foreign Partner, or (ii) does not
furnish a certification of Non-Foreign Status to the General Partner, then the
withholding provisions in this Section 6.6 shall apply.
6.8 Fiscal Year. The fiscal year of the Partnership shall be the
calendar year.
ARTICLE VII
RIGHTS, DUTIES AND RESTRICTIONS OF THE
GENERAL PARTNER AND THE REIT
7.1 Powers and Duties of General Partner.
(a) Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are and shall
be exclusively vested in the General Partner, and no Limited Partner shall have
any right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Limited Partners with or without cause. In addition to the powers now or
hereafter granted a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provisions of
this Agreement, the General Partner shall have full power and authority to do
all things deemed necessary or desired by it to conduct the business of the
Partnership, to exercise all powers of the Partnership as set forth in Section
3.2 hereof and to effectuate the purposes set forth in Section 3.1 hereof,
including without limitation:
(1) to acquire, directly or indirectly, interests in real
estate that is growing or is suitable for growing timber, and any and all kinds
of interests therein, and any and all related property; to manage and protect
any of the Partnership's assets, interests therein or parts thereof; to improve
any such real estate consistent with the purposes of the Partnership; to
participate in the ownership of property; to dedicate a portion of a property
for public use; to
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convey, mortgage, pledge or otherwise encumber said property, or any part
thereof; to lease said property or any part thereof from time to time, upon any
terms and for any period of time, to renew or extend leases, to amend, change or
modify the terms and provisions of any leases and to grant options to lease,
options to renew leases, options to purchase; to partition or to exchange said
real property, or any part thereof, for other real property; to grant easements
or charges of any kind; to release, convey or assign any right, title or
interest in or about or easement appurtenant to said property or any part
thereof; to insure any Person having an interest in or responsibility for the
care or management of such property;
(2) to employ, engage or contract with or dismiss from
employment or engagement Persons to the extent deemed necessary by the General
Partner for the operation and management of the Partnership business including,
but not limited to, contractors, subcontractors, engineers, foresters,
surveyors, consultants, accountants, attorneys, real estate brokers and others;
(3) to enter into contracts on behalf of the Partnership and
to cause all expenses related thereto to be paid;
(4) to borrow and lend money and make and obtain loans and
advances to or from any Person for Partnership purposes; to contract liabilities
and obligations of every kind and nature with or without security; and to repay,
discharge, settle, adjust, compromise, or liquidate any such loan, advance,
obligation or liability;
(5) to grant security interests in, mortgage, assign, pledge,
hypothecate, deposit, deliver, enter into sale and leaseback arrangements with
respect to or otherwise give as security or for sale or other disposition any
and all Partnership property, tangible or intangible, including, but not limited
to, personal property and real estate and interests; to sign, execute and
deliver any and all assignments, deeds, bills of sale and instruments in
writing; to enter into, make, execute, deliver and receive agreements,
undertakings and instruments of every kind and nature; and generally to do any
and all other acts and things incidental to any of the foregoing;
(6) to acquire and enter into any contract of insurance
(including, without limitation, general partner liability and partnership
reimbursement insurance policies) which the General Partner may deem necessary
or appropriate;
(7) to conduct any and all banking transactions on behalf of
the Partnership; to draw, sign, execute, accept, endorse, guarantee, deliver,
receive and pay any checks, drafts, bills of exchange, acceptances, notes,
obligations, undertakings and other instruments for or relating to the payment
of money in, into, or from any account in the Partnership's name; to make
deposits and withdraw the same and to negotiate or discount commercial paper and
acceptances;
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(8) to demand, sue for, receive, and otherwise take steps to
collect all debts, rents, proceeds, interests, dividends, goods, income from
property, damages and all other property, to which the Partnership may be
entitled or which are or may become due the Partnership from any Person; to
commence, prosecute or enforce, or to defend, answer or oppose, contest and
abandon all legal proceedings in which the Partnership is or may hereafter be
interested; and to settle, compromise or submit to arbitration any claims,
disputes and matters which may arise between the Partnership and any other
Person and to grant an extension of time for the payment or satisfaction thereof
on any terms, with or without security;
(9) to acquire interests in and contribute property to any
limited or general partnerships, joint ventures, subsidiaries or other entities
as the General Partner deems desirable so long as such investment does not
jeopardize the qualification of the REIT as a real estate investment trust under
the Code or cause the REIT to incur any taxes under Sections 857(b)(5) or (6) or
Section 4981 of the Code;
(10) to maintain the Partnership's books and records;
(11) to prepare and deliver, or cause to be prepared and
delivered by the Accountants, all financial and other reports with respect to
the operations of the Partnership, and preparation and all tax returns and
reports; and
(12) to invest in such Entities as the General Partner deems
appropriate so long as such investment does not jeopardize the qualification of
the REIT as a real estate investment trust or cause the REIT to incur any taxes
under Sections 857(b)(5) or (6) or 4981 under the Code.
(b) Except as otherwise provided herein, to the extent the duties of
the General Partner require expenditures of funds to be paid to third parties,
the General Partner shall not have any obligations hereunder except to the
extent that Partnership funds are reasonably available to it for the performance
of such duties, and nothing herein contained shall be deemed to require the
General Partner, in its capacity as such, to expend its separate funds for
payment to third parties or to undertake any specific liability on behalf of the
Partnership.
(c) Notwithstanding the powers granted to the Partnership in Section
3.2 and to the General Partner in Section 7.1(a), neither the Partnership nor
any General Partner will undertake any action that would be contrary to the
terms and conditions of the Financing Documents.
7.2 Reimbursement of the General Partner and the REIT.
(a) Except as otherwise provided in Articles 5 and 6 (regarding
distributions and allocations to which it may be entitled), the General Partner
shall not be compensated for its services as general partner of the Partnership.
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(b) Monthly or on such other basis as the General Partner may
determine, the General Partner shall be reimbursed for all reasonable
out-of-pocket expenses that it incurs relating to the operation of the
Partnership. The REIT shall be reimbursed for REIT Expenses.
(c) The General Partner and the REIT shall also be reimbursed for all
expenses they incur relating to the organization of the Partnership, the General
Partner and the REIT.
(d) The Limited Partners acknowledge that the REIT's sole business is
the ownership of interests in the Partnership and that all of the REIT's
expenses are incurred for the benefit of the Partnership. The reimbursement of
such expenses shall be in addition to any reimbursement to the REIT as a result
of indemnification pursuant to Section 7.7 hereof.
7.3 Contracts with Affiliates. The Partnership may lend or contribute
to its subsidiaries or other Persons in which it has an equity investment, and
such Persons may borrow funds from the Partnership, on terms and condition
established in the sole and absolute discretion of the General Partner. The
foregoing authority shall not create any right or benefit in favor of any
Person. The Partnership may also engage in transactions and enter into contracts
with Affiliates of the General Partner that are on terms fair and reasonable to
the Partnership and no less favorable to the Partnership than would be obtained
from unaffiliated third parties.
7.4 Title to Partnership Assets. Title to Partnership assets, whether
real, personal or mixed and whether tangible or intangible, shall be deemed to
be owned by the Partnership as an entity, and no Partner, individually or
collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership's assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby acknowledges and confirms that any Partnership assets
for which legal title is held in the name of the General Partner or any nominee
or Affiliate of the General Partner shall be held by the General Partner or such
others for the use and benefit of the Partnership in accordance with the
provisions of this Agreement; provided, however, that the General Partner shall
use its best efforts to cause beneficial and record title to such assets to be
vested in the Partnership as soon as reasonably practical. All Partnership
assets shall be recorded as property of the Partnership in its books and
records, irrespective of the name in which legal title to such Partnership
assets is held.
7.5 Reliance by Third Parties. Notwithstanding anything to the contrary
in this Agreement, any Person dealing with the Partnership shall be entitled to
assume that the General Partner has full power and authority to encumber, sell
or otherwise use in any manner any and all assets of the Partnership and to
enter into any contracts on behalf of the Partnership, and such Person shall be
entitled to deal with the General Partner as if it were the Partnership's sole
party in interest, both legally and beneficially. In no event shall any Person
dealing with the General Partner or its representatives be obligated to
ascertain that the terms of this Agreement have been complied with or to inquire
into the necessity or expedience of any act or action of the General
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Partner or its representatives. Each and every certificate, document or other
instrument executed on behalf of the Partnership by the General Partner shall be
conclusive evidence in favor of any and every Person relying thereon or claiming
thereunder that (i) at the time of the execution and delivery of such
certificate, document or instrument, this Agreement was in full force and
effect, (ii) the Person executing and delivering such certificate, document or
instrument was duly authorized and empowered to do so for and on behalf of the
Partnership and (iii) such certificate, document or instrument was duly executed
and delivered in accordance with the terms and provisions of this Agreement and
is binding upon the Partnership.
7.6 Indemnification by Partnership.
(a) The Partnership shall indemnify an Indemnitee from and against any
and all losses, claims, damages, liabilities, joint or several, expenses
(including legal fees and expenses), judgments, fines, settlements, and other
amounts arising from any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative, that relate to the operations
of the Partnership as set forth in this Agreement in which any Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise; however, the
Partnership shall not indemnify an Indemnitee (i) with respect to an act or
omission of the Indemnitee that was material to the matter giving rise to the
proceeding and either was the result of intentional misconduct or a knowing
violation of law; or (ii) for any transaction for which such Indemnitee received
a personal benefit in violation or breach of any provision of this Agreement.
The termination of any proceeding by judgment, order or settlement does not
create a presumption that the Indemnitee did not meet the requisite standard of
conduct set forth in this Section 7.6(a); provided, however, the termination of
any criminal proceeding by conviction of an Indemnitee or upon a plea of nolo
contendere or its equivalent by Indemnitee creates a rebuttable presumption that
such Indemnitee acted in a manner contrary to that specified in this Section
7.6(a) with respect to the subject matter of such proceeding. Any
indemnification pursuant to this Section 7.6 shall be made only out of the
assets of the Partnership and no Partner shall have any personal liability
therefor.
(b) Reasonable expenses incurred by an Indemnitee who is a party to a
proceeding may be paid or reimbursed by the Partnership in advance of the final
disposition of the proceeding upon receipt by the Partnership of (i) a written
affirmation by the Indemnitee of the Indemnitee's good faith belief that the
standard of conduct necessary for indemnification by the Partnership, as
authorized in this Section 7.6, has been met, and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount paid or reimbursed if it
shall ultimately be determined that such standard of conduct has not been met.
(c) The indemnification provided by this Section 7.6 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, as a matter of law or otherwise, and shall
continue as to an Indemnitee who has ceased to serve in such capacity unless
otherwise provided in a written agreement with such Indemnitee or in the writing
pursuant to which such Indemnitee is indemnified.
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(d) The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of the Indemnitees and such other Persons as the
General Partner shall determine, against any liability that may be asserted
against or expenses that may be incurred by such Persons in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify any such Person against such liability under the provisions
of this Agreement.
(e) Any liabilities which an Indemnitee incurs as a result of acting on
behalf of the Partnership or the General Partner (whether as a fiduciary or
otherwise) in connection with the operation, administration or maintenance of an
employee benefit plan or any related trust or funding mechanism (whether such
liabilities are in the form of excise taxes assessed by the Internal Revenue
Service, penalties assessed by the Department of Labor, restitutions to such a
plan or trust or other funding mechanism or to a participant or beneficiary of
such plan, trust or other funding mechanism, or otherwise) shall be treated as
liabilities or judgments or fines under this Section 7.6, unless such
liabilities arise as a result of (i) such Indemnitee's intentional misconduct or
knowing violation of the law, or (ii) any transactions in which such Indemnitee
received a personal benefit in violation or breach of any provision of this
Agreement or applicable law.
(f) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.6 solely because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(g) The provisions of this Section 7.6 are for the benefit of the
Indemnitees, their heirs, successors, assigns, personal representatives and
administrators, and shall not be deemed to create any rights for the benefit of
any other Persons. Any amendment, modification or repeal of this Section 7.6 or
any provision hereof shall be prospective only and shall not in any way effect
the limitations on the Partnership's liability to any Indemnitee under this
Section 7.6 as in effect immediately prior to such amendment, modification or
repeal with respect to claims arising from or relating to matters occurring, in
whole or in part, prior to such amendment, modification or repeal, regardless of
when such claims may arise or be asserted.
7.7 Liability of the General Partner and the REIT
(a) The General Partner and the REIT shall not be liable for monetary
or other damages to the Partnership, any of the Partners or any Assignees for
losses sustained or liabilities incurred as a result of errors in judgment or of
any act or omission, if the action or omission of the General Partner or the
REIT was in good faith and such action or inaction was not the result of
intentional misconduct, a knowing violation of law, or a transaction for which
the General Partner or the REIT received a personal benefit that was in
violation or breach of any provision of this Agreement.
(b) The Limited Partners other than the REIT expressly acknowledge
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that the General Partner is acting on behalf of the Partnership and the Partners
collectively, that the General Partner is under no obligation to consider the
separate interests of a particular Limited Partner (including, without
limitation, the tax consequences to Limited Partners or any assignees thereof)
other than the REIT in deciding whether to cause the Partnership to take (or
decline to take) any actions, and that the General Partner and the REIT shall
not be liable for monetary damages for losses sustained, liabilities incurred,
or benefits not derived by Limited Partners in connection with such decisions,
provided that the General Partner acted in good faith with respect thereto and
such action or inaction was not the result of intentional misconduct, a knowing
violation of law, or a transaction for which the General Partner or the REIT
received a personal benefit that was in violation or breach of any provision of
this Agreement.
(c) Subject to its obligations and duties as General Partner set forth
in Section 7.1 hereof, the General Partner may exercise any of the powers
granted to it by this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents. The General Partner shall
not be responsible for any misconduct or negligence on the part of any such
agent appointed by it in good faith.
(d) The General Partner shall not be deemed to have any limitations or
obligations, or be subject to any restrictions, of a partner of a general
partnership, if it otherwise would not have such limitations or obligations or
be subject to such restrictions under the terms of the Act, any other applicable
law and this Agreement.
(e) Any amendment, modification or repeal of this Section 7.7, or any
provision hereof, shall be prospective only and shall not in any way affect the
limitations on the General Partner's or the REIT's liability to the Partnership
and the Limited Partners under this Section 7.7 as in effect immediately prior
to such amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
7.8 Other Matters Concerning the General Partner and the REIT
(a) The General Partner and the REIT may rely upon and shall be
protected in acting or refraining from acting upon any resolution, certificate,
consent, statement, instrument, opinion, report, or other document believed by
it to be genuine and to have been signed or presented by the proper party or
parties.
(b) The General Partner and the REIT may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers and other
consultants and advisers selected by it, and any act taken or omitted to be
taken in reliance upon the opinion of such advisors as to matters which the
General Partner or the REIT reasonably believe to be within such advisor's
professional or expert competence, shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such opinion.
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(c) The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and any attorney or attorneys-in-fact duly appointed by the General
Partner. Each such attorney shall, to the extent provided by the General Partner
in the power of attorney, have full power and authority to do and perform all
and every act and duty which is permitted or required to be done by the General
Partner hereunder.
(d) Notwithstanding any other provisions of this Agreement or the Act,
any action of the General Partner on behalf of the Partnership or any decision
of the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect or further the ability of the REIT to qualify
as a real estate investment trust under the Code or (ii) to avoid the REIT
incurring any taxes under section 857 (other than for capital gains that the
REIT has elected to retain) or section 4981 of the Code, is expressly authorized
under this Agreement and is deemed approved by all of the Limited Partners.
7.9 Outside Activities of the General Partner and the REIT The General
Partner and the REIT shall not directly or indirectly enter into or conduct any
business, other than in connection with the ownership, acquisition and
disposition of Partnership Interests as a General Partner or Limited Partner and
the management of the business of the Partnership, and such activities as are
incidental thereto. The General Partner shall not incur any debts other than
that for which it may be liable in its capacity as General Partner of the
Partnership. The General Partner and the REIT shall not own any assets other
than Partnership Interests as a Partner, and other than such bank accounts or
similar instruments or accounts as it deems necessary to carry out its
responsibilities contemplated under this Agreement and their respective Articles
of Incorporation.
ARTICLE VIII
DISSOLUTION, WINDING-UP AND LIQUIDATION OR COMBINATION
8.1 Events of Dissolution. The Partnership shall continue until
dissolved upon the occurrence of the earliest of the following events:
(a) the dissolution, termination, withdrawal, retirement or Bankruptcy
of the General Partner, subject to the Partnership being continued as provided
in Section 9.2 hereof;
(b) the election to dissolve the Partnership made in writing by the
General Partner with the Consent of the Partners;
(c) the sale or other disposition of all or substantially all of the
assets of the Partnership, unless the General Partner elects to continue the
Partnership business for the
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purpose of the receipt and the collection of indebtedness or the collection of
any other consideration to be received in exchange for the assets of the
Partnership (which activities shall be deemed to be part of the winding up of
the affairs of the Partnership);
(d) the entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act, which decree is final and not subject to
appeal; or
(e) December 31, 2199.
8.2 Accounting. In the event of the dissolution, winding-up and
liquidation of the Partnership, a proper accounting shall be made of the Capital
Account of each Partner after allocation of the Net Income or Net Loss of the
Partnership from the date of the last previous accounting to the date of
dissolution.
8.3 Distribution on Dissolution. In the event of the dissolution and
liquidation of the Partnership for any reason, the assets of the Partnership
shall be liquidated and the net proceeds therefrom and the remaining assets of
the Partnership, if any, shall be distributed in the following rank and order:
(a) Payment of creditors of the Partnership in the order of priority as
provided by law;
(b) Establishment of reserves as determined by the General Partner, or
the Liquidating Trustee, if one has been appointed, to provide for contingent
and other Partnership liabilities, if any; and
(c) Then to the Partners in accordance with the positive balances in
their Capital Accounts after giving effect to all contributions, distributions
and allocations for all periods provided for in this Agreement, other than
distributions under this Section 8.3(c).
Whenever the Liquidating Trustee reasonably determines any reserves established
pursuant to paragraph (b) above are in excess of the reasonable requirements of
the Partnership, the amount determined to be excess shall be distributed to the
Partners in accordance with the provisions of this Section 8.3.
(d) The Liquidating Trustee shall be empowered to give and receive
notices, reports and payments in connection with the dissolution, liquidation
and/or winding up of the Partnership and shall hold and exercise such other
rights and powers as are necessary or required to authorize and permit all
parties to deal with the Liquidating Trustee in connection with the dissolution,
liquidation and/or winding-up of the Partnership.
8.4 Timing Requirements.
(a) In the event that the Partnership is "liquidated" within the
meaning
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of Section 1.704-1(b)(2)(ii)(g) of the Regulations, any and all distributions to
the Partners pursuant to Section 8.3(c) hereof shall be made no later than the
later to occur of (i) the last day of the taxable year of the Partnership in
which such liquidation occurs or (ii) ninety (90) days after the date of such
liquidation.
(b) Notwithstanding the provisions of Section 8.3 if prior to or upon
dissolution of the Partnership, the Liquidating Trustee determines that an
immediate sale of part or all of the Partnership's assets would be impractical
or would cause undue loss to the Partners, the Liquidating Trustee may, in its
sole and absolute discretion, defer for a reasonable time the liquidation of any
assets except those necessary to satisfy liabilities of the Partnership
(including to those Partners which are creditors of the Partnership) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 8.3 hereof, undivided interests in
such Partnership assets as the Liquidating Trustee deems not suitable for
liquidation. Any such distributions in kind shall be made only if, in the good
faith judgment of the Liquidating Trustee, such distributions in kind are in the
best interest of the Partners, and shall be subject to such conditions relating
to the disposition and management of such properties as the Liquidating Trustee
deems reasonable and equitable and to any agreements governing the operation of
such properties at such time. The Liquidating Trustee shall determine the fair
market value of any property distributed in kind using such reasonable method of
valuation as it may adopt.
8.5. Documentation of Liquidation. Upon the completion of the
dissolution and liquidation of the Partnership, the Partnership shall terminate
and the Liquidating Trustee shall have the authority to execute and record any
and all documents or instruments required to effect the dissolution, liquidation
and termination of the Partnership.
ARTICLE IX
TRANSFER OF PARTNERSHIP INTERESTS
9.1 Transfer.
(a) The term "transfer", when used in this Article IX with respect to a
Partnership Interest, shall be deemed to refer to a transaction by which a
Partner purports to assign its Partnership Interest or any portion thereof to
another Person, and includes a sale, assignment, gift, pledge, encumbrance,
hypothecation, mortgage, exchange or any other disposition by law or otherwise;
provided, however, that the term "transfer", when used in this Article IX does
not (except when such term is used in Section 9.4) include any redemption of
Partnership Interests from a Limited Partner or the acquisition of Partnership
Interests from a Limited Partner by the REIT pursuant to Section 11.2 of this
Agreement.
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(b) No Partnership Interest shall be transferred, in
whole or in part, except in accordance with the terms and conditions set forth
in this Article IX. Any transfer or purported transfer of a Partnership Interest
not made in accordance with this Article IX shall be null and void ab initio.
9.2 Transfers by the General Partner or the REIT.
(a) Except for transfers to its Affiliates or as may be
required by the Financing Documents, neither the General Partner nor the REIT
shall withdraw from the Partnership or sell, assign, pledge, encumber or
otherwise dispose of all or any portion of their interest in the Partnership
without the Consent of the Partners at any time that the Limited Partners (other
than the General Partner and the REIT) own, in the aggregate, ten percent (10%)
or more of the issued and outstanding Partnership Units.
(b) In the event the General Partner or the REIT withdraws
from the Partnership in violation of this Agreement or otherwise dissolves or
terminates or upon the Bankruptcy of the General Partner or the REIT, all the
remaining Partners, which are not Affiliates of the General Partner, within 90
days after such withdrawal, dissolution, termination or Bankruptcy, may elect to
continue the business of the Partnership and appoint a successor general partner
effective as of the date of such withdrawal, dissolution, termination or
Bankruptcy.
9.3 Transfers by Limited Partners Other Than the REIT.
(a) Except as provided in Sections 9.3(b) and 9.3(d),
no Limited Partner (other than the REIT) shall have the right to transfer all or
any portion of its Partnership Interest without the prior written consent of the
General Partner, which consent may be given or withheld by the General Partner
in its sole and absolute discretion.
(b) Notwithstanding the provisions of Section 9.3(a)
(but subject to the provisions of Section 9.4), a Limited Partner may transfer,
with or without the consent of the General Partner, all or a portion of its
Partnership Interest to a member of such transferor's Immediate Family, or a
trust for the benefit of a member of such transferor's Immediate Family in a
donative transfer that does not involve the receipt of any consideration;
provided, that any Partnership Interest permitted to be transferred pursuant to
this Section 9.3(b) shall remain subject to all provisions of this Agreement,
including, without limitation, this Article IX.
(c) Except as provided in Section 9.3(b), no Limited
Partner shall have the right to substitute a transferee as a Limited Partner in
its place. The General Partner shall, however, have the right to consent to the
admission of a transferee of the interest of a Limited Partner pursuant to this
Section 9.3 as a substituted limited partner (as such term is used in the Act),
which consent may be given or withheld by the General Partner in its sole and
absolute discretion. The General Partner's failure or refusal to permit a
transferee of any such interests to become a substituted limited partner shall
not give rise to any cause of action against the
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Partnership or any Partner. A transferee who has been admitted as a substitute
Limited Partner in accordance with this Article IX shall have all the rights and
powers and be subject to all the restrictions and liabilities of a Limited
Partner under this Agreement.
(d) An Assignee shall be deemed to have had assigned
to it, and shall be entitled to receive, distributions from the Partnership and
the share of Net Income, Net Losses, and any other items of income, gain, loss,
deduction and credit of the Partnership attributable to the Partnership
Interests assigned to it and shall have all of the Redemption Rights granted to
Limited Partners by this Agreement attributable to such Partnership Interests,
but shall not be deemed to be a holder of Partnership Interests for any other
purpose under this Agreement, and shall not be entitled to vote such Partnership
Interests in any matter presented to the Limited Partners for a vote (such
Partnership Interests being deemed to have been voted on such matter in the same
proportion as all other Partnership Interests held by Limited Partners are
voted). In the event any Assignee desires to make a further assignment of any
such Partnership Interests, such Assignee shall be subject to all the provisions
of this Article IX to the same extent and in the same manner as a Limited
Partner desiring to make an assignment of Partnership Interests.
(e) The Limited Partners acknowledge that the
Partnership Interests have not been registered under any federal or state
securities laws and, as a result thereof, they may not be sold or otherwise
transferred, except in compliance with such laws. Notwithstanding anything to
the contrary contained in this Agreement, no Partnership Interest may be sold or
otherwise transferred unless such transfer is exempt from registration under any
applicable securities laws or such transfer is registered under such laws, it
being acknowledged that the Partnership has no obligation to take any action
which would allow any such Partnership Interests to be registered.
9.4 Certain Restrictions on Transfer. In addition to any other
restrictions on transfer herein contained, in no event may a Partner transfer a
Partnership Interest (i) to any Person who lacks the legal right, power or
capacity to own a Partnership Interest; (ii) if such transfer would cause the
REIT to cease to qualify as a real estate investment trust under the Code; (iii)
if such transfer is effectuated through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the meaning of
section 7704(b) of the Code; (iv) if such transfer would cause the Partnership
to become, with respect to any employee benefit plan, subject to Title 1 of
ERISA, a "party-in-interest" (as defined in Section 3(14) of ERISA) or a
"disqualified person" (as defined in section 4975(c) of the Code); (v) if such
transfer would, in the opinion of counsel to the Partnership, cause any portion
of the assets of the Partnership to constitute assets of any employee benefit
plan pursuant to Department of Labor Regulations Section 2510.2-101; (vi) except
with respect to Partnership Interests pledged in connection with the Financing,
to a lender to the Partnership or any Person who is related to any lender to the
Partnership (within the meaning of Section 1.752-4(b) of the Regulations); or
(vii) if such transfer would result in (A) the Partnership being classified as
an association taxable as a corporation for federal income tax purposes (other
than a qualified REIT subsidiary within the meaning of Section 856(i)(2) of the
Code), or (B) subject the REIT to more than a de minimus amount of tax under
Code section 857 or 4981, other than for capital gains that the REIT has
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elected to retain, unless in the opinion of counsel to the Partnership, such
transfer and ownership of the Partnership Interest by the lender (or related
person) will not have adverse federal income tax consequence to the Partners.
9.5 Effective Dates of Transfers.
Transfers pursuant to this Article IX may only be made as of
the first day of a fiscal quarter of the Partnership, unless the General Partner
otherwise agrees.
ARTICLE X
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
10.1 No Participation in Management. No Limited Partner, in
its capacity as such, shall take part in the management of the Partnership's
business, transact any business in the Partnership's name or have the power to
sign documents for or otherwise bind the Partnership.
10.2 No Withdrawal. No Limited Partner may withdraw its
Capital Contribution from the Partnership without the prior written consent of
the General Partner, other than as expressly provided in this Agreement.
10.3 Conflicts. Subject to any separate agreements or
arrangements relating to rights of first opportunity or any restrictions
contained in an employment or consulting agreement with a Limited Partner, the
Limited Partners and their Affiliates are entitled to carry on such other
business interests, activities and investments, including business interest and
activities that are in direct competition with the Partnership or that are
enhanced by the activities of the Partnership. Neither the Partnership nor any
Partner shall have any right, by virtue of this Agreement, in or to such other
activities of a Limited Partner, or the income or profits derived therefrom.
10.4 Provision of Information.
(a) In addition to other rights provided by this
Agreement or by the Act, each Limited Partner shall have the right, for a
purpose reasonably related to such Limited Partner's interest in the
Partnership, upon written request:
(1) to obtain a copy of the Partnership's
federal, state and local income tax returns
for each Partnership Year;
(2) to obtain a current list of the names and
last known business, residence or mailing
address of each Partner;
(3) to obtain a copy of this Agreement and the
Certificate and all amendments thereto,
together with executed copies of all powers
of
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attorney pursuant to which this Agreement,
the Certificate and all amendments thereto
have been executed; and
(4) to obtain a copy of the most recent annual
and quarterly reports filed with the
Securities and Exchange Commission by the
REIT pursuant to the Securities Exchange Act
of 1934.
(b) Notwithstanding any other provisions of this Section 10.4,
the General Partner may keep confidential from the Limited Partners, for such
period of time as the General Partner determines in its sole and absolute
discretion to be reasonable, any information that (i) the General Partner
reasonably believes to be in the nature of trade secrets or other information
the disclosure of which the General Partner in good faith believes is not in the
best interest of the Partnership or its business or (ii) the Partnership is
required by law or by agreement with an unaffiliated third party to keep
confidential.
10.5 Power of Attorney.
(a) Each Limited Partner constitutes and appoints the
General Partner, any Liquidating Trustee, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to: execute, swear
to, acknowledge, deliver, file and record in the appropriate public offices (i)
all certificates, documents and other instruments (including, without
limitation, this Agreement and the Certificate and all amendments or
restatements thereof) that the General Partner or the Liquidating Trustee deems
appropriate or necessary to form, qualify or continue the existence or
qualification of the Partnership as a limited partnership (or a partnership in
which the limited partners have limited liability) in the State of Delaware and
in all other jurisdictions in which the Partnership may conduct business or own
property; (ii) all instruments that the General Partner deems appropriate or
necessary to reflect any amendment, change, modification or restatement of this
Agreement in accordance with its terms; (iii) all conveyances and other
instruments or documents that the General Partner deems appropriate or necessary
to reflect the dissolution and liquidation of the Partnership pursuant to the
terms of this Agreement, including, without limitation, a certificate of
cancellation; and (iv) all instruments relating to the admission, withdrawal,
removal or substitution of any Partner pursuant to the provisions of this
Agreement, or the Capital Contribution of any Partner.
(b) The foregoing power of attorney is hereby
declared to be irrevocable and a power coupled with an interest, in recognition
of the fact that each of the Partners will be relying upon the power of the
General Partner to act as contemplated by this Agreement in any filing or other
action by it on behalf of the Partnership, and it shall survive the death or
incompetency of a Limited Partner to the effect and extent permitted by law and
the transfer of all or any portion of such Limited Partner's Partnership
Interests and shall extend to such Limited Partner's heirs, successors, assigns
and personal representatives.
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(c) Nothing contained in this Section 10.5 shall
be construed as authorizing the General Partner to amend this Agreement except
in accordance with Article XII hereof.
ARTICLE XI
GRANT OF CERTAIN RIGHTS TO LIMITED PARTNERS
11.1 Grant of Rights.
(a) Subject to the provisions of Section 11.3, on or
after one (1) year from the Effective Date, unless sooner permitted by the
General Partner in its sole discretion, each Limited Partner, other than the
REIT, shall have the right (the "Redemption Right") to require the Partnership
to redeem, no later than 30 days after giving Notice to the General Partner, all
or a portion of the Partnership Units held by such Limited Partner, at a
redemption price equal to, and in the form of the Redemption Amount. For
purposes of this Agreement, "Redemption Amount" means either (i) cash equal to
the Value on the Valuation Date of the Shares multiplied by the number of
Partnership Units offered for redemption or (ii) a number of Shares equal to the
number of Partnership Units offered for redemption by a Redeeming Partner
multiplied by the Conversion Factor; provided, however, if the REIT has issued
to all holders of Shares rights, options, warrants or convertible or
exchangeable securities entitling such shareholders to subscribe for the
purchase of Shares, then the Redemption Amount shall also include such rights in
proportion to the number of Partnership Units offered for redemption.
(b) The Redemption Right shall be exercised pursuant
to a Notice of Redemption delivered to the General Partner by the Limited
Partner who is exercising the Redemption Right ("Redeeming Partner"). The
Redeeming Partner may not exercise the Redemption Right for less than 1,000
Partnership Units or, if such Redeeming Partner holds less than 1,000
Partnership Units, all of the Partnership Units held by such Limited Partner.
(c) A Limited Partner shall have no right, with
respect to any redeemed Partnership Units, to receive any distributions paid
with respect to a Partnership Record Date that is after the Redeeming Limited
Partner delivers a Notice exercising its Redemption Rights.
(d) An Assignee may exercise the Redemption Rights
that were applicable to the Partnership Units that were assigned to it. In
connection with any exercise of such rights by an Assignee, the Redemption
Amount shall be paid by the Partnership directly to such Assignee.
11.2 Right of REIT to Assume.
(a) Notwithstanding the provisions of Section 11.1,
the REIT may, in
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its sole and absolute discretion, assume and directly satisfy a Redemption
Right. Upon satisfaction of the Redemption Right, the REIT shall acquire the
Partnership Units specified in the Redemption Notice and shall be treated for
all purposes of this Agreement as the owner of such Partnership Units. In the
event the REIT exercises its right to satisfy the Redemption Right in the manner
described in the preceding sentence, the Partnership shall have no obligation to
pay any further amount to the Redeeming Partner with respect to such Redeeming
Partner's exercise of the Redemption Right. For federal income tax purposes,
each of the Redeeming Partner, the Partnership, and the REIT shall treat the
transaction between the REIT and the Redeeming Partner as a sale of the
Redeeming Partner's Partnership Units to the REIT. Each Redeeming Partner agrees
to execute such documents as the REIT may reasonably require in connection with
the issuance of any Shares upon exercise of the Redemption Right.
(b) If Shares are to be delivered, a Limited
Partner's registration rights, if any, will be set forth in an agreement between
the REIT and the Limited Partner detailing the nature and extent of any such
registration rights.
11.3 Restriction on Redemption. Notwithstanding the other
provisions of this Article XI, a Limited Partner shall not be entitled to
exercise the Redemption Right pursuant to Section 11.1 if the delivery of Shares
to such Limited Partner would be prohibited under the REIT's Articles of
Incorporation.
ARTICLE XII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
12.1 Amendments.
(a) Except as provided in paragraphs (b) and (c) of this
Section 12.1, this Agreement may not be amended unless such amendment is
approved by the General Partner and Limited Partners holding a majority in
interest of the Percentage Interests held by the Partners (including Partnership
Interests held by the REIT). Amendments to this Agreement may be proposed by the
General Partner or by any Limited Partners holding twenty-five percent (25%) or
more of the Partnership Interests. Following such proposal, the General Partner
will send a copy of any proposed amendment to the Limited Partners. The General
Partner shall seek the written vote of the Partners on the proposed amendment or
shall call a meeting to vote thereon and to transact any other business that the
General Partner may deem appropriate. For purposes of obtaining a written vote,
the General Partner may require a response within a reasonable specified time,
but not less than 15 days, and failure to respond in such time, shall constitute
a vote which is consistent with the General Partner's recommendation with
respect to the proposal.
(b) Notwithstanding Section 12.1(a), the General Partner shall
have the power, without the consent of any of the Limited Partners, to amend
this Agreement as may be required to facilitate or implement any of the
following purposes:
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(1) to add to the obligations of the General Partner
or surrender any right or power granted to the General Partner or any Affiliate
of the General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution, removal,
or withdrawal of Partners in accordance with this Agreement;
(3) to reflect a change that does not adversely
affect the Limited Partners in any material respect, or to cure any ambiguity
in, correct or supplement any provision in this Agreement that is not
inconsistent with law or with other provisions of this Agreement; and
(4) to satisfy any requirements, conditions, or
guidelines contained in any order, directive, opinion, ruling or regulation of a
federal or state agency or contained in federal or state law; and
(5) to set forth the designations, rights, powers,
duties and preferences of the holders of any additional Partnership Interests
issued pursuant to Section 4.2(a) hereof.
The General Partner will provide notice to the Limited Partners promptly after
any action under this Section 12.1(b) is taken.
(c) Notwithstanding paragraphs (a) and (b) of this Section
12.1 hereof, this Agreement shall not be amended without the consent of each
Partner adversely affected if such amendment would (i) convert a Limited
Partner's interest in the Partnership into a general partner's interest, (ii)
modify the limited liability of a Limited Partner, (iii) alter rights of the
Partners to receive allocations and distributions pursuant to Articles V or VI
hereof (except as permitted pursuant to Paragraph 5 of Exhibit B, and Section
12.1(b)(3) hereof), (iv) or modify the Redemption Right, as set forth in Section
11.1 hereof, in a manner that is less favorable than applied when such Partner
was admitted to the Partnership, or (v) amend this Section 12.1(c).
ARTICLE XIII
MEETINGS OF THE PARTNERS
13.1 Partner Meetings.
(a) Special meetings of the Partners may be called by the
General Partner and shall be called upon the receipt by the General Partner of a
written request by Limited Partners holding 15 percent or more of the Percentage
Interests. The call shall state the nature of the business to be transacted.
Notice of any such meeting shall be given to all Partners not less than seven
(7) and not more than thirty (30) days prior to the date of such meeting.
Partners may vote in person or by proxy at such meeting. Whenever the vote or
Consent of Partners is permitted or
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required under this Agreement, such vote or Consent may be given at a meeting of
Partners or as provided for in Section 13.2.
(b) The Partners will hold annual meetings, for the
transaction of such business as may properly come before the meeting. Such
meetings will be held within thirty (30) days of the close of each calendar year
at such place, date and time as the General Partner shall specify in the Notice
of the meeting, which shall be delivered to each Limited Partner at least 10
days prior to such meeting. Neither the business to be transacted at, nor the
purpose of, such annual meeting need be specified in the notice (or waiver of
notice) thereof.
(c) Unless otherwise expressly provided for in this Agreement,
the quorum for a Partners' meeting for the transaction of business will be
fifty-one percent (51%) of the Percentage Interests held by the Partners,
whether in person or by proxy. An act of fifty-one percent (51%) of the
Percentage Interests held by the Partners shall be an act of the Limited
Partners, unless the vote of a greater proportion or number is otherwise
required by the Act or this Agreement.
13.2 Written Consent. Any action required or permitted to be
taken at a meeting of the Partners may be taken without a meeting if a written
consent setting forth the action so taken is signed (in counterpart or
otherwise) by Partners holding at least fifty-one percent (51%) of the
Percentage Interests of all of the Partners (or such other percentage as is
expressly required by this Agreement). Such consent may be in one instrument or
in several instruments, and shall have the same force and effect as a vote of
fifty-one percent (51%) of the Percentage Interests of all of the Partners (or
such other percentage as is expressly required by this Agreement). Such consent
shall be filed with the General Partner.
13.3 Proxy. Each Limited Partner may authorize any Person or
Persons to act for it by proxy on all matters in which a Limited Partner is
entitled to participate, including waiving notice of any meeting, or voting or
participating at a meeting. Every proxy must be signed by the Limited Partner or
its attorney-in-fact. No proxy shall be valid after the expiration of 11 months
from the date thereof unless otherwise provided in the proxy. Every proxy shall
be revocable at the pleasure of the Limited Partner executing it.
ARTICLE XIV
ADMISSION OF ADDITIONAL LIMITED PARTNERS
14.1 Procedure for Admission. After the Effective Date, a
Person who makes a Capital Contribution to the Partnership in accordance with
this Agreement shall be admitted to the Partnership as an additional Limited
Partner only upon furnishing to the General Partner (i) evidence of acceptance,
in form satisfactory to the General Partner, of all of the terms and conditions
of this Agreement, including, without limitation, the power of attorney granted
in Section 10.5 hereof and (ii) such other documents or instruments as may be
required in the
35
<PAGE> 40
discretion of the General Partner in order to effect such Person's admission as
an additional Limited Partner. Notwithstanding anything to the contrary in this
Section 14.1, no Person shall be admitted as an additional Limited Partner
without the consent of the General Partner, which consent may be given or
withheld in the General Partner's sole and absolute discretion. The admission of
any Person as an additional Limited Partner shall become effective on the date
upon which the name of such Person is recorded on the books and records of the
Partnership, following the consent of the General Partner to such admission.
14.2 Allocations and Distribution to Additional Partners. If
any additional Limited Partner is admitted to the Partnership on any day other
than the first day of a Partnership year, then Net Income, Net Losses, each item
thereof and all other items allocable among Partners and Assignees for such
Partnership Year shall be allocated among such additional Limited Partner and
all other Partners and Assignees by taking into account their varying interests
during the year in accordance with section 706(d) of the Code, using such method
as is determined by the General Partner. All distributions of Net Operating Cash
Flow with respect to a Partnership Record Date that is before the date of such
admission shall exclude any additional Limited Partner admitted after such
Partnership Record Date and will be made solely to Partners and Assignees.
ARTICLE XV
GENERAL PROVISIONS
15.1 Notices. All notices, requests, reports or other
communications required or permitted to be given to a Partner or Assignee
pursuant to this Agreement shall be in writing and may be personally served,
telecopied or sent by first class United States mail and shall be deemed to have
been given when delivered in person, upon receipt of telecopy, one Business Day
after deposit in the overnight mail or other next day delivery service or three
business days after deposit in United States mail, postage prepaid, and properly
addressed to the appropriate party. For purposes of this Section 15.1, the
addresses of the parties hereto shall be as set forth in the Partnership's
records. The address of any party hereto may be changed by a notice in writing
given in accordance with the provisions hereof to the General Partner.
15.2 Controlling Law. This Agreement and all questions
relating to its validity, interpretation, performance and enforcement
(including, without limitation, provisions concerning limitations of actions),
shall be governed by and construed in accordance with the laws of the State of
Delaware, notwithstanding any conflict-of-laws doctrines of such state or other
jurisdiction to the contrary.
15.3 Execution in Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an original
and all of which shall together constitute one and the same instrument. Each
party shall become bound by this Agreement immediately upon affixing its
signature hereto.
36
<PAGE> 41
15.4 Provisions Separable. The provisions of this Agreement
are independent of and separable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that for any
reason any other provision may be invalid or unenforceable in whole or in part.
15.5 Entire Agreement. This Agreement, including all the
Exhibits hereto, and the Financing Documents contain the entire understanding
among the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as herein
contained. The express terms hereof control and supersede any course of
performance and/or usage of the trade inconsistent with any of the terms hereof.
This Agreement may not be modified or amended other than by an agreement in
writing.
15.6 Titles and Captions. The Article and Section headings in
this Agreement are for convenience only; they form no part of this Agreement and
shall not affect its interpretation.
15.7 Pronouns and Plurals. Whenever the context may require,
any pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter form and the singular form of nouns, pronouns and verbs shall
include the plural and vice versa.
15.8 Number of Days. Except as otherwise provided, in
computing the number of days for purposes of this Agreement, all days shall be
counted, including Saturdays, Sundays and holidays; provided, however, that if
the final day of any time period falls on a Saturday, Sunday or holiday on which
federal banks are or may elect to be closed, then the final day shall be deemed
to be the next day which is not a Saturday, Sunday or such holiday.
15.9 Assurances. Each of the Partners shall hereafter execute
and deliver such further instruments and do such further acts and things as may
be required or useful to carry out the intent and purpose of this Agreement.
15.10 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted assigns.
15.11 Arbitration. Any controversy or claim arising out of or
relating to this Agreement, including without limitation, the making,
performance or interpretation of this Agreement, will be settled by arbitration.
The arbitration shall be (i) in the event the amount in dispute is less than
$250,000, by a single arbitrator, mutually selected by the General Partner and
the Partner involved or (ii) if the amount in dispute equals or exceeds
$250,000, by a panel of three arbitrators, one arbitrator selected by each of
the General Partner and the Partner involved and the two arbitrators in turn
selecting a third arbitrator to act with them in a panel. Each arbitrator shall
be experienced in the matters at issue. The arbitration shall be held in such
place in the metropolitan Atlanta, Georgia area as may be specified by the
arbitrator or the panel (or any
37
<PAGE> 42
place agreed to by the General Partner and Partner involved, and the arbitrator
or panel), and shall be conducted in accordance with the Commercial Arbitration
Rules existing at the date thereof of the American Arbitration Association to
the extent not inconsistent with this Agreement. The decision of the arbitrator
or panel shall be final and binding as to any matters submitted under this
Agreement; provided, however, that if necessary, such decision may be enforced
by either the Partnership or the Partner involved in any court of record having
jurisdiction over the subject matter or over any of the parties. The
determination of which party (or combination of them) bears the costs and
expenses incurred in connection with any such arbitration proceeding shall be
determined by the arbitrator or the panel. The parties agree that the arbitrator
or panel shall have no jurisdiction to consider evidence with respect to or
render any award or judgment for punitive damages (or any other amount awarded
for the purpose of imposing a penalty). The parties agree that all facts and
other information relating to any arbitration arising under this Agreement will
be kept confidential to the fullest extent permitted by law.
15.12 Exhibits. The provisions of Exhibits A through D to this
Agreement are by this reference hereby incorporated into this Agreement as if
contained in the body of the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement or caused this Agreement to be executed on their behalf as of the date
first above written.
GENERAL PARTNER:
STRATEGIC TIMBER OPERATING CO.
By:
---------------------------------
Title:
------------------------------
LIMITED PARTNERS:
STRATEGIC TIMBER TRUST, INC.
By:
---------------------------------
Title:
------------------------------
OLD PIONEER, LLC
By:
---------------------------------
Gregory M. Demers, as authorized member
38
<PAGE> 43
------------------------------
GREGORY M. DEMERS
------------------------------
T. YATES EXLEY
KING INVESTMENT GROUP, INC.
By:
---------------------------
Title:
------------------------
------------------------------
DARRICK SALYERS
------------------------------
JAMES A. YOUELL
MACH ONE PARTNERS, LLC
By:
---------------------------
Title:
------------------------
39
<PAGE> 44
EXHIBIT A TO
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
STRATEGIC TIMBER PARTNERS, LP
PARTNERS' CONTRIBUTIONS AND INTERESTS
<TABLE>
<CAPTION>
Cash or
Name/Address Agreed Value of Partnership Percentage
of Partner Contributions Units Interest
------------- --------------- ----------- ----------
<S> <C> <C> <C>
General Partner
---------------
Strategic Timber Operating Co. $_________ _________ _____%
5 N. Pleasant Street
New London, NH 03257
Limited Partners
----------------
Strategic Timber Trust, Inc. $__________ ________ ______%
5 N. Pleasant Street
New London, NH 03257
Gregory M. Demers $_________ ________ ______%
25310 Jeans Road
P.O. Box 876
Veneta, OR 97487
Old Pioneer, LLC $__________ ________ ______%
25310 Jeans Road
P.O. Box 876
Veneta, OR 97487
$__________ _________ ______%
T. Yates Exley
25310 Jeans Road
P.O. Box 876
Veneta, OR 97487
King Investment Group, Inc. $_________ __________ _____%
30414 LeBleu Road
Eugene, OR 97405
</TABLE>
A-1
<PAGE> 45
<TABLE>
<CAPTION>
Cash or
Name/Address Agreed Value of Partnership Percentage
of Partner Contributions Units Interest
------------ --------------- ----------- ----------
<S> <C> <C> <C>
Darrick Salyers $_________ ________ _____%
25310 Jeans Road
P.O. Box 876
Veneta, OR 97487
James A. Youell $_________ ________ _____%
25310 Jeans Road
P.O. Box 876
Veneta, OR 97487
MACH ONE PARTNERS, $__________ _________ _____%
LLC
c/o Nancy K. Thomason
First Union National Bank
of Georgia
1100 Abernathy Road, N.E.
Bldg. 500
Atlanta, GA 30328
Total $___________ _________ 100%
</TABLE>
A-2
<PAGE> 46
EXHIBIT B TO
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
STRATEGIC TIMBER PARTNERS, LP
CAPITAL ACCOUNT MAINTENANCE
Definitions. The following terms, for the purposes of this
Exhibit B and the Agreement shall have the meaning set forth below:
1. "Depletion" shall mean, with respect to standing timber
owned by the Partnership, the recovery (as a noncash expense) of the costs
associated with the acquisition or establishment of timber stands, as determined
under Code section 611 and the Regulations thereunder; provided, however, if
there is a difference between the Gross Asset Value and adjusted tax basis of
such timber, Depletion means "book" depletion as determined under the Code
section 704(b) Regulations.
"Depreciation" shall mean, with respect to any asset of the
Partnership for any fiscal year or other period, the depreciation or
amortization, as the case may be, allowed or allowable for Federal income tax
purposes in respect of such asset for such fiscal year or other period;
provided, however, that if there is a difference between the Gross Asset Value
and the adjusted tax basis of such asset, Depreciation shall mean "book"
depreciation or amortization as determined under the Code section 704(b)
Regulations.
2. Capital Account of the Partners. The Partnership shall
maintain for each Partner, a separate Capital Account in accordance with the
rules of Regulation Section 1.704-1(b)(2)(iv).
3. Computation of Net Income or Net Loss. For each fiscal year
or other applicable period, the Net Income or Net Loss shall be an amount equal
to the Partnership's net income or loss for such year or period as determined
for federal income tax purposes by the Accountants, in accordance with section
703(a) of the Code. For this purpose, all items of income, gain, loss or
deduction required to be stated separately pursuant to Code section 703(a) shall
be included in taxable income or loss. The following adjustments shall then be
made:
(a) include as an item of gross income any tax-exempt
income received by the Partnership;
(b) any expenditure of the Partnership described in
section 705(a)(2)(B) of the Code shall be treated as a deductible expense;
(c) in lieu of depreciation, depletion, amortization,
and other cost recovery deductions taken into account in computing Net Income or
Net Loss, there shall be taken into account Depreciation and Depletion;
(d) gain or loss resulting from any disposition of
Partnership property
B-1
<PAGE> 47
with respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of such property as
adjusted for Depreciation and Depletion rather than its adjusted tax basis; and
(e) in the event of an adjustment to the Gross Asset
Value of any Partnership asset, as provided for in subparagraphs (b), (c) and
(d) of Paragraph 3 of this Exhibit B, that also requires the Capital Accounts of
the Partnership to be adjusted pursuant to Regulation Section
1.704-1(b)(2)(iv)(e), (f) and (m), the amount of such adjustment is to be taken
into account as an additional item of income or deduction, as is applicable.
(f) Once an item of income, gain, loss or deductions
is included in the initial computation of Net Income or Net Loss but is then
subjected to the special allocation rules in Exhibit C, Net Income or Net Loss
shall be recomputed without regard to such item.
4. Contributed Property and Adjustments to Value.
With respect to any asset of the Partnership, the Gross Asset
Value of such asset shall be such asset's adjusted basis for Federal income tax
purposes, except as follows:
(a) the initial Gross Asset Value of any asset (other than
cash) contributed by a Partner to the Partnership shall be the
gross fair market value of such asset at the time of its
contribution, and such amount as reduced for any liabilities
assumed or taken subject to by the Partnership in connection
with such contribution, shall be reflected in the books and
records of the Partnership and on Exhibit A to this Agreement
as the "Agreed Value" of the contributed property;
(b) if the General Partner reasonably determines, that an
adjustment is necessary or appropriate to reflect the relative
economic interests of the Partners, the Gross Asset Values of
all Partnership assets shall be adjusted to equal their
respective gross fair market values, as reasonably determined
by the General Partner, as of the following events:
(x) immediately prior to a Capital Contribution
(other than a de minimis Capital Contribution) to the
Partnership by a new or existing Partner as
consideration for a Partnership Interest;
(y) immediately prior to the distribution by the
Partnership to a Partner of more than a de minimis
amount of Partnership property as consideration for
the redemption of a Partnership Interest; and
(z) immediately prior to the liquidation of the
Partnership within the meaning of the Regulations
under Code section 704(b);
(c) in accordance with Regulations Section
1.704-1(b)(2)(iv)(e), the Gross Asset Values of Partnership
Assets distributed in kind shall be adjusted upward or
downward to reflect any unrealized gain or loss attributable
to such Partnership property, as of the time any such asset is
distributed; and
B-2
<PAGE> 48
(d) the Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the
adjusted basis of such assets pursuant to Sections 734(b) or
743(b) of the Code, but only to the extent that such
adjustments are taken into account in determining Capital
Accounts pursuant to the Regulations under Code section
704(b); provided, however, that Gross Asset Values shall not
be adjusted pursuant to this paragraph to the extent that the
General Partner reasonably determines that an adjustment
pursuant to paragraph (b) above is necessary or appropriate in
connection with a transaction that would otherwise result in
an adjustment pursuant to this paragraph (d).
5. Periodic Adjustments to Gross Asset Value. As of the end of
each fiscal year or other computation period, Gross Asset Values shall be
adjusted by any Depletion or Depreciation taken into account with respect to the
Partnership's assets for purposes of computing Net Income and Net Loss.
6. Overriding Principles. The provisions of the Agreement
(including this Exhibit B and the other exhibits to this Agreement), relating to
the maintenance of capital accounts and allocations are intended to comply with
Regulation Section 1.704-1(b) and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the General Partner shall
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits thereto are computed in order to comply with such
Regulations, the General Partner may make such modifications, provided that such
modification is not likely to have a material adverse effect on the amounts
distributable to any Partner or Assignee, pursuant to Article VIII of this
Agreement, upon dissolution of the Partnership.
B-3
<PAGE> 49
EXHIBIT C TO
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
STRATEGIC TIMBER PARTNERS, LP
SPECIAL ALLOCATION RULES
Notwithstanding the provisions of Section 6.1 of the
Agreement, the Special Allocation Rules of this Exhibit C are controlling as to
the allocation of any items of Partnership income, gain, loss and deduction.
1. Definitions. The following terms shall, for purposes
of this Exhibit C and the Agreement, have the meanings set forth below:
"Adjusted Capital Account Deficit" shall mean, with
respect to any Partner, the deficit balance, if any, in such Partner's Capital
Account as of the end of any relevant fiscal year and after giving effect to the
following adjustments:
(a) credit to such Capital Account any amounts which
such Partner is obligated or treated as obligated to
restore with respect to any deficit balance in such
Capital Account pursuant to Section
1.704-1(b)(2)(ii)(c) of the Regulations, or is deemed
to be obligated to restore with respect to any
deficit balance pursuant to the penultimate sentences
of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the
Regulations; and
(b) debit to such Capital Account the items described
in Sections 1.704-1(b)(2)(ii)(d)(4),(5) and (6) of
the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the requirements of the alternate test for economic effect contained
in Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted
consistently therewith.
"Nonrecourse Deductions" shall have the meaning set
forth in Sections 1.704-2(b)(1) and (c) of the Regulations.
"Nonrecourse Liabilities" shall have the meaning set
forth in Section 1.752-1(a)(2) of the Regulations.
"Partner Minimum Gain" shall mean "partner
nonrecourse debt minimum gain" as determined in accordance with Regulation
Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" shall have the
meaning set forth in Section 1.704-2(i)(2) of the Regulations.
C-1
<PAGE> 50
"Partnership Minimum Gain" shall have the meaning
set forth in Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations.
"Regulatory Allocations" shall mean the allocations
required by the Regulations under Code section 704(b) in order for allocations
to be deemed to have "economic effect" within the meaning of Code section 704(b)
and as provided for in subparagraphs (a) through (f) of Paragraph 2 of this
Exhibit C.
2. Special Allocations.
Notwithstanding any other provisions of the Agreement, the
following special allocations shall be made prior to any allocation under
Section 6.1 of the Agreement and in the following order:
(a) Minimum Gain Chargeback. If there is a net decrease in
Partnership Minimum Gain for any Partnership fiscal year (except as otherwise
provided in Regulation Section 1.704-2), each Partner shall be specially
allocated items of Partnership income and gain for such year (and, if necessary,
subsequent years) in an amount equal to that Partner' s share of the net
decrease in Partnership Minimum Gain. The items to be so allocated shall be
determined in accordance with Regulation Section 1.704-2(f). This paragraph (a)
is intended to comply with the minimum gain chargeback requirement of Regulation
Section 1.704-2 and shall be interpreted consistently therewith. Allocations
pursuant to this paragraph (a) shall be made in proportion to the respective
amounts required to be allocated to each Partner pursuant to the Regulations.
(b) Partner Minimum Gain. If there is a net decrease in
Partner Minimum Gain during any fiscal year (except as otherwise provided in
Regulation Section 1.704-2(i)(4)), each Partner shall be specially allocated
items of Partnership income and gain for such year (and, if necessary,
subsequent years) in an amount equal to the Partner's share of the net decrease
in Partner Minimum Gain, if any. The items to be so allocated shall be
determined in accordance with Regulation Section 1.704-2(i)(4) and (j)(2). This
paragraph (b) is intended to comply with the minimum gain chargeback requirement
with respect to Partner Nonrecourse Debt contained in the Regulations and shall
be interpreted consistently therewith. Allocations pursuant to this paragraph
(b) shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant to the Regulations.
(c) Qualified Income Offset. In the event a Partner
unexpectedly receives any adjustments, allocations or distributions described in
Regulation Section 1.704-1(b)(2)(ii) (d)(4),(5), or (6), and such Limited
Partner has an Adjusted Capital Account Deficit as a result of such adjustments,
allocations or distributions, items of Partnership income and gain shall be
specially allocated to such Partner in an amount and manner sufficient to
eliminate the Adjusted Capital Account Deficit as quickly as possible unless
such deficit balance is otherwise eliminated pursuant to Sections 2(a) or 2(b)
of this Exhibit C. This paragraph (c) is intended to constitute a "qualified
income offset" under Regulation Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
(d) Nonrecourse Deductions. Nonrecourse Deductions for any
fiscal year or other applicable period shall be allocated to the Partners in
accordance with their respective Percentage Interests.
C-2
<PAGE> 51
(e) Partner Nonrecourse Deductions. Partner Nonrecourse
Deductions for any fiscal year or other applicable period shall be specially
allocated to the Partner that bears the economic risk of loss for the debt
(i.e., the Partner Nonrecourse Debt) as to which such Partner Nonrecourse
Deductions are attributable, as determined under Regulation Section
1.704-2(b)(4) and (i)(1)).
(f) Excess Nonrecourse Liabilities. The "excess nonrecourse
liabilities" of the Partnership (within the meaning of Regulation Section
1.752-3(a)(3)) shall be allocated among the Partners in accordance with the
Partners' Percentage Interests.
(g) Curative Allocations. The Regulatory Allocations shall be
taken into account in allocating other items of income, gain, loss, and
deduction among the Partners so that, to the extent possible, the cumulative net
amount of allocations of Partnership items under the Regulatory Allocations and
Section 6.1 of the Agreement shall be equal to the net amount that would have
been allocated to each Partner if the Regulatory Allocations had not occurred.
This subparagraph (f) is intended to minimize, to the extent possible, any
economic distortions which may result from application of the Regulatory
Allocations and shall be interpreted in a manner consistent therewith.
C-3
<PAGE> 52
EXHIBIT D TO
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
STRATEGIC TIMBER PARTNERS, LP
NOTICE OF REDEMPTION
The undersigned Limited Partner hereby (i) irrevocably
requests redemption of Partnership Units in Strategic Timber Partners, LP in
accordance with the terms of the Second Amended and Restated Agreement of
Limited Partnership of Strategic Timber Partners, LP, as amended, and the
Redemption Right referred to therein, (ii) will surrender such Partnership Units
and all right, title and interest therein, and (iii) requests that the Cash
Amount or the Shares be delivered to the address specified below as a result of
the exercise of my Redemption Rights, with the form of consideration to be
determined by the General Partner. If the Shares are to be delivered, the
undersigned requests that such Shares be registered or placed in the name(s) and
at the address(es) specified below.
The undersigned hereby represents, warrants, certifies and
agrees (i) that the undersigned has good, marketable and unencumbered title to
such Partnership Units, free and clear of the rights or interests of any other
person or entity, (ii) that the undersigned has the full right, power and
authority to redeem and surrender such Partnership Units as provided herein,
(iii) that the undersigned has obtained the consent or approval of all persons
or entities, if any, having the right to consent to or approve such redemption
and surrender, (iv) that, if the Shares are to be delivered, the undersigned is
acquiring such the Shares for its own account, for investment and without a view
to engaging in any resale or distribution thereof, except such as may occur
pursuant to the registration statement required to be filed by the REIT pursuant
to a Registration Rights and Lock-Up Agreement to which the undersigned and the
REIT are parties, (v) that, if the Shares are to be delivered, such Shares may
not be transferred by the undersigned except in transactions pursuant to such
registration statement or that are exempt from the registration requirements of
the Securities Act of 1933 and all applicable state and foreign securities laws
and (vi) that, if the Shares are to be delivered, the REIT may refuse to
transfer such Shares if it does not receive satisfactory evidence of such
registration or exemptions.
Dated:_____________________
Name of Limited Partner: ------------------------------------
------------------------------------
(Signature of Limited Partner)
------------------------------------
(Street Address)
------------------------------------
(City, State, Zip Code)
D-1
<PAGE> 53
Signature Guaranteed by:
------------------------------------
IF SHARES ARE TO BE ISSUED, ISSUE TO:
Please insert social security or identifying number.
--------------------------
Name of Shareholder(s):
Signature Guaranteed by:
------------------------------------
IF REIT SHARES ARE TO BE ISSUED, ISSUE TO:
Please insert social security or identifying number.
Name:
D-2
<PAGE> 54
List of Exhibits
Exhibit A Partners' Contributions and Interests
Exhibit B Capital Account Maintenance
Exhibit C Special Allocation Rules
Exhibit D Notice of Redemption
<PAGE> 1
EXHIBIT 3.6.1
AGREEMENT OF LIMITED PARTNERSHIP
OF
STRATEGIC TIMBER PARTNERS II, LP
This is a Limited Partnership Agreement, made and entered into as of
September 25, 1998, by and between Strategic Timber Two Operating Co., LLC, a
Georgia limited liability company (hereinafter referred to as the "General
Partner") and Strategic Timber Trust II, LLC, a Georgia limited liability
company (hereinafter sometimes referred to as "Limited Partner").
STATEMENT OF BACKGROUND INFORMATION
The parties desire to form Strategic Timber Partners II, LP, as a Georgia
limited partnership (the "Partnership") and to enter into this limited
partnership agreement.
STATEMENT OF AGREEMENT
The parties hereto desire to do business as a limited partnership
pursuant to the provisions of the Revised Uniform Limited Partnership Act (the
"Act"), as enacted in Georgia, and in consideration of the mutual covenants and
agreements herein contained, the parties do hereby agree as follows:
<PAGE> 2
ARTICLE 1: GENERAL PROVISIONS.
1.1 NAME OF THE PARTNERSHIP. The name of the Partnership is Strategic
Timber Partners II, LP, or such other name as the General Partner may from time
to time determine.
1.2 BUSINESS OF THE PARTNERSHIP. The Partnership shall indirectly
acquire, hold, own, manage and transfer timberlands through the acquisition of
all the membership interest in Pioneer Resources, LLC, an Oregon limited
liability company; sell and otherwise dispose of the timber grown on such
property; and engage in such other activities as shall be necessary, desirable
or appropriate to effectuate the foregoing purposes.
1.3 PLACE OF BUSINESS; AGENT FOR SERVICE OF PROCESS. The location of
the principal place of business of the Partnership shall be at 5 North Pleasant
Street, New London, New Hampshire 03257, or such other location as shall be
selected from time to time by the General Partner in its sole discretion.
William H. Bradley shall act as registered agent of the Partnership and the
Registered Office of the Partnership shall be 999 Peachtree Street, Suite 2300,
Atlanta, Georgia 30309. The registered office and registered agent may be
changed from time to time as the General Partner deems advisable by filing
notice of such changes with the Secretary of State in accordance with the Act.
1.4 DURATION OF THE PARTNERSHIP. The Partnership shall commence upon
the date hereof and shall continue until the occurrence of an act or event
specified in this Agreement or by law as one effecting dissolution.
2
<PAGE> 3
1.5 PARTNERS' ADDRESSES. The address of each partner is as follows:
(a) The General Partner's address is 5 North Pleasant Street,
New London, New Hampshire 03257.
(b) The Limited Partner's address is 5 North Pleasant Street,
New London, New Hampshire 03257.
1.6 NATURE OF PARTNERS' INTERESTS. The interest of the partners in the
Partnership shall be personal property for all purposes. All property owned by
the Partnership, whether real or personal, tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no partner,
individually, shall have any ownership of such property.
1.7 GENERAL PARTNER. In no event shall the filing of a certificate of
dissolution with respect to the General Partner or the revocation of its charter
(after lapse of time or otherwise) cause the General Partner to cease to be the
general partner of the Partnership.
ARTICLE 2: FINANCIAL MATTERS
2.1 CAPITAL CONTRIBUTIONS. One hundred dollars shall constitute the
capital contribution of the partners, and the partners agree to contribute their
respective shares (determined in accordance with the percentages set forth in
Section 2.2 hereof) of such capital contribution promptly upon the
3
<PAGE> 4
receipt of a request therefor from the General Partner. The partners shall not
at any time be obligated or required to make any other contributions of capital
to the Partnership, notwithstanding any other provision of this Agreement.
2.2 PROFITS AND LOSSES; CAPITAL ACCOUNTS; FISCAL YEAR. Except as
otherwise provided in this Agreement, the net profits and the net losses of the
Partnership shall be allocated to the partners in the following percentages:
General Partner 90%
Limited Partner 10%
All items of depreciation, gain, loss, deduction or credit shall, for tax
purposes, be allocated in the same percentage in which the partners share
profits and losses, except as otherwise provided herein. The fiscal year of the
Partnership shall be the calendar year.
2.3 TAX MATTERS PARTNER. For purposes of IRC ss.ss. 6621 through 6623,
the General Partner shall be the tax matters partner of the Partnership.
2.4 FINANCING. The General Partner is hereby authorized to arrange such
financing as the General Partner may deem appropriate to the conduct of the
Partnership business. The General Partner is hereby expressly authorized to
arrange such financing and in the name of the Partnership to borrow money and as
security therefor to encumber all or any part of the Partnership assets and
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to refinance any indebtedness secured by any of the Partnership assets or to
increase, modify, consolidate, extend or prepay the same in whole or in part.
2.5 DISTRIBUTIONS. In the sole discretion of the General Partner,
available cash of the Partnership will be distributed in accordance with the
respective percentage shares of the partners in the net profits and net losses
of the Partnership.
2.6 REDEMPTION. Concurrently with the admission of additional persons
as limited partners in the Partnership at which time this Agreement will be
amended and restated, the partnership interest of STT II will be redeemed for
$10, the amount of its original capital contribution.
ARTICLE 3: ASSIGNABILITY OF INTERESTS.
3.1 ASSIGNMENT AND SUBSTITUTION OF LIMITED PARTNER'S INTEREST. The
interest of the Limited Partner may not be assigned in whole or in part without
the prior written consent of the General Partner.
3.2 ASSIGNMENT OF GENERAL PARTNER'S INTEREST. The General Partner may
not assign its interest (or any part thereof) in the Partnership or admit a new
General Partner or a new Limited Partner without the consent of all of the
Limited Partners of the Partnership.
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ARTICLE 4: DISSOLUTION AND TERMINATION.
4.1 EVENTS OF DISSOLUTION. The Partnership shall be dissolved:
(a) upon the mutual consent of all the partners;
(b) upon the occurrence of an event specified under the laws
of the State of Delaware as one effecting dissolution;
(c) in any event, at 12:00 midnight on December 31, 2097.
4.2 DISSOLUTION AND WINDING UP. Upon the dissolution of the
Partnership, the General Partner shall proceed with reasonable promptness to
wind up the affairs of the Partnership. After payment of liabilities owing to
creditors, including partners, the General Partner or liquidator shall set up
such reserves as the General Partner or liquidator deems reasonably necessary or
appropriate for any contingent or unforeseen liabilities or obligations of the
Partnership. Such reserves may be paid over by the General Partner or liquidator
to a bank or an attorney at law, to be held in escrow for the purpose of paying
any such contingent or unforeseen liabilities or obligations and, at the
expiration of such period as the General Partner or liquidator may deem
advisable, such reserves shall be distributed to the partners or their assigns
in accordance with their respective percentage interests in profits and losses.
After paying such liabilities and setting up such reserves, the General Partner
or liquidator shall cause the remaining net assets of the Partnership to be
distributed to the partners or their assigns in accordance with their respective
percentage interests in profits and losses.
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In the event any of the net assets consist of notes receivable or other non-cash
assets, the cash shall be distributed first and the notes receivable and
non-cash assets last.
[signatures on next page]
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IN WITNESS WHEREOF, the partners have executed this agreement, under
seal, as of the date first above written.
GENERAL PARTNER:
STRATEGIC TIMBER TWO OPERATING CO., LLC a
Georgia limited liability company
By: /s/
--------------------------------------
Its: VP
-------------------------------------
LIMITED PARTNER:
STRATEGIC TIMBER TRUST II, LLC, a Georgia
limited liability company
By: /s/
--------------------------------------
Its: VP
-------------------------------------
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EXHIBIT 3.6.2
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
STRATEGIC TIMBER PARTNERS II, LP
DATED AS OF
OCTOBER 9, 1998
<PAGE> 2
THE LIMITED PARTNERSHIP INTERESTS REFERRED TO IN THIS AGREEMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. REFERENCE IS MADE TO ARTICLE IX OF THIS AGREEMENT FOR PROVISIONS RELATING
TO VARIOUS RESTRICTIONS ON THE SALE OR OTHER TRANSFER OF THESE INTERESTS.
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
STRATEGIC TIMBER PARTNERS II, LP
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP is made and entered into as of October 9, 1998 by and among the
General Partner and the Limited Partners (as those terms are defined below).
R E C I T A L S:
On September 23, 1998, Strategic Timber Two Operating Co., LLC
("STTOC"), as the general partner, and Strategic Timber Trust II, LLC ("STTII"),
as the limited partners (collectively the "Original Partners") formed Strategic
Timber Partners II, LP, ("Partnership") as a limited partnership under the
Revised Uniform Limited Partnership Act of the State of Georgia pursuant to the
Certificate and an Agreement of Limited Partnership of Strategic Timber Partners
II, LP, dated as of September 25, 1998 ("Original Agreement").
The Original Partners now desire to admit the Persons
designated as Class B Limited Partners on Exhibit A as Limited Partners in the
Partnership in consideration of the contribution specified in that certain
Acquisition and Contribution Agreement by and among the Partnership and Class B
Limited Partners, dated as of October 9, 1998 ("Class B Agreement").
The Original Partners now desire to admit MACH ONE PARTNERS,
LLC as the Class C Limited Partner in consideration of the contribution
specified in that certain Contribution Agreement by and between the Partnership
and the Class C Limited Partner, dated as of October 9, 1998 ("Class C
Agreement").
<PAGE> 3
Concurrently, the following shall occur: (i) the Class C
Limited Partner will contribute $10 million to the Partnership, (ii) the Class B
Limited Partners will contribute a portion of their membership interests in
Pioneer to the Partnership, with the contributed Pioneer membership interests
having the agreed value shown on Exhibit A to this Agreement, and (iii) STTOC
and STTII will contribute $35 million to the Partnership in cash or as a result
of payment of expenses for the benefit of the Partnership.
The parties hereto desire to amend and restate the Original
Agreement in its entirety in accordance with the terms set forth herein:
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration on, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the parties
hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. Except as otherwise expressly provided herein
and in the Exhibits the following terms and phrases shall have the meanings as
set forth below:
"Accountants" shall mean Arthur Andersen, LLP or such other
nationally recognized accountants as are selected by the General Partner.
"Act" shall mean the Revised Uniform Limited Partnership Act
of the State of Georgia, as the same may hereafter be amended from time to time.
"Affiliate" shall mean, with respect to any Partner (or as to
any other person the affiliates of whom are relevant for purposes of any of the
provisions of this Agreement), (i) any member of the Immediate Family of such
Partner; (ii) any beneficiary of a Limited Partner that is a trust; (iii) any
trust for the benefit of any Person referred to in the preceding clauses (i) and
(ii); or (iv) any Entity which directly or indirectly through one or more
intermediaries, Controls, is Controlled by, or is under common Control with, any
Person referred to in the preceding clauses (i) through (iii).
"Agreement" shall mean this First Amended and Restated Limited
Partnership Agreement and the Exhibits attached thereto, as originally executed
and as amended, modified, supplemented or restated from time to time, as the
context requires.
"Agreed Value" means the cash or net fair market value of the
Capital Contributions made by the Partners as reflected on Exhibit A to this
Agreement.
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"Assignee" means a Person to whom one or more Partnership
Units have been transferred in a manner permitted under this Agreement, but who
has not become a substituted Limited Partner, and who has the rights set forth
in Section 9.3(d).
"Audited Financial Statements" shall mean financial statements
(balance sheet, statement of income, statement of partners' equity and statement
of cash flows) prepared in accordance with GAAP and accompanied by an
independent auditor's report containing an opinion thereon.
"Bankruptcy" shall mean, with respect to any Partner, (i) the
commencement by such Partner of any petition, case or proceeding seeking relief
under any provision or chapter of the federal Bankruptcy Code or any other
federal or state law relating to insolvency, bankruptcy or reorganization, (ii)
an adjudication that such Partner is insolvent or bankrupt; (iii) the entry of
an order for relief under the federal Bankruptcy Code with respect to such
Partner, (iv) the filing of any such petition or the commencement of any such
case or proceeding against such Partner, unless such petition and the case or
proceeding initiated thereby are dismissed within ninety (90) days from the date
of such filing or (v) the filing of an answer by such Partner admitting the
allegations of any such petition.
"Bridge Loan" means the senior secured loan provided to STT II
by the lenders under that Bridge Loan Agreement dated as of October 9, 1998,
among the STT II, the lenders party thereto, ABN AMRO Bank N.V., as
administrative agent for the lenders, First Union National Bank and NationsBank,
N.A., as co-arrangers (as the same may be amended, modified or restated from
time to time) having a 12-month term and in the original principal amount of
$35,000,000.
"Capital Account" shall mean the separate "book" account which
the Partnership shall establish and maintain for each Partner in accordance with
Exhibit B of this Agreement.
"Capital Contribution" shall mean the amount of money and the
initial Gross Asset Value of any contributed property, net of liabilities
assumed by the Partnership in connection with such contribution or as to which
each property is subject when contributed.
"Certificate" shall mean the Certificate of Limited
Partnership establishing the Partnership, as filed with the office of the
Georgia Secretary of State, as it may be amended from time to time in accordance
with the terms of this Agreement and the Act.
"Class A Partner" shall mean a Partner that owns one or more
Class A Partnership Units.
"Class A Partnership Units" shall mean the Partnership Units
issued to the STTOC in exchange for its Capital Contribution as specified on
Exhibit A hereto. The Class A Partnership Units do not have any of the put
rights as specified in Exhibits D and E.
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"Class B Limited Partner" shall mean a Partner that owns one
or more Class B Partnership Units.
"Class B Partnership Units" shall mean the Partnership Units
having the rights specified in Exhibit D.
"Class B Representative" means Gregory M. Demers or the Person
who is named his duly appointed successor by vote of seventy-five percent (75%)
of the Percentage Interests held by the Class B Partners.
"Class C Limited Partner" shall mean a Partner that owns one
or more Class C Partnership Units having the rights specified in Exhibit E.
"Class C Partnership Units" shall mean the Partnership Units
having the Redemption Rights and the other rights specified in Exhibit E.
"Code" shall mean the Internal Revenue Code of 1986, as
amended and in effect from time to time. Any reference herein to a specific
section of the Code shall be deemed to include a reference to any corresponding
provision of succeeding laws.
"Consent" shall mean the written consent or approval of a
proposed action by Partners owning sixty-eight (68%) or more of the Percentage
Interests given in accordance with Section 13.2 hereof.
"Control" shall mean the ability, whether by the direct or
indirect ownership of shares or other equity interests, by contract or
otherwise, to elect a majority of the directors of a corporation, to select the
managing partner of a partnership, or otherwise to select, or have the power to
remove and then select, a majority of those persons exercising governing
authority over an Entity. In the case of a limited partnership, the sole general
partner, all of the general partners to the extent each has equal management
control and authority, or the managing general partner or managing general
partners thereof shall be deemed to have control of such partnership and, in the
case of a trust, any trustee thereof or any Person having the right to select
any such trustee shall be deemed to have control of such trust.
"Entity" shall mean any general partnership, limited
partnership, limited liability company, corporation, joint venture, trust,
business trust, real estate investment trust, association or other business
entity.
"Financing" means, collectively, the Bridge Loan and Senior
Credit Facilities.
"Financing Documents" means any and all credit and loan
agreements and related documents evidencing or securing the Financing.
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"GAAP" shall mean generally accepted accounting principles as
in effect from time to time.
"General Partner" means Strategic Timber Two Operating Co.,
LLC, a Georgia limited liability company, its duly admitted successors and
assigns and any other Person who is a general partner of the Partnership at the
time of reference thereto.
"Gross Asset Value" shall mean the value at which the assets
of the Partnership are carried on its books as required by the Regulations under
Code section 704(b) and as determined in accordance with Exhibit B.
"Immediate Family" shall mean, with respect to any Person,
such Person's spouse, parents, descendants, brothers, sisters and the estate of
any such Person.
"Indemnitee" shall mean (i) any Person made a party to a
proceeding by reason of his status as (A) the General Partner, (B) an employee,
independent contractor, trustee, director, or officer of the General Partner or
of an Affiliate of the General Partner or (c) a Liquidating Trustee of the
Partnership or the General Partner, and (ii) such other Persons (including
Affiliates of the General Partner or the Partnership) as the General Partner may
designate from time to time in its sole and absolute discretion but shall not
include Frontier Resources, LLC.
"IPO" means the REIT's initial underwritten offering of its
Shares to the public pursuant to registration statement that has been declared
effective by the SEC.
"IPO Closing" means the consummation of the sale of Shares by
the REIT in the IPO including receipt of the consideration.
"Limited Partners" shall mean those Persons listed under the
heading "Limited Partners" on Exhibit A attached hereto, as amended from time to
time to reflect the admission of additional Persons and any permitted successors
or assigns, who are admitted as a limited partner in the Partnership.
"Liquidity Event" means any one or more of the following: (i)
the REIT having filed a registration statement for the sale of its Shares to the
public in an underwritten offering with the SEC, or (ii) the Partnership having
distributed private placement memoranda to potential equity investors, having
adequate net worth to fund their subscriptions, in a proposed private placement
of Partnership Units or Shares in the REIT and distributed to all the Partners a
copy of such private placement memorandum with a list of all potential investors
to whom such private placement memorandum has been sent, or (iii) filing with
the SEC a registration statement for an underwritten public offering of debt
securities by the Partnership, or (iv) a loan commitment for refinancing the
existing Financing on terms more favorable than the existing Financing, if any
one or more of such events will result in minimum net proceeds at least equal to
Net Liquidity Event Proceeds; provided however, if a Liquidity Event occurs
solely as a result of either (i) a refinancing of the Financing or (ii) a public
debt offering, the minimum net proceeds must be sufficient entirely to
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satisfy: (a) the Bridge Loan; (b) the bridge loan as to which STT is the
borrower; (c) the aggregate Class B Consideration as defined in Exhibit D; and
(d) if the General Partner is still controlled by STT II, the Class C
Consideration as defined in Exhibit E; and (e) the aggregate consideration
payable to the Class C limited partner of STP pursuant to Exhibit D of the STP
limited partnership agreement.
"Liquidity Event Closing" means consummation of any one or
more of the following: (i) the sale of REIT's Shares in an initial public
offering of its Shares including receipt of the consideration, or (ii) the
funding by the investors of their equity contributions to the Partnership or the
REIT pursuant to a private placement of securities, or (iii) the funding of a
public offering of debt securities by the Partnership, or (iv) refinancing the
existing financing of the Partnership, if any one or more of such events results
in minimum net proceeds at least equal to Net Liquidity Event Proceeds;
provided, however, if a Liquidity Event occurs solely as a result of either (i)
a refinancing of the Financing or (ii) a public debt offering, the minimum net
proceeds must be sufficient entirely to satisfy: (a) the Bridge Loan; (b) the
bridge loan as to which STT is the borrower; (c) the aggregate Class B
Consideration as defined in Exhibit D; and (d) if the General Partner is still
controlled by STT II, the Class C Consideration as defined in Exhibit E; and (e)
the aggregate consideration payable to the Class C limited partner of STP
pursuant to Exhibit D of the STP limited partnership agreement.
"Liquidity Event Deadline" means midnight Eastern time on June
30, 1999.
"Liquidating Trustee" shall mean such individual or entity as
is selected as the Liquidating Trustee hereunder by the General Partner, which
individual or Entity may include an Affiliate of the General Partner, provided
such Liquidating Trustee agrees in writing to be bound by the terms of this
Agreement. The Liquidating Trustee shall be empowered to give and receive
notices, reports and payments in connection with the dissolution, liquidation
and/or winding up of the Partnership and shall hold and exercise such other
rights and powers as are necessary or required to authorize and permit all
parties to deal with the Liquidating Trustee in connection with the dissolution,
liquidation and/or winding-up of the Partnership.
"Merger Agreement" means a plan and agreement of merger to be
executed by the Partnership and the parties thereto substantially in the form of
Exhibit H hereto.
"Net Income" means for any period, the excess, if any, of the
Partnership's items of income and gain for such period over the Partnership's
items of loss and deduction for such period. The items included in the
calculation of Net Income shall be determined in accordance with Exhibit B.
"Net Liquidity Event Proceeds" means the proceeds of the
Liquidity Event Closing in the form of cash or cash equivalents, net after
deducting (i) brokerage commissions and other reasonable fees and expenses
(including without limitation those of legal counsel, investment bankers and
accountants), (ii) provision for all taxes, if any, payable in connection with
the Liquidity Event, (iii) appropriate amounts, if any, to be provided as a
reserve required in accordance with GAAP to be applied against liabilities
associated with the
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Liquidity Event, and (iv) amounts required to be paid in respect of the
Financing or the financing arrangements of the REIT, STP, STT II, STP II,
Pioneer or any of their Affiliates out of the proceeds of, or as a consequence
of the occurrence of, the Liquidity Event.
"Net Loss" means, for any period, the excess, if any, of the
Partnership's items of loss and deduction for such period over the Partnership's
items of income and gain for such period. The items included in the calculation
of Net Loss shall be determined in accordance with Exhibit B.
"Net Operating Cash Flow" shall mean, with respect to any
fiscal period of the Partnership, the excess, if any, of "Receipts" over
"Expenditures". For purposes hereof, the term "Receipts" means the sum of all
cash receipts of the Partnership from all sources for such period, (including
the net proceeds of borrowings but excluding Capital Contributions) and any
amounts that are held as reserves as of the last day of such period that the
General Partner reasonably deems to be in excess of reserves that are necessary
or appropriate for the Partnership, as specified in the definition of
Expenditure. The term "Expenditures" means the sum of (a) all cash expenses of
the Partnership for such period, (b) the amount of all payments of principal and
interest on account of the Financing and any other indebtedness of the
Partnership including payments of principal and interest on account of loans
from the General Partner, or amounts due on such indebtedness during such
period, and (c) such cash reserves as of the last day of such period as the
General Partner deems necessary or appropriate for any capital, operating or
other expenditure, including, without limitation, contingent liabilities.
"OP Units" means the Class B Partnership Units of the
Surviving Entity, which shall have conversion rights to Shares, substantially in
the form described in Exhibit F hereto.
"Partner(s)" shall mean the General Partner and/or the Limited
Partners, their duly admitted successors or assigns and any additional Person
who has been admitted as a partner of the Partnership at the time of reference
thereto.
"Partnership Interest" shall mean the ownership interest of a
Partner in the Partnership representing a Capital Contribution by either a
Limited Partner or the General Partner and includes any and all benefits to
which the holder of such an interest may be entitled to under this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Partnership Interest may be expressed as a
number of Partnership Units.
"Partnership Unit" means a fractional, undivided share of the
Partnership Interests of all the Partners issued pursuant to Section 4.1 of this
Agreement, and as specified on Exhibit A, as amended from time to time. The
ownership of Partnership Units will be evidenced by such form of certificate for
units as the General Partner adopts from time to time on behalf of the
Partnership. Partnership Units may be divided into two or more classes.
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"Percentage Interest" shall mean, with respect to any Partner,
its interest determined by dividing the Partnership Units owned by such Partner
by the total number of Partnership Units then outstanding and as specified in
Exhibit A hereto, as such Exhibit may be amended from time to time.
"Person" shall mean any natural person or Entity.
"Pioneer" means Pioneer Resources, LLC, an Oregon limited
liability company.
"REIT" shall mean Strategic Timber Trust, Inc., a Georgia
corporation, that will elect to be classified as a real estate investment trust
as defined in Code section 856.
"REIT Expenses" mean the Partnership's allocable share, as
determined under Section 7.2(c) of this Agreement, of the following expenses
incurred after the effective date of this Agreement: (i) the costs and expenses
relating to any offer or registration of securities by the REIT and all
statements, reports, fees and expenses incidental thereto, including
underwriting discounts and selling commissions applicable to any such offer of
securities, (ii) costs and expenses associated with compliance by the REIT with
laws, rules and regulations promulgated by any regulatory body, including the
SEC, and (iii) all other reasonable operating or administrative costs of the
General Partner, the REIT and its subsidiaries reasonably allocable to the
Partnership incurred in the ordinary course of its business on behalf of the
Partnership, including without limitation reasonable salaries for the officers
and employees of Strategic Timber Two Operating Co., LLC. The reimbursement of
REIT Expenses shall not constitute a distribution under Article V of this
Agreement.
"SEC" means the US Securities and Exchange Commission.
"Securities Laws" means the federal and state laws (including
the rules and regulations thereunder and the judicial and administrative
interpretations thereof) regulating the sale of securities including, without
limitation, the Securities Act of 1933, as amended; the Securities Exchange Act
of 1934, as amended; state Blue Sky Laws; and the rules and regulations of any
stock exchange on which the Shares are listed for trading.
"Senior Credit Facilities" means the senior secured credit
facilities provided to Pioneer by the lenders under that Replacement Credit Loan
Agreement dated as of October 9, 1998, among Pioneer, the lenders party thereto,
First Union National Bank, as administrative agent for the lenders, ABN AMRO
Bank N.V. as syndication agent for the lenders and NationsBank, N.A. as
documentation agent for the lenders (as the same may be amended, modified or
restated from time to time) in the original committed amount of $270,000,000.
"Shares" shall mean the shares of the common stock of the
REIT.
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"STP" means Strategic Timber Partners, LP, a Delaware limited
partnership in which the REIT and its Affiliates are the owner of a majority of
the limited partnership interests.
"Surviving Entity" means the surviving legal entity resulting
from the combination of some or all of the Partnership, STP, Pioneer and any
other Entity over which the REIT has control, which shall become effective
immediately prior to the IPO Closing.
"Tax Matters Partner" means the Partner with the
responsibilities and authority set forth in Code section 6221 et seq. and as
provided in Section 6.5 of this Agreement.
"Underwriter" means the lead managing underwriter for the IPO.
ARTICLE II
ORGANIZATION OF PARTNERSHIP
2.1 Organization. The General Partner has organized the
Partnership as a limited partnership by filing the Certificate pursuant to the
provisions of the Act for the purposes and upon the terms and conditions
hereinafter set forth. The Partners agree that the rights and liabilities of the
Partners shall be as provided in the Act, except as otherwise herein expressly
provided.
2.2 Name. The name of the Partnership shall be Strategic
Timber Partners II, LP, or such other name as shall be chosen from time to time
by the General Partner in its sole discretion.
2.3 Location of Principal Place of Business. The location of
the principal place of business of the Partnership shall be at 5 North Pleasant
Street, New London, New Hampshire 03257, or such other location as shall be
selected from time to time by the General Partner in its sole discretion.
2.4 Registered Agent and Registered Office. William H. Bradley
shall act as registered agent of the Partnership and the Registered Office of
the Partnership shall be 999 Peachtree Street, Suite 2300, Atlanta, Georgia
30309. The registered office and registered agent may be changed from time to
time as the General Partner deems advisable by filing notice of such changes
with the Secretary of State in accordance with the Act.
2.5 Term. The Partnership's term commenced upon the filing of
the Certificate with the Secretary of State of Georgia on September 25, 1998 and
shall continue until December 31, 2097, unless the Partnership is sooner
terminated as provided in Article VIII or as provided by law.
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ARTICLE III
PURPOSE AND POWERS
3.1 Purpose and Business. The purpose of the Partnership shall
be to acquire, hold, own, manage and transfer timberlands; to sell and otherwise
dispose of the timber grown on such property; to acquire all of the ownership
interests in Pioneer; and to engage in such other activities as shall be
necessary, desirable or appropriate to effectuate the foregoing purposes.
3.2 Powers. Subject to any limitations imposed by the
Financing Documents and this Agreement, the Partnership shall have all powers
necessary, desirable or appropriate to accomplish the purposes enumerated. In
connection with the foregoing, the Partnership shall have full power and
authority, directly to enter into, perform, and carry out contracts of any kind,
to borrow money and to issue other evidences of indebtedness including
guaranties of the indebtedness of Affiliates (including the Financing which
indebtedness may be secured by mortgages, pledges of partnership interests in
other Entities, including Pioneer), security interests or other liens, and to
enter into any and all indentures and other agreements and documents relating to
such evidence of indebtedness, directly or indirectly, and to acquire such
assets as may be necessary or useful in connection with its business.
Notwithstanding the foregoing, the Partnership shall not take, or refrain from
taking, any action which, in the opinion of counsel qualified in such matters,
(i) could adversely affect the ability of the REIT to qualify as a real estate
investment trust under the Code, (ii) could subject the REIT to any taxes under
section 857 (other than for capital gains that the REIT has elected to retain)
or section 4981 of the Code or have other potentially adverse consequences under
the Code, or (iii) could violate any law or regulation of any governmental body
or agency having jurisdiction over the REIT, its subsidiaries or its securities,
unless such action (or inaction) shall have been specifically consented to by
the REIT in writing.
ARTICLE IV
CAPITAL CONTRIBUTIONS
4.1 Capital Contributions, Partnership Interests and
Percentage Interests of Partners.
(a) At the time of the execution of this Agreement, the
Partners shall make the Capital Contributions set forth in Exhibit A and shall
own the Partnership Units and have the Percentage Interests in the Partnership
as set forth in such Exhibit. Initially, the Partnership will issue 10,000
Partnership Units, which will be divided into Class A, Class B and Class C
Units, as set forth in Exhibit A. Exhibit A may be amended from time to time by
the General Partner to the extent necessary to properly reflect redemptions of
Partnership Units, Capital Contributions and transfers of Partnership Units.
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(b) No Partner shall have an obligation to make any additional
Capital Contributions or loans to the Partnership.
(c) Without the prior written Consent of the Partners, no
additional Partnership Units will be issued by the Partnership except in
connection with a Liquidity Event Closing.
4.2 No Third Party Beneficiaries. No creditor or other third
party shall have the right to enforce any right or obligation of any Partner to
make Capital Contributions or loans or to pursue any other right or remedy
hereunder or at law or in equity, it being understood and agreed that the
provisions of this Agreement shall be solely for the benefit of, and may be
enforced solely by, the parties hereto and their respective successors and
assigns.
4.3 No Interest on or Return of Capital Contribution. Except
as otherwise specifically provided herein, no Partner shall be entitled to
interest on its Capital Contribution or have any right to demand or receive the
return of its Capital Contribution.
4.4 Loans to Partnership At the option of the General Partner,
any Partner (including, without limitation, the General Partner) may make loans
to the Partnership on terms deemed by the General Partner to be commercially
reasonable and at then prevailing market interest rates.
ARTICLE V
DISTRIBUTIONS
5.1 Distributions.
(a) Except as provided for in Section 5.4, prior to the
complete satisfaction of the Bridge Loan, all distributions of Net Operating
Cash Flow will be made to STTOC. Thereafter, Net Operating Cash Flow will be
distributed to the Class B and Class C Limited Partners until the Class B and
Class C Limited Partners have received distributions equal to: (A) the amount
that the Class B and Class C Limited Partners would have received if all
distributions that were made during the period that the Bridge Loan was
outstanding had been made in accordance with the Partners' Percentage Interests,
less (B) the amount actually distributed to the Class B and Class C Limited
Partners under Section 5.4. Thereafter, all such distributions shall be made pro
rata in accordance with the Partners' Percentage Interests. Any payments on the
Bridge Loan made by the Partnership directly shall be deemed to be distributions
to STTOC.
(b) All payments of any distributions with respect to the
Class B Units will be made to the Class B Representative as agent for the Class
B Limited Partners.
5.2 Amounts Withheld. All amounts withheld pursuant to the
Code or any provision of any state or local tax law pursuant to Section 6.6
hereof with respect to any
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allocation, payment or distribution to the General Partner, the Limited Partners
or Assignees shall be treated as amounts distributed to such Persons pursuant to
Section 5.1 for all purposes under this Agreement.
5.3 Distributions Upon Liquidation. Proceeds from the sale or
other disposition of all or substantially all of the assets of the Partnership,
or related series of transactions that, taken together, result in the sale or
other disposition of all or substantially all of the assets of the Partnership,
including reductions and reserves made after commencement of the liquidation of
the Partnership, shall be distributed to the Partners in accordance with Section
8.3.
5.4 Tax Distributions. During the period that the Bridge Loan
is outstanding, the Partnership shall use its best efforts to distribute cash to
the Partners to enable the Partners to fund their U.S. federal income tax
liabilities (including any estimated payments thereof) attributable to income
reported (or to be reported) on the tax returns of the Partnership that is
allocated to the Partners, including without limitation amounts allocable under
Code section 704(c). For purposes of making the determination of the amount of
distribution under this Section 5.4, items of ordinary income or short-term
capital gain will be assumed to be taxed at a tax rate of 39.6%, and items of
long-term capital gain will be assumed to be taxed at a tax rate of either 20%
or 28%, as determined by the General Partner upon advice of tax counsel;
provided, however, the maximum amount distributable under this Section 5.4 is
$1,000,000 in any fiscal year.
ARTICLE VI
ALLOCATIONS AND OTHER TAX AND ACCOUNTING MATTERS
6.1 Allocations for Capital Account Purposes. For purposes of
maintaining the Capital Accounts and determining the rights of the Partners
among themselves, the Partnership's items of income, gain, loss and deduction
(computed in accordance with Exhibit B hereof), shall be allocated among the
Partners in each taxable year (or a portion thereof) as provided in this Section
6.1:
(a) After giving effect to the special allocation rules
contained in Exhibit C, Net Income shall be allocated: (i) first, to the General
Partner to the extent of the amount by which Net Losses previously allocated to
the General Partner pursuant to the last sentence of Section 6.1(b) exceed Net
Income previously allocated to the General Partner pursuant to this clause (i)
of Section 6.1(a); and (ii) thereafter, Net Income shall be allocated to the
Partners in accordance with their respective Percentage Interests.
(b) After giving effect to the special allocation rules
contained in Exhibit C, Net Losses shall be allocated to the Partners in
accordance with their respective Percentage Interests, provided that Net Losses
shall not be allocated to any Partner, other than the General Partner, to the
extent that such allocation would cause such Partner to have an Adjusted Capital
Account Deficit (as defined in Exhibit C) at the end of such taxable year (or
increase any existing
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Adjusted Capital Account Deficit). All Net Losses in excess of the limitation
set forth in the preceding sentence of this Section 6.1(b) shall be allocated to
the General Partner.
6.2 Books of Account. At all times during the continuance of
the Partnership, the General Partner shall maintain, or cause to be maintained,
full, true, complete and correct books of account. In addition, the Partnership
shall keep all records required to be maintained by the Act.
6.3 Reports. The General Partner shall cause to be sent to the
Limited Partners promptly after receipt of the same from the Accountants and in
no event later than 90 days after the close of each fiscal year of the
Partnership, copies of Audited Financial Statements for the Partnership and the
REIT for the immediately preceding fiscal year of the Partnership.
6.4 Tax Elections and Returns.
(a) All elections required or permitted to be made by the
Partnership under any applicable tax law shall be made by the General Partner.
(b) The General Partner shall be responsible for preparing, or
causing to be prepared, and filing all federal and state tax returns for the
Partnership and furnishing copies thereof to the Partners, together with
required Partnership schedules showing allocations of tax items, all within the
period of time prescribed by law including extensions.
6.5 Tax Matters Partner.
(a) The General Partner is hereby designated as the Tax
Matters Partner (within the meaning of section 6231(a)(7) of the Code) for the
Partnership.
(b) The taking of any action and the incurring of any expense
by the Tax Matters Partner in connection with any federal, state or local tax
controversy or proceeding, except to the extent required by law, is in the sole
and absolute discretion of the tax matters partner. The provisions relating to
indemnification of the General Partner, set forth in Section 7.6 of this
Agreement, shall be fully applicable to the tax matters partner in its capacity
as such.
(c) All third-party costs and expenses incurred by the Tax
Matters Partner in performing its duties as such (including legal and accounting
fees and expenses) shall be borne by the Partnership. Nothing contained herein
shall be construed to restrict the Partnership from engaging tax consultants to
assist the tax matters partner in discharging its duties hereunder.
6.6 Withholding Payments Required By Law. Each Limited Partner
hereby authorizes the Partnership to withhold from or pay on behalf of or with
respect to such Limited Partner any amount of federal, state, local or foreign
taxes that the General Partner determines that the Partnership is required to
withhold or pay with respect to any amount distributable or allocable to such
Limited Partner pursuant to this Agreement, including without limitation, any
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taxes required to be withheld or paid by the Partnership pursuant to sections
1441, 1442, 1445 or 1446 of the Code.
6.7 Fiscal Year. The fiscal year of the Partnership shall be
the calendar year.
6.8 Real Estate Excise Tax. In the event of a "sale" of
Pioneer real property located in the State of Washington (as provided in
Revised Code of Washington Chapter 82.45) resulting from the transfer or
acquisition of a controlling interest in the Partnership, or in the event of a
sale of Pioneer real property located in any other state with a similar excise
tax law, STTII (or the REIT) and the Class B Limited Partners (collectively)
each agree to pay one-half of the excise tax imposed thereon.
ARTICLE VII
RIGHTS, DUTIES AND RESTRICTIONS OF THE
GENERAL PARTNER AND THE REIT
7.1 Powers and Duties of General Partner.
(a) Except as otherwise expressly provided in Exhibit G or in
this Agreement, all management powers over the business and affairs of the
Partnership are and shall be exclusively vested in the General Partner, and no
Limited Partner shall have any right to participate in or exercise control or
management power over the business and affairs of the Partnership. The General
Partner may not be removed by the Limited Partners except for Cause. For
purposes of this Agreement, "Cause" means any action by the General Partner for
which it would not be entitled to indemnification under Section 7.6(a) of this
Agreement. In addition to the powers now or hereafter granted a general partner
of a limited partnership under applicable law or which are granted to the
General Partner under any other provisions of this Agreement, the General
Partner shall have full power and authority to do all things deemed necessary or
desired by it to conduct the business of the Partnership, to exercise all powers
of the Partnership as set forth in Section 3.2 hereof and to effectuate the
purposes set forth in Section 3.1 hereof.
(b) Except as otherwise provided herein, to the extent the
duties of the General Partner require expenditures of funds to be paid to third
parties, the General Partner shall not have any obligations hereunder except to
the extent that Partnership funds are reasonably available to it for the
performance of such duties, and nothing herein contained shall be deemed to
require the General Partner, in its capacity as such, to expend its individual
funds for payment to third parties or to undertake any specific liability on
behalf of the Partnership.
(c) Notwithstanding the powers granted to the Partnership in
Section 3.2 and to the General Partner in Section 7.1(a), neither the
Partnership nor any General Partner will undertake any action that would be
contrary to the terms and conditions of the Financing Documents.
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7.2 Reimbursement of the General Partner and the REIT.
(a) Except as otherwise provided in Articles 5 and 6
(regarding distributions and allocations to which it may be entitled), the
General Partner shall not be compensated for its services as general partner of
the Partnership.
(b) The General Partner shall be reimbursed for all reasonable
out-of- pocket expenses that it incurs, in the ordinary course, relating to the
operation of the Partnership and, to the extent permitted by the Financing
Documents and in accordance with the provisions of Section 7.2(c), the REIT
shall be reimbursed for REIT Expenses. All operating expenses of the General
Partner, the Partnership and their Affiliates shall be apportioned among the
various entities in a reasonable manner.
(c) In connection with an IPO, the REIT, in good faith, shall
allocate all reasonable expenses that are in the nature of the expenses
described in the definition of REIT Expenses among the Partnership, STP and any
other Entities that exist immediately prior to the IPO in which the REIT or its
Affiliates are the general partner, or otherwise exercise Control ("Other
Partnerships"). Such allocation shall be based upon the respective valuation of
the Partnership, STP and any Other Partnerships as a percentage of the total
business enterprise value of the Surviving Entity.
7.3 Contracts with Affiliates. The Partnership may engage in
transactions and enter into contracts with Affiliates of the General Partner
that are on terms fair and reasonable to the Partnership and no less favorable
to the Partnership than would be obtained from unaffiliated third parties.
7.4 Title to Partnership Assets. Title to Partnership assets,
whether real, personal or mixed and whether tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner, individually
or collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets shall be held
in the name of the Partnership.
7.5 Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority to
encumber, sell or otherwise use in any manner any and all assets of the
Partnership and to enter into any contracts on behalf of the Partnership,
including, without limitation, to guaranty the repayment of, and to encumber and
pledge all of the Partnership's interest in Pioneer to secure the repayment of
the Bridge Loan (which guaranty and pledge is hereby consented to by the General
Partner and each Limited Partner), and such Person shall be entitled to deal
with the General Partner as if it were the Partnership's sole party in interest,
both legally and beneficially. In no event shall any Person dealing with the
General Partner or its representatives be obligated to ascertain that the terms
of this Agreement have been complied with or to inquire into the necessity or
expedience of any act or action of the General Partner or its representatives.
Each and every certificate, document or other instrument executed on behalf of
the Partnership by the General Partner shall be conclusive evidence in favor of
any
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and every Person relying thereon or claiming thereunder that (i) at the time of
the execution and delivery of such certificate, document or instrument, this
Agreement was in full force and effect, (ii) the Person executing and delivering
such certificate, document or instrument was duly authorized and empowered to do
so for and on behalf of the Partnership and (iii) such certificate, document or
instrument was duly executed and delivered in accordance with the terms and
provisions of this Agreement and is binding upon the Partnership.
7.6 Indemnification by Partnership.
(a) The Partnership shall indemnify an Indemnitee from and
against any and all losses, claims, damages, liabilities, joint or several,
expenses (including legal fees and expenses), judgments, fines, settlements, and
other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, that relate to
the operations of the Partnership as set forth in this Agreement in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise; however, the Partnership shall not indemnify an Indemnitee with
respect to (i) an act or omission of the Indemnitee that was material to the
matter giving rise to the proceeding and either was the result of intentional
misconduct or a knowing violation of law; or (ii) for any transaction for which
such Indemnitee received a personal benefit in violation or breach of any
provision of this Agreement. The termination of any proceeding by judgment,
order or settlement does not create a presumption that the Indemnitee did not
meet the requisite standard of conduct set forth in this Section 7.6(a);
provided, however, the termination of any criminal proceeding by conviction of
an Indemnitee or upon a plea of nolo contendere or its equivalent by Indemnitee
creates a rebuttable presumption that such Indemnitee acted in a manner contrary
to that specified in this Section 7.6(a) with respect to the subject matter of
such proceeding. Any indemnification pursuant to this Section 7.6 shall be made
only out of the assets of the Partnership and no Partner shall have any personal
liability therefor.
(b) Reasonable expenses incurred by an Indemnitee who is a
party to a proceeding may be paid or reimbursed by the Partnership in advance of
the final disposition of the proceeding upon receipt by the Partnership of (i) a
written affirmation by the Indemnitee of the Indemnitee's good faith belief that
the standard of conduct necessary for indemnification by the Partnership, as
authorized in this Section 7.6, has been met, and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount paid or reimbursed if it
shall ultimately be determined that such standard of conduct has not been met.
(c) The indemnification provided by this Section 7.6 shall be
in addition to any other rights to which an Indemnitee or any other Person may
be entitled under any agreement, as a matter of law or otherwise, and shall
continue as to an Indemnitee who has ceased to serve in such capacity unless
otherwise provided in a written agreement with such Indemnitee or in the writing
pursuant to which such Indemnitee is indemnified.
(d) An Indemnitee shall not be denied indemnification in whole
or in part under this Section 7.6 solely because the Indemnitee had an interest
in the transaction with
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respect to which the indemnification applies if the transaction was otherwise
permitted by the terms of this Agreement.
(e) The provisions of this Section 7.6 are for the benefit of
the Indemnitees, their heirs, successors, assigns, personal representatives and
administrators, and shall not be deemed to create any rights for the benefit of
any other Persons. Any amendment, modification or repeal of this Section 7.6 or
any provision hereof shall be prospective only and shall not in any way effect
the limitations on the Partnership's liability to any Indemnitee under this
Section 7.6 as in effect immediately prior to such amendment, modification or
repeal with respect to claims arising from or relating to matters occurring, in
whole or in part, prior to such amendment, modification or repeal, regardless of
when such claims may arise or be asserted.
7.7 Liability of the General Partner
(a) The General Partner shall not be liable for monetary or
other damages to the Partnership, any of the Partners or any Assignees for
losses sustained or liabilities incurred as a result of errors in judgment or of
any act or omission if the action or omission of the General Partner was in good
faith and such action or inaction was not the result of intentional misconduct,
a knowing violation of law, or a transaction for which the General Partner
received a personal benefit that was in violation or breach of any provision of
this Agreement.
(b) The Limited Partners expressly acknowledge that the
General Partner is acting on behalf of the Partnership and the Partners
collectively, that the General Partner is under no obligation to consider the
separate interests of a particular Limited Partner (including, without
limitation, the tax consequences to Limited Partners or any assignees thereof)
in deciding whether to cause the Partnership to take (or decline to take) any
actions, and that the General Partner shall not be liable for monetary damages
for losses sustained, liabilities incurred, or benefits not derived by Limited
Partners in connection with such decisions, provided that the General Partner
acted in good faith with respect thereto and such action or inaction was not the
result of intentional misconduct, a knowing violation of law, or a transaction
for which the General Partner received a personal benefit that was in violation
or breach of any provision of this Agreement.
(c) Subject to its obligations and duties as General Partner
set forth in Section 7.1 hereof, the General Partner may exercise any of the
powers granted to it by this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its agents. The General
Partner shall not be responsible for any misconduct or negligence on the part of
any such agent appointed by it in good faith.
(d) The General Partner shall not be deemed to have any
limitations or obligations, or be subject to any restrictions, of a partner of a
general partnership, if it otherwise would not have such limitations or
obligations or be subject to such restrictions under the terms of the Act, any
other applicable law and this Agreement.
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(e) Any amendment, modification or repeal of this Section 7.7
or any provision hereof shall be prospective only and shall not in any way
affect the limitations on the General Partner's liability to the Partnership and
the Limited Partners under this Section 7.7 as in effect immediately prior to
such amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
7.8 Other Matters Concerning the General Partner
(a) The General Partner may rely and shall be protected in
acting or refraining from acting upon any resolution, certificate, consent,
statement, instrument, opinion, report, or other document believed by it to be
genuine and to have been signed or presented by the proper party or parties.
(b) The General Partner may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers and other
consultants and advisers selected by it, and any act taken or omitted to be
taken in reliance upon the opinion of such Persons as to matters which the
General Partner reasonably believes to be within such Person's professional or
expert competence shall be conclusively presumed to have been done or omitted in
good faith and in accordance with such opinion.
(c) The General Partner shall have the right, in respect of
any of its powers or obligations hereunder, to act through any of its duly
authorized officers and any attorney or attorneys-in-fact duly appointed by the
General Partner. Each such attorney shall, to the extent provided by the General
Partner in the power of attorney, have full power and authority to do and
perform all and every act and duty which is permitted or required to be done by
the General Partner hereunder.
(d) Notwithstanding any other provisions of this Agreement or
the Act, any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership, undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect or further the ability of the
REIT to qualify as a real estate investment trust under the Code or (ii) to
avoid the REIT incurring any taxes under section 857 (other than for capital
gains that the REIT has elected to retain) or section 4981 of the Code, is
expressly authorized under this Agreement and is deemed approved by all of the
Limited Partners.
ARTICLE VIII
DISSOLUTION, WINDING-UP AND LIQUIDATION OR COMBINATION
8.1 Events of Dissolution. The Partnership shall continue
until dissolved upon the occurrence of the earliest of the following events:
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(a) the dissolution, termination, withdrawal, retirement or
Bankruptcy of the General Partner, STT II or the REIT, subject to the
Partnership being continued as provided in Section 9.2 hereof;
(b) the election to dissolve the Partnership made in writing
by the General Partner with the Consent of the Partners;
(c) the sale or other disposition of all or substantially all
of the assets of the Partnership, unless the General Partner elects to continue
the Partnership business for the purpose of the receipt and the collection of
indebtedness or the collection of any other consideration to be received in
exchange for the assets of the Partnership (which activities shall be deemed to
be part of the winding up of the affairs of the Partnership);
(d) the entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act, which decree is final and not
subject to appeal; or
(e) December 31, 2097.
8.2 Accounting. In the event of the dissolution, winding-up
and liquidation of the Partnership, a proper accounting shall be made of the
Capital Account of each Partner and of the Net Income or Net Loss of the
Partnership from the date of the last previous accounting to the date of
dissolution.
8.3 Distribution on Dissolution. In the event of the
dissolution and liquidation of the Partnership for any reason, the assets of the
Partnership shall be liquidated at least to the extent necessary to satisfy all
liabilities of the Partnership and the net proceeds therefrom or the remaining
assets for the partnership, if any, shall be distributed in the following rank
and order:
(a) Payment of creditors of the Partnership in the order of
priority as provided by law;
(b) Establishment of reserves as provided by the General
Partner to provide for contingent and other Partnership liabilities, if any;
(c) To the Class B Limited Partners to the extent of their
respective Class B Consideration (as defined in Exhibit D), if any such amount
has accrued;
(d) To the Class C Limited Partner to the extent of its Class
C Consideration (as defined in Exhibit E); and
(e) Then to the Partners in accordance with the positive
balances in their Capital Accounts after giving effect to all contributions,
distributions and allocations for all periods, other than distributions under
this Section 8.3(e).
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(f) Notwithstanding the foregoing, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the
Partnership, if sixty-eight percent (68%) of the Percentage Interests held by
the Partners agree by vote or Consent that an immediate sale of part or all of
the Partnership's assets would be impractical or would cause undue loss to the
Partners, the General Partner or a Person appointed to act as Liquidating
Trustee may, in its sole and absolute discretion, defer for a reasonable time
the liquidation of any assets except those necessary to satisfy liabilities of
the Partnership (including to those Partners which are creditors of the
Partnership) and/or distribute to the Partners, in lieu of cash, in accordance
with the provisions of clauses (c) through (e) of Section 8.3 interests in
Partnership assets. The Partners shall determine the fair market value of any
property distributed in kind using such reasonable method of valuation as they
may determine.
8.4 Combination. If the Liquidity Event Closing occurs prior
to any of the events of dissolution specified in Section 8.1 of this Agreement,
in lieu of the dissolution and liquidation of the Partnership, then concurrently
with such Liquidity Event Closing, the Partnership shall be combined with the
Surviving Entity. The methodology of such combination shall be substantially in
accordance with the terms of a Merger Agreement, which is attached as Exhibit H
to this Agreement, which final Merger Agreement shall be executed by the parties
thereto prior to the consummation of such combination. If the Liquidity Event
Closing is in the form of an IPO Closing, the Class B and Class C Limited
Partners shall have the conversion rights specified in Exhibit D with respect to
the Class B Limited Partners and Exhibit E with respect to the Class C Limited
Partner. If the Liquidity Event Closing does not occur prior to June 30, 1999,
the Partnership will not be combined with any other Entity without the prior
written consent of seventy-five percent (75%) of the Percentage Interests held
by the Class B and C Partners.
8.5. Documentation of Liquidation. Upon the completion of the
dissolution and liquidation of the Partnership, the Partnership shall terminate
and the Liquidating Trustee shall have the authority to execute and record any
and all documents or instruments required to effect the dissolution, liquidation
and termination of the Partnership.
ARTICLE IX
TRANSFER OF PARTNERSHIP INTERESTS
9.1 Transfer.
(a) The term "transfer", when used in this Article IX with
respect to a Partnership Interest, shall be deemed to refer to a transaction by
which a Partner purports to assign its Partnership Interest or any portion
thereof to another Person, and includes a sale, assignment, gift, pledge,
encumbrance, hypothecation, mortgage, exchange or any other disposition by law
or otherwise; provided however, that the term "transfer", when used in this
Article IX does not (except when such term is used in Section 9.4) include any
redemption of Partnership Interests from a Limited Partner.
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(b) No Partnership Interest shall be transferred, in whole or
in part, except in accordance with the terms and conditions set forth in this
Article IX. Any transfer or purported transfer of a Partnership Interest not
made in accordance with this Article IX shall be null and void ab initio.
9.2 General Partner Transfer.
(a) Except for transfers to its Affiliates or as may be
required by the Financing Documents, the General Partner shall not withdraw from
the Partnership and shall not sell, assign, pledge, encumber or otherwise
dispose of all or any portion of its interest in the Partnership as a General
Partner without the Consent of the Partners at any time that the Limited
Partners (other than the General Partner and its Affiliated Entities in their
capacity as a Limited Partner) own, in the aggregate, 45% or more of the issued
and outstanding Partnership Units.
(b) In the event the General Partner withdraws from the
Partnership in violation of this Agreement or otherwise dissolves, terminates or
upon the Bankruptcy of the General Partner, STT II or the REIT, all the
remaining Partners, which are not Affiliates of the General Partner, within 90
days after such withdrawal, dissolution, termination or Bankruptcy, may elect to
continue the business of the Partnership and appoint a successor general partner
effective as of the date of such withdrawal, dissolution, termination or
Bankruptcy.
9.3 Transfers by Limited Partners.
(a) Subject to the provisions of Sections 9.3(b) and 9.3(d),
no Limited Partner shall have the right to transfer all or any portion of its
Partnership Interest without the prior written consent of the General Partner,
which consent may be given or withheld by the General Partner in its sole and
absolute discretion.
(b) Notwithstanding the provisions of Section 9.3(a) (but
subject to the provisions of Section 9.4 and the Financing Documents), a Limited
Partner may transfer, with or without the consent of the General Partner, all or
a portion of its economic rights in its Partnership Interest to a member of such
transferor's Immediate Family, or a trust for the benefit of a member of such
transferor's Immediate Family in a donative transfer that does not involve the
receipt of any consideration; provided, that any Partnership Interest permitted
to be transferred pursuant to this Section 9.3(b) shall remain subject to all
provisions of this Agreement, including, without limitation, this Article IX.
Any permitted transferee of a Class B or Class C Limited Partner under this
Section 9.3(b), whether admitted as a Limited Partner or having the status of an
Assignee, will succeed to the rights and obligations of the transferor specified
in Exhibits D or E (whichever is applicable to the transferor) to the extent of
the transferred interest.
(c) No Limited Partner shall have the right to substitute a
transferee as a Limited Partner in its place. The General Partner shall,
however, have the right to consent to the admission of a transferee of the
interest of a Limited Partner pursuant to this Section 9.3 as a
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substituted limited partner (as such term is used in the Act), which consent may
be given or withheld by the General Partner in its sole and absolute discretion.
The General Partner's failure or refusal to permit a transferee of any such
interests to become a substituted limited partner shall not give rise to any
cause of action against the Partnership or any Partner. A transferee who has
been admitted as a substitute Limited Partner in accordance with this Article IX
shall have all the rights and powers and be subject to all the restrictions and
liabilities of a Limited Partner under this Agreement.
(d) If the General Partner, in its sole and absolute
discretion, does not consent to the admission of any Person that is a permitted
transferee under Sections 9.3(a) or 9.3(b), as a substituted limited partner,
such transferee shall be considered an assignee ("Assignee") for purposes of
this Agreement. An Assignee shall be deemed to have had assigned to it, and
shall be entitled to receive, distributions from the Partnership and the share
of Net Income, Net Losses, and any other items of income, gain, loss, deduction
and credit of the Partnership attributable to the Partnership Interests assigned
to it and shall have all of the Redemption Rights granted to Limited Partners by
this Agreement attributable to such Partnership Interests, but shall not be
deemed to be a holder of Partnership Interests for any other purpose under this
Agreement, and shall not be entitled to vote such Partnership Interests in any
matter presented to the Limited Partners for a vote (such Partnership Interests
being deemed to have been voted on such matter in the same proportion as all
other Partnership Interests held by Limited Partners are voted). In the event
any Assignee desires to make a further assignment of any such Partnership
Interests, such Assignee shall be subject to all the provisions of this Article
IX to the same extent and in the same manner as a Limited Partner desiring to
make an assignment of Partnership Interests.
(e) The Limited Partners acknowledge that the Partnership
Interests have not been registered under any federal or state securities laws
and, as a result thereof, they may not be sold or otherwise transferred, except
in compliance with such laws. Notwithstanding anything to the contrary contained
in this Agreement, no Partnership Interest may be sold or otherwise transferred
unless such transfer is exempt from registration under any applicable securities
laws or such transfer is registered under such laws, it being acknowledged that
the Partnership has no obligation to take any action which would allow any such
Partnership Interests to be registered.
9.4 Certain Restrictions on Transfer. In addition to any other
restrictions on transfer herein contained, in no event may a Partner transfer a
Partnership Interest (i) to any Person who lacks the legal right, power or
capacity to own a Partnership Interest; (ii) if, in the opinion of counsel
qualified in such matters, such transfer would cause the REIT to cease to
qualify as a real estate investment trust under the Code; (iii) if such transfer
is effectuated through an "established securities market" or a "secondary market
(or the substantial equivalent thereof)" within the meaning of section 7704(b)
of the Code; or (iv) except with respect to Partnership Interests pledged in
connection with the Financing, to a lender to the Partnership or any Person who
is related to any lender to the Partnership (within the meaning of Section
1.752- 4(b) of the Regulations), unless in the opinion of counsel to the
Partnership, such transfer and
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ownership of the Partnership Interest by the lender (or related person) will not
have adverse federal income tax consequence to the Partners.
9.5 Effective Dates of Transfers.
Transfers pursuant to this Article IX may only be made as of
the first day of a fiscal quarter of the Partnership, unless the General Partner
otherwise agrees.
9.6 Pledges Required by Financing. Nothing contained in this
Article IX shall be deemed to limit the ability of the Partners to pledge and
grant a security interest in their Partnership Interests as may be required by
the Financing.
ARTICLE X
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
10.1 No Participation in Management. No Limited Partner, in
its capacity as such, shall take part in the management of the Partnership's
business, transact any business in the Partnership's name or have the power to
sign documents for or otherwise bind the Partnership. Any rights expressly
granted to the Limited Partners in this Agreement shall not be deemed to be
rights relating to the management of the Partnership's business. As provided by
the Act, a Limited Partner will not become personally liable for the obligations
of the Partnership by participating in the management and control of the
business.
10.2 No Withdrawal. No Limited Partner may withdraw its
Capital Contribution from the Partnership without the prior written consent of
the General Partner, other than as expressly provided in this Agreement.
10.3 Conflicts. Subject to any agreements or arrangements
relating to rights of first opportunity, and the restriction contained in any
employment or consulting agreements, the Limited Partners and their Affiliates
are entitled to carry on such other business interests, activities and
investments, including business interest and activities that are in direct
competition with the Partnership or that are enhanced by the activities of the
Partnership. Neither the Partnership nor any Partner shall have any right, by
virtue of this Agreement, in or to such other activities of a Limited Partner,
or the income or profits derived therefrom.
10.4 Provision of Information.
(a) In addition to other rights provided by this Agreement or
by the Act, and except as limited by Section 10.5(b) hereof, each Limited
Partner shall have the right, for a purpose reasonably related to such Limited
Partner's interest in the Partnership, upon written request with a statement of
the purpose of such request:
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<PAGE> 25
(1) to obtain a copy of the Partnership's
federal, state and local income tax returns
for each Partnership Year;
(2) to obtain a current list of the names and
last known business, residence or mailing
address of each Partner; and
(3) to obtain a copy of this Agreement and the
Certificate and all amendments thereto,
together with executed copies of all powers
of attorney pursuant to which this
Agreement, the Certificate and all
amendments thereto have been executed.
(b) Notwithstanding any other provisions of this Section 10.4,
the General Partner may keep confidential from the Limited Partners, for such
period of time as the General Partner determines in its sole and absolute
discretion to be reasonable, any information that (i) the General Partner
reasonably believes to be in the nature of trade secrets or other information
the disclosure of which the General Partner in good faith believes is not in the
best interest of the Partnership or its business or (ii) the Partnership is
required by law or by agreement with an unaffiliated third party to keep
confidential.
10.5 Power of Attorney.
(a) Each Limited Partner constitutes and appoints the General
Partner, any Liquidating Trustee, and authorized officers and attorneys-in-fact
of each, and each of those acting singly, in each case with full power of
substitution, as its true and lawful agent and attorney-in-fact, with full power
and authority in its name, place and stead to: execute, swear to, acknowledge,
deliver, file and record in the appropriate public offices (i) all certificates,
documents and other instruments (including, without limitation, this Agreement
and the Certificate and all amendments or restatements thereof) that the General
Partner or the Liquidating Trustee deems appropriate or necessary to form,
qualify or continue the existence or qualification of the Partnership as a
limited partnership (or a partnership in which the limited partners have limited
liability) in the State of Georgia and in all other jurisdictions in which the
Partnership may conduct business or own property; (ii) all instruments that the
General Partner deems appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement in accordance with its terms;
(iii) all conveyances and other instruments or documents that the General
Partner deems appropriate or necessary to reflect the dissolution and
liquidation of the Partnership pursuant to the terms of this Agreement,
including, without limitation, a certificate of cancellation; and (iv) all
instruments relating to the admission, withdrawal, removal or substitution of
any Partner pursuant to the provisions of this Agreement, or the Capital
Contribution of any Partner.
(b) The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, in recognition of the fact
that each of the Partners will be relying upon the power of the General Partner
to act as contemplated by this Agreement in any filing or other action by it on
behalf of the Partnership, and it shall survive the death or incompetency of a
Limited Partner to the effect and extent permitted by law and the
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<PAGE> 26
transfer of all or any portion of such Limited Partner's Partnership Interests
and shall extend to such Limited Partner's heirs, successors, assigns and
personal representatives.
(c) Nothing contained in this Section 10.5 shall be construed
as authorizing the General Partner to amend this Agreement except in accordance
with Article XII hereof.
10.6 Additional Financing.
Without the prior written Consent of sixty-eight percent (68%)
of the Percentage Interests held by the Partners, the assets of the Partnership
or Pioneer shall not be used as security for liabilities of the Partnership or
any Affiliate that, in the aggregate, would exceed $315 million.
ARTICLE XI
GRANT OF CERTAIN RIGHTS TO LIMITED PARTNERS
Each Class B and Class C Limited Partner shall have the
conversion rights and such other rights set forth in this Agreement and as more
specifically provided for in Exhibit D with respect to a Class B Limited
Partners and in Exhibit E with respect to a Class C Limited Partner.
ARTICLE XII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
12.1 Amendments.
(a) Except as provided in paragraphs (b) and (c) of this
Section 12.1, this Agreement may not be amended unless such amendment is
approved by the General Partner and Limited Partners holding at least
sixty-eight percent (68%) of the Percentage Interests held by the Partners.
(b) Notwithstanding Section 12.1(a), the General Partner shall
have the power, without the consent of any of the Limited Partners, to amend
this Agreement as may be required to facilitate or implement any of the
following purposes:
(1) to add to the obligations of the General Partner
or surrender any right or power granted to the General Partner or any Affiliate
of the General Partner for the benefit of the Limited Partners;
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<PAGE> 27
(2) to reflect the admission, substitution, removal,
or withdrawal of Partners in accordance with this Agreement;
(3) to reflect a change that does not adversely
affect the Limited Partners in any material respect, or to cure any ambiguity,
correct or supplement any provision in this Agreement that is not inconsistent
with law or with other provisions of this Agreement; and
(4) to satisfy any requirements, conditions, or
guidelines contained in any order, directive, opinion, ruling or regulation of a
federal or state agency or contained in federal or state law.
The General Partner will provide notice to the Limited Partners promptly after
any action under this Section 12.1(b) is taken.
(c) Notwithstanding Section 12.1(a) hereof, this Agreement
shall not be amended without the consent of each Partner adversely affected if
such amendment would (i) convert a Limited Partner's interest in the Partnership
into a general partner's interest, (ii) modify the limited liability of a
Limited Partner, (iii) alter rights of the Partners to receive allocations and
distributions pursuant to Articles V or VI hereof (except as permitted pursuant
to Paragraph 5 of Exhibit B, and Section 12.1(b)(3) hereof), (iv) prior to the
IPO Closing, alter or modify the rights of the Class B and C Limited Partners
set forth in Exhibits D and E hereto, or (v) amend this Section 12.1(c).
ARTICLE XIII
MEETINGS OF THE PARTNERS
13.1 Partner Meetings.
(a) Special meetings of the Partners may be called by the
General Partner and shall be called upon the receipt by the General Partner of a
written request by Limited Partners holding 15 percent or more of the Percentage
Interests. The call shall state the nature of the business to be transacted.
Notice of any such meeting shall be given to all Partners not less than seven
(7) and not more than thirty (30) days prior to the date of such meeting.
Partners may vote in person or by proxy at such meeting. Whenever the vote or
Consent of Partners is permitted or required under this Agreement, such vote or
Consent may be given at a meeting of Partners or as provided for in Section
13.2.
(b) The Partners will hold quarterly meetings, for the
transaction of such business as may properly come before the meeting. Such
meetings will be held within thirty (30) days of the close of each calendar
quarter at such place, date and time as the General Partner shall specify in the
Notice of the meeting, which shall be delivered to each Limited Partner at least
10
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<PAGE> 28
days prior to such meeting. Neither the business to be transacted at, nor the
purpose of, such quarterly meeting need be specified in the notice (or waiver of
notice) thereof.
(c) Unless otherwise expressly provided for in this Agreement,
the quorum for a Partners' meeting for the transaction of business will be
sixty-eight percent (68%) of the Percentage Interests held by the Partners,
whether in person or by proxy. An act of sixty-eight percent (68%) of the
Percentage Interests held by the Partners shall be an act of the Limited
Partners, unless the vote of a greater proportion or number is otherwise
required by the Act or this Agreement.
13.2 Written Consent. Any action required or permitted to be
taken at a meeting of the Partners may be taken without a meeting if a written
consent setting forth the action so taken is signed (in counterpart or
otherwise) by Partners holding at least sixty-eight percent (68%) of the
Percentage Interests of the Partners (or such other percentage as is expressly
required by this Agreement). Such consent may be in one instrument or in several
instruments, and shall have the same force and effect as a vote of sixty-eight
percent (68%) of the Percentage Interests of the Partners (or such other
percentage as is expressly required by this Agreement).
Such consent shall be filed with the General Partner.
13.3 Proxy. Each Limited Partner may authorize any Person or
Persons to act for it by proxy on all matters in which a Limited Partner is
entitled to participate, including waiving notice of any meeting, or voting or
participating at a meeting. Every proxy must be signed by the Limited Partner or
its attorney-in-fact. No proxy shall be valid after the expiration of 11 months
from the date thereof unless otherwise provided in the proxy. Every proxy shall
be revocable at the pleasure of the Limited Partner executing it.
ARTICLE XIV
GENERAL PROVISIONS
14.1 Notices. All notices, requests, reports or other
communications required or permitted to be given to a Partner or Assignee
pursuant to this Agreement shall be in writing and may be personally served,
telecopied or sent by first class United States mail and shall be deemed to have
been given when delivered in person, upon receipt of telecopy, one Business Day
after deposit in the overnight mail or other next day delivery service or three
business days after deposit in United States mail, postage prepaid, and properly
addressed to the appropriate party. For purposes of this Section 14.1, the
addresses of the parties hereto shall be as set forth in the Partnership's
records. The address of any party hereto may be changed by a notice in writing
given in accordance with the provisions hereof to the General Partner.
14.2 Controlling Law. This Agreement and all questions
relating to its validity, interpretation, performance and enforcement
(including, without limitation, provisions concerning limitations of actions),
shall be governed by and construed in accordance with the laws of the
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<PAGE> 29
State of Georgia, notwithstanding any conflict-of-laws doctrines of such state
or other jurisdiction to the contrary.
14.3 Execution in Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an original
and all of which shall together constitute one and the same instrument. Each
party shall become bound by this Agreement immediately upon affixing its
signature hereto.
14.4 Provisions Separable. The provisions of this Agreement
are independent of and separable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that for any
reason any other provision may be invalid or unenforceable in whole or in part.
14.5 Entire Agreement. This Agreement, the Financing Documents
and the Class B and C Agreements contain the entire understanding among the
parties hereto with respect to the subject matter hereof, and supersedes all
prior and contemporaneous agreements and understandings, inducements or
conditions, express or implied, oral or written, except as herein contained. The
express terms hereof control and supersede any course of performance and/or
usage of the trade inconsistent with any of the terms hereof. This Agreement may
not be modified or amended other than by an agreement in writing.
14.6 Titles and Captions. The Article and Section headings in
this Agreement are for convenience only; they form no part of this Agreement and
shall not affect its interpretation.
14.7 Pronouns and Plurals. Whenever the context may require,
any pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter form and the singular form of nouns, pronouns and verbs shall
include the plural and vice versa.
14.8 Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday or holiday on which federal banks are or may
elect to be closed, then the final day shall be deemed to be the next day which
is not a Saturday, Sunday or such holiday.
14.9 Assurances. Each of the Partners shall hereafter execute
and deliver such further instruments and do such further acts and things as may
be required or useful to carry out the intent and purpose of this Agreement.
14.10 Binding Effect. This Agreement shall be binding upon an
inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted assigns.
14.11 Arbitration. Any controversy or claim arising out of or
relating to this Agreement, including without limitation, the making,
performance or interpretation of this
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<PAGE> 30
Agreement, will be settled by arbitration. The arbitration shall be (i) in the
event the amount in dispute is less than $250,000, by a single arbitrator,
mutually selected by the General Partner and the Partner involved or (ii) if the
amount in dispute equals or exceeds $250,000, by a panel of three arbitrators,
one arbitrator selected by each of the General Partner and the Partner involved
and the two arbitrators in turn selecting a third arbitrator to act with them in
a panel. Each arbitrator shall be experienced in the matters at issue. The
arbitration shall be held in such place in the metropolitan Atlanta, Georgia
area as may be specified by the arbitrator or the panel (or any place agreed to
by the General Partner and Partner involved, and the arbitrator or panel), and
shall be conducted in accordance with the Commercial Arbitration Rules existing
at the date thereof of the American Arbitration Association to the extent not
inconsistent with this Agreement. The decision of the arbitrator or panel shall
be final and binding as to any matters submitted under this Agreement; provided,
however, that if necessary, such decision may be enforced by either the
Partnership or the Partner involved in any court of record having jurisdiction
over the subject matter or over any of the parties. The determination of which
party (or combination of them) bears the costs and expenses incurred in
connection with any such arbitration proceeding shall be determined by the
arbitrator or the panel. The parties agree that the arbitrator or panel shall
have no jurisdiction to consider evidence with respect to or render any award or
judgment for punitive damages (or any other amount awarded for the purpose of
imposing a penalty). The parties agree that all facts and other information
relating to any arbitration arising under this Agreement will be kept
confidential to the fullest extent permitted by law.
14.12 Exhibits. The provisions of Exhibits A through H to this
Agreement are by this reference hereby incorporated into this Agreement as if
contained in the body of the Agreement. To the extent that any provision in the
body of the Agreement is inconsistent with a term contained in an Exhibit, the
terms and conditions of the Exhibit will control.
[SIGNATURES ON FOLLOWING PAGE]
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<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement or caused this Agreement to be executed on their behalf as of the date
first above written.
GENERAL PARTNER: STRATEGIC TIMBER TWO OPERATING CO., LLC
By: /s/ Thomas P. Broom
-----------------------------------------
Thomas P. Broom
Vice President and Manager
LIMITED PARTNERS: STRATEGIC TIMBER TWO OPERATING CO., LLC
By: /s/ Thomas P. Broom
-----------------------------------------
Thomas P. Broom
Vice President and Manager
OLD PIONEER, LLC
By: /s/ Gregory M. Demers
-----------------------------------------
Gregory M. Demers, as authorized member
/s/ Gregory M. Demers
--------------------------------------------
GREGORY M. DEMERS
/s/ T. Yates Exley
--------------------------------------------
T. YATES EXLEY
KING INVESTMENT GROUP, INC.
By: /s/ Ed King by: Gregory Demers
As Attorney-in-fact
-----------------------------------------
Title: President
--------------------------------------
/s/ Darrick Salyers
--------------------------------------------
DARRICK SALYERS
/s/ James A. Youell by: Gregory Demers
As Attorney-in-fact
--------------------------------------------
JAMES A. YOUELL
MACH ONE PARTNERS, LLC
By: /s/ [illegible]
-----------------------------------------
Title: Authorized Representative
--------------------------------------
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<PAGE> 32
EXHIBIT A TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
STRATEGIC TIMBER PARTNERS II, LP
PARTNERS' CONTRIBUTIONS AND INTERESTS
<TABLE>
<CAPTION>
Cash or
Name/Address Agreed Value of Partnership Percentage
of Partner Contributions Units Interest
---------- ------------- ----- --------
<S> <C> <C> <C>
General Partner
---------------
Strategic Timber Two $1,100,000 Class A 1.000%
Operating Co., LLC 100
5 N. Pleasant Street
New London, NH 03257
Limited Partners
----------------
Class A $33,900,000 Class A 30.818%
- ------- -------
Strategic Timber Two 3,082
Operating Co., LLC
5 N. Pleasant Street
New London, NH 03257
Class B $7,988,045 Class B 7.262%
- ------- -------
Gregory M. Demers 726
25310 Jeans Road
P.O. Box 876
Veneta, OR 97487
Old Pioneer, LLC $41,743,455 3,795 37.949%
25310 Jeans Road
P.O. Box 876
Veneta, OR 97487
T. Yates Exley $3,250,000 296 2.955%
5 N. Pleasant Street
New London, NH 03257
</TABLE>
A-1
<PAGE> 33
<TABLE>
<CAPTION>
Cash or
Name/Address Agreed Value of Partnership Percentage
of Partner Contributions Units Interest
---------- ------------- ----- --------
<S> <C> <C> <C>
King Investment Group, Inc. $4,413,500 401 4.012%
30414 LeBleu Road
Eugene, OR 97405
Darrick Salyers $6,305,000 573 5.732%
25310 Jeans Road
P.O. Box 876
Veneta, OR 97487
James A. Youel $1,300,000 118 1.181%
25310 Jeans Road
P.O. Box 876
Veneta, OR 97487
---------- --------- -------
Class B Subtotal $65,000,000 5,909 59.091%
Class C Class C
- ------- -------
MACH ONE PARTNERS, $10,000,000 909 9.091%
LLC
c/o Nancy K. Thomason ---------- --------- -------
First Union National Bank
of Georgia
1100 Abernathy Road, N.E.
Bldg. 500
Atlanta, GA 30328
Total $110,000,000 10,000 100%
</TABLE>
A-2
<PAGE> 34
EXHIBIT B TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
STRATEGIC TIMBER PARTNERS II, LP
CAPITAL ACCOUNT MAINTENANCE
Definitions. The following terms, for the purposes of this
Exhibit B and the Agreement shall have the meaning set forth below:
1. "Depletion" shall mean, with respect to standing timber
owned by the Partnership, the recovery (as a noncash expense) of the costs
associated with the acquisition or establishment of timber stands, as determined
under Code section 611 and the Regulations thereunder; provided, however, if
there is a difference between the Gross Asset Value and adjusted tax basis of
such timber, Depletion means "book" depletion as determined under the Code
section 704(b) Regulations.
"Depreciation" shall mean, with respect to any asset of the
Partnership for any fiscal year or other period, the depreciation or
amortization, as the case may be, allowed or allowable for Federal income tax
purposes in respect of such asset for such fiscal year or other period;
provided, however, that if there is a difference between the Gross Asset Value
and the adjusted tax basis of such asset, Depreciation shall mean "book"
depreciation or amortization as determined under the Code section 704(b)
Regulations.
"Regulations" shall mean the Income Tax Regulations
promulgated under the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
2. Capital Account of the Partners. The Partnership shall
maintain for each Partner, a separate Capital Account in accordance with the
rules of Regulation Section 1.704-1(b)(2)(iv).
3. Computation of Net Income or Net Loss. For each fiscal year
or other applicable period, the Net Income or Net Loss shall be an amount equal
to the Partnership's net income or loss for such year or period as determined
for federal income tax purposes by the Accountants, in accordance with section
703(a) of the Code. For this purpose, all items of income, gain, loss or
deduction required to be stated separately pursuant to Code section 703(a) shall
be included in taxable income or loss. The following adjustments shall then be
made:
(a) include as an item of gross income any tax-exempt income
received by the Partnership;
(b) any expenditure of the Partnership described in section
705(a)(2)(B) of the Code shall be treated as a deductible expense;
B-1
<PAGE> 35
(c) in lieu of depreciation, depletion, amortization, and
other cost recovery deductions taken into account in computing Net Income or Net
Loss, there shall be taken into account Depreciation and Depletion;
(d) gain or loss resulting from any disposition of Partnership
property with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Gross Asset Value of such
property as adjusted for Depreciation and Depletion rather than its adjusted tax
basis; and
(e) in the event of an adjustment to the Gross Asset Value of
any Partnership asset, as provided for in subparagraphs (b), (c) and (d) of
Paragraph 3 of this Exhibit B, that also requires the Capital Accounts of the
Partnership to be adjusted pursuant to Regulation Section 1.704-1(b)(2)(iv)(e),
(f) and (m), the amount of such adjustment is to be taken into account as an
additional item of income or deduction, as is applicable.
(f) Once an item of income, gain, loss or deductions is
included in the initial computation of Net Income or Net Loss but is then
subjected to the special allocation rules in Exhibit C, Net Income or Net Loss
shall be recomputed without regard to such item.
4. Contributed Property and Adjustments to Value.
With respect to any asset of the Partnership, the Gross Asset
Value of such asset shall be such asset's adjusted basis for Federal income tax
purposes, except as follows:
(a) the initial Gross Asset Value of any asset (other than
cash) contributed by a Partner to the Partnership shall be the
gross fair market value of such asset at the time of its
contribution, and such amount as reduced for any liabilities
assumed or taken subject to by the Partnership in connection
with such contribution, shall be reflected in the books and
records of the Partnership and on Exhibit A to this Agreement
as the "Agreed Value" of the contributed property;
(b) if the General Partner reasonably determines, based upon
an opinion of counsel knowledgeable in such matters, that an
adjustment is necessary or appropriate to reflect the relative
economic interests of the Partners, the Gross Asset Values of
all Partnership assets shall be adjusted to equal their
respective gross fair market values, as reasonably determined
by the General Partner, based upon an opinion of counsel
knowledgeable in such matters, as of the following events:
(x) immediately prior to a Capital Contribution
(other than a de minimis Capital Contribution) to the
Partnership by a new or existing Partner as
consideration for a Partnership Interest;
B-2
<PAGE> 36
(y) immediately prior to the distribution by the
Partnership to a Partner of more than a de minimis
amount of Partnership property as consideration for
the redemption of a Partnership Interest; and
(z) immediately prior to the liquidation of the
Partnership within the meaning of the Regulations
under Code section 704(b);
(c) in accordance with Regulations Section
1.704-1(b)(2)(iv)(e), the Gross Asset Values of Partnership
Assets distributed in kind shall be adjusted upward or
downward to reflect any unrealized gain or loss attributable
to such Partnership property, as of the time any such asset is
distributed;
(d) the Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the
adjusted basis of such assets pursuant to Sections 734(b) or
743(b) of the Code, but only to the extent that such
adjustments are taken into account in determining Capital
Accounts pursuant to the Regulations under Code section
704(b); provided, however, that Gross Asset Values shall not
be adjusted pursuant to this paragraph to the extent that the
General Partner reasonably determines that an adjustment
pursuant to paragraph (b) above is necessary or appropriate in
connection with a transaction that would otherwise result in
an adjustment pursuant to this paragraph (d).
(e) The initial net agreed value of the assets contributed by
the Class B Limited Partners is set forth on Exhibit A.
5. Periodic Adjustments to Gross Asset Value. As of the end of
each fiscal year or other computation period, Gross Asset Values shall be
adjusted by any Depletion or Depreciation taken into account with respect to the
Partnership's assets for purposes of computing Net Income and Net Loss.
6. Overriding Principles. The provisions of the Agreement
(including this Exhibit B and the other exhibits to this Agreement), relating to
the maintenance of capital accounts and allocations are intended to comply with
Regulation Section 1.704-1(b) and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the General Partner shall
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits thereto are computed in order to comply with such
Regulations, the General Partner may make such modifications, provided that such
modification is not likely to have a material adverse effect on the amounts
distributable to any Partner or Assignee, pursuant to Article VIII of this
Agreement, upon dissolution of the Partnership.
B-3
<PAGE> 37
EXHIBIT C TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
STRATEGIC TIMBER PARTNERS II, LP
SPECIAL ALLOCATION RULES
Notwithstanding the provisions of Section 6.1 of the
Agreement, the Special Allocation Rules of this Exhibit C are controlling as to
the allocation of any items of Partnership income, gain, loss and deduction.
1. Definitions. The following terms shall, for purposes of
this Exhibit C and the Agreement, have the meanings set forth below:
"Adjusted Capital Account Deficit" shall mean, with respect to
any Partner, the deficit balance, if any, in such Partner's Capital Account as
of the end of any relevant fiscal year and after giving effect to the following
adjustments:
(a) credit to such Capital Account any amounts which
such Partner is obligated or treated as obligated to
restore with respect to any deficit balance in such
Capital Account pursuant to Section
1.704-1(b)(2)(ii)(c) of the Regulations, or is deemed
to be obligated to restore with respect to any
deficit balance pursuant to the penultimate sentences
of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the
Regulations; and
(b) debit to such Capital Account the items described
in Sections 1.704-1(b)(2)(ii)(d)(4),(5) and (6) of
the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the requirements of the alternate test for economic effect contained
in Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted
consistently therewith.
"Nonrecourse Deductions" shall have the meaning set forth in
Sections 1.704-2(b)(1) and (c) of the Regulations.
"Nonrecourse Liabilities" shall have the meaning set forth in
Section 1.704-2(b)(3) of the Regulations.
"Partner Minimum Gain" shall mean "partner nonrecourse debt
minimum gain" as determined in accordance with Regulation Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" shall have the meaning set
forth in Section 1.704-2(i)(2) of the Regulations.
C-1
<PAGE> 38
"Partnership Minimum Gain" shall have the meaning set forth in
Section 1.704-2(b)(2) of the Regulations.
"Regulatory Allocations" shall mean the allocations required
by the Regulations under Code section 704(b) in order for allocations to be
deemed to have "economic effect" within the meaning of Code section 704(b) and
as provided for in subparagraphs (a) through (e) of Paragraph 2 of this Exhibit
C.
2. Special Allocations.
Notwithstanding any other provisions of the Agreement, the
following special allocations shall be made prior to any allocation under
Section 6.1 of the Agreement and in the following order:
(a) Minimum Gain Chargeback. If there is a net decrease in
Partnership Minimum Gain for any Partnership fiscal year (except as otherwise
provided in Regulation Section 1.704-2)), each Partner shall be specially
allocated items of Partnership income and gain for such year (and, if necessary,
subsequent years) in an amount equal to that Partner' s share of the net
decrease in Partnership Minimum Gain. The items to be so allocated shall be
determined in accordance with Regulation Section 1.704-2(f). This paragraph (a)
is intended to comply with the minimum gain chargeback requirement of Regulation
Section 1.704-2 and shall be interpreted consistently therewith. Allocations
pursuant to this paragraph (a) shall be made in proportion to the respective
amounts required to be allocated to each Partner pursuant to the Regulations.
(b) Partner Minimum Gain. If there is a net decrease in
Partner Minimum Gain during any fiscal year (except as otherwise provided in
Regulation Section 1.704-2(i)(4)), each Partner shall be specially allocated
items of Partnership income and gain for such year (and, if necessary,
subsequent years) in an amount equal to the Partner's share of the net decrease
in Partner Minimum Gain, if any. The items to be so allocated shall be
determined in accordance with Regulation Section 1.704-2(i)(4) and (j)(2). This
paragraph (b) is intended to comply with the minimum gain chargeback requirement
with respect to Partner Nonrecourse Debt contained in the Regulations and shall
be interpreted consistently therewith. Allocations pursuant to this paragraph
(b) shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant to the Regulations.
(c) Qualified Income Offset. In the event a Partner
unexpectedly receives any adjustments, allocations or distributions described in
Regulation Section 1.704-1(b)(2)(ii) (d)(4),(5), or (6), and such Limited
Partner has an Adjusted Capital Account Deficit, items of Partnership income and
gain shall be specially allocated to such Partner in an amount and manner
sufficient to eliminate the Adjusted Capital Account Deficit as quickly as
possible. This paragraph (c) is intended to constitute a "qualified income
offset" under Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
C-2
<PAGE> 39
(d) Nonrecourse Deductions. Nonrecourse Deductions for any
fiscal year or other applicable period shall be allocated to the Partners in
accordance with their respective Percentage Interests.
(e) Partner Nonrecourse Deductions. Partner Nonrecourse
Deductions for any fiscal year or other applicable period shall be specially
allocated to the Partner that bears the economic risk of loss for the debt
(i.e., the Partner Nonrecourse Debt) as to which such Partner Nonrecourse
Deductions are attributable, as determined under Regulation Section
1.704-2(b)(4) and (i)(1)).
(f) Curative Allocations. The Regulatory Allocations shall be
taken into account in allocating other items of income, gain, loss, and
deduction among the Partners so that, to the extent possible, the cumulative net
amount of allocations of Partnership items under the Regulatory Allocations and
Section 6.1 of the Agreement shall be equal to the net amount that would have
been allocated to each Partner if the Regulatory Allocations had not occurred.
This subparagraph (f) is intended to minimize, to the extent possible, any
economic distortions which may result from application of the Regulatory
Allocations and shall be interpreted in a manner consistent therewith.
3. Tax Allocations.
(a) Generally. Except as provided in subparagraph (b) hereof,
items of income, gain, loss, deduction and credit to be allocated for income tax
purposes (collectively, "Tax Items") shall be allocated among the Partners in
the same proportion as the corresponding book items (within the meaning of the
Code section 704(b) Regulations).
(b) Allocations Respecting Section 704(c) and Revaluations.
Notwithstanding paragraph (a) hereof, Tax items that relate to Partnership
property that is subject to Code section 704(c) (contributed property having a
fair market value different from its tax basis) and/or revalued pursuant to
Regulation Section 1.704-1(b)(2)(iv)(f) (collectively "Section 704(c) Tax
Items") shall be allocated in accordance with said Code section 704(c) and
Regulation Section 1.704-3. The General Partner is authorized to select the
method under Regulation Section 1.704-3 for the allocation of Section 704(c)
Tax items.
4. Excess Nonrecourse Liabilities.
The "excess nonrecourse liabilities" of the Partnership
(within the meaning of Regulation Section 1.752-3(a)(3)) shall be allocated
among the Partners in accordance with the Partners' Percentage Interests.
C-3
<PAGE> 40
EXHIBIT D TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
STRATEGIC TIMBER PARTNERS II,LP
TERMS OF THE RIGHTS OF THE
CLASS B PARTNERSHIP UNITS
1. Definitions. In addition to terms defined in Section 1. 1 of
the Agreement, the following terms shall, for purposes of this Exhibit and the
Agreement, have the meanings set forth below:
"Class B Consideration" means as to each Class B Limited
Partner the sum of. (i) such Partner's Agreed Value of the Pioneer membership
interests contributed by such Class B Limited Partner to the capital of the
Partnership, as reflected on Exhibit A of this Agreement, and (ii) such Class B
Limited Partner's Class B Preferred Return.
"Class B Preferred Return" means, as to a Class B Limited
Partner, a cumulative return on the Agreed Value of such Class B Limited Partner
Capital Contribution, computed like simple interest at the rate of fifteen
percent (15%) per annum, commencing on the day following the giving of a Notice
exercising a put by the Class B Representative in accordance with the provisions
of Paragraph 3 of this Exhibit D and continuing until the earlier to occur of
payment of such return or the Class B Representative exercising the Class B
Proxy, less the amount of any Net Operating Cash Flow distributed to the Class B
Limited Partner pursuant to Section 5.1 (b) of this Agreement after the Put
Notice is given. Such return will be computed based upon 365-day year.
"Class B Unit Price" means the initial price to the public of
a Share in an IPO or the price per Share to the equity investors in a Liquidity
Event that is a private placement, less a cumulative available discount of up to
$3,900,000 for all Class B Limited Partners, applied in accordance with this
definition on a pro rata basis. If the initial Liquidity Event is a private
placement of equity, to the extent that a Class B Partner retains an equity
interest in the Partnership or the Surviving Entity, such Partner will receive
an appropriate discount measured by the savings of underwriting costs, if any,
arising as a result of such Partner's continued interest. In any IPO, the Class
B Partners will receive a discount in computing the amount of continued equity
investment equal to (A) such Partner's pro rata share of the initial cumulative
available discount of $3,900,000 multiplied by a fraction, the numerator of
which is the Class B Limited Partner's Agreed Value after reduction for any
distribution in cash previously made from Net Liquidity Event Proceeds, or in
the IPO, and the denominator of which is such Partner's initial Agreed Value
less (B) the amount of discount previously utilized
D-1
<PAGE> 41
pursuant to this definition, if any, in the determination of the equity of such
Partner as a result of a prior private placement.
"Class B Proxy" means an irrevocable proxy granted by STT II
to the Class B Representative pursuant to the terms and conditions of this
Exhibit D, which is in the form attached hereto as Exhibit D-1 and incorporated
herein by this reference.
"Pioneer Property" means the assets of Pioneer Resources, LLC.
2. Rights At and Following a Liquidity Event.
(a) Prior to filing a registration statement with the SEC for a
public underwritten offering of REIT Shares, the Class B Representative on
behalf of the Class B Limited Partners and the Partnership will execute a
Registration Rights And Lock-Up Agreement having substantially the terms set
forth in Exhibit I to this Agreement, with such changes as the parties in good
faith negotiate and agree to accommodate changes in the law and market
conditions. Such agreement will definitively define the restrictions imposed by
the Securities Laws or the Underwriter on any Shares that may be issuable to the
Class B Limited Partners upon the merger of the Partnership with the Surviving
Entity or the conversion of OP Units to Shares in connection with an IPO, such
as a "lock up" of the OP Units or Shares for a period of one (1) year after the
IPO Closing.
(b) Effective as of the merger of the Partnership with the
Surviving Entity in connection with the Liquidity Event Closing, the Class B
Partnership Units will be converted to OP Units in accordance with the Merger
Agreement. Upon such merger, the consideration for the Class B Partnership Units
of each Class B Limited Partner will be OP Units and/or such Class B Limited
Partner's allocable share of the Net Liquidity Event Proceeds. The maximum
number of OP Units to be issued to a Class B Limited Partner shall be determined
by dividing such Class B Limited Partner's Class B Consideration by the Class B
Unit Price. If a Class B Limited Partner states a preference for a combination
of cash and OP Units, the maximum number of OP Units will be determined by
dividing such Class B Limited Partners' Class B Consideration (less the amount
of cash, if any, payable to such Partner in connection with the merger) by the
Class B Unit Price. To the extent that Net Liquidity Event Proceeds are not
sufficient to fully satisfy the cash preference amounts of the Class B and Class
C Limited Partners and the Class C Limited Partners of STP, then the available
Net Liquidity Event Proceeds shall be allocated among them on a pro rata basis
based on their respective Agreed Values (as defined in this Agreement, and in
Exhibit A to the STP limited partnership agreement with respect to the Class C
Limited Partners of STP).
(c) On or before the thirtieth day before the REIT intends to
either: (i) file a registration statement with the SEC, or (ii) commence
distribution of the private placement memoranda, the General Partner will
provide each Class B Limited Partner with Notice of such intent accompanied by a
draft of the proposed registration statement or private placement memorandum and
related exhibits as they exist on such date and containing appropriate
disclaimers as to reliance because such document is in draft format and subject
to change as a
D-2
<PAGE> 42
result of review by the Underwriters, the SEC or for any other reason. No later
than 20 days after such Notice, each Class B Limited Partner may elect to notify
the General Partner of its preferred form of consideration among the
alternatives of all cash, a combination of cash and OP Units and all OP Units.
The General Partner will attempt to honor, in good faith, the preference stated
by each Class B Limited Partner as to the form of the consideration to be
received by it, subject to the constraints suggested or imposed by the
Underwriter or imposed by the Financing Documents. If a Class B Limited Partner
fails to timely provide a Notice of its preference to the General Partner, all
of such Class B Limited Partner's consideration will be paid in OP Units in
accordance with the formula contained in the Merger Agreement
3. Put Rights.
(a) If the Liquidity Event Closing has not occurred on or before
the Liquidity Event Deadline, the Class B Representative shall have the right to
issue a Notice to the Partnership Invoking a put of all of the Class B Units to
the Partnership under the terms specified in this Paragraph 3(a) ("Put Notice").
Once a Put Notice is issued, the Partnership shall have a call right on all the
Class B Partnership Units. The exercise price of the put and the call for the
Class B Partnership Units is the aggregate Class B Consideration of the Class B
Limited Partners. Any purchase and sale effectuated pursuant to this Paragraph
3(a) shall be completed on or before the later to occur of (i) December 31, 1999
or (ii) the thirtieth day following the date that a Put Notice is given
("Redemption Date") and shall be subject to the customary representations and
warranties by a seller in such a transaction.
(b) If the aggregate Class B Consideration is distributed to the
Class B Partners pursuant to a closing on or before the Redemption Date, the
amounts distributed to the Class B Partners at such closing shall be in full and
complete satisfaction and liquidation of their interests in the Partnership
(c) If the Partnership is unable to pay the aggregate Class B
Consideration on or before the Redemption Date including due to such payment
being prohibited by the Financing Documents, the Class B Representative shall
have the right to exercise the Class B Proxy and assume control of the
Partnership.
(d) Upon exercise of the Class B Proxy by the Class B
Representative, STT II shall be admitted to the Partnership as a Limited
Partner, with STTOC having distributed all of the Class A Units initially held
by it as a Limited Partner to STT II. Once the Class B Proxy has been exercised,
any amount that would be distributed to the General Partner by the Partnership
shall be distributed to STT II as the sole member of the General Partner.
(e) If a sale of substantially all of the Pioneer Property is
consummated during the period when the General Partner is controlled by the
Class B Representative, the net proceeds, if any, remaining after full and
complete satisfaction of the Financing and any other liabilities of the
Partnership will be distributed: (i) first, to the Class B Limited Partners in
an amount equal to their respective Class B Consideration; (ii) next, to the
Class C Limited Partner to the extent of the Class C Consideration; and (iii)
thereafter, to the Partners in proportion to
D-3
<PAGE> 43
their respective Percentage Interests; provided however that, to the extent such
distributions are otherwise payable to the Class A Partner, such payments shall
be used to repay the bridge loan as to which the REIT is the borrower.
(f) Upon a distribution to the Class B Limited Partners of $30
million cash in the aggregate as a result of an IPO or closing of a private
placement of equity, the put rights of the Class B Partners will be
extinguished.
4. Limitation on Class B Rights. The rights granted in paragraphs
2 and 3 of this Exhibit D, any other rights granted to the Class B Limited
Partners and the Partnership's obligations or required performance in connection
with the exercise or enforcement of any such rights are expressly subject to the
terms and provisions of the Financing Documents and any limitations or
restrictions that may be contained therein.
5. Controlling Provisions. To the extent that the provisions of
the Agreement, including without limitation Exhibit E, are inconsistent with the
provisions contained in this Exhibit D, the terms and conditions of Exhibit D
will control.
6. Transfer by a Class B Limited Partner. For purposes of Article
IX of the Agreement, after a Liquidity Event Closing and subject to any
limitations imposed by the Securities Laws or the Underwriters, the General
Partner will be deemed to have consented to a Class B Limited Partner's
assignment of any of the OP Units that they hold to their respective Immediate
Families and to any Person that is a Class B Limited Partner as of the execution
of the Agreement, and the substitution of such Persons as Limited Partners,
subject to any contractual restrictions to which the Class B Limited Partner is
a party.
7. Voting Rights. With respect to all matters as to which the
Class B Limited Partners are entitled to vote or Consent under the terms of this
Agreement, the Class B Representative shall exercise such rights unless eighty
percent (80%) of the Percentage Interests held by the Class B Limited Partners
vote or Consent to each Class B Limited Partner exercising its own voting
rights.
D-4
<PAGE> 44
EXHIBIT D-1 TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
STRATEGIC TIMBER PARTNERS II, LP
IRREVOCABLE PROXY
October 9, 1998
To: Mr. Gregory M. Demers,
as Class B Representative
253 10 Jeans Road
Veneta, OR 97487
Reference is made to that certain First Amended and Restated Agreement
of Limited Partnership (the "Partnership Agreement") of Strategic Timber
Partners II, LP (the "Partnership"), and in particular Exhibit D thereto, for a
statement of terms and conditions upon which this proxy is exercisable. Pursuant
to the Partnership Agreement, the Undersigned has granted to you this proxy
with respect to all of the membership interests (the "Interests") of Strategic
Timber Two Operating Co., LLC, which is wholly-owned by the Undersigned and is
the general partner of the Partnership (the "Company").
The Undersigned hereby irrevocably appoints you as attorney and proxy,
with full power of substitution, as provided in Section 3 of Exhibit D to the
Partnership Agreement, to vote or express written consent or dissent in such
manner as such attorney and proxy, or its substitute, shall, in its sole
discretion, deem proper and otherwise act (including pursuant to any limited
liability company action in writing without a meeting) with respect to all of
the Interests which the Undersigned is entitled to vote at any meeting of
members (whether annual or special and whether or not an adjourned meeting) of
the Company, or pursuant to written action taken in lieu of any such meeting or
otherwise. This proxy is irrevocable and is coupled with an interest sufficient
in law to support an irrevocable proxy.
This irrevocable proxy shall terminate only if the Class B
Consideration (as defined in the Partnership Agreement) has been paid or
otherwise discharged on or before December 31, 1999. This irrevocable proxy is
subject to all of the terms, conditions and limitations of the Partnership
<PAGE> 45
Agreement, including without limitation rights granted under the Financing
Documents (as defined in the Partnership Agreement).
Very truly yours,
STRATEGIC TIMBER TRUST II, LLC
By:
-----------------------------------
Thomas P. Broom
Vice President
Attest:
-------------------------------
Joseph E. Rendini
Secretary
<PAGE> 46
EXHIBIT E TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
STRATEGIC TIMBER PARTNERS II, LP
TERMS OF THE RIGHTS OF THE
CLASS C PARTNERSHIP UNITS
1. Definitions. In addition to terms defined in Section 1.1 of
the Agreement, the following terms shall, for purposes of this Exhibit and the
Agreement, have the meanings set forth below:
"Class C Consideration" means the initial Agreed Value of the
Capital Contribution of the Class C Limited Partner, as reflected on Exhibit A
of the Agreement, plus the Class C Cumulative Return.
"Class C Cumulative Return" means a: (i) cumulative return on
the initial Agreed Value of the Capital Contribution of the Class C Limited
Partner at the rate of forty percent (40%) per annum, commencing as of the
effective date of this Agreement and continuing until the earlier to occur of
the payment of such return or the exercise of the Class C Proxy, computed based
upon a 365-day year, less (ii) the amount of any Net Operating Cash Flow
distributed to the Class C Limited Partner pursuant to Section 5.1 (b) of this
Agreement.
"Class C Unit Price" means the initial price to the public of
a Share in an IPO, or the price per Share to the equity investors in a Liquidity
Event that is a private placement, less a cumulative available discount of up to
$500,000 for all Class C Limited Partners, applied in accordance with this
definition on a pro rata basis. If the initial Liquidity Event is a private
placement of equity, to the extent that a Class C Partner retains an equity
interest in the Partnership or the Surviving Entity, such Partner will receive
an appropriate discount measured by the savings of underwriting costs, if any,
arising as a result of such Partner's continued interest. In any IPO, the Class
C Partners will receive a discount in computing the amount of continued equity
investment equal to (A) such Partner's pro rata share of the initial cumulative
available discount of $500,000 multiplied by a fraction, the numerator of which
is the Class C Limited Partner's Agreed Value after reduction for any
distribution in cash previously made from Net Liquidity Event Proceeds, or in
the IPO, and the denominator of which is such Partner's initial Agreed Value
less (B) the amount of discount previously utilized pursuant to this definition,
if any, in the determination of the equity of such Partner as a result of a
prior private placement.
E-1
<PAGE> 47
"Class C Proxy" means an irrevocable proxy granted by STT II
to the Class C Limited Partner pursuant to the terms and conditions of this
Exhibit E, which is in the form attached hereto as Exhibit E-1 and incorporated
herein by this reference.
"Pioneer Property" means the assets of Pioneer Resources, LLC.
2. Rights At and Following a Liquidity Event.
(a) Prior to filing a registration statement with the SEC for a
public underwritten offering of REIT Shares, the Class C Limited Partner and the
Partnership will execute a Registration Rights And Lock-Up Agreement having
substantially the terms set forth in Exhibit I to this Agreement, with such
changes as the parties in good faith negotiate and agree to accommodate changes
in the law and market conditions. Such agreement will definitively define the
restrictions imposed by the Securities Laws or the Underwriter on any Shares
that may be issuable to the Class C Limited Partner upon the merger of the
Partnership with the Surviving Entity or the conversion of OP Units to Shares in
connection with an IPO, such as a "lock up" of the OP Units or Shares for a
period of one (1) year after the IPO Closing.
(b) Effective as of the merger of the Partnership with the
Surviving Entity in connection with the Liquidity Event Closing, the Class C
Partnership Units will be converted to OP Units in accordance with the Merger
Agreement. Upon such merger, the consideration for the Class C Partnership Units
will be OP Units and/or the Class C Limited Partner's allocable share of the Net
Liquidity Event Proceeds. The maximum number of OP Units to be issued to the
Class C Limited Partner shall be determined by dividing the Class C Limited
Partner's Class C Consideration by the Class C Unit Price. If the Class C
Limited Partner states a preference for a combination of cash and OP Units, the
maximum number of OP Units will be determined by dividing the Class C Limited
Partners' Class C Consideration (less the amount of cash, if any, payable to
such Partner in connection with the merger) by the Class C Unit Price. To the
extent that Net Liquidity Event Proceeds are not sufficient to fully satisfy the
cash preference amounts of both the Class B and Class C Limited Partners, the
available Net Liquidity Event Proceeds will be allocated among them on a pro
rata basis based on their respective Agreed Values (as defined in this
Agreement, and in Exhibit A to the STP limited partnership agreement with
respect to the Class C Limited Partners of STP).
(c) On or before the thirtieth day before the REIT intends to
either: (i) file a registration statement with the SEC, or (ii) commence
distribution of the private placement memoranda, the General Partner will
provide the Class C Limited Partner with Notice of such intent accompanied by a
draft of the proposed registration statement or private placement memorandum and
related exhibits as they exist on such date and containing appropriate
disclaimers as to reliance because such document is in draft format and subject
to change as a result of review by the Underwriters, the SEC or for any other
reason. No later than 20 days after such Notice, the Class C Limited Partner may
elect to notify the General Partner of its preferred form of consideration among
the alternatives of all cash, a combination of cash and OP Units and all OP
Units. The General Partner will attempt to honor, in good faith, the preference
stated by the Class C Limited Partner as to the form of the consideration to be
received by it,
E-2
<PAGE> 48
subject to the constraints suggested or imposed by the Underwriter or imposed by
the Financing Documents. If a Class C Limited Partner fails to timely provide a
Notice of its preference to the General Partner, all of such Class C Limited
Partner's consideration will be paid in OP Units in accordance with the formula
contained in the Merger Agreement.
3. Put Rights.
(a) If the Liquidity Event Closing has not occurred on or before
the Liquidity Event Deadline, the Class C Limited Partner shall have the right
to issue a Notice to the Partnership invoking a put of all of the Class C Units
to the Partnership under the terms specified in this Paragraph 3(a) ("Put
Notice"). Once a Put Notice is issued, the Partnership shall have a call right
on all the Class C Partnership Units. The exercise price of the put and the call
for the Class C Partnership Units is the Class C Consideration. Any purchase and
sale effectuated pursuant to this Paragraph 3(a) shall be completed on or before
the later to occur of (i) September 30, 1999 or (ii) the thirtieth day following
the date that a Put Notice is given ("Redemption Date") and shall be subject to
the customary representations and warranties by a seller in such a transaction.
At the closing of a sale pursuant to this Paragraph 3(a), the Class B
Consideration will be paid prior to any amount being paid to the Class C Limited
Partner; provided, however, the Class B Representative may elect by written
Notice to the Partnership, to retain Class B Units even though the Class C
Partner is being redeemed. Such Notice must be provided no later than 30 days
prior to the Redemption Date.
(b) If all of the Class C Consideration is distributed to the
Class C Partner pursuant to a closing on or before the Redemption Date, the
amounts distributed to the Class C Partner at such closing shall be in full and
complete satisfaction and liquidation of its interest in the Partnership.
(c) If the Partnership is unable to pay the Class C Consideration
on or before the Redemption Date, including due to such payment being prohibited
by the Financing Documents, then from such date until December 31, 1999 the
Class C Representative shall have the right to exercise the Class C Proxy and
assume control of the Partnership, subject to the rights of the Class B Limited
Partner as set forth in this Agreement.
(d) Upon exercise of the Class C Proxy by the Class C Limited
Partner, STT II shall be admitted to the Partnership as a Limited Partner, with
STTOC having distributed all of the Class A Units initially held by it as a
Limited Partner to STT II. Once the Class C Proxy has been exercised, any amount
that would otherwise be distributed to the General Partner by the Partnership
shall be distributed to STP 11 as the sole member of the General Partner.
(e) If a sale of substantially all of the Pioneer Property is
consummated during the period when the General Partner is controlled by the
Class C Limited Partner, the net proceeds, if any, remaining after full and
complete satisfaction of the Financing and any other liabilities of the
Partnership will be distributed: (i) first to the Class B Limited Partners in an
amount equal to their respective Class B Consideration; (ii) next, to the Class
C Limited Partner to the extent of its Class C Consideration; (iii) thereafter,
to the Partners in proportion to their
E-3
<PAGE> 49
respective Percentage Interests; provided, however, that, to the extent such
distributions are otherwise payable to the Class A Partner, such payments shall
be used to repay the bridge loan as to which the REIT is the borrower.
4. Limitation on Class C Rights. The rights granted in Paragraphs
2 and 3 of this Exhibit E and any other rights granted to the Class C Limited
Partner and the Partnership's obligations or required performance in connection
with the exercise or enforcement of any such rights are expressly subject to the
terms and provisions of the Financing Documents and any limitations or
restrictions that may be contained therein.
5. Controlling Provisions. To the extent that the provisions of
the Agreement are inconsistent with the provisions contained in this Exhibit E,
the terms and conditions of Exhibit E will control except to the extent
inconsistent with the provisions of Exhibit D in which event Exhibit D will
control.
6. Transfer by the Class C Limited Partner. For purposes of
Article IX of the Agreement, after a Liquidity Event Closing and subject to any
limitations imposed by the Securities Laws or the Underwriters, the General
Partner will be deemed to have consented to the Class C Limited Partner's
assignment of any of the OP Units that it holds to its members or any of their
respective Affiliates, and the substitution of such Persons as Limited Partners,
subject to any contractual restrictions arising under any contracts to which the
Class C Limited Partner is a party.
E-4
<PAGE> 50
EXHIBIT E-1 TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
STRATEGIC TIMBER PARTNERS II, LP
IRREVOCABLE PROXY
October 9, 1998
To: Mr. Hanns A. Pielenz
Mr. Larry Woodard
c/o Mrs. Nancy K. Thomason
First Union National Bank of Georgia
1100 Abernathy Road, NE, Bldg. 500
Atlanta, GA 30328
Reference is made to that certain First Amended and Restated Agreement
of Limited Partnership (the "Partnership Agreement") of Strategic Timber
Partners II, LP (the "Partnership", and in particular Exhibit E thereto, for a
statement of terms and conditions upon which this proxy is exercisable. Pursuant
to the Partnership Agreement, the Undersigned has granted to you this proxy with
respect to all of the membership interests (the "Interests") of Strategic Timber
Two Operating Co., LLC, which is wholly-owned by the Undersigned and is the
general partner of the Partnership (the "Company").
The Undersigned hereby irrevocably appoints you as attorney and proxy,
with full power of substitution, as provided in Section 3 of Exhibit E to the
Partnership Agreement, to vote or express written consent or dissent in such
manner as such attorney and proxy, or its substitute, shall, in its sole
discretion, deem proper and otherwise act (including pursuant to any limited
liability company action in writing without a meeting) with respect to all of
the Interests which the Undersigned is entitled to vote at any meeting of
members (whether annual or special and whether or not an adjourned meeting) of
the Company, or pursuant to written action taken in lieu of any such meeting or
otherwise. This proxy is irrevocable and is coupled with an interest sufficient
in law to support an irrevocable proxy.
This irrevocable proxy shall terminate on the sooner to occur of. (i)
the Class C Consideration (as defined in the Partnership Agreement) has been
paid in full or otherwise discharged; or (ii) December 31, 1999. This
irrevocable proxy is subject to all of the terms,
<PAGE> 51
conditions and limitations of the Partnership Agreement, including without
limitation rights granted under the Financing Documents (as defined in the
Partnership Agreement).
Very truly yours,
STRATEGIC TIMBER TRUST II, LLC
By:
-----------------------------------
Thomas P. Broom
Vice President
Attest:
-------------------------------
Joseph E. Rendini
Secretary
<PAGE> 52
EXHIBIT F TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
STRATEGIC TIMBER PARTNERS II, LP
REDEMPTION RIGHTS OF CLASS B OP UNITS
After the IPO, the Redemption Rights of the Class B Limited Partners of
the Surviving Entity will be on substantially the same terms and conditions as
are specified in this Exhibit F, with the Class B and C Limited Partners of the
Partnership recognizing that such rights may be modified to accommodate comments
by the SEC and the Underwriter.
1. Definitions.
"Cash Amount" means an amount of cash equal to the Share Value of the
Redeeming Partner's REIT Shares Amount.
"Conversion Factor" means one (1), provided that in the event that the
REIT (i) declares or pays a dividend on its outstanding REIT Shares in REIT
Shares or makes a distribution to all holders of its outstanding REIT Shares in
REIT Shares, (ii) subdivides its outstanding REIT Shares, or (iii) combines its
outstanding REIT Shares into a smaller number of REIT Shares, the conversion
factor shall be adjusted by multiplying the then existing conversion factor by a
fraction, the numerator of which shall be the number of REIT Shares issued and
outstanding on the record date for such dividend, distribution, subdivision or
combination (assuming for such purposes that such dividend, distribution,
subdivision or combination has occurred as of such time), and the denominator of
which shall be the actual number of REIT Shares (determined without the above
assumption), issued and outstanding on the record date for such dividend,
distribution, subdivision or combination. Any adjustment to the Conversion
Factor shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
"Record Date" means the record date for the declaration of a dividend
by the REIT.
"Redeeming Partner" has the meaning set forth in Paragraph 2 of this
Exhibit F.
"Redemption Amount" means either the Cash Amount or the REIT Shares
Amount, as determined by the General Partner in its sole and absolute
discretion. A Redeeming Partner shall have no right, without the General
Partner's consent, to receive the Redemption Amount in the form of the REIT
Shares Amount, although the General Partner will attempt to
F-1
<PAGE> 53
accommodate any preferences stated in the Redemption Notice as to the form of
consideration taking into account the best interests of the REIT's existing
shareholders.
"Redemption Notice" has the meaning set forth in Paragraph 2 of this
Exhibit F.
"Redemption Rights" have the meaning set forth in Paragraph 2 of this
Exhibit F.
"REIT Shares Amount" means a number of REIT Shares equal to the product
of the number of Class B Partnership Units offered for redemption by a Redeeming
Partner, multiplied by the Conversion Factor; provided that in the event the
REIT issues to all holders of REIT Shares rights, options, warrants or
convertible or exchangeable securities entitling the shareholders to subscribe
for or purchase REIT Shares, or any other securities or property (collectively,
the "rights") then the REIT Shares Amount shall also include such rights that a
holder of that number of REIT Shares would be entitled to receive.
"Share Value" means, with respect to a Share, the average of the daily
market price (as hereinafter defined) for the ten (10) consecutive trading days
immediately preceding the Valuation Date. The "market price" for each such
trading day means: (i) if the Shares are listed or admitted to trading on any
securities exchange or the NASDAQ-National Market System ("NASDAQ"), the closing
price on such day, or if no such sale takes place on such day, the average of
the closing bid and asked prices on such day, or (ii) if the Shares are not
listed or admitted to trading on any securities exchange or the NASDAQ, the last
reported sale price on the Valuation Date or, if no sale takes place on the
Valuation Date, the average of the closing bid and asked prices on the Valuation
Date, as reported by a reliable quotation source designated by the General
Partner.
"Valuation Date" means the date of receipt by the General Partner of a
Notice exercising a Class B Limited Partner's Redemption Rights in accordance
with this Agreement or, if such date is not a business day, the first business
day thereafter.
2. Grant of Rights. Subject to the provisions of Paragraph 4 of
this Exhibit F, each Class B Limited Partner shall have the right (the
"Redemption Right") to require the Partnership to redeem, no later than 30 days
after receipt by the General Partner of a Notice electing redemption
("Redemption Notice"), all or a portion of the Class B Partnership Units held by
such Class B Limited Partner ("Redeeming Partner") at a price equal to, and in
the form of, the Redemption Amount. A Redeeming Partner shall have no right,
with respect to any Partnership Units so redeemed, to receive any distributions
paid with respect to a Partnership Record Date that is more than 10 business
days after the Valuation Date. An Assignee may exercise the Redemption Rights
that were applicable to the Partnership Units that were assigned. In connection
with any exercise of such rights by an Assignee, the Redemption Amount shall be
paid directly to such Assignee. A Redeeming Partner may not exercise the
Redemption Right for less than one thousand (1,000) Class B Partnership Units
or, if such Redeeming Partner holds less than one thousand (1,000) Class B
Partnership Units, all of the Class B Partnership Units held by such Redeeming
Partner.
F-2
<PAGE> 54
3. Right of REIT to Assume. Notwithstanding the provisions of
Paragraph 2 of this Exhibit F, the REIT may, in its sole and absolute
discretion, assume and directly satisfy a Redemption Right by paying the
Redemption Amount. Upon satisfaction of the Redemption Amount, the REIT shall
acquire the Class B Partnership Units specified in the Redemption Notice and
such Units will automatically be converted to Class A Partnership Units and
thereafter the REIT shall be treated for all purposes of this Agreement as the
owner of such Partnership Units. In the event the REIT exercises its right to
satisfy the Redemption Right in the manner described in the preceding sentence,
the Partnership shall have no obligation to pay any amount to the Redeeming
Partner with respect to such Redeeming Partner's exercise of the Redemption
Right, and each of the Redeeming Partner, the Partnership, and the REIT shall
treat the transaction between the REIT and the Redeeming Partner as a sale of
the Redeeming Partner's Partnership Units to the REIT for federal income tax
purposes. Each redeeming Partner agrees to execute such documents as the REIT
may reasonably require in connection with the issuance of Shares upon exercise
of the Redemption Right.
4. Limitation on Redemption for Shares. Notwithstanding the
provisions of Paragraphs 2 and 3 of this Exhibit F, a Person shall not be
entitled to exercise the Redemption Right pursuant to Paragraph 2 of this
Exhibit F and request REIT Shares, if the delivery of REIT Shares to such Person
would be prohibited under the REIT's articles of incorporation in order to
prevent violation of the REIT requirements with respect to not being "closely
held" (as defined in Code section 856(h)) and the not less than 100 shareholders
limitation.
F-3
<PAGE> 55
EXHIBIT G TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
STRATEGIC TIMBER PARTNERS II, LP
MAJOR DECISIONS
Prior to a Liquidity Event Closing and notwithstanding anything to the
contrary in the Partnership Agreement, the following actions will require the
Consent of the Partners; provided, however, each of the Partners will consider
such proposed action in good faith and Consent shall not be unreasonably
withheld:
(i) A single sale of any portion of the property of Pioneer, if
the selling price is $5,000,000 or more.
(ii) Approval of any cutting contract if: (a) the contract would
permit harvest in periods extending beyond December 31, 1999, or (b) the
contract provides that the dollar value of the timber to be cut under such
contract would exceed $5,000,000.
(iii) Incurring Partnership debt which in the aggregate exceeds of
$315 million.
(iv) Removal of Arthur Andersen, LLP as accountants for the
Partnership.
(v) The merger or combination of the Partnership, STTOC or STT II
with any entity, including the Surviving Entity, if the merger consideration to
be received by any party differs in an adverse manner from the consideration
reflected in the form of agreement contained in Exhibit H.
(vi) Any amendment to or restatement of the Partnership Agreement
or any exhibits thereto.
(vii) Approval of the redemption or liquidation of any Partner that
is effective prior to the Liquidity Event Closing other than the redemption or
liquidation of the Class C Limited Partner, in whole or part, pursuant to
Exhibit E of this Agreement.
(viii) The admission, withdrawal, removal or substitution of any
Partner other than the redemption or liquidation of the Class C Limited Partner,
in whole or part, pursuant to Exhibit E of this Agreement.
(ix) Selection of any independent entity as the forest manager.
G-1
<PAGE> 56
(x) Any amendment or change to the Financing Documents, which
pursuant to the terms of such Financing Documents, requires the consent of the
Required Lenders under either the Bridge Loan or the Senior Credit Facility.
In addition to the foregoing, the Class B and Class C Limited Partners shall
have the right, at their own expense (including the charges of accountants,
lawyers and other professionals engaged for that purpose) to assist in the
preparation of, review and comment upon any proposed amendment to the Financing
Documents, form of the partnership agreement for the Surviving Entity and to
participate in the preparation of any registration statement for the REIT to be
filed with the SEC and/or any private placement memorandum to be utilized in a
private equity offering.
G-2
<PAGE> 57
EXHIBIT H TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
STRATEGIC TIMBER PARTNERS II, LP
PLAN AND AGREEMENT OF MERGER
AMONG
STRATEGIC TIMBER TRUST, INC.,
STRATEGIC TIMBER TRUST II LLC,
STRATEGIC TIMBER OPERATING CO.,
STRATEGIC TIMBER TWO OPERATING CO., LLC,
STRATEGIC TIMBER PARTNERS, LP, and
STRATEGIC TIMBER PARTNERS II, LP
=========================================
THIS IS A PLAN AND AGREEMENT OF MERGER (this "Plan and Agreement of
Merger") by and among Strategic Timber Trust, Inc., a Georgia
corporation ("STT"), Strategic Timber Trust II LLC, a Georgia limited liability
company ("STT2"), Strategic Timber Operating Co., a Delaware corporation
("STOC"), Strategic Timber Two Operating Co., LLC, a Georgia limited liability
company ("STOC2") Strategic Timber Partners, LP, a Delaware limited partnership
("STP") and Strategic Timber Partners II, LP, a Georgia limited partnership
("STP2"). Each of STT2, STOC2 and STP2 is hereinafter sometimes referred to
individually as a "Merging Entity" and collectively as the "Merging Entities."
STP is hereinafter sometimes referred to as the "Surviving Entity." The Merging
Entities, the Surviving Entity, STT and STOC are referred to herein collectively
as the "Constituent Entities."
This Plan and Agreement of Merger has been executed pursuant to the
First Amended and Restated Agreement of Limited Partnership of STP2, dated as of
October 9, 1998 (the "STP2 LP Agreement").
In consideration of the mutual promises and the terms and conditions
set forth below and in the STP2 LP Agreement, and other good and valuable
consideration (the mutuality, adequacy and sufficiency of which are hereby
acknowledged), the Constituent Entities hereby agree as follows with respect to
the merger of STT2, STOC2 and STP2 with and into STP (the "Merger"):
1. Background; Approvals. The Merger is being effected pursuant to the
Georgia Limited Liability Company Act (the "GLLCA"), the Delaware Revised
Uniform Limited Partnership Act (the "DRULPA") and the Georgia Revised Uniform
Limited Partnership Act (the "GRULPA"). The board of directors of STT and STOC,
the management committee and members of STT2 and STOC2, and the general partner
and limited partners of STP and STP2, have adopted this Plan and Agreement of
Merger in accordance with applicable law and their constituent documents.
H- 1 -
<PAGE> 58
2. The Merger and Surviving Entity. In accordance with the terms Of
this Plan and Agreement of Merger: (a) the Constituent Entities shall make
appropriate filings with the Secretary of State of the States of Delaware and
Georgia, and (b) at the Merger Effective Time (as hereinafter defined), the
Merging Entities shall be merged with and into the Surviving Entity as provided
herein.
3. Merger Effective Time. The Merger shall be effective as of 12:01
a.m. on the day immediately following the filing of articles or a certificate of
merger with the Secretary of State of the States of Delaware and Georgia, or
such other time as the Constituent Entities to such Merger may agree, as
reflected in the articles or certificate of merger as filed, the "Merger
Effective Time"), such filings to be made shortly in advance of the consummation
of a Liquidity Event Closing (as defined in the STP2 LP Agreement).
4. Effect of Mergers. At the Merger Effective Time: (a) STT2, STOC2 and
STP2 will merge with and into STP; (b) the separate existence of the Merging
Entities will cease; (c) the ownership interests of the Merging Entities will be
converted as provided in this Plan and Agreement of Merger; and (d) the Mergers
will otherwise have the effect provided under the applicable laws of the States
of Delaware and Georgia.
5. Consideration for Merger. At the Merger Effective Time:
(a) The membership interests of STT2 will be converted into the
right to receive an aggregate of $100.00 in cash from STP;
(b) The membership interests of STOC2 will be converted into the
right to receive an aggregate of $100.00 in cash from STP;
(c) Each Class A Partnership Unit of STP2 will be canceled and no
consideration shall be paid in exchange therefor;
(d) As to each Class B Limited Partner of STP2, the Class B
Partnership Units of STP2 held by such Class B Limited Partner shall, in the
aggregate, be converted into Class B Partnership Units of STP and/or cash, as
follows:
(i) to the extent such Class B Limited Partner has elected to
convert a portion of its Class B Consideration into cash in accordance
with the terms and subject to the limitations set forth in Exhibit D to
the STP2 LP Agreement (the "Class B Cash Amount"), and subject to
subsection (f) below, such portion shall be paid in cash, and
(ii) the amount of such Class B Limited Partner's Class B
Consideration in excess of its Class B Cash Amount (if any) shall, in
accordance with the terms and subject to the limitations set forth in
Exhibit D to the STP2 LP Agreement and subsection (f) below (the "Class
B Conversion Amount"), be converted into a number of Class B
H- 2 -
<PAGE> 59
Partnership Units of STP equal' to its Class B Conversion Amount
divided by the Class B Unit Price (as defined in Exhibit D to the STP2
LP Agreement);
(e) As to each Class C Limited Partner of STP2, the Class C
Partnership Units of STP2 held by such Class C Limited Partner shall, in the
aggregate, be converted into Class B Partnership Units of STP and/or cash, as
follows:
(i) to the extent such Class C Limited Partner has elected to
convert a portion of its Class C Consideration into cash in accordance
with the terms and subject to the limitations set forth in Exhibit E to
the STP2 LP Agreement (the "Class C Cash Amount"), and subject to
subsection (f) below, such portion shall be paid in cash, and
(ii) the amount of such Class C Limited Partner's Class C
Consideration in excess of its Class C Cash Amount (if any) shall, in
accordance with the terms and subject to the limitations set forth in
Exhibit E to the STP2 LP Agreement and subsection (d) below (the "Class
C Conversion Amount'% be converted into a number of Class B Partnership
Units of STP equal to its Class C Conversion Amount divided by the
Class C Unit Price (as defined in Exhibit E to the STP2 LP Agreement);
(f) To the extent that the Net Liquidity Event Proceeds (as defined
in the STP2 LP Agreement) are insufficient to satisfy in full the requested
Class B Cash Amounts and Class C Cash Amounts, together with the amount that has
been requested to be paid in cash in satisfaction of the Class C Partnership
Units of STP pursuant to (and subject to the limitations of) Exhibit D to STP's
limited partnership agreement then the available Net Liquidity Event Proceeds
shall be allocated among the Class B Limited Partners, the Class C Limited
Partners, and the Class C Limited Partners of STP on a pro rata basis based on
their respective Agreed Values (as defined in this Agreement and in the STP
limited partnership agreement with respect to the Class C Limited Partners of
STP), the balance being satisfied by delivery of Class B Partnership Units in
accordance with the methodology set forth above (with respect to the Class B and
Class C Limited Partners) and in Exhibit D to STP's limited partnership
agreement (with respect to the Class C Limited Partners of STP);
(g) The certificate of limited partnership of STP, as in effect
immediately prior to the Merger Effective Time, shall continue to be the STP's
certificate of limited partnership at and after the Merger Effective Time until
amended in accordance with applicable law;
(h) The limited partnership agreement of STP, as in effect
immediately prior to the Merger Effective Time, shall continue to be STP's
limited partnership agreement at and after the Merger Effective Time until
amended in accordance with the DRULPA; and
H- 3 -
<PAGE> 60
(i) The Entity which is the general partner of STP immediately
prior to the Merger Effective Time shall continue to be STP's general partner at
and after the Merger Effective Time until changed in accordance with STP's
limited partnership agreement.
6. Merging Entity Interests. As of the Merger Effective Time, each
certificate or other evidence of ownership of an interest (whether common stock,
membership interest or partnership interest) in any Merging Entity shall be
deemed to represent only the consideration into which such interest has been
converted pursuant to this Plan and Agreement of Merger, and may be surrendered
for such consideration immediately following the Merger Effective Time in
accordance with such procedures as established by the Surviving Entity, in their
reasonable discretion.
7. HSR Filing: Other Consents. Consummation of the Merger shall be
conditioned upon compliance with the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, if applicable, and to the
obtaining of any other material consents or approvals of any governmental
authority or third party that are required in connection with the consummation
of the Merger.
8. Amendment. This Plan and Agreement of Merger may be amended at
any time prior to the Merger Effective time by the Constituent Entities without
the prior authorization of their respective boards of directors, management
committees, stockholders, members or limited partners, provided that any
amendment will be subject to any applicable restrictions imposed by the DRULPA,
the GLLCA, the GRULPA, or their respective constituent documents requiring
further organizational approval. No amendment of any provision of this Agreement
and Plan of Merger shall be valid unless the same shall be in writing and signed
by all of the Constituent Entities.
9. Further Assurances. Upon the execution of this Plan and
Agreement of Merger and thereafter, each of the Constituent Entities agrees to
do such things as may be reasonably requested by any other Constituent Entity in
order to more effectively consummate or document the transactions contemplated
by this Plan and Agreement of Merger. If at any time any Surviving Entity shall
consider or be advised that any further assignments or assurances or any things
are necessary or desirable to vest in the Surviving Entity, in accordance with
THE Terms of This Plan and Agreement of Merger, the title of any property or
rights of any Merging Entity, then the last acting general partner or officer of
such Merging Entity or the corresponding general partner or officer of the
Surviving Entity shall execute and make all such proper assignments and
assurances and do all things necessary or proper to vest title in such property
or rights in the Surviving Entity, or otherwise to carry out the purposes of
this Plan and Agreement of Merger or the Merger.
10. Number: Gender: Captions; Certain Definitions. Whenever the
context so requires, the singular number includes the plural, the plural
includes the singular, and the gender of any pronoun includes the other genders.
Titles and captions of or in this Plan and Agreement
H- 4 -
<PAGE> 61
of Merger are inserted only as a matter of convenience and for reference and in
no Way affect the scope of this Plan and Agreement of Merger or the intent of
its provisions. The parties agree: (a) that "applicable law" means all
provisions of any constitution, statute, law, rule, regulation, decision, order,
decree, judgment release, license, permit, stipulation or other official
pronouncement enacted, promulgated or issued by any governmental authority or
arbitrator or arbitration panel; (b) that "governmental authority" means any
legislative, executive, judicial, quasi-judicial or other public authority,
agency, department, bureau, division, unit, court or other public body, person
or entity; and (c) that "including" and other words or phrases of inclusion, if
any, shall not be construed as terms of limitation so that references to
"included" matters shall be regarded as non-exclusive, non-characterizing
illustrations.
11. Copies. This Plan and Agreement of Merger may be executed in two or
more copies, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Plan and Agreement of Merger or its terms to
produce or account for more than one of such copies.
(signatures on following pages]
H-5 -
<PAGE> 62
DULY EXECUTED and delivered by each of the Constituent Entities, on the
day of
STRATEGIC TIMBER TRUST, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
STRATEGIC TIMBER TRUST II, LLC
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
STRATEGIC TIMBER OPERATING CO.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
STRATEGIC TIMBER TWO OPERATING
CO., LLC
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
H- 6 -
<PAGE> 63
STRATEGIC TIMBER PARTNERS, LP
By: Strategic Timber Two Operating Co.,
its General Partner
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
STRATEGIC TIMBER PARTNERS II, LP
By: Strategic Timber Operating Co., LLC,
its General Partner
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
* * * * * *
H- 7 -
<PAGE> 64
EXHIBIT I TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
STRATEGIC TIMBER PARTNERS II, LP
TERMS OF REGISTRATION RIGHTS OF
CLASS B LIMITED PARTNERS AFTER IPO
1. Incidental Registration Rights.
If at any time after the one year anniversary of the closing of an IPO,
the REIT proposes to register any of its REIT Shares under the
Securities Act of 1933, as amended ("1933 Act") (except for
registration of shares solely in connection with an employee benefit
plan or a merger or consolidation) in any public offering, whether or
not for sale for its own account, it will at such time give prompt
written notice to the Class B Limited Partners which hold OP Units
(each a "Holder") of its intention to do so and of the Holder's rights
under this Section.
Upon the written request of a Holder made within 30 days after the
receipt of any such notice (which request shall specify the number of
REIT Shares intended to be disposed of by the Holder), the REIT will
use all reasonable efforts to effect the registration under the 1933
Act and applicable state securities laws of all REIT Shares in
connection therewith which the REIT has been so requested to register
by a Holder.
If the managing underwriter for any underwritten offering in a
registration pursuant to this Section shall inform in writing the REIT
and the Holders of its belief that the number of securities requested
to be included in such registration would materially and adversely
affect its ability to effect such offering, then the REIT will include
in such registration the number which the REIT is so advised can be
sold in (or during the time of) such offering, first, all securities
proposed by the REIT to be sold for its own account, and second, such
REIT Shares and other securities of the REIT requested to be included
in such registration by persons exercising their incidental
registration rights, pro rata on the basis of the number of shares of
such securities so proposed to be sold and so requested to be included.
The registration rights granted hereunder shall apply only to REIT
Shares acquired by a Holder from the REIT in redemption of OP Units,
excluding (i) REIT Shares for which a registration statement relating
to the sale thereof shall have become effective under the 1933 Act and
which have been issued to such Holder or disposed of by such Holder
under such registration statement, (ii) REIT Shares sold by such Holder
pursuant to Rule 144 or Rule 144A promulgated under the
I-1
<PAGE> 65
1933 Act, or (iii) REIT Shares eligible for sale pursuant to Rule
144(k) (or any successor provision) promulgated under the 1933 Act.
2. Preparation; Information; Reasonable Investigation.
It shall be a condition precedent to the obligations of the REIT to
take any action pursuant to this Agreement that:
(a) Holder shall furnish to the REIT such information regarding
Holder, the REIT Shares held or to be acquired by Holder, and
the intended method of disposition of such securities as shall
be required to effect the registration of Holder's REIT
Shares; and
(b) Holder agrees that for a period of one year after consummation
of the IPO, without the consent of the REIT, it will not
offer, pledge, sell, contract to sell, grant any options for
the sale of, seek redemption of, or otherwise dispose of,
directly or indirectly, any OP Units, except as otherwise
permitted by the managing underwriter of the IPO in connection
with permitted transfers to family members in accordance with
the lock-up arrangements required by such underwriter.
3. Expenses of Registration.
All expenses incident to the registrations, filings or qualifications
pursuant to this Agreement, including without limitation all
registration, filing and qualification fees, printing and accounting
fees, fees and disbursements of counsel for the REIT, shall be borne by
the REIT; provided, however, that the REIT shall not be required to pay
or reimburse (i) brokerage or underwriting discounts and commissions
relating to the sale or disposition of REIT Shares by any Holder; (ii)
the fees and disbursements of counsel representing any Holder and
accounting or other expenses incurred by it; and (iii) taxes of any
kind (including, without limitation, transfer taxes) relating to the
sale or disposition of REIT Shares by any Holder.
4. Indemnification.
If any REIT Shares are included in a registration statement under this
Agreement:
(a) REIT Indemnification.
To the extent permitted by law, the REIT will indemnify and hold
harmless and defend Holder, the officers, directors, partners,
managers, members, agents and employees of Holder or any underwriter
(as defined in the 1933 Act), and each person, if any, who controls
Holder or underwriter within the meaning of the 1933 Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), against
I-2
<PAGE> 66
any losses, claims, damages or liabilities (joint or several) to which
they may become subject under the 1933 Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations (a
"Violation"):
(i) any untrue statement or alleged untrue statement of a
material fact contained in such registration
statement, including any preliminary prospectus or
final prospectus contained therein or any amendments
or supplements thereto,
(ii) the omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading, or
(iii) any violation or alleged violation by the REIT of the
1933 Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the 1933
Act, the 1934 Act or any state securities law.
THE REIT WILL PAY OR REIMBURSE SUCH HOLDER, officer, director, partner,
manager, member, agent, employee, underwriter, or controlling person
for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim,
damage, liability or action. The indemnity agreement contained in this
Section shall not apply to amounts paid in settlement of any loss,
claim, damage, liability or action if such settlement is effected
without the consent of the REIT (which consent shall not be
unreasonably withheld), nor shall the REIT be liable to Holder in any
such case for any such loss, claim, damage, liability or action (a) to
the extent that it arises solely from or is based solely upon a
Violation which occurs in reliance upon and in conformity with written
information famished expressly for use in connection with such
registration by or on behalf of Holder or its controlling person, or
(b) if such untrue statement or alleged untrue statement or omission or
alleged omission was contained in a preliminary prospectus and
corrected in a final or amended prospectus, and Holder failed to
deliver a copy of the final or amended prospectus at or prior to the
confirmation of the sale of the REIT Shares to the person asserting any
such loss, claim, damage or liability in any case where such delivery
is required by the 1933 Act.
(b) Holder Indemnification.
To the extent permitted by law, Holder will indemnify and hold harmless
the REIT, each of its directors, each of its officers who have signed
the registration statement, and each person, if any, who controls the
REIT within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities (joint or several) to
I-3
<PAGE> 67
which the REIT or any such director, officer or controlling person,
under the 1933 Act, the 1934 Act or other federal or state law, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon (i) any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by
or on behalf of Holder expressly for use in connection with such
registration, and (ii) the failure by a Holder to deliver a final or
amended prospectus furnished by the REIT to the Holder at or prior to
the confirmation of the sale of REIT Shares by the Holder to a
purchaser of such Holder's REIT Shares; and Holder will reimburse any
legal or other expenses reasonably incurred by the REIT or any such
director, officer or controlling person, in connection with
investigating or defending any such loss, claim, damage, inability or
action; provided, however, that the indemnity agreement contained in
this Section shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected
without the consent of Holder, which consent shall not be unreasonably
withheld, nor, in the case of a sale directly by the REIT of its
securities (including a sale of such securities through any underwriter
retained by the REIT to engage in a distribution solely on behalf of
the REIT), shall Holder be liable to the REIT in any case in which such
untrue statement or omission or alleged untrue statement or alleged
omission was contained in a preliminary prospectus and corrected in a
final or amended prospectus, and the REIT failed to deliver a copy of
the final or amended prospectus at or prior to the confirmation of the
sale of the securities to the person asserting any such loss, claim,
damage or liability in any case where such delivery is required by the
1933 Act.
5. Survival of Rights and Obligations.
The obligations of the REIT and Holder under this Section shall survive
the completion of any offering of REIT Shares in a registration
statement whether under this Agreement or otherwise.
I-4
<PAGE> 1
EXHIBIT 3.7
OPERATING AGREEMENT
OF
STRATEGIC TIMBER TRUST II, LLC
(A GEORGIA LIMITED LIABILITY COMPANY)
**Effective As of October 9, 1998**
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1: DEFINITIONS..........................................................................................1
1.1 BASIC TERMS............................................................................1
ARTICLE 2: FORMATION OF COMPANY.................................................................................5
2.1 EFFECT OF THIS AGREEMENT AND THE GEORGIA LIMITED LIABILITY COMPANY
ACT....................................................................................5
2.2 NAME...................................................................................5
2.3 INITIAL PERCENTAGE INTERESTS...........................................................5
2.4 PERMITTED BUSINESSES...................................................................5
2.5 PRINCIPAL PLACE OF BUSINESS............................................................6
2.6 REGISTERED OFFICE AND REGISTERED AGENT.................................................6
2.7 OWNERSHIP..............................................................................6
2.8 WAIVER OF RIGHT OF PARTITION...........................................................6
2.9 LIMITATIONS............................................................................6
ARTICLE 3: REPRESENTATIONS AND WARRANTIES.......................................................................6
3.1 AUTHORITY; ............................................................................6
3.2 SECURITIES COMPLIANCE..................................................................7
ARTICLE 4: RIGHTS AND DUTIES OF MANAGERS; MEETINGS; INDEMNIFICATION;
CONFLICTING INTEREST PROVISIONS DO NOT APPLY......................................................................7
4.1 MANAGEMENT BY MANAGERS.................................................................7
4.2 DECISIONS REQUIRING MEMBER CONSENT.....................................................7
4.3 MANAGERS...............................................................................9
4.4 MEETINGS OF MANAGERS...................................................................9
4.5 MEETINGS OF MEMBERS...................................................................10
4.6 PROVISIONS APPLICABLE TO ALL MEETINGS.................................................10
4.7 OFFICERS..............................................................................11
4.8 LIMITATIONS ON LIABILITY OF MANAGERS AND OFFICERS.....................................11
4.9 INDEMNIFICATION; REIMBURSEMENT OF EXPENSES; INSURANCE.................................11
4.10 CONFLICTING INTEREST TRANSACTION PROVISIONS DO NOT APPLY..............................12
ARTICLE 5: RIGHTS AND OBLIGATIONS OF MEMBERS...................................................................12
5.1 LIMITATION ON LIABILITY...............................................................12
5.2 NO LIABILITY FOR COMPANY OBLIGATIONS..................................................12
5.3 LIST OF MEMBERS.......................................................................12
5.4 ACTIONS OF MEMBERS; NO DISSENTER'S RIGHTS.............................................12
5.5 PRIORITY AND RETURN OF CAPITAL........................................................13
5.6 NO EXCLUSIVE DUTY TO THE COMPANY......................................................13
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 6: CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS...................................................13
6.1 GENERALLY.............................................................................13
6.2 MEMBERS' CAPITAL ACCOUNTS.............................................................13
ARTICLE 7: DISTRIBUTIONS TO MEMBERS............................................................................14
7.1 ALLOCATION OF PROFITS AND LOSSES......................................................14
7.2 DISTRIBUTIONS.........................................................................15
7.3 LIMITATION UPON DISTRIBUTIONS.........................................................16
ARTICLE 8: BOOKS AND RECORDS...................................................................................16
8.1 ACCOUNTING PERIOD.....................................................................16
8.2 RECORDS, AUDITS AND REPORTS...........................................................16
8.3 BOOKS OF ACCOUNT AND RECORDS..........................................................16
8.4 METHODS OF ACCOUNTING.................................................................16
8.5 TAX MATTERS MEMBER....................................................................17
8.6 MATTERS CONCERNING FUNDS..............................................................17
ARTICLE 9: TRANSFERABILITY AND WITHDRAWAL......................................................................17
9.1 TRANSFER LIMITATIONS..................................................................17
(c) Company's Right to Purchase Membership Interest.........................................................17
9.2 TIME OF TRANSFER......................................................................18
9.3 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT OF TRANSFERRED UNIT..........................18
9.4 NO WITHDRAWAL; EVENTS OF DISSOCIATION.................................................19
ARTICLE 10: ADDITIONAL MEMBERS.................................................................................19
10.1 ADMISSION OF A NEW MEMBER.............................................................19
10.2 ALLOCATION............................................................................19
ARTICLE 11: DISSOLUTION AND TERMINATION........................................................................19
11.1 TERMINATION AND WINDING UP OF THE COMPANY.............................................19
11.2 METHOD OF DISTRIBUTION UPON WINDING UP................................................20
11.3 ORDERLY LIQUIDATION...................................................................20
ARTICLE 12: GENERAL PROVISIONS.................................................................................20
12.1 CERTIFICATES REPRESENTING UNITS AND LOST CERTIFICATES.................................20
12.2 CERTIFICATION OF NON-FOREIGN STATUS...................................................20
12.3 SURVIVAL..............................................................................21
ARTICLE 13: AMENDMENT..........................................................................................21
13.1 AMENDMENTS............................................................................21
ARTICLE 14: MISCELLANEOUS PROVISIONS...........................................................................21
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
14.1 GOOD FAITH EFFORTS; FURTHER ASSURANCES; COOPERATION...................................21
14.2 NOTICES...............................................................................21
14.3 SUCCESSORS IN INTEREST................................................................22
14.4 SPECIFIC PERFORMANCE..................................................................22
14.5 SEVERABILITY..........................................................................22
14.6 REMEDIES AND COSTS....................................................................23
14.7 INTEGRATION; WAIVER...................................................................23
14.8 CONTROLLING LAW.......................................................................23
14.9 COPIES................................................................................23
</TABLE>
iii
<PAGE> 5
OPERATING AGREEMENT
OF
STRATEGIC TIMBER TRUST II, LLC
(A GEORGIA LIMITED LIABILITY COMPANY)
THE MEMBERSHIP INTERESTS IN STRATEGIC TIMBER TRUST II, LLC HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "1933 ACT") OR ANY STATE SECURITIES LAWS ("STATE ACTS") IN
RELIANCE ON ONE OR MORE EXEMPTIONS THEREUNDER. THE MEMBERSHIP INTERESTS MAY NOT
BE SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE WITH (I) THE TERMS AND CONDITIONS
OF THIS AGREEMENT AND (II) THE 1933 ACT OR ANY APPLICABLE STATE ACTS OR
PURSUANT TO A VALID AND SUBSISTING EXEMPTION THEREFROM.
THIS IS AN OPERATING AGREEMENT by and among C. Edward Broom,
Christopher J. Broom, Thomas P. Broom, Vladimir Harris, Joseph E. Rendini,
Nicholas C. Brunet and Sutherland, Asbill & Brennan LLP, as the Members (as
defined below) of Strategic Timber Trust II, LLC, a Georgia limited liability
company organized pursuant to the filing of Articles of Organization with the
Georgia Secretary of State on September 23, 1998 (the "COMPANY"), and dated as
of October 9, 1998 and by which the Members, in consideration of the mutual
benefits contained in this Agreement and other good and valuable consideration
(the mutuality, adequacy and sufficiency of which are hereby acknowledged),
hereby agree as follows:
* * *
ARTICLE 1: DEFINITIONS
1.1 BASIC TERMS. The following terms used in this Agreement have
the following meanings:
"ADDITIONAL CAPITAL CONTRIBUTION" means a contribution to the capital
of the Company made by a Member pursuant to Section 6.1(b).
"AFFILIATE" shall mean, with respect to the Company or to any Member
(or as to any other person the affiliates of whom are relevant for
purposes of any of the provisions of this Agreement), any Entity which
directly or indirectly through one or more intermediaries, Controls,
is Controlled by, or is under common Control with, the Company or any
Member.
"AGREEMENT" means this Agreement as originally executed and as amended
from time to time in accordance with the provisions of Article 13.
"ARTICLES OF ORGANIZATION" means the Articles of Organization of the
Company, as filed with the Secretary of State of Georgia and as they
may be amended from time to time.
<PAGE> 6
"BRIDGE LOAN" means the senior secured loan provided to the Company by
the lenders under that Bridge Loan Agreement dated as of October 9,
1998, among the Company, the lenders party thereto, ABN AMRO Bank
N.V., as administrative agent for the lenders (as the same may be
amended, modified or restated from time to time) having a 12-month
term and in the original principal amount of $35,000,000.
"CAPITAL ACCOUNT" means with respect to any Member, the Capital
Account maintained for such Person pursuant to the provisions of
Section 6.2, which shall be determined and adjusted as required by IRC
ss. 704(b) Regulations.
"CAPITAL CONTRIBUTION" means the amount in cash or agreed-upon value
of property contributed by each Member (or the Member's predecessors
in interest) to the capital of the Company for the Member's Unit or
Units.
"COMPANY" means Strategic Timber Trust II, LLC, a Georgia limited
liability company.
"CONTROL" shall mean the ability, whether by the direct or indirect
ownership of shares or other equity interests, by contract or
otherwise, to elect a majority of the directors of a corporation, to
select the managing partner of a partnership, or otherwise to select,
or have the power to remove and then select, a majority of those
persons exercising governing authority over an Entity. In the case of
a limited partnership, the sole general partner, all of the general
partners to the extent each has equal management control and
authority, or the managing general partner or managing general
partners thereof shall be deemed to have control of such partnership
and, in the case of a trust, any trustee thereof or any person having
the right to select any such trustee shall be deemed to have control
of such trust.
"ENTITY" shall mean any general partnership, limited partnership,
limited liability company, corporation, joint venture, trust, business
trust, real estate investment trust, cooperative or association or
other business entity or organization.
"FINANCING" means collectively the Bridge Loan and Senior Credit
Facilities.
"FINANCING DOCUMENTS" means any and all credit and loan agreements and
related documents evidencing or securing the Financing.
"FISCAL YEAR" means the Company's fiscal year, which is the calendar
year.
"GLLCA" means the Georgia Limited Liability Company Act set forth at
O.C.G.A. ss.14-11-100, et seq., as amended from time to time, and
applicable rules and regulations promulgated thereunder.
"INITIAL CAPITAL CONTRIBUTION" means the initial contribution to the
capital of the Company made by a Member pursuant to this Agreement.
2
<PAGE> 7
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time.
"MANAGER" means any Person named in this Agreement or the Articles of
Organization as an initial manager of the Company and any person
subsequently elected as a manager in accordance with the terms of this
Agreement; provided, however, that the term does not include any
Person who has ceased to be a manager of the Company.
"MEMBER" means each of the parties who executes this Agreement as a
Member and each Person who may hereafter become a Member.
"MEMBERSHIP INTEREST" means a Member's entire interest in the Company,
including such Member's interest in his Capital Account, the Net
Profits or Net Losses of the Company and any distributions made by the
Company, and the right to participate in the management of the
business, affairs and properties of the Company, and also including
the right to vote on, consent to, or otherwise participate in any
decision or action of or by the Members granted pursuant to this
Agreement or the GLLCA.
"NET CASH FLOW" means the Company's funds available for distribution
in accordance with Section 7.2, which will be determined with respect
to any period of operation as:
(a) the sum of all cash receipts received during such
period (including the net proceeds of borrowings but
excluding Capital Contributions)
(b) minus the sum of each of the following:
(i) all costs and expenses of the Company paid
during such period (other than depreciation
or other similar noncash expenses)
including, without limitation, principal
payments and other payments in the nature
of debt service on the Financing and any
other loan, capitalized lease or other
obligation of indebtedness
(ii) any other cash expenditures made by the
Company, and
(iii) funds paid into Reserves as required during
such period for the establishment of or
addition to such Reserves as the Managers
shall reasonably deem necessary or
appropriate for the proper operation of the
business of the Company
(c) plus the amount by which any such Reserves shall be
reduced by the Managers.
"NET LOSSES" and "NET PROFITS" means, for each Fiscal Year or other
period, an amount equal to the Company's taxable income or loss for
such year or period, determined in accordance with IRC ss.703(a) (for
this purpose, all items of income, gain, loss or deduction required to
3
<PAGE> 8
be stated separately pursuant to IRC ss.703(a)(1) shall be included in
taxable income or loss), with the adjustments required by the IRC
ss.704(b) Regulations.
"OFFICER" is defined in Section 4.7.
"PERCENTAGE INTEREST" means the interest of a Member in the Company,
determined by the proportion of Units owned by such Member to the
total number of Units outstanding, and as adjusted from time to time
in accordance with the terms of this Agreement.
"PERSON" means any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors, and assigns of such
Person where the context so permits.
"PIONEER" means Pioneer Resources, LLC, an Oregon limited liability
company.
"REGULATIONS" means the regulations promulgated under the IRC, as such
regulations may be amended from time to time. All references in this
Agreement to a specific section of the Regulations shall be deemed
also to refer to any corresponding provision of succeeding
regulations.
"RESERVES" means, with respect to any fiscal period, funds set aside
or amounts allocated during such period to reserves which shall be
maintained in amounts deemed sufficient by the Managers for working
capital and to pay taxes, insurance, debt service or other costs or
expenses incident to the ownership or operation of the Company's
business.
"SENIOR CREDIT FACILITIES" means the senior secured credit facilities
provided to Pioneer by the lenders under that Replacement Credit Loan
Agreement dated as of October 9, 1998, among Pioneer, the lenders
party thereto, First Union National Bank, as administrative agent for
the lenders, ABN AMRO Bank N.V. as syndication agent for the lenders
and NationsBank, N.A. as documentation agent for the lenders (as the
same may be amended, modified or restated from time to time) in the
original committed amount of $270,000,000.
"SPECIAL MAJORITY INTEREST" means a number of Units which, taken
together, exceed 75% of the aggregate of all Units.
"TAX MATTERS MEMBER" means Joseph E. Rendini for purposes of IRC
ss.ss. 6621 through 6233.
"UNIT" means the unit of measure of all Percentage Interests, which
collectively represent one hundred percent (100%) of all Percentage
Interests.
4
<PAGE> 9
ARTICLE 2: FORMATION OF COMPANY
2.1 EFFECT OF THIS AGREEMENT AND THE GEORGIA LIMITED LIABILITY
COMPANY ACT. Except as otherwise specifically provided for in this Agreement,
the rights and obligations of the Members and the administration, dissolution,
liquidation, and termination of the Company shall be governed by the GLLCA.
2.2 NAME. The name of the Company is Strategic Timber Trust II,
LLC.
2.3 INITIAL PERCENTAGE INTERESTS. The initial Percentage
Interests of and Units held by the Members are as follows:
<TABLE>
<CAPTION>
Name Percentage Interest Units
---- ------------------- -----
<S> <C> <C>
C. Edward Broom 25.3521% 712.4576
Christopher J. Broom 25.3521 712.4576
Thomas P. Broom 25.3521 712.4576
Vladimir Harris 5.6338 158.3239
Joseph E. Rendini 5.6338 158.3239
Nicholas C. Brunet 5.6338 158.3239
Sutherland, Asbill & Brennan LLP 7.0423 197.9049
-------- --------
Totals = 100.0000% 2810.2494
======== =========
</TABLE>
2.4 PERMITTED BUSINESSES. The permitted businesses of the Company
are:
(a) To acquire, hold, own, manage and transfer timberlands;
to sell and otherwise dispose of the timber grown on such property; to acquire
an ownership interest in Entities engaged in similar or related activities; and
to engage in such other activities as shall be necessary, desirable or
appropriate to effectuate the foregoing purposes. In connection with the
foregoing, the Company shall have full power and authority, directly to enter
into, perform, and carry out contracts of any kind, to borrow money and to
issue other evidences of indebtedness, including guaranties of the indebtedness
of Affiliates (including the Financing which indebtedness may be secured by
mortgages, pledges of partnership interests in other Entities, including
Pioneer), security interests or other liens, and to enter into any and all
indentures and other agreements and documents relating to such evidence of
indebtedness, directly or indirectly, and to acquire such assets as may be
necessary or useful in connection with its business;
(b) to accomplish any other lawful business whatsoever;
(c) to exercise all other powers necessary to or reasonably
connected with the Company's business which may be legally exercised by limited
liability companies under the GLLCA; and
5
<PAGE> 10
(d) to engage in all activities necessary, customary,
convenient, or incident to any of the foregoing.
2.5 PRINCIPAL PLACE OF BUSINESS. The mailing address and principal
place of business of the Company shall be 5 North Pleasant Street, New London,
New Hampshire 03257. The Company may locate its places of business and
registered office at any other place or places as the Managers may from time to
time deem advisable.
2.6 REGISTERED OFFICE AND REGISTERED AGENT. The Company's initial
registered office shall be at 999 Peachtree Street, N.E., Suite 2300, Atlanta,
Fulton County, Georgia 30309, and the name of its registered agent at such
address shall be William H. Bradley. The registered office and registered agent
may be changed from time to time by filing the address of the new registered
office or the name of the new registered agent, as the case may be, with the
Secretary of State of Georgia pursuant to the GLLCA.
2.7 OWNERSHIP. The interest of each Member in the Company is
personal property for all purposes. All property and interests in property, real
or personal, owned by the Company shall be deemed owned by the Company as an
entity, and no Member, individually, shall have any ownership of such property
or interest owned by the Company except as a Member in the Company.
2.8 WAIVER OF RIGHT OF PARTITION. Each of the Members irrevocably
waives, during the term of the Company and during any period of its liquidation
following any dissolution, any right that it may have to maintain any action
for partition with respect to any of the assets of the Company.
2.9 LIMITATIONS. The relationship between and among the parties
shall be limited to the carrying on of the business of the Company in accordance
with the terms of this Agreement. No Member, acting alone, shall have any
authority to act for, or to undertake or assume, any obligation, debt, duty or
responsibility on behalf of any other Member or the Company except as expressly
provided in this Agreement. The Members intend that the Company shall not be a
partnership (including a limited partnership) or joint venture, and that no
Member shall be a partner or joint venturer of any other Member, for any
purposes other than under the IRC and the Regulations and other applicable
federal and state tax laws, and this Agreement shall not be construed to suggest
otherwise.
ARTICLE 3: REPRESENTATIONS AND WARRANTIES
Each Member hereby represents and warrants to each other Member,
severally and not jointly, with respect to himself as follows:
3.1 AUTHORITY; ENFORCEABILITY. Such Member has the power and
authority to execute, deliver and perform this Agreement. Such Member's
execution, delivery and performance of this Agreement is not restricted by or in
violation of (a) any applicable law to which it or he is subject, (b) in the
case of a Member who is not an individual, any document as to its formation or
governance (including articles of incorporation or bylaws or partnership
agreement, as amended or restated), or
6
<PAGE> 11
(c) any agreement, commitment, order, ruling or proceeding to which it or he is
a party or to which it or he or any of its or his assets are subject.
3.2 SECURITIES COMPLIANCE. Such Member is acquiring his interest
in the Company for his own account, to hold for investment, and with no
intention of dividing his participation with others or reselling or otherwise
participating, directly or indirectly, in a distribution of his interest in the
Company, or any portion thereof, and shall not make any sale, transfer or other
disposition of its interest in the Company, or any portion thereof, in violation
of this Agreement, the Georgia Securities Act of 1973 as amended, the Securities
Act of 1933 as amended or any other applicable state securities law. The Member
understands that the Company is under no obligation to register the interests in
the Company or take any other action necessary in order to make compliance with
an exemption from registration available. Such Member is an "accredited
investor" as defined in Rule 501(a) promulgated under the Securities Act of
1933, as amended.
ARTICLE 4: RIGHTS AND DUTIES OF MANAGERS; MEETINGS; INDEMNIFICATION; CONFLICTING
INTEREST PROVISIONS DO NOT APPLY
4.1 MANAGEMENT BY MANAGERS.
(a) Generally. Subject to the provisions of Section 4.2, the
powers of the Company shall be exercised by or under the authority of, and the
business, affairs and properties of the Company shall be managed under the
direction of, the Managers. No Member in its capacity as a Member has the
right, power, or authority to act for or on behalf of the Company, to do any
act that would be binding on the Company, or to incur any expenditures on
behalf of the Company.
(b) Decisions. In managing the business and affairs of the
Company and exercising its powers, so long as there is more than one Manager,
the Managers shall act collectively through resolutions adopted at meetings and
in written consents pursuant to Sections 4.4 and 4.6. No Manager has the right,
power, or authority to act for or on behalf of the Company, to do any act that
would be binding on the Company, or to incur any expenditures on behalf of the
Company, except in accordance with the immediately preceding sentence.
Decisions or actions taken by the Managers in accordance with this Agreement
(including this Section 4.1 and Section 4.2) shall constitute decisions or
actions by the Company and shall be binding on each Manager, Member, Officer,
and employee of the Company.
4.2 DECISIONS REQUIRING MEMBER CONSENT. Notwithstanding any power
or authority granted the Managers under the GLLCA, the Articles of Organization
or this Agreement,
(a) the Managers may not make any decision or take any action
for which the consent of a Special Majority Interest or other consent of the
Members is expressly required by the Articles of Organization or this
Agreement, without first obtaining such consent;
(b) the Managers may not approve any action dissolving the
Company pursuant to GLLCA Article 6 without first obtaining the unanimous vote
or consent of all Members:
7
<PAGE> 12
(c) the Managers may not make any of the following
decisions or approve any of the following actions without first obtaining the
affirmative vote or consent of (i) the affected Member and (ii) Members
(including the affected Member) holding a Special Majority Interest:
(i) the redemption by the Company of all or a
portion of any Member's Membership Interest;
(ii) a merger of the Company pursuant to GLLCA
Article 9 in which a Member is not entitled to receive consideration for each
of its Units equal to the consideration all other Members immediately prior to
such merger are entitled to receive for each of their Units; or
(iii) any amendment of the Articles of
Organization or this Agreement that:
(1) reduces the Percentage Interest of a
Member relative to that of the other
Members;
(2) materially adversely affects a
Member, except to the extent all
other Members are similarly
affected;
(3) increases the financial obligation
or liability of a Member, including
without limitation any amendment of
Section 6.1(b); and
(d) the Managers may not make any of the following
decisions or approve any of the following actions without first obtaining the
affirmative vote or consent of Members holding a Special Majority Interest:
(i) any merger of the Company pursuant to GLLCA
Article 9 not described in Section 4.2(c)(ii),
(ii) the sale, exchange, lease, or other
disposition of all or substantially all of the property of the Company,
(iii) the admission of any new Member,
(iv) any amendment of the Articles of
Organization or this Agreement not described in Section 4.2(c)(iii), and
(v) the issuance of any Units.
Each Member may, with respect to any vote, consent, or approval that
it is entitled to grant pursuant to this Agreement, grant or withhold such
vote, consent, or approval in its sole discretion. This Section 4.2 shall
supersede ss. 14-11-308 of the GLLCA.
8
<PAGE> 13
4.3 MANAGERS.
(a) Number of Managers. The number of Managers of the
Company is one, until such number is changed by a Special Majority Interest.
(b) Initial Managers. The initial Manager of the Company
is Thomas P. Broom.
(c) Resignation and Removal. Each Manager (whether an
initial or a successor Manager) shall cease to be a Manager upon the earliest
to occur of the following events:
(i) such Manager shall be removed, with or
without cause, by Members holding a Special Majority Interest at a meeting of
the Members called for that purpose;
(ii) such Manager shall resign as a Manager, by
giving notice of such resignation to the Members; or
(iii) such Manager shall die or become incapable
of performing substantially all of the normal duties of a Manager.
(d) Vacancies. Any vacancy in any Manager position may be
filled by Members holding a Special Majority Interest at a meeting of the
Members called for that purpose.
4.4 MEETINGS OF MANAGERS. The following provisions apply to
meetings of Managers:
(a) Regular Meetings. Regular meetings of the Managers
may be held on such dates and at such times as shall be determined by the
Managers, with notice of such regular meeting schedule being given to each
Manager that was not present at the meeting at which it was adopted. The
Company shall give reminder notices of regular meetings of the Managers
specifying the place and time of such meeting that is delivered to each other
Manager at least five days prior to such meeting. Neither the business to be
transacted at, nor the purpose of, such regular meeting need be specified in
the notice (or waiver of notice) thereof.
(b) Special Meetings. Special meetings of the Managers
may be called by any Manager by notice specifying the place and time of such
meeting that is delivered to each other Manager at least 24 hours prior to such
meeting. The business to be transacted at, and the purpose of, such special
meeting shall be specified in the notice (or waiver of notice) thereof.
(c) Quorum. Unless otherwise expressly provided in this
Agreement, at any meeting of the Managers, a majority of the Managers shall
constitute a quorum for the transaction of business, and an act of a majority
of the Managers who are present at such a meeting at which a quorum is present
shall be the act of the Managers.
(d) Single Manager. The provisions of this Section 4.4
are inapplicable at any time that there is only one Manager.
9
<PAGE> 14
4.5 MEETINGS OF MEMBERS. The following provisions apply to
meetings of the Members:
(a) Annual Meeting. An annual meeting of the Members for
the transaction of such business as may properly come before the meeting shall
be held on such date and at such time as the Managers shall specify in the
notice of the meeting, which shall be delivered to each Member at least 10 days
prior to such meeting. Neither the business to be transacted at, nor the
purpose of, such annual meeting need be specified in the notice (or waiver of
notice) thereof.
(b) Special Meeting. Special meetings of the Members may
be called by the Managers or by Members having among them at least 75% of the
Units. Any such meeting shall be held on such date and at such time as the
Person calling such meeting shall specify in the notice of the meeting, which
shall be delivered to each Member at least 10 days prior to such meeting. The
business to be transacted at, and the purpose of, such special meeting shall be
specified in the notice.
(c) Quorum. Unless otherwise expressly provided in this
Agreement, at any meeting of the Members, a Special Majority Interest,
represented either in person or by proxy, shall constitute a quorum for the
transaction of business, and an act of a Special Majority Interest shall be the
act of the Members, unless the vote of a greater or lesser proportion or number
is otherwise required by the GLLCA, by the Articles of Organization, or by this
Agreement.
(d) Interested Members. Unless otherwise expressly
provided in this Agreement or required by applicable law, Members who have an
interest (economic or otherwise) in the outcome of any particular matter upon
which the Members vote or consent may vote or consent upon any such matter, and
their Units, vote or consent, as the case may be, shall be counted in the
determination of whether the requisite matter was approved by the Members.
4.6 PROVISIONS APPLICABLE TO ALL MEETINGS. In connection with any
meeting of the Managers, Members, or any committee of the Managers, the
following apply:
(a) Place of Meeting. Any such meeting shall be held at
the principal place of business of the Company, unless the notice of such
meeting (or resolution of the Managers) specifies a different place, which need
not be in the State of Georgia.
(b) Waiver of Notice Through Attendance. Attendance of a
Person at such meeting (including attendance pursuant to Section 4.6(d)) shall
constitute a waiver of notice of such meeting, except where such Person attends
the meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
(c) Action by Written Consent. Any action required or
permitted to be taken at such a meeting may be taken without a meeting, without
prior notice, and without a vote if a consent or consents in writing, setting
forth the action so taken, is signed by the Managers or Members having not
fewer than the minimum number of Units or votes that would be necessary to take
the action at a meeting at which all Members, Managers, or members of the
committee, as applicable, entitled to vote on the action were present and
voted.
10
<PAGE> 15
(d) Meetings by Telephone. Managers and Members may
participate in and hold such meeting by means of conference telephone, video
conference, or similar communications equipment by means of which all Persons
participating in the meeting can hear each other.
(e) Proxies. Members may vote their Units personally, or
may grant proxies to vote Units held by them. A Member may appoint a proxy by
executing a writing that authorizes another person or persons to act on the
Member's behalf. An appointment of a proxy is valid when received by the
Secretary of the Company. An appointment of a proxy is revocable by the Member
granting it unless the appointment form conspicuously states that it is
irrevocable and the appointment is coupled with an interest. The Company is
entitled to accept the proxy's vote or other action as that of the Member
making the appointment.
4.7 OFFICERS. The Managers may designate one or more Persons to be
officers of the Company ("Officers"), and any Officers so designated shall have
such titles, authorities, duties, and salaries as the Managers may delegate to
them. Any Officer may be removed as such, either with or without cause, by the
Managers. The initial Officers of the Company are as follows:
President C. Edward Broom
Vice President Christopher J. Broom
Vice President & Treasurer Thomas P. Broom
Vice President Vladimir Harris
Vice President & Secretary Joseph E. Rendini
Vice President Nicholas C. Brunet
Assistant Secretary William H. Bradley
4.8 LIMITATIONS ON LIABILITY OF MANAGERS AND OFFICERS. Each
Manager and Officer shall act in a manner he believes in good faith to be in
the best interests of the Company and with such care as an ordinarily prudent
person in a like position would use under similar circumstances. No Manager or
Officer shall be liable to the Company, or its Members, for any action taken in
managing the business or affairs of the Company if he performs the duties of
his office in compliance with the standard contained in this Section 4.8. No
Manager or Officer has guaranteed nor does any Manager or Officer have any
obligation with respect to the return of a Member's Capital Contributions or
profits from the operation of the Company. No Manager shall be liable to the
Company or to any Member for any loss or damage sustained by the Company or any
Member except loss or damage resulting from such Manager's failure to meet the
standard contained in this Section 4.8, intentional misconduct or knowing
violation of law or a transaction for which the Manager received a personal
benefit in violation or breach of the provisions of this Agreement. Each
Manager and Officer shall be entitled to rely on information, opinions, reports
or statements, including financial statements or other financial data prepared
or presented in accordance with the provisions of GLLCA ss. 14-11-305.
4.9 INDEMNIFICATION; REIMBURSEMENT OF EXPENSES; INSURANCE. To the
fullest extent permitted by the GLLCA:
11
<PAGE> 16
(a) the Company shall indemnify each Member, Manager and
Officer who was, is, or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding
("Proceeding"), any appeal therefrom, or any inquiry or investigation
preliminary thereto, by reason of the fact that he or she is or was a
Member, Manager or Officer, from and against any loss, cost, expense,
judgment, settlement, penalty or fine with respect to such a
Proceeding;
(b) the Company shall pay or reimburse each Member,
Manager or Officer for expenses incurred by him or her (i) in advance
of the final disposition of a Proceeding to which such Manager or
Officer was, is, or is threatened to be made a party, and (ii) in
connection with his or her appearance as a witness or other
participation in any Proceeding.
The provisions of this Section 4.9 shall not be exclusive of any other right
under any applicable law, provision of the Articles of Organization or this
Agreement, or otherwise. The Company may purchase and maintain insurance to
protect itself and any Manager, Officer, employee, or agent of the Company,
whether or not the Company would have the power to indemnify such Person under
this Section 4.9. As required by the GLLCA, no Member, Manager or Officer shall
be entitled to indemnification or payment or reimbursement of expenses pursuant
to this Section 4.9 for or in connection with (i) intentional misconduct or
knowing violation of law, or (ii) any transaction for which he received a
personal benefit in violation or breach of any provision of this Agreement.
4.10 CONFLICTING INTEREST TRANSACTION PROVISIONS DO NOT APPLY. The
provisions of GLLCA section 14-11-307 shall not apply to the Company. The
Company shall have the right to enter into any contract or transaction with a
Member or Manager or Related Person (as defined in GLLCA ss. 14-11-101(21)) as
freely as with an unrelated third party; provided, however, that no such
contract or transaction shall be entered into without prior notice to all
Members and the Members consent to such contract or transaction by a Special
Majority Interest.
ARTICLE 5: RIGHTS AND OBLIGATIONS OF MEMBERS
5.1 LIMITATION ON LIABILITY. Each Member's liability shall be
limited as set forth in this Agreement, the GLLCA, and other applicable law.
5.2 NO LIABILITY FOR COMPANY OBLIGATIONS. No Member will have any
personal liability for any debts or losses of the Company, except as provided
by applicable law.
5.3 LIST OF MEMBERS. Upon written request of any Member, the
Company shall provide a list showing the names, addresses and Membership
Interest of all Members, and the other information required by GLLCA
ss.14-11-313 and maintained pursuant to Section 8.2.
5.4 ACTIONS OF MEMBERS; NO DISSENTER'S RIGHTS. Except to the
extent otherwise specifically provided in this Agreement or under the GLLCA,
any action on the part of the Company that requires the approval of the Members
shall be approved upon the affirmative vote or consent of a majority
(determined by Percentage Interest) of the Members. No Member voting against
any
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action of the Company, including any merger, sale, exchange, lease or other
disposition of all or substantially all of the property of the Company or
amendment to the Articles of Organization, shall have the benefit of the rights
granted pursuant to GLLCA ss. 14-11-1002 or any other so-called "dissenter's
rights."
5.5 PRIORITY AND RETURN OF CAPITAL. Except as may be expressly
provided in Article 7, no Member shall have priority over any other Member,
either as to the return of Capital Contributions or as to Net Profits, Net
Losses or distributions.
5.6 NO EXCLUSIVE DUTY TO THE COMPANY. The Members may have other
business interests and may engage in other activities in addition to those
relating to the Company. Neither the Company nor any Member shall have any
right, by virtue of this Agreement, to share or participate in such other
investments or activities of any Member or to the income or proceeds derived
therefrom. No Member shall incur liability to the Company or to any of the
other Members as a result of engaging in any other business or venture.
ARTICLE 6: CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS
6.1 GENERALLY.
(a) Initial. Each Member has made an Initial Capital
Contribution in cash or property to the Company as set forth on Exhibit A
attached hereto. By executing this Agreement, each Member agrees that the value
assigned to each non-cash item on Exhibit A was the fair market value of such
asset at the date of contribution.
(b) Additional. No Member shall be required to make an
Additional Capital Contribution to the Company, except as that Member may
otherwise expressly agree in writing. If the Managers determine that the
Company requires additional capital, each Member shall have the right, but not
the obligation, to make an Additional Capital Contribution to the Company. If
some but not all of the Members desire to make additional contributions, such
Additional Capital Contributions shall be made proportionately to the
Percentage Interests of the contributing Members. The Percentage Interests and
Units of the Members shall be adjusted to take into account any Additional
Capital Contributions.
(c) No Interest. No interest shall be paid on any Capital
Contributions.
(d) Annual Reconciliation. The Capital Account of each
Member shall be reconciled annually, at the close of the Company's Fiscal Year.
6.2 MEMBERS' CAPITAL ACCOUNTS.
(a) Generally. A separate Capital Account shall be
established and maintained for each Member. As funded and adjusted in
accordance with this Agreement, the Capital Accounts
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of the Members shall reflect the economic agreement of the Members as to their
intended interests in the Company.
(b) IRC ss. 704(b). The determination and maintenance of
the Members' Capital Accounts, and any adjustments thereof, shall be made in a
manner consistent with tax accounting and other principles set forth in IRC ss.
704(b) and IRC ss. 704(b) Regulations.
ARTICLE 7: DISTRIBUTIONS TO MEMBERS
7.1 ALLOCATION OF PROFITS AND LOSSES.
(a) Net Profits and Net Losses Generally. Except as
otherwise provided in Sections 7.1 (b) and (c), the Net Profits and Net Losses
shall be allocated among the Members as follows:
(i) First, Net Profits in any year shall be
allocated among the Members until the cumulative Net Profits allocated to the
Members pursuant to this Section 7.1(a)(i) are equal to the cumulative Net
Losses allocated to the Members pursuant to Section 7.1(a)(iii) for all prior
periods, and in proportion to the amount of the Net Losses that were allocated
among the Members for such prior periods;
(ii) Then, Net Profits shall be allocated to the
Members in proportion to their respective Percentage Interests;
(iii) First, Net Losses in any year shall be
allocated among the Members, in proportion to and to the extent of, their
positive Capital Account balances; and
(iv) Then, any remaining amount of Net Losses
shall be allocated to the Members in proportion to their respective Percentage
Interests.
(b) Other Allocation Rules.
(i) Chargeback Allocations. Notwithstanding any
other provision of this Article 7, any item of Company income or gain for any
fiscal year (or any portion of any such item) that is required to be allocated
to a Member under the IRC ss. 704(b) Regulations shall be allocated to such
Member for such fiscal year in the manner so required by such Regulations. This
Section 7.1(b)(i) is intended to comply with the "minimum gain chargeback" and
"partner nonrecourse debt minimum gain chargeback" requirements in such
Regulations and shall be interpreted consistently therewith.
(ii) Qualified Income Offset Allocations. Except
as provided in Section 7.1(b)(i), income or gain shall be allocated to the
Members at such times and in such amounts as may be necessary to comply with
the "qualified income offset" provisions of the IRC ss. 704(b) Regulations.
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(iii) Nonrecourse Allocations. "Nonrecourse
deductions" and "nonrecourse liabilities," as defined in the IRC ss. 704(b)
Regulations, for any fiscal year or other period shall be allocated among the
Members in proportion to their respective Percentage Interests. "Partner
nonrecourse deductions" and "partner nonrecourse debt" for any fiscal year or
other period shall be allocated among the Members in accordance with applicable
Regulations under IRC ss.ss. 704 and 752.
(c) Curative Allocations. The allocations set forth in
Sections 7.1(b)(i), (ii) and (iii) above (the "Regulatory Allocations") are
intended to comply with certain of the requirements of the IRC ss. 704(b)
Regulations. The Regulatory Allocations may not be consistent with the manner
in which the Members intend to share distributions from the Company, which is
ratably in accordance with their respective Percentage Interests. Accordingly,
the Managers are hereby is authorized to divide other allocations of income,
gain, deduction or loss among the Members so as to prevent the Regulatory
Allocations from distorting the manner in which distributions from the Company
are intended to be shared among the Members pursuant to this Agreement. The
Managers shall have the discretion to accomplish this result in any reasonable
manner.
(d) Tax Allocations. In accordance with IRC ss. 704(c)
and the Regulations thereunder, income, gain, loss and deduction with respect
to any property contributed to the capital of the Company or with respect to
any property that has been revalued pursuant to the IRC ss.704(b) Regulations
shall, solely for tax purposes, be allocated among the Members so as to take
account of any variation between the adjusted basis of such property to the
Company for federal income tax purposes and its fair market value at the date
of contribution or revaluation.
7.2 DISTRIBUTIONS.
(a) While Bridge Loan Outstanding. During the period that
the Bridge Loan is outstanding, the Company shall use all reasonable efforts to
distribute cash to the Members to enable the Members to fund their U.S. federal
income tax liabilities (including any estimated payments thereof) attributable
to income reported (or to be reported) on tax returns of the Company that is
allocated to the Members, including without limitation amounts allocable under
IRC ss. 704(c). For purposes of making the determination of the amount of
distribution under this Section 7.2(b), items of ordinary income or short-term
capital gain will be assumed to be taxed at a rate of either 20% or 28%, as
determined by the Tax Matters Member upon advice of tax counsel; provided,
however, the maximum amount distributable under this Section 7.2(b) in any
fiscal year is the Company's indirect proportionate share of the tax
distributions made by Strategic Timber Partners II, LP, a Georgia limited
partnership in which the Company is an indirect partner.
(b) After Bridge Loan Satisfied. After the Bridge Loan is
satisfied, to the extent Net Cash Flow is available, the Company shall make
distributions to the Members: (i) to enable the Members to pay federal, state
and local income taxes attributable to their Membership Interests (including
quarterly tax distributions), such distributions to be made in an amount equal
to each Member's Percentage Interest of the Company's taxable income for the
period multiplied by an assumed tax rate of 36%, and (ii) at such other times
as the Managers may determine (except in connection with the termination and
winding up of the Company), and all such distributions under this clause (ii)
shall be made among the Members in proportion to their Percentage Interests.
Assets
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or cash available for distribution in connection with the termination and
winding up of the Company shall be distributed in accordance with the
provisions of Article 11.
7.3 LIMITATION UPON DISTRIBUTIONS. No distribution shall be made
to Members if prohibited by GLLCA ss. 14-11-407 or by the terms of the
Financing Documents.
ARTICLE 8: BOOKS AND RECORDS
8.1 ACCOUNTING PERIOD. The Company's accounting period is the
calendar year.
8.2 RECORDS, AUDITS AND REPORTS. At the expense of the Company,
the chief operating officer of the Company shall maintain records and accounts
of all operations and expenditures of the Company. The Company shall keep at
its principal place of business the following records:
(a) A current list of the full name and last known
address of each Member;
(b) Copies of records to enable a Member to determine
the relative voting rights, if any;
(c) A copy of the Articles of Organization of the Company
and all amendments to them;
(d) Copies of the Company's federal, state, and local
income tax returns and reports, if any, for the
three most recent years;
(e) Copies of this Agreement, together with any
amendments hereto; and
(f) Copies of any financial statements of the Company
for the three most recent years.
8.3 BOOKS OF ACCOUNT AND RECORDS. Proper and complete records and
books of account shall be kept or shall be caused to be kept by the Company in
which shall be entered fully and accurately all transactions and other matters
relating to the Company's business in such detail and completeness as is
customary and usual for businesses of the type engaged in by the Company. The
books and records shall at all time be maintained at the principal executive
office of the Company and shall be open to the reasonable inspection and
examination of the Members or their duly authorized representatives during
reasonable business hours.
8.4 METHODS OF ACCOUNTING. All income tax and financial reports
and returns of the Company shall be prepared on an accounting basis approved by
the Managers. All elections with respect to tax matters to be made by or for
the Company shall be made by the Tax Matters Member.
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8.5 TAX MATTERS MEMBER.
(a) The taking of any action and the incurring of any
expense by the Tax Matters Member in connection with any federal, state or
local tax controversy or proceeding, except to the extent required by law, is
in the sole and absolute discretion of the Tax Matters Member. The provisions
relating to indemnification of the Members, set forth in Section 4.9 of this
Agreement, shall be fully applicable to the Tax Matters Member in its capacity
as such.
(b) All third-party costs and expenses incurred by the
Tax Matters Member in performing its duties as such (including legal and
accounting fees and expenses) shall be borne by the Company. Nothing contained
herein shall be construed to restrict the Company from engaging tax consultants
to assist the Tax Matters Member in discharging its duties hereunder.
8.6 MATTERS CONCERNING FUNDS. Funds of the Company shall be
deposited in an account or accounts of a type, in form and name and in a bank
or banks selected by the Managers. All funds of the Company shall be used
solely for the business of the Company or distributed as provided herein.
ARTICLE 9: TRANSFERABILITY AND WITHDRAWAL
9.1 TRANSFER LIMITATIONS.
(a) Generally. No Member may transfer (whether by sale,
assignment, pledge, hypothecation, exchange, gift, bequest or otherwise),
voluntarily or involuntarily, all or any of its Units (collectively
"TRANSFER"), nor shall any Member have the power to substitute a transferee in
its place as a substituted Member, except (i) with the prior written consent of
a Special Majority Interest of the remaining Members, if any (which consent may
be given or withheld in each Member's sole discretion), (ii) each Member may
pledge its Units as required under the terms of the Bridge Loan, or (iii)
pursuant to a merger approved under Section 4.2.
(b) Non-permitted Transferee Has No Right. A Person to
whom a Transfer of any interest is made in contravention of the provisions of
this Section 9.1: (i) shall not become a Member; (ii) shall not be entitled to
participate in any decision in respect of the Company's business in which its
assignor would otherwise have been entitled to participate; (iii) shall have no
right to require any information or accounting of any transactions of the
Company; and (iv) shall not be entitled to vote with respect to any Company
matter. Upon such a Transfer, the transferee shall be entitled only to a share,
based on the percentage of Units transferred, of the Company's Net Profits, Net
Losses and distributions of the Company's assets, if any, in which its assignor
would otherwise have been entitled to share.
(c) Company's Right to Purchase Membership Interest.
(i) Upon a Transfer of any interest in
contravention of the provisions of this Section 9.1, the Company shall have an
irrevocable option to purchase the Membership Interest
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owned by the transferring Member at the time of the Transfer. The Company may
exercise the option at any time prior to the time the transferee of such
Membership Interest is admitted as a Member. The purchase price of the
Membership Interest shall be based on the Membership Interest's fair market
value at the time of the Transfer and shall be determined by agreement of the
Members and the holder of the transferred interest (the "SUCCESSOR"); provided,
that if the Members do not agree on the fair market value for the Membership
Interest within 30 days after the Transfer, the fair market value shall be
determined by a qualified independent appraiser selected by the Company, whose
determination shall be final and binding on all of the parties. The Company
shall have the option of either paying the purchase price in one lump sum
payment or pursuant to an unsecured and subordinated promissory note (the
"NOTE") in five equal annual installments of principal and interest beginning
on the first anniversary date of such purchase, with interest payable on the
unpaid principal balance at the prime interest rate then in effect on the date
of the Note as published in The Wall Street Journal. The Company may, at its
option, prepay any portion or all of any one or more principal installments and
interest on the Note, without prepayment penalty, premium or charge, and
interest on such principal amounts prepaid shall cease to accrue on the date of
such prepayment.
(ii) The Company may exercise this option by
giving a notice in writing to the transferring Member or the Successor. If the
option is exercised by the Company, the closing of the purchase by the Company
of the Membership Interest shall be held at the principal office of the Company
at the date and time set by the Company, which date shall be within 30 days
after the date the Company gives written notice of exercise to the transferring
Member or the Successor. At the closing, the Company shall pay to the Successor
the consideration set forth in paragraph (a) above and the Member and the
Successor shall deliver to the Company all documentation reasonably required by
the Company to effectuate the transfer of the Membership Interest to the
Company.
(d) Absolute Restriction on Transfers. Notwithstanding
any provision of this Agreement to the contrary, transfer of a Unit to any
Person other than the Company or a Member will not be permitted if the Unit
sought to be transferred, when added to the total of all other Units
transferred within the period of twelve (12) consecutive months ending with the
proposed date of the transfer, results in the termination of the Company under
IRC ss. 708, without the prior written consent of a Special Majority Interest
of the Members. At the request, and at the sole cost and expense, of the
transferring Member, the Company will cooperate with such transferring Member
in any reasonable manner in order to determine whether the prospective transfer
will result in termination of the Company under IRC ss. 708.
9.2 TIME OF TRANSFER. Any transfer of a Unit to a third party
under this Article 9 shall be effective as of midnight of the last day of the
calendar month in which it is made, or, at the election of the Managers, as of
opening of business the day following the date of the transfer (the "EFFECTIVE
TRANSFER DATE").
9.3 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT OF TRANSFERRED UNIT.
If any Unit is transferred during any accounting period to a third party or to
a Member in compliance with the provisions of this Article 9, Net Profits, Net
Losses, each item thereof and all other items attributable to such Unit for
such period shall be divided and allocated between the transferor and the
transferee by taking into account their varying interests during the period in
accordance with Article 9 hereof
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and Code Section 706(d), using the Effective Transfer Date as the date upon
which the change in ownership of the Unit occurred, and using any conventions
permitted by the Code or the Regulations and selected by the Managers. All
distributions on or before the Effective Transfer Date shall be made to the
transferor and all distributions thereafter shall be made to the transferee.
Neither the Company, the Managers nor any Member shall incur any liability for
making allocations and distributions in accordance with the provisions of this
Section 9.3, whether or not any of them has knowledge of any transfer of
ownership of any Unit.
9.4 NO WITHDRAWAL; EVENTS OF DISSOCIATION. No Member may withdraw
from the Company prior to the termination of the Company. A Member ceases to be
a Member if and only if: (a) a Member assigns his or her entire Membership
Interest (without regard to whether the assignees of such Membership Interest
become Members) or (b) a Member's entire Membership Interest is purchased or
redeemed by the Company. The foregoing is an exclusive list of events of
dissociation ("EVENTS OF DISSOCIATION") and shall supersede GLLCA ss.
14-11-601.
ARTICLE 10: ADDITIONAL MEMBERS
10.1 ADMISSION OF A NEW MEMBER. From the date of the formation of
the Company, any Person may become a Member of this Company as follows:
(a) upon approval by a Special Majority Interest, by the
issuance of the Company of Units for such consideration as a Special Majority
Interest shall determine, or
(b) as a transferee of a Member's Membership Interest or
any portion thereof (i) permitted under Section 9.1(a) or (ii) subsequently
accepted by a Special Majority Interest, subject to the terms and conditions of
this Agreement.
10.2 ALLOCATION. No new Members shall be entitled to any
retroactive allocation of losses, income or expense deductions incurred by the
Company. Members holding a Special Majority Interest may, at their option, at
the time a Member is admitted, close the Company books (as though the Company's
tax year had ended) or make pro rata allocations of loss, income and expense
deductions to a new Member for that portion of the Company's tax year in which
a Member was admitted in accordance with the provisions of IRC ss.706(d) and
the Regulations promulgated thereunder.
ARTICLE 11: DISSOLUTION AND TERMINATION
11.1 TERMINATION AND WINDING UP OF THE COMPANY. The Company shall
terminate upon the first to occur of: (a) the unanimous agreement of all
Members in writing; or (b) the sale of all or substantially all of the property
of the Company and the distribution to the Members of the proceeds of the sale.
No Event of Dissociation shall cause dissolution or termination of the Company.
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11.2 METHOD OF DISTRIBUTION UPON WINDING UP. Upon termination of
the Company pursuant to Section 11.1 above, the assets of the Company and the
proceeds of any liquidation shall be applied and distributed in the following
manner and order of priority:
(a) to the payment and discharge of all of the Company's
debts and liabilities, including without limitation any debt under the
Financing Documents, and the expenses of liquidation and dissolution;
(b) to the setting up of any reserves reasonably
necessary for any contingent or unforeseen liabilities or obligations of the
Company;
(c) to the payment of the balance, if any, of the
respective Capital Accounts of the Members (after making the allocations
required under the provisions of Article 8), but if the amount available for
such payment shall be insufficient, then pro rata among all of the Members
according to the respective positive balances of their Capital Accounts at such
time; and
(d) the remainder, if any, to the Members in accordance
with their respective Percentage Interests.
11.3 ORDERLY LIQUIDATION. A reasonable time shall be allowed for
the orderly liquidation of the assets of the Company and the discharge of
liabilities to creditors so as to enable the Members to minimize the normal
losses attendant upon a liquidation.
ARTICLE 12: GENERAL PROVISIONS
12.1 CERTIFICATES REPRESENTING UNITS AND LOST CERTIFICATES.
Certificates representing Units signed by the President (or other senior
officer of the Company) shall be issued upon request to each Member certifying
the number of Units owned by such Member. When such certificates are
countersigned (a) by a transfer agent other than the Company or its employee or
(b) by a registrar other than the Company or its employee, the signature of
such officer may be a facsimile. The Managers shall determine from time to time
the form of such certificates and may have placed thereon any legends they deem
appropriate. A new certificate may be issued in the place of any certificate
theretofore issued by the Company, alleged to have been lost or destroyed, and
the Managers may, in their discretion, require the owner of the lost or
destroyed certificate, or his legal representatives, to give the Company a
bond, in such sum as the Managers may direct, to indemnify the Company against
any claim that may be made against the Company on account of the alleged loss
of any such certificate, or the issuance of any such new certificate.
12.2 CERTIFICATION OF NON-FOREIGN STATUS. In order to comply with
IRC ss. 1445 of the IRC and the applicable Regulations thereunder, if the
disposition by the Company of a United States real property interest as defined
in the IRC and Regulations, each Member shall provide to the Company, an
affidavit stating, under penalties of perjury, (i) the Member's address, (ii)
United States Taxpayer identification number, and (iii) that the Member is not
a foreign person as that term is defined in the IRC and Regulations. Failure by
any Member to provide such affidavit by the date
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of such disposition shall authorize the Managers to withhold 10% of each such
Member's distributive share of the amount realized by the Company on the
disposition.
12.3 SURVIVAL. The representations, warranties, covenants and
agreements contained in this Agreement or in any certificate, exhibit, schedule
or other document executed and delivered by a party pursuant to, or in
connection with, this Agreement shall continue for the applicable limitations
period provided by law, and the remedies of a party for breaches of such
representations, warranties, covenants or agreements are not affected by any
investigation by, or knowledge of, the non- breaching party prior to the date
of this Agreement. No party has relied on any other representation, warranty or
assurance in entering into this Agreement.
ARTICLE 13: AMENDMENT
13.1 AMENDMENTS. Any amendment to this Agreement shall be made in
writing and signed by Members holding sufficient interests to approve such
amendment, as provided in Sections 4.2(c)(ii) and 4.2(d)(i).
ARTICLE 14: MISCELLANEOUS PROVISIONS
14.1 GOOD FAITH EFFORTS; FURTHER ASSURANCES; COOPERATION. The
parties shall in good faith undertake to perform their covenants, agreements
and obligations in this Agreement, to satisfy all conditions, and to cause the
purposes of this Agreement to be accomplished promptly in accordance with its
terms. Upon the execution of this Agreement and thereafter, each party shall do
such things as may be reasonably requested by the other party, at the expense
of the requesting party, in order more effectively to accomplish the purposes
and other agreements contemplated by this Agreement. The parties shall
cooperate with each other and their respective counsel and designees in
connection with any steps required to be taken as part of their respective
rights and obligations under this Agreement.
14.2 NOTICES. Each notice, communication and delivery under this
Agreement: (i) shall be made in writing signed by the party giving it; (ii)
shall specify the section of this Agreement pursuant to which given; (iii)
shall either be delivered in person or by telecopier, a nationally recognized
next business day delivery service or first class certified mail, return
receipt requested; (iv) unless delivered in person, shall be given to the
address specified below; (v) shall be deemed to be received (A) if delivered in
person, on the date delivered, or (B) if sent by telecopier, on the date of
telephonic confirmation of receipt or (C) if sent by a nationally recognized
next business day courier service with all costs paid, on the day after the
date delivered to such courier, or (D) if mailed first class certified mail,
return receipt requested, three days after the date so mailed. The addresses
are as follows:
Company: Strategic Timber Trust II, LLC
5 North Pleasant Street
New London, NH 03257
Attn: C. Edward Broom
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C. Edward Broom: 5 North Pleasant Street
New London, NH 03257
Thomas P. Broom: 5 North Pleasant Street
New London, NH 03257
Christopher J. Broom: 5 North Pleasant Street
New London, NH 03257
Vladimir Harris: 5 North Pleasant Street
New London, NH 03257
Joseph E. Rendini: 5 North Pleasant Street
New London, NH 03257
Nicholas C. Brunet: 5 North Pleasant Street
New London, NH 03257
Sutherland Asbill & Brennan LLP: 999 Peachtree Street, Suite 2300
Atlanta, GA 30309-3996
Attn: William H. Bradley
Such notice shall be given to such other representatives or at such other
addresses as a party may furnish to the other parties pursuant to the
foregoing. If notice is given pursuant to this Section of a permitted successor
or assign of a party, then notice shall thereafter be given as set forth above
also to such successor or assign of such party.
14.3 SUCCESSORS IN INTEREST. This Agreement is binding upon the
parties and their respective legal representatives, heirs, devisees, legatees,
beneficiaries and successors and assigns and inures to the benefit of the
parties and their respective permitted legal representatives, heirs, devisees,
legatees, beneficiaries and other permitted successors and assigns (and to or
for the benefit of no other person, whether an employee or otherwise,
whatsoever).
14.4 SPECIFIC PERFORMANCE. Each of the parties acknowledges that
the rights contemplated by this Agreement are special, unique and of
extraordinary character and, thus, that if a party breaches this Agreement, an
award of monetary damages would be an inadequate remedy and the other partner
would be entitled (without the posting of a bond or other security) to
equitable relief, including injunctive relief and specific performance (and
each Member hereby irrevocably waives any defense based on the adequacy of the
remedy at law which might be asserted as a bar to such injunctive relief).
14.5 SEVERABILITY. Any determination by any court of competent
jurisdiction of the invalidity of any provision of this Agreement that is not
essential to accomplishing the purposes of this Agreement shall not affect the
validity of any other provision of this Agreement, which shall remain in full
force and effect and which shall be construed as to be valid under applicable
law.
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14.6 REMEDIES AND COSTS. The rights and remedies specified in any
provision of this Agreement are in addition to all other rights and remedies a
party may have under any other agreement or applicable law, including any right
to equitable relief and any right to sue for damages as a result of a breach of
this Agreement (whether or not it elects to terminate this Agreement), and all
such rights and remedies are cumulative, except that indirect and consequential
damages shall not be recoverable under this Agreement (whether or not based on
contract, tort or any other legal theory and whether or not advised of the
possibility of such damages).
14.7 INTEGRATION; WAIVER. This Agreement and the other agreements
contemplated by this Agreement: (a) supersede all prior negotiations,
agreements and understandings between the parties with respect to its subject
matter and (b) constitute the entire agreement between the parties with respect
to its subject matter. No waiver by any to this Agreement of any provision (or
of a breach of any provision) of this Agreement, whether by conduct or
otherwise, in any one or more instances shall be deemed or construed either as
a further or continuing waiver of any such provision or breach or as a waiver
of any other provision (or of a breach of any other provision) of this
Agreement. No party has relied on any other representation, warranty or
assurance in entering into this Agreement.
14.8 CONTROLLING LAW. This Agreement is governed by, and shall be
construed and enforced in accordance with, the laws of the State of Georgia.
14.9 COPIES. This Agreement may be executed in two or more copies,
each of which shall be deemed an original, and it is not necessary in making
proof of this Agreement or its terms to produce or account for more than one of
such copies.
[signatures on following page]
23
<PAGE> 28
DULY EXECUTED by the Members as of the day and year first above
written.
/s/ C. Edward Broom (L.S.)
-------------------------------------
C. Edward Broom
/s/ Thomas P. Broom (L.S.)
-------------------------------------
Thomas P. Broom
/s/ Christopher J. Broom (L.S.)
-------------------------------------
Christopher J. Broom
/s/ Vladimir Harris (L.S.)
-------------------------------------
Vladimir Harris
/s/ Joseph E. Rendini (L.S.)
-------------------------------------
Joseph E. Rendini
/s/ Nicholas C. Brunet (L.S.)
-------------------------------------
Nicholas C. Brunet
SUTHERLAND, ASBILL & BRENNAN, LLP
By: /s/ William H. Bradley
--------------------------------
William H. Bradley
* * * * *
<PAGE> 1
EXHIBIT 3.8
OPERATING AGREEMENT
OF
STRATEGIC TIMBER TWO OPERATING CO., LLC
(A GEORGIA LIMITED LIABILITY COMPANY)
** Effective As of October 9, 1998 **
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1: DEFINITIONS...........................................................................4
1.1 Basic Terms...........................................................4
ARTICLE 2: FORMATION OF COMPANY..................................................................8
2.1 Effect of this Agreement and the Georgia Limited Liability Company
Act...................................................................8
2.2 Name..................................................................8
2.3 Initial Percentage Interests..........................................8
2.4 Permitted Businesses..................................................8
2.5 Principal Place of Business...........................................8
2.6 Registered Office and Registered Agent................................9
2.7 Ownership.............................................................9
2.8 Waiver of Right of Partition .........................................9
2.9 Limitations...........................................................9
ARTICLE 3: REPRESENTATIONS AND WARRANTIES....................................................... 9
3.1 Authority Enforceability..............................................9
3.2 Securities Compliance................................................10
ARTICLE 4: RIGHTS AND DUTIES OF MANAGERS; MEETINGS; INDEMNIFICATION;
CONFLICTING INTEREST PROVISIONS DO NOT APPLY....................................................10
4.1 Management by Managers...............................................10
4.2 Decisions Requiring Member Consent...................................10
4.3 Managers.............................................................11
4.4 Meetings of Managers.................................................11
4.5 Meetings of Members..................................................12
4.6 Provisions Applicable to All Meetings................................13
4.7 Officers ............................................................13
4.8 Limitations on Liability of Managers and Officers....................14
4.9 Indemnification: Reimbursement of Expenses: Insurance................14
4.10 Conflicting Interest Transaction Provisions Do Not Apply.............15
ARTICLE 5: RIGHTS AND OBLIGATIONS OF MEMBERS....................................................15
5.1 Limitation on Liability..............................................15
5.2 No Liability for Company Obligations.................................15
5.3 List of Members......................................................15
5.4 Actions of Members; no dissenter's rights............................15
5.5 Priority and Return of Capital.......................................15
5.6 No Exclusive Duty to the Company.....................................15
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 6: CONTRIBUTIONS TO THE COMPANY
AND CAPITAL ACCOUNTS............................................................................16
6.1 Generally............................................................16
6.2 Members' Capital Accounts............................................16
ARTICLE 7: DISTRIBUTIONS TO MEMBERS.............................................................17
7.1 Allocation of Profits and Losses.....................................17
7.2 Distributions........................................................18
7.3 Limitation Upon Distributions........................................19
ARTICLE 8: BOOKS AND RECORDS....................................................................19
8.1 Accounting Period....................................................19
8.2 Records, Audits and Reports..........................................19
8.3 Books of Account and Records.........................................19
8.4 Methods of Accounting................................................19
8.5 Tax Matters Member...................................................20
8.6 Matters Concerning Funds.............................................20
ARTICLE 9: TRANSFERABILITY AND WITHDRAWAL.......................................................20
9.1 Transfer Limitations.................................................20
9.2 Time of Transfer.....................................................21
9.3 Distributions and Allocations in Respect of Transferred Unit.........21
9.4 No withdrawal; events of disassociation..............................21
ARTICLE 10: ADDITIONAL MEMBERS..................................................................21
10.1 Admission of a New Member............................................21
10.2 Allocation...........................................................22
ARTICLE 11: DISSOLUTION AND TERMINATION.........................................................22
11.1 Termination and Winding Up of the Company............................22
11.2 Method of Distribution Upon Winding Up...............................22
11.3 Orderly Liquidation..................................................22
ARTICLE 12: GENERAL PROVISIONS..................................................................23
12.1 Certificates Representing Units and Lost Certificates................23
12.2 Certification of Non-Foreign Status..................................23
12.3 Survival.............................................................23
ARTICLE 13: AMENDMENT...........................................................................23
13.1 Amendments...........................................................23
ARTICLE 14: MISCELLANEOUS PROVISIONS............................................................23
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
14.1 Good Faith Efforts; Further Assurances; Cooperation..................23
14.2 Notices..............................................................24
14.3 Successors in Interest...............................................24
14.4 Specific Performance.................................................24
14.5 Severability.........................................................25
14.6 Remedies and Costs...................................................25
14.7 Integration: Waiver..................................................25
14.8 Controlling Law......................................................25
14.9 Copies...............................................................25
</TABLE>
iii
<PAGE> 5
OPERATING AGREEMENT
OF
STRATEGIC TIMBER TWO OPERATING CO., LLC
(A GEORGIA LIMITED LIABILITY COMPANY)
THE MEMBERSHIP INTERESTS IN STRATEGIC TIMBER TWO OPERATING COMPANY, LLC
HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY STATE SECURITIES LAWS
("STATE ACTS") IN RELIANCE ON ONE OR MORE EXEMPTIONS THEREUNDER. THE MEMBERSHIP
INTERESTS MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE WITH (i) THE
TERMS AND CONDITIONS OF THIS AGREEMENT AND (ii) THE 1933 ACT OR ANY APPLICABLE
STATE ACTS OR PURSUANT TO A VALID AND SUBSISTING EXEMPTION THEREFROM.
* * *
THIS IS AN OPERATING AGREEMENT given by Strategic Timber Trust II, LLC,
a Georgia limited liability company (individually as the sole "Member") of
Strategic Timber Two Operating Company, LLC, a Georgia limited liability company
organized pursuant to the filing of Articles of Organization with the Georgia
Secretary of State on September 23, 1998 (the "COMPANY"), and dated as of
October 9, 1998 and by which the Member and the Company, in consideration of the
mutual benefits contained in this Agreement and other good and valuable
consideration (the mutuality, adequacy and sufficiency of which are hereby
acknowledged), hereby agree as follows:
ARTICLE 1: DEFINITIONS
1.1 BASIC TERMS. The following terms used in this Agreement have
the following meanings:
"ADDITIONAL CAPITAL CONTRIBUTION" means a contribution to the capital
of the Company made by a Member pursuant to Section 6.1(b).
"AFFILIATE" shall mean, with respect to the Company or to any Member
(or as to any other person the affiliates of whom are relevant for
purposes of any of the provisions of this Agreement) any Entity which
directly or indirectly through one or more intermediaries, Controls, is
Controlled by, or is under common Control with, the Company or any
Member.
"AGREEMENT" means this Agreement as originally executed and as amended
from time to time in accordance with the provisions of Article 13.
"ARTICLES OF ORGANIZATION" means the Articles of Organization of the
Company, as filed with the Secretary of State of Georgia and as they
may be amended from time to time.
<PAGE> 6
"BRIDGE LOAN" means the senior secured loan provided to Member by the
lenders under that Bridge Loan Agreement dated as of October 9, 1998,
among Member, the lenders party thereto, ABN AMRO Bank N.V., as
administrative agent for the lenders (as the same may be amended,
modified or restated from time to time) having a 12-month term and in
the original principal amount of $35,000,000.
"CAPITAL ACCOUNT" means with respect to any Member, the Capital Account
maintained for such Person pursuant to the provisions of Section 6.2,
which shall be determined and adjusted as required by IRC ss. 704(b)
Regulations.
"CAPITAL CONTRIBUTION" means the amount in cash or agreed-upon value of
property contributed by each Member (or the Member's predecessors in
interest) to the capital of the Company for the Member's Unit or Units.
"COMPANY" means Strategic Timber Two Operating Co., LLC, a Georgia
limited liability company.
"CONTROL" shall mean the ability, whether by the direct or indirect
ownership of shares or other equity interests, by contract or
otherwise, to elect a majority of the directors of a corporation, to
select the managing partner of a partnership, or otherwise to select,
or have the power to remove and then select, a majority of those
persons exercising governing authority over an Entity. In the case of a
limited partnership, the sole general partner, all of the general
partners to the extent each has equal management control and authority,
or the managing general partner or managing general partners thereof
shall be deemed to have control of such partnership and, in the case of
a trust, any trustee thereof or any person having the right to select
any such trustee shall be deemed to have control of such trust.
"ENTITY" shall mean any general partnership, limited partnership,
limited liability company, corporation, joint venture, trust, business
trust, real estate investment trust, cooperative or association or
other business entity or organization.
"FINANCING" means collectively the Bridge Loan and Senior Credit
Facilities.
"FINANCING DOCUMENTS" means any and all credit and loan agreements and
related documents evidencing or securing the Financing.
"FISCAL YEAR" means the Company's fiscal year, which is the calendar
year.
"GLLCA" means the Georgia Limited Liability Company Act set forth at
O.C.G.A. ss.1411-100, et seq., as amended from time to time, and
applicable rules and regulations promulgated thereunder.
"INITIAL CAPITAL CONTRIBUTION" means the initial contribution to the
capital of the Company made by a Member pursuant to this Agreement.
2
<PAGE> 7
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time.
"MANAGER" means any Person named in this Agreement or the Articles of
Organization as an initial manager of the Company and any person
subsequently elected as a manager in accordance with the terms of this
Agreement; provided, however, that the term does not include any Person
who has ceased to be a manager of the Company.
"MEMBER" means each of the parties who executes this Agreement as a
Member and each Person who may hereafter become a Member.
"MEMBERSHIP INTEREST" means a Member's entire interest in the Company,
including such Member's interest in his Capital Account, the Net
Profits or Net Losses of the Company and any distributions made by the
Company, and the right to participate in the management of the
business, affairs and properties of the Company, and also including the
right to vote on, consent to, or otherwise participate in any decision
or action of or by the Members granted pursuant to this Agreement or
the GLLCA.
"NET CASH FLOW" means the Company's funds available for distribution in
accordance with Section 7.2, which will be determined with respect to
any period of operation as:
(a) the sum of all cash receipts received during such
period (including the net proceeds of borrowings but
excluding Capital Contributions)
(b) minus the sum of each of the following:
(i) all costs and expenses of the Company
paid during such period (other than
depreciation or other similar noncash
expenses) including, without limitation,
principal payments and other payments in the
nature of debt service on the Financing and
any other loan, capitalized lease or other
obligation of indebtedness
(ii) any other cash expenditures made by the
Company, and
(iii) funds paid into Reserves as required during
such period for the establishment of or
addition to such Reserves as the Managers
shall reasonably deem necessary or
appropriate for the proper operation of the
business of the Company
(c) plus the amount by which any such Reserves shall be
reduced by the Managers.
"NET LOSSES" and "NET PROFITS" means, for each Fiscal Year or other
period, an amount equal to the Company's taxable income or loss for
such year or period, determined in accordance with IRC ss.703(a) (for
this purpose, all items of income, gain, loss or deduction
3
<PAGE> 8
required to be stated separately pursuant to IRC ss.703(a)(1) shall be
included in taxable income or loss), with the adjustments required by
the IRC ss.704(b) Regulations.
"OFFICER" is defined in Section 4.7.
"PERCENTAGE INTEREST" means the interest of a Member in the Company,
determined by the proportion of Units owned by such Member to the total
number of Units outstanding, and as adjusted from time to time in
accordance with the terms of this Agreement.
"PERSON" means any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors, and assigns of such
Person where the context so permits.
"PIONEER" means Pioneer Resources, LLC, an Oregon limited liability
company.
"REGULATIONS" means the regulations promulgated under the IRC, as such
regulations may be amended from time to time. All references in this
Agreement to a specific section of the Regulations shall be deemed also
to refer to any corresponding provision of succeeding regulations.
"RESERVES" means, with respect to any fiscal period, funds set aside or
amounts allocated during such period to reserves which shall be
maintained in amounts deemed sufficient by the Managers for working
capital and to pay taxes, insurance, debt service or other costs or
expenses incident to the ownership or operation of the Company's
business.
"SENIOR CREDIT FACILITIES" means the senior secured credit facilities
provided to Pioneer by the lenders under that Replacement Credit Loan
Agreement dated as of October 9, 1998, among Pioneer, the lenders party
thereto, First Union National Bank, as administrative agent for the
lenders, ABN AMRO Bank N.V. as syndication agent for the lenders and
NationsBank, N.A. as documentation agent for the lenders (as the same
may be amended, modified or restated from time to time) in the original
committed amount of $270,000,000.
"SPECIAL MAJORITY INTEREST" means a number of Units which, taken
together, exceed 75% of the aggregate of all Units.
"TAX MATTERS MEMBER" means Strategic Timber Trust II, LLC, for purposes
of IRC ss.ss. 6621 through 6233.
"UNIT" means the unit of measure of all Percentage Interests, which
collectively represent one hundred percent (100%) of all Percentage
Interests.
4
<PAGE> 9
ARTICLE 2: FORMATION OF COMPANY
2.1 EFFECT OF THIS AGREEMENT AND THE GEORGIA LIMITED LIABILITY
COMPANY ACT. Except as otherwise specifically provided for in this
Agreement, the rights and obligations of the Members and the administration,
dissolution, liquidation, and termination of the Company shall be governed by
the GLLCA.
2.2 NAME. The name of the Company is Strategic Timber Two
Operating Company, LLC.
2.3 INITIAL PERCENTAGE INTERESTS. The initial Percentage Interests
of and Units held by the Members are as follows:
<TABLE>
<CAPTION>
Name Percentage Interest Units
---- ------------------- -----
<S> <C> <C>
Strategic Timber Trust II, LLC 100.0% 100
----- ---
Total = 100.0% 100
</TABLE> =====
2.4 PERMITTED BUSINESSES. The permitted businesses of the Company
are:
(a) To acquire, hold, own, manage and transfer
timberlands; to sell and otherwise dispose of the timber grown on such property;
and to engage in such other activities as shall be necessary, desirable or
appropriate to effectuate the foregoing purposes. In connection with the
foregoing, the Company shall have full power and authority, directly to enter
into, perform, and carry out contracts of any kind, to borrow money and to issue
other evidences of indebtedness, including guaranties of the indebtedness of
Affiliates (including the Financing which indebtedness may be secured by
mortgages, pledges of interests in other Entities, including STPII), security
interests or other liens, and to enter into any and all indentures and other
agreements and documents relating to such evidence of indebtedness, directly or
indirectly, and to acquire such assets as may be necessary or useful in
connection with its business.
(b) to accomplish any other lawful business whatsoever.
(c) to exercise all other powers necessary to or
reasonably connected with the Company's business which may be legally exercised
by limited liability companies under the GLLCA.
(d) to engage in all activities necessary, customary,
convenient, or incident to any of the foregoing.
2.5 PRINCIPAL PLACE OF BUSINESS. The mailing address and principal
place of business of the Company shall be at 5 North Pleasant Street New London,
New Hampshire 03257. The
5
<PAGE> 10
Company may locate its places of business and registered office at any other
place or places as the Managers may from time to time deem advisable.
2.6 REGISTERED OFFICE AND REGISTERED AGENT. The Company's initial
registered office shall be at 999 Peachtree Street, N.E., Suite 2300, Atlanta,
Fulton County, Georgia 30309, and the name of its registered agent at such
address shall be William H. Bradley. The registered office and registered agent
may be changed from time to time by filing the address of the new registered
office or the name of the new registered agent, as the case may be, with the
Secretary of State of Georgia pursuant to the GLLCA.
2.7 OWNERSHIP. The interest of each Member in the Company is
personal property for all purposes. All property and interests in property, real
or personal, owned by the Company shall be deemed owned by the Company as an
entity, and no Member, individually, shall have any ownership of such property
or interest owned by the Company except as a Member in the Company.
2.8 WAIVER OF RIGHT OF PARTITION. Each of the Members irrevocably
waives, during the term of the Company and during any period of its liquidation
following any dissolution, any right that it may have to maintain any action for
partition with respect to any of the assets of the Company.
2.9 LIMITATIONS. The relationship between and among the parties
shall be limited to the carrying on of the business of the Company in accordance
with the terms of this Agreement. No Member, acting alone, shall have any
authority to act for, or to undertake or assume, any obligation, debt, duty or
responsibility on behalf of any other Member or the Company except as expressly
provided in this Agreement. The Members intend that the Company shall not be a
partnership (including a limited partnership) or joint venture, and that no
Member shall be a partner or joint venturer of any other Member, for any
purposes other than under the IRC and the Regulations and other applicable
federal and state tax laws, and this Agreement shall not be construed to suggest
otherwise.
ARTICLE 3: REPRESENTATIONS AND WARRANTIES
Each Member hereby represents and warrants to each other Member,
severally and not jointly, with respect to himself as follows:
3.1 AUTHORITY ENFORCEABILITY. Such Member has the power and
authority to execute, deliver and perform this Agreement. Such Member's
execution, delivery and performance of this Agreement is not restricted by or in
violation of (a) any applicable law to which it or he is subject, (b) any
document as to its formation or governance (including articles of incorporation
or bylaws or partnership agreement, as amended or restated), or (c) any
agreement, commitment, order, ruling or proceeding to which it or he is a party
or to which it or he or any of its or his assets are subject.
6
<PAGE> 11
3.2 SECURITIES COMPLIANCE. Such Member is acquiring his interest
in the Company for his own account, to hold for investment, and with no
intention of dividing his participation with others or reselling or otherwise
participating, directly or indirectly, in a distribution of his interest in the
Company, or any portion thereof, and shall not make any sale, transfer or other
disposition of its interest in the Company, or any portion thereof, in violation
of this Agreement, the Georgia Securities Act of 1973 as amended, the Securities
Act of 1933 as amended or any other applicable state securities law. The Member
understands that the Company is under no obligation to register the interests in
the Company or take any other action necessary in order to make compliance with
an exemption from registration available. Such Member is an "accredited
investor" as defined in Rule 501(a) promulgated under the Securities Act of
1933, as amended.
ARTICLE 4: RIGHTS AND DUTIES OF MANAGERS; MEETINGS; INDEMNIFICATION; CONFLICTING
INTEREST PROVISIONS DO NOT APPLY
4.1 MANAGEMENT BY MANAGERS.
(a) Generally. Subject to the provisions of Section 4.2,
the powers of the Company shall be exercised by or under the authority of, and
the business, affairs and properties of the Company shall be managed under the
direction of, the Managers. No Member in its capacity as a Member has the right,
power, or authority to act for or on behalf of the Company, to do any act that
would be binding on the Company, or to incur any expenditures on behalf of the
Company.
(b) Decisions. In managing the business and affairs of
the Company and exercising its powers, so long as there is more than one
Manager, the Managers shall act collectively through resolutions adopted at
meetings and in written consents pursuant to Sections 4.4 and 4.6. No Manager
has the right, power, or authority to act for or on behalf of the Company, to do
any act that would be binding on the Company, or to incur any expenditures on
behalf of the Company, except in accordance with the immediately preceding
sentence. Decisions or actions taken by the Managers in accordance with this
Agreement (including this Section 4.1 and Section 4.2) shall constitute
decisions or actions by the Company and shall be binding on each Manager,
Member, Officer, and employee of the Company.
4.2 DECISIONS REQUIRING MEMBER CONSENT. Notwithstanding any power
or authority granted the Managers under the GLLCA, the Articles of Organization
or this Agreement,
(a) the Managers may not make any decision or take any
action for which the consent of a Special Majority Interest or other consent of
the Members is expressly required by the Articles of Organization or this
Agreement, without first obtaining such consent; and
(b) the Managers may not make any of the following
decisions or approve any of the following actions without first obtaining the
unanimous consent of all Members:
7
<PAGE> 12
(i) the dissolution of the Company pursuant to
GLLCA Article 6,
(ii) the merger of the Company pursuant to GLLCA
Article 9,
(iii) the sale, exchange, lease, or other
disposition of all or substantially all of the property of the Company,
(iv) the admission of any new Member;
(v) the amendment of the Articles of
Organization or this Agreement,
(vi) the issuance of any Units, or
(vii) the redemption by the Company of all or a
portion of any Member's Membership Interest.
Each Member may, with respect to any vote, consent, or approval that it
is entitled to grant pursuant to this Agreement, grant or withhold such vote,
consent, or approval in its sole discretion. This Section 4.2 shall supersede
ss. 14-11-308 of the GLLCA.
4.3 MANAGERS.
(a) Number of Managers. The number of Managers of the
Company is one, until such number is changed by a Special Majority Interest.
(b) Initial Managers. The initial Manager of the Company
is Thomas P. Broom.
(c) Resignation and Removal. Each Manager (whether an
initial or a successor Manager) shall cease to be a Manager upon the earliest to
occur of the following events:
(i) such Manager shall be removed, with or
without cause, by Members holding a Special Majority Interest at a meeting of
the Members called for that purpose;
(ii) such Manager shall resign as a Manager, by
giving notice of such resignation to the Members; or
(iii) such Manager shall die or become incapable
of performing substantially all of the normal duties of a Manager.
(d) Vacancies. Any vacancy in any Manager position may be
filled by Members holding a Special Majority Interest at a meeting of the
Members called for that purpose.
4.4 MEETING OF MANAGERS. The following provisions apply to
meetings of Managers:
8
<PAGE> 13
(a) Regular Meetings. Regular meetings of the Managers
may be held on such dates and at such times as shall be determined by the
Managers, with notice of such regular meeting schedule being given to each
Manager that was not present at the meeting at which it was adopted. The Company
shall give reminder notices of regular meetings of the Managers specifying the
place and time of such meeting that is delivered to each other Manager at least
five days prior to such meeting. Neither the business to be transacted at, nor
the purpose of, such regular meeting need be specified in the notice (or waiver
of notice) thereof.
(b) Special Meetings. Special meetings of the Managers
may be called by any Manager by notice specifying the place and time of such
meeting that is delivered to each other Manager at least 24 hours prior to such
meeting. The business to be transacted at, and the purpose of, such special
meeting shall be specified in the notice (or waiver of notice) thereof.
(c) Quorum. Unless otherwise expressly provided in this
Agreement, at any meeting of the Managers, a majority of the Managers shall
constitute a quorum for the transaction of business, and an act of a majority of
the Managers who are present at such a meeting at which a quorum is present
shall be the act of the Managers.
(d) Single Manager. The provisions of this Section 4.4
are inapplicable at any time that there is only one Manager.
4.5 MEETINGS OF MEMBER. The following provisions apply to meetings
of the Members:
(a) Annual Meeting. An annual meeting of the Members for
the transaction of such business as may properly come before the meeting shall
be held on such date and at such time as the Managers shall specify in the
notice of the meeting, which shall be delivered to each Member at least 10 days
prior to such meeting. Neither the business to be transacted at, nor the purpose
of, such annual meeting need be specified in the notice (or waiver of notice)
thereof.
(b) Special Meeting. Special meetings of the Members may
be called by the Managers or by Members having among them at least 75% of the
Units. Any such meeting shall be held on such date and at such time as the
Person calling such meeting shall specify in the notice of the meeting, which
shall be delivered to each Member at least 10 days prior to such meeting. The
business to be transacted at, and the purpose of, such special meeting shall be
specified in the notice.
(c) Quorum. Unless otherwise expressly provided in this
Agreement, at any meeting of the Members, a Special Majority Interest,
represented either in person or by proxy, shall constitute a quorum for the
transaction of business, and an act of a Special Majority Interest shall be the
act of the Members, unless the vote of a greater or lesser proportion or number
is otherwise required by the GLLCA, by the Articles of Organization, or by this
Agreement.
9
<PAGE> 14
(d) Interested Members. Unless otherwise expressly
provided in this Agreement or required by applicable law, Members who have an
interest (economic or otherwise) in the outcome of any particular matter upon
which the Members vote or consent may vote or consent upon any such matter, and
their Units, vote or consent, as the case may be, shall be counted in the
determination of whether the requisite matter was approved by the Members.
4.6 PROVISIONS APPLICABLE TO ALL MEETINGS. In connection with any
meeting of the Managers, Members, or any committee of the Managers, the
following apply:
(a) Place of Meeting. Any such meeting shall be held at
the principal place of business of the Company, unless the notice of such
meeting (or resolution of the Managers) specifies a different place, which need
not be in the State of Georgia.
(b) Waiver of Notice Through Attendance. Attendance of a
Person at such meeting (including attendance pursuant to Section 4.6(d)) shall
constitute a waiver of notice of such meeting, except where such Person attends
the meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
(c) Action by Written Consent. Any action required or
permitted to be taken at such a meeting may be taken without a meeting, without
prior notice, and without a vote if a consent or consents in writing, setting
forth the action so taken, is signed by the Managers or Members having not fewer
than the minimum number of Units or votes that would be necessary to take the
action at a meeting at which all Members, Managers, or members of the committee,
as applicable, entitled to vote on the action were present and voted.
(d) Meetings by Telephone. Managers and Members may
participate in and hold such meeting by means of conference telephone, video
conference, or similar communications equipment by means of which all Persons
participating in the meeting can hear each other.
(e) Proxies. Members may vote their Units personally, or
may grant proxies to vote Units held by them. A Member may appoint a proxy by
executing a writing that authorizes another person or persons to act on the
Member's behalf. An appointment of a proxy is valid when received by the
Secretary of the Company. An appointment of a proxy is revocable by the Member
granting it unless the appointment form conspicuously states that it is
irrevocable and the appointment is coupled with an interest. The Company is
entitled to accept the proxy's vote or other action as that of the Member making
the appointment.
4.7 OFFICERS. The Managers may designate one or more Persons to be
officers of the Company ("Officers"), and any Officers so designated shall have
such titles, authorities, duties, and salaries as the Managers may delegate to
them. Any Officer may be removed as such, either with or without cause, by the
Managers. The initial Officers of the Company are as follows:
10
<PAGE> 15
<TABLE>
<S> <C>
President C. Edward Broom
Vice President Christopher J. Broom
Vice President, Treasurer and
Chief Financial Officer Thomas P. Broom
Vice President Vladimir Harris
Vice President Nicholas C. Brunet
Assistant Secretary William H. Bradley
Vice President & Secretary Joseph E. Rendini
</TABLE>
4.8 LIMITATIONS ON LIABILITY OF MANAGERS AND OFFICERS. Each
Manager and Officer shall act in a manner he believes in good faith to be in the
best interests of the Company and with such care as an ordinarily prudent person
in a like position would use under similar circumstances. No Manager or Officer
shall be liable to the Company, or its Members, for any action taken in managing
the business or affairs of the Company if he performs the duties of his office
in compliance with the standard contained in this Section 4.8. No Manager or
Officer has guaranteed nor does any Manager or Officer have any obligation with
respect to the return of a Member's Capital Contributions or profits from the
operation of the Company. No Manager shall be liable to the Company or to any
Member for any loss or damage sustained by the Company or any Member except loss
or damage resulting from such Manager's failure to meet the standard contained
in this Section 4.8, from intentional misconduct or knowing violation of law or
a transaction for which the Manager received a personal benefit in violation or
breach of the provisions of this Agreement. Each Manager and Officer shall be
entitled to rely on information, opinions, reports or statements, including
financial statements or other financial data prepared or presented in accordance
with the provisions of GLLCA ss. 14-11-305.
4.9 INDEMNIFICATION; REIMBURSEMENT OF EXPENSES; INSURANCE. To the
fullest extent permitted by the GLLCA:
(a) the Company shall indemnify each Member, Manager and
Officer who was, is, or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding
("Proceeding"), any appeal therefrom, or any inquiry or investigation
preliminary thereto, by reason of the fact that he or she is or was a
Member, Manager or Officer, from and against any loss, cost, expense,
judgment, settlement, penalty or fine with respect to such a
Proceeding;
(b) the Company shall pay or reimburse each Member,
Manager or Officer for expenses incurred by him or her (i) in advance
of the final disposition of a Proceeding to which such Manager or
Officer was, is, or is threatened to be made a party, and (ii) in
connection with his or her appearance as a witness or other
participation in any Proceeding.
The provisions of this Section 4.9 shall not be exclusive of any other right
under any applicable law, provision of the Articles of Organization or this
Agreement, or otherwise. The Company may purchase and maintain insurance to
protect itself and any Manager, Officer, employee, or
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<PAGE> 16
agent of the Company, whether or not the Company would have the power to
indemnify such Person under this Section 4.9. As required by the GLLCA, no
Member, Manager or Officer shall be entitled to indemnification or payment or
reimbursement of expenses pursuant to this Section 4.9 for or in connection with
(i) intentional misconduct or knowing violation of law or (ii) any transaction
for which he received a personal benefit in violation or breach of any provision
of this Agreement.
4.10 CONFLICTING INTEREST TRANSACTION PROVISIONS DO NOT APPLY. The
provisions of GLLCA section 14-11-307 shall not apply to the Company. The
Company shall have the right to enter into any contract or transaction with a
Member or Manager or Related Person (as defined in GLLCA ss. 14-11-101(21)) as
freely as with an unrelated third party; provided, however, that no such
contract or transaction shall be entered into without prior notice to all
Members and the Members consent to such contract or transaction by a Special
Majority Interest.
ARTICLE 5: RIGHTS AND OBLIGATIONS OF MEMBERS
5.1 LIMITATION ON LIABILITY. Each Member's liability shall be
limited as set forth in this Agreement, the GLLCA, and other applicable law.
5.2 NO LIABILITY FOR COMPANY OBLIGATIONS. No Member will have any
personal liability for any debts or losses of the Company, except as provided by
applicable law.
5.3 LIST OF MEMBERS. Upon written request of any Member, the
Company shall provide a list showing the names, addresses and Membership
Interest of all Members, and the other information required by GLLCA
ss.14-11-313 and maintained pursuant to Section 8.2.
5.4 ACTIONS OF MEMBERS; NO DISSENTERS' RIGHTS. Except to the
extent otherwise specifically provided in this Agreement or under the GLLCA, any
action on the part of the Company that requires the approval of the Members
shall be approved upon the affirmative vote or consent of a majority of Members
(determined by Percentage Interest). No Member voting against any action of the
Company, including without limitation any merger, sale, exchange, lease or other
disposition of all or substantially all of the property of the Company or
amendment to the Articles of Organization, shall have the benefit of the rights
granted pursuant to GLLCA ss. 14-11-1002 or any other so-called "dissenter's
rights."
5.5 PRIORITY AND RETURN OF CAPITAL. Except as may be expressly
provided in Article 7, no Member shall have priority over any other Member,
either as to the return of Capital Contributions or as to Net Profits, Net
Losses or distributions.
5.6 NO EXCLUSIVE DUTY TO THE COMPANY. The Members may have other
business interests and may engage in other activities in addition to those
relating to the Company. Neither the Company nor any Member shall have any
right, by virtue of this Agreement, to share or participate in such other
investments or activities of any Member or to the income or proceeds
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derived therefrom. No Member shall incur liability to the Company or to any of
the other Members as a result of engaging in any other business or venture.
ARTICLE 6: CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS
6.1 GENERALLY.
(a) Initial. Each Member has made an Initial Capital
Contribution in cash or property to the Company as set forth on Exhibit A
attached hereto. By executing this Agreement, each Member agrees that the value
assigned to each non-cash item on Exhibit A was the fair market value of such
asset at the date of contribution.
(b) Additional. No Member shall be required to make an
Additional Capital Contribution to the Company, except as that Member may
otherwise expressly agree in writing. If the Managers determine that the Company
requires additional capital, each Member shall have the right, but not the
obligation, to make an Additional Capital Contribution to the Company. If some
but not all of the Members desire to make additional contributions, such
Additional Capital Contributions shall be made proportionately to the Percentage
Interests of the contributing Members. The Percentage Interests and Units of the
Members shall be adjusted to take into account any Additional Capital
Contributions.
(c) No Interest. No interest shall be paid on any Capital
Contributions.
(d) Annual Reconciliation. The Capital Account of each
Member shall be reconciled annually, at the close of the Company's Fiscal Year.
6.2 MEMBERS' CAPITAL ACCOUNTS.
(a) Generally. A separate Capital Account shall be
established and maintained for each Member. As funded and adjusted in accordance
with this Agreement, the Capital Accounts of the Members shall reflect the
economic agreement of the Members as to their intended interests in the Company.
(b) IRC ss. 704(b). The determination and maintenance of
the Members' Capital Accounts, and any adjustments thereof, shall be made in a
manner consistent with tax accounting and other principles set forth in IRC ss.
704(b) and IRC ss. 704(b) Regulations.
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ARTICLE 7. DISTRIBUTION TO MEMBERS
7.1 ALLOCATION OF PROFITS AND LOSSES.
(a) Net Profits and Net Losses Generally. Except as
otherwise provided in Sections 7.1 (b) and (c), the Net Profits and Net Losses
shall be allocated among the Members as follows:
(i) First, Net Profits in any year shall be
allocated among the Members until the cumulative Net Profits allocated to the
Members pursuant to this Section 7. 1 (a)(i) are equal to the cumulative Net
Losses allocated to the Members pursuant to Section 7. l(a)(iii) for all prior
periods, and in proportion to the amount of the Net Losses that were allocated
among the Members for such prior periods;
(ii) Then, Net Profits shall be allocated to the
Members in proportion to their respective Percentage Interests;
(iii) First, Net Losses in any year shall be
allocated among the Members, in proportion to and to the extent of, their
positive Capital Account balances; and
(iv) Then, any remaining amount of Net Losses
shall be allocated to the Members in proportion to their respective Percentage
Interests.
(b) Other Allocation Rules.
(i) Chargeback Allocations. Notwithstanding
any other provision of this Article 7, any item of Company income or gain for
any fiscal year (or any portion of any such item) that is required to be
allocated to a Member under the IRC ss. 704(b) Regulations shall be allocated to
such Member for such fiscal year in the manner so required by such Regulations.
This Section 7. 1 (b)(i) is intended to comply with the "minimum gain
chargeback" and "partner nonrecourse debt minimum gain chargeback" requirements
in such Regulations and shall be interpreted consistently therewith.
(ii) Qualified Income Offset Allocations. Except
as provided in Section 7. 1 (b)(i), income or gain shall be allocated to the
Members at such times and in such amounts as may be necessary to comply with the
"qualified income offset" provisions of the IRC ss. 704(b) Regulations.
(iii) Nonrecourse Allocations. "Nonrecourse
deductions" and "nonrecourse liabilities," as defined in the IRC ss. 704(b)
Regulations, for any fiscal year or other period shall be allocated among the
Members in proportion to their respective Percentage Interests. "Partner
nonrecourse deductions" and "partner nonrecourse debt" for any fiscal year or
other
14
<PAGE> 19
period shall be allocated among the Members in accordance with applicable
Regulations under IRC ss.ss. 704 and 752.
(c) Curative Allocations. The allocations set forth in
Sections 7. 1 (b)(i), (ii) and (iii) above (the "Regulatory Allocations") are
intended to comply with certain of the requirements of the IRC ss. 704(b)
Regulations. The Regulatory Allocations may not be consistent with the manner in
which the Members intend to share distributions from the Company, which is
ratably in accordance with their respective Percentage Interests. Accordingly,
the Managers are hereby is authorized to divide other allocations of income,
gain, deduction or loss among the Members so as to prevent the Regulatory
Allocations from distorting the manner in which distributions from the Company
are intended to be shared among the Members pursuant to this Agreement. The
Managers shall have the discretion to accomplish this result in any reasonable
manner.
(d) Tax Allocations. In accordance with IRC SS. 704(c)
and the Regulations thereunder, income, gain, loss and deduction with respect to
any property contributed to the capital of the Company or with respect to any
property that has been revalued pursuant to the IRC ss.704(b) Regulations shall,
solely for tax purposes, be allocated among the Members so as to take account of
any variation between the adjusted basis of such property to the Company for
federal income tax purposes and its fair market value at the date of
contribution or revaluation.
7.2 DISTRIBUTIONS.
(a) While Bridge Loan Outstanding. During the period that
the Bridge Loan is outstanding, the Company shall use all reasonable efforts to
distribute cash to the Members to enable the Members to fund their U.S. federal
income tax liabilities (including any estimated payments thereof) attributable
to income reported (or to be reported) on tax returns of the Company that is
allocated to the Members, including without limitation amounts allocable under
IRC ss. 704(c). For purposes of making the determination of the amount of
distribution under this Section 7.2(a), items of ordinary income or short-term
capital gain will be assumed to be taxed at a rate of either 20% or 28%, as
determined by the Tax Matters Member upon advice of tax counsel; provided,
however, the maximum amount distributable under this Section 7.2(a) in any
fiscal year is the Company's proportionate share of the tax distributions made
by Strategic Timber Partners II, LP, a Georgia limited partnership in which the
Company is a general and limited partner. Except for such tax distributions,
prior to the complete satisfaction of the Bridge Loan, all distributions of Net
Cash Flow will be made to Strategic Timber Trust II, LLC, as the sole Member.
(b) After Bridge Loan Satisfied. After the Bridge Loan is
satisfied, to the extent Net Cash Flow is available, the Company shall make
distributions to the Members: (i) to enable the Members to pay federal, state
and local income taxes attributable to their Membership Interests (including
quarterly tax distributions), such distributions to be made in an amount equal
to each Member's Percentage Interest of the Company's taxable income for the
period multiplied by an assumed tax rate of 36%, and (ii) at such other times as
the Managers may determine (except in connection with the termination and
winding up of the Company), and all such distributions under this clause (ii)
shall be made among the Members in proportion to their Percentage Interests.
Assets
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or cash available for distribution in connection with the termination and
winding up of the Company shall be distributed in accordance with the provisions
of Article 11.
7.3 LIMITATION UPON DISTRIBUTIONS. No distribution shall be made
to Members if prohibited by GLLCA ss. 14-11-407 or by the terms of the Financing
Documents.
ARTICLE 8: BOOKS AND RECORDS
8.1 ACCOUNTING PERIOD. The Company's accounting period is the
calendar year.
8.2 RECORDS, AUDITS AND REPORTS. At the expense of the Company,
the chief operating officer of the Company shall maintain records and accounts
of all operations and expenditures of the Company. The Company shall keep at its
principal place of business the following records:
(a) A current list of the full name and last known
address of each Member;
(b) Copies of records to enable a Member to determine the
relative voting rights, if any;
(c) A copy of the Articles of Organization of the Company
and all amendments to them;
(d) Copies of the Company's federal, state, and local
income tax returns and reports, if any, for the three
most recent years;
(e) Copies of this Agreement, together with any
amendments hereto; and
(f) Copies of any financial statements of the Company for
the three most recent years.
8.3 BOOKS OF ACCOUNT AND RECORDS. Proper and complete records and
books of account shall be kept or shall be caused to be kept by the Company in
which shall be entered fully and accurately all transactions and other matters
relating to the Company's business in such detail and completeness as is
customary and usual for businesses of the type engaged in by the Company. The
books and records shall at all time be maintained at the principal executive
office of the Company and shall be open to the reasonable inspection and
examination of the Members or their duly authorized representatives during
reasonable business hours.
8.4 METHODS OF ACCOUNTING. All income tax and financial reports
and returns of the Company shall be prepared on an accounting basis approved by
the Managers. All elections with respect to tax matters to be made by or for the
Company shall be made by the Tax Matters Member.
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8.5 TAX MATTERS MEMBER.
(a) The taking of any action and the incurring of any
expense by the Tax Matters Member in connection with any federal, state or local
tax controversy or proceeding, except to the extent required by law, is in the
sole and absolute discretion of the Tax Matters Member. The provisions relating
to indemnification of the Members, set forth in Section 4.9 of this Agreement,
shall be fully applicable to the Tax Matters Member in its capacity as such.
(b) All third-party costs and expenses incurred by the
Tax Matters Member in performing its duties as such (including legal and
accounting fees and expenses) shall be borne by the Company. Nothing contained
herein shall be construed to restrict the Company from engaging tax consultants
to assist the Tax Matters Member in discharging its duties hereunder.
8.6 MATTERS CONCERNING FUNDS. Funds of the Company shall be
deposited in an account or accounts of a type, in form and name and in a bank or
banks selected by the Managers. All funds of the Company shall be used solely
for the business of the Company or distributed as provided herein.
ARTICLE 9: TRANSFERABILITY AND WITHDRAWAL
9.1 TRANSFER LIMITATIONS.
(a) Generally. No Member may transfer (whether by sale,
assignment, pledge, hypothecation, exchange, gift, bequest or otherwise),
voluntarily or involuntarily, all or any of its Units (collectively "TRANSFER"),
nor shall any Member have the power to substitute a transferee in its place as a
substituted Member, except (i) with the prior written consent of a Special
Majority Interest of the remaining Members, if any (which consent may be given
or withheld in each Member's sole discretion), (ii) each Member may pledge its
Units as required under the terms of the Bridge Loan, or (iii) pursuant to a
merger approved under Section 4.2.
(b) Non-permitted Transferee Has No Right. A Person to
whom a Transfer of any interest is made in contravention of the provisions of
this Section 9. 1: (i) shall not become a Member; (ii) shall not be entitled to
participate in any decision in respect of the Company's business in which its
assignor would otherwise have been entitled to participate; (iii) shall have no
right to require any information or accounting of any transactions of the
Company; and (iv) shall not be entitled to vote with respect to any Company
matter. Upon such a Transfer, the transferee shall be entitled only to a share,
based on the percentage of Units transferred, of the Company's Net Profits, Net
Losses and distributions of the Company's assets, if any, in which its assignor
would otherwise have been entitled to share.
(c) Absolute Restriction on Transfers. Notwithstanding
any provision of this Agreement to the contrary, transfer of a Unit to any
Person other than the Company or a Member will not be permitted if the Unit
sought to be transferred, when added to the total of all other Units
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<PAGE> 22
transferred within the period of twelve (12) consecutive months ending with the
proposed date of the transfer, results in the termination of the Company under
IRC ss. 708, without the prior written consent of a Special Majority Interest of
the Members. At the request, and at the sole cost and expense, of the
transferring Member, the Company will cooperate with such transferring Member in
any reasonable manner in order to determine whether the prospective transfer
will result in termination of the Company under IRC ss. 708.
9.2 TIME OF TRANSFER. Any transfer of a Unit to a third party
under this Article 9 shall be effective as of midnight of the last day of the
calendar month in which it is made, or, at the election of the Managers, as of
opening of business the day following the date of the transfer (the "Effective
Transfer Date").
9.3 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT OF TRANSFERRED UNIT.
If any Unit is transferred during any accounting period to a third party or to a
Member in compliance with the provisions of this Article 9, Net Profits, Net
Losses, each item thereof and all other items attributable to such Unit for such
period shall be divided and allocated between the transferor and the transferee
by taking into account their varying interests during the period in accordance
with Article 9 hereof and Code Section 706(d), using the Effective Transfer Date
as the date upon which the change in ownership of the Unit occurred, and using
any conventions permitted by the Code or the Regulations and selected by the
Managers. All distributions on or before the Effective Transfer Date shall be
made to the transferor and all distributions thereafter shall be made to the
transferee. Neither the Company, the Managers nor any Member shall incur any
liability for making allocations and distributions in accordance with the
provisions of this Section 9.3, whether or not any of them has knowledge of any
transfer of ownership of any Unit.
9.4 NO WITHDRAWAL: EVENTS OF DISSOCIATION. No Member may withdraw
from the Company prior to the termination of the Company. A Member ceases to be
a Member if and only if: (a) a Member assigns his or her entire Membership
Interest (without regard to whether the assignees of such Membership Interest
become Members) or (b) a Member's entire Membership Interest is purchased or
redeemed by the Company. The foregoing is an exclusive list of events of
dissociation ("Events of Dissociation") and shall supersede GLLCA ss. 14-11-601.
ARTICLE 10: ADDITIONAL MEMBERS
10.1 ADMISSION OF A NEW MEMBER. From the date of the formation of
the Company, any Person may become a Member of this Company as follows:
(a) upon approval by a Special Majority Interest, by the
issuance of the Company of Units for such
consideration as a Special Majority Interest shall
determine, or
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(b) as a transferee of a Member's Membership Interest or
any portion thereof (i) permitted under Section 9. 1
(a) or (ii) subsequently accepted by a Special
Majority Interest, subject to the terms and
conditions of this Agreement.
10.2 ALLOCATION. No new Members shall be entitled to any
retroactive allocation of losses, income or expense deductions incurred by the
Company. Members holding a Special Majority Interest may, at their option, at
the time a Member is admitted, close the Company books (as though the Company's
tax year had ended) or make pro rata allocations of loss, income and expense
deductions to a new Member for that portion of the Company's tax year in which a
Member was admitted in accordance with the provisions of IRC ss.706(d) and the
Regulations promulgated thereunder.
ARTICLE 11: DISSOLUTION AND TERMINATION
11.1 TERMINATION AND WINDING UP OF THE COMPANY. The Company shall
terminate upon the first to occur of. (a) the unanimous agreement of all Members
in writing; or (b) the sale of all or substantially all of the property of the
Company and the distribution to the Members of the proceeds of the sale. No
Event of Dissociation shall cause dissolution or termination of the Company.
11.2 METHOD OF DISTRIBUTION UPON WINDING UP. Upon termination of
the Company pursuant to Section 11.1 above, the assets of the Company and the
proceeds of any liquidation shall be applied and distributed in the following
manner and order of priority:
(a) to the payment and discharge of all of the Company's
debts and liabilities, including without limitation any debt under the Financing
Documents, and the expenses of liquidation and dissolution;
(b) to the setting up of any reserves reasonably
necessary for any contingent or unforeseen liabilities or obligations of the
Company;
(c) to the payment of the balance, if any, of the
respective Capital Accounts of the Members (after making the allocations
required under the provisions of Article 8), but if the amount available for
such payment shall be insufficient, then pro rata among all of the Members
according to the respective positive balances of their Capital Accounts at such
time; and
(d) the remainder, if any, to the Members in accordance
with their respective Percentage Interests.
11.3 ORDERLY LIQUIDATION. A reasonable time shall be allowed for
the orderly liquidation of the assets of the Company and the discharge of
liabilities to creditors so as to enable the Members to minimize the normal
losses attendant upon a liquidation.
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ARTICLE 12: GENERAL PROVISIONS
12.1 CERTIFICATES REPRESENTING UNITS AND LOST CERTIFICATES.
Certificates representing Units signed by the President (or other senior officer
of the Company) shall be issued upon request to each Member certifying the
number of Units owned by such Member. When such certificates are countersigned
(a) by a transfer agent other than the Company or its employee or (b) by a
registrar other than the Company or its employee, the signature of such officer
may be a facsimile. The Managers shall determine from time to time the form of
such certificates and may have placed thereon any legends they deem appropriate.
A new certificate may be issued in the place of any certificate theretofore
issued by the Company, alleged to have been lost or destroyed, and the Managers
may, in their discretion, require the owner of the lost or destroyed
certificate, or his legal representatives, to give the Company a bond, in such
sum as the Managers may direct, to indemnify the Company against any claim that
may be made against the Company on account of the alleged loss of any such
certificate, or the issuance of any such new certificate.
12.2 CERTIFICATION OF NON-FOREIGN STATUS. In order to comply with
IRC ss. 1445 of the IRC and the applicable Regulations thereunder, if the
disposition by the Company of a United States real property interest as defined
in the IRC and Regulations, each Member shall provide to the Company, an
affidavit stating, under penalties of perjury, (i) the Member's address, (ii)
United States Taxpayer identification number, and (iii) that the Member is not a
foreign person as that term is defined in the IRC and Regulations. Failure by
any Member to provide such affidavit by the date of such disposition shall
authorize the Managers to withhold 10% of each such Member's distributive share
of the amount realized by the Company on the disposition.
12.3 SURVIVAL. The representations, warranties, covenants and
agreements contained in this Agreement or in any certificate, exhibit schedule
or other document executed and delivered by a party pursuant to, or in
connection with, this Agreement shall continue for the applicable limitations
period provided by law, and the remedies of a party for breaches of such
representations, warranties, covenants or agreements are not affected by any
investigation by, or knowledge of, the nonbreaching party prior to the date of
this Agreement. No party has relied on any other representation, warranty or
assurance in entering into this Agreement.
ARTICLE 13: AMENDMENT
13.1 AMENDMENTS. Any amendment to this Agreement shall be made in
writing and signed by Members holding a Special Majority Interest.
ARTICLE 14: MISCELLANEOUS PROVISIONS
14.1 GOOD FAITH EFFORTS; FURTHER ASSURANCES; COOPERATION. The
parties shall in good faith undertake to perform their covenants, agreements and
obligations in this Agreement, to satisfy all conditions, and to cause the
purposes of this Agreement to be accomplished promptly
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in accordance with its terms. Upon the execution of this Agreement and
thereafter, each party shall do such things as may be reasonably requested by
the other party, at the expense of the requesting party, in order more
effectively to accomplish the purposes and other agreements contemplated by this
Agreement. The parties shall cooperate with each other and their respective
counsel and designees in connection with any steps required to be taken as part
of their respective rights and obligations under this Agreement.
14.2 NOTICES. Each notice, communication and delivery under this
Agreement: (i) shall be made in writing signed by the party giving it; (ii)
shall specify the section of this Agreement pursuant to which given; (iii) shall
either be delivered in person or by telecopier, a nationally recognized next
business day delivery service or first class certified mail, return receipt
requested; (iv) unless delivered in person, shall be given to the address
specified below; (v) shall be deemed to be received (A) if delivered in person,
on the date delivered, or (B) if sent by telecopier, on the date of telephonic
confirmation of receipt or (C) if sent by a nationally recognized next business
day courier service with all costs paid, on the day after the date delivered to
such courier, or (D) if mailed first class certified mail, return receipt
requested, three days after the date so mailed. The addresses are as follows:
Member: Strategic Timber Trust II, LLC
5 North Pleasant Street
New London, New Hampshire 03257
Company: Strategic Timber Two Operating Company, LLC
5 North Pleasant Street
New London, New Hampshire 03257
Such notice shall be given to such other representatives or at such other
addresses as a party may furnish to the other parties pursuant to the foregoing.
If notice is given pursuant to this Section of a permitted successor or assign
of a party, then notice shall thereafter be given as set forth above also to
such successor or assign of such party.
14.3 SUCCESSORS IN INTEREST. This Agreement is binding upon the
parties and their respective legal representatives, heirs, devisees, legatees,
beneficiaries and successors and assigns and inures to the benefit of the
parties and their respective permitted legal representatives, heirs, devisees,
legatees, beneficiaries and other permitted successors and assigns (and to or
for the benefit of no other person , whether an employee or otherwise,
whatsoever).
14.4 SPECIFIC PERFORMANCE. Each of the parties acknowledges that
the rights contemplated by this Agreement are special, unique and of
extraordinary character and, thus, that if a party breaches this Agreement, an
award of monetary damages would be an inadequate remedy and the other partner
would be entitled (without the posting of a bond or other security) to equitable
relief, including injunctive relief and specific performance (and each Member
hereby
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irrevocably waives any defense based on the adequacy of the remedy at law which
might be asserted as a bar to such injunctive relief).
14.5 SEVERABILITY. Any determination by any court of competent
jurisdiction of the invalidity of any provision of this Agreement that is not
essential to accomplishing the purposes of this Agreement shall not affect the
validity of any other provision of this Agreement, which shall remain in full
force and effect and which shall be construed as to be valid under applicable
law.
14.6 REMEDIES AND COSTS. The rights and remedies specified in any
provision of this Agreement are in addition to all other rights and remedies a
party may have under any other agreement or applicable law, including any right
to equitable relief and any right to sue for damages as a result of a breach of
this Agreement (whether or not it elects to terminate this Agreement), and all
such rights and remedies are cumulative.
14.7 INTEGRATION; WAIVER. This Agreement and the other agreements
contemplated by this Agreement: (a) supersede all prior negotiations, agreements
and understandings between the parties with respect to its subject matter and
(b) constitute the entire agreement between the parties with respect to its
subject matter. No waiver by any to this Agreement of any provision (or of a
breach of any provision) of this Agreement, whether by conduct or otherwise, in
any one or more instances shall be deemed or construed either as a further or
continuing waiver of any such provision or breach or as a waiver of any other
provision (or of a breach of any other provision) of this Agreement. No party
has relied on any other representation, warranty or assurance in entering into
this Agreement.
14.8 CONTROLLING LAW. This Agreement is governed by, and shall be
construed and enforced in accordance with, the laws of the State of Georgia.
14.9 COPIES. This Agreement may be executed in two or more copies,
each of which shall be deemed an original, and it is not necessary in making
proof of this Agreement or its terms to produce or account for more than one of
such copies.
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DULY EXECUTED by the Member and the Company as of the day and year
first above written.
STRATEGIC TIMBER TRUST II, LLC, a Georgia
limited liability company
By: /s/ Thomas P. Broom
-------------------------------------------
Thomas P. Broom, Vice President and Manager
STRATEGIC TIMBER TWO OPERATING CO., LLC,
a Georgia limited liability company
By: Strategic Timber Trust II, LLC, a Georgia
limited liability company, its sole
member
By: /s/ Thomas P. Broom
-------------------------------------------
Thomas P. Broom, Vice President and Manager
<PAGE> 1
EXHIBIT 3.9
FOURTH AMENDED AND RESTATED OPERATING AGREEMENT
OF
PIONEER RESOURCES, LLC
(AN OREGON LIMITED LIABILITY COMPANY)
**Effective As of October 9, 1998**
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1: DEFINITIONS.......................................................................4
1.1 BASIC TERMS..............................................................4
ARTICLE 2: FORMATION OF COMPANY..............................................................8
2.1 EFFECT OF THIS AGREEMENT AND THE OREGON ACT..............................8
2.2 NAME.....................................................................8
2.3 INITIAL PERCENTAGE INTERESTS.............................................8
2.4 PERMITTED BUSINESSES.....................................................8
2.5 PRINCIPAL PLACE OF BUSINESS..............................................8
2.6 STATUTORY AGENT..........................................................9
2.7 OWNERSHIP................................................................9
2.8 WAIVER OF RIGHT OF PARTITION.............................................9
2.9 LIMITATIONS..............................................................9
ARTICLE 3: REPRESENTATIONS AND WARRANTIES....................................................9
3.1 AUTHORITY; ..............................................................9
3.2 SECURITIES COMPLIANCE....................................................9
ARTICLE 4: RIGHTS AND DUTIES OF MANAGERS; MEETINGS; INDEMNIFICATION;
CONFLICTING INTEREST PROVISIONS DO NOT APPLY.......................................................10
4.1 MANAGEMENT BY MANAGERS..................................................10
4.2 DECISIONS REQUIRING MEMBER CONSENT......................................10
4.3 MANAGERS................................................................11
4.4 MEETINGS OF MANAGERS....................................................11
4.5 MEETINGS OF MEMBERS.....................................................12
4.6 PROVISIONS APPLICABLE TO ALL MEETINGS...................................13
4.7 OFFICERS................................................................13
4.8 LIMITATIONS ON LIABILITY OF MANAGERS AND OFFICERS.......................14
4.9 INDEMNIFICATION; REIMBURSEMENT OF EXPENSES; INSURANCE...................14
ARTICLE 5: RIGHTS AND OBLIGATIONS OF MEMBERS................................................15
5.1 LIMITATION ON LIABILITY.................................................15
5.2 NO LIABILITY FOR COMPANY OBLIGATIONS....................................15
5.3 LIST OF MEMBERS.........................................................15
5.4 ACTIONS OF MEMBERS......................................................15
5.5 PRIORITY AND RETURN OF CAPITAL..........................................15
5.6 NO EXCLUSIVE DUTY TO THE COMPANY........................................15
ARTICLE 6: CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS................................16
6.1 GENERALLY...............................................................16
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
6.2 MEMBERS' CAPITAL ACCOUNTS...............................................16
ARTICLE 7: DISTRIBUTIONS TO MEMBERS.........................................................16
7.1 ALLOCATION OF PROFITS AND LOSSES........................................16
7.2 DISTRIBUTIONS...........................................................18
7.3 LIMITATION UPON DISTRIBUTIONS...........................................18
ARTICLE 8: BOOKS AND RECORDS................................................................18
8.1 ACCOUNTING PERIOD.......................................................18
8.2 RECORDS, AUDITS AND REPORTS.............................................18
8.3 BOOKS OF ACCOUNT AND RECORDS............................................19
8.4 METHODS OF ACCOUNTING...................................................19
8.5 TAX MATTERS MEMBER......................................................19
8.6 MATTERS CONCERNING FUNDS................................................19
ARTICLE 9: TRANSFERABILITY AND WITHDRAWAL...................................................20
9.1 TRANSFER LIMITATIONS....................................................20
9.2 TIME OF TRANSFER........................................................20
9.3 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT OF TRANSFERRED UNIT............20
ARTICLE 10: ADDITIONAL MEMBERS...............................................................21
10.1 ADMISSION OF A NEW MEMBER...............................................21
10.2 ALLOCATION..............................................................21
ARTICLE 11: DISSOLUTION AND TERMINATION......................................................22
11.1 TERMINATION AND WINDING UP OF THE COMPANY...............................22
11.2 METHOD OF DISTRIBUTION UPON WINDING UP..................................22
11.3 ORDERLY LIQUIDATION.....................................................22
ARTICLE 12: GENERAL PROVISIONS...............................................................22
12.1 CERTIFICATES REPRESENTING UNITS AND LOST CERTIFICATES...................22
12.2 CERTIFICATION OF NON-FOREIGN STATUS.....................................23
12.3 SURVIVAL................................................................23
ARTICLE 13: AMENDMENT........................................................................23
13.1 AMENDMENTS..............................................................23
ARTICLE 14: MISCELLANEOUS PROVISIONS.........................................................23
14.1 GOOD FAITH EFFORTS; FURTHER ASSURANCES; COOPERATION.....................23
14.2 NOTICES.................................................................23
14.3 SUCCESSORS IN INTEREST..................................................24
14.4 SPECIFIC PERFORMANCE....................................................24
14.5 SEVERABILITY............................................................24
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
14.6 REMEDIES AND COSTS......................................................24
14.7 INTEGRATION; WAIVER.....................................................25
14.8 CONTROLLING LAW.........................................................25
14.9 COPIES..................................................................25
</TABLE>
iii
<PAGE> 5
FOURTH AMENDED AND RESTATED OPERATING AGREEMENT
OF
PIONEER RESOURCES, LLC
(AN OREGON LIMITED LIABILITY COMPANY)
THE MEMBERSHIP INTERESTS IN PIONEER RESOURCES, LLC HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "1933 ACT") OR ANY STATE SECURITIES LAWS ("STATE ACTS") IN
RELIANCE ON ONE OR MORE EXEMPTIONS THEREUNDER. THE MEMBERSHIP INTERESTS MAY NOT
BE SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE WITH (I) THE TERMS AND CONDITIONS
OF THIS AGREEMENT AND (II) THE 1933 ACT OR ANY APPLICABLE STATE ACTS OR
PURSUANT TO A VALID AND SUBSISTING EXEMPTION THEREFROM.
* * *
THIS FOURTH AMENDED AND RESTATED OPERATING AGREEMENT (this
"Agreement"), dated as of October 9, 1998, is given by Strategic Timber
Partners II, LP, a Georgia limited partnership (as the sole "Member") of
Pioneer Resources, LLC, an Oregon limited liability company (the "Company").
ARTICLE 1: DEFINITIONS
1.1 BASIC TERMS. The following terms used in this Agreement have
the following meanings:
"ADDITIONAL CAPITAL CONTRIBUTION" means a contribution to the capital
of the Company made by a Member pursuant to Section 6.1(b).
"AFFILIATE" shall mean, with respect to the Company or to any Member
(or as to any other person the affiliates of whom are relevant for
purposes of any of the provisions of this Agreement) any Entity which
directly or indirectly through one or more intermediaries, Controls,
is Controlled by, or is under common Control with, the Company or any
Member.
"AGREEMENT" means this Agreement as originally executed and as amended
from time to time in accordance with the provisions of Article 13.
"ARTICLES OF ORGANIZATION" means the Articles of Organization of the
Company, as filed with the Secretary of State of Oregon and as they
may be amended from time to time.
"BRIDGE LOAN" means the senior secured loan provided to STT II by the
lenders under that Bridge Loan Agreement dated as of October 9, 1998,
among Member, the lenders party thereto, ABN AMRO Bank N.V., as
administrative agent for the lenders (as the same may
<PAGE> 6
be amended, modified or restated from time to time) having a 12-month
term and in the original principal amount of $35,000,000.
"CAPITAL ACCOUNT" means with respect to any Member, the Capital
Account maintained for such Person pursuant to the provisions of
Section 6.2, which shall be determined and adjusted as required by IRC
ss. 704(b) Regulations.
"CAPITAL CONTRIBUTION" means the amount in cash or agreed-upon value
of property contributed by each Member (or the Member's predecessors
in interest) to the capital of the Company for the Member's Unit or
Units.
"COMPANY" means Pioneer Resources, LLC, an Oregon limited liability
company.
"CONTROL" shall mean the ability, whether by the direct or indirect
ownership of shares or other equity interests, by contract or
otherwise, to elect a majority of the directors of a corporation, to
select the managing partner of a partnership, or otherwise to select,
or have the power to remove and then select, a majority of those
persons exercising governing authority over an Entity. In the case of
a limited partnership, the sole general partner, all of the general
partners to the extent each has equal management control and
authority, or the managing general partner or managing general
partners thereof shall be deemed to have control of such partnership
and, in the case of a trust, any trustee thereof or any person having
the right to select any such trustee shall be deemed to have control
of such trust.
"ENTITY" shall mean any general partnership, limited partnership,
limited liability company, corporation, joint venture, trust, business
trust, real estate investment trust, cooperative or association or
other business entity or organization.
"FINANCING" means collectively the Bridge Loan and Senior Credit
Facilities.
"FINANCING DOCUMENTS" means any and all credit and loan agreements and
related documents evidencing or securing the Financing.
"FISCAL YEAR" means the Company's fiscal year, which is the calendar
year.
"INITIAL CAPITAL CONTRIBUTION" means the initial contribution to the
capital of the Company made by a Member pursuant to this Agreement.
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time.
"MANAGER" means any Person named in this Agreement or the Articles of
Organization as an initial manager of the Company and any person
subsequently elected as a manager in accordance with the terms of this
Agreement; provided, however, that the term does not include any
Person who has ceased to be a manager of the Company.
2
<PAGE> 7
"MEMBER" means each of the parties who executes this Agreement as a
Member and each Person who may hereafter a Member.
"MEMBERSHIP INTEREST" means a Member's entire interest in the Company,
including such Member's interest in his Capital Account, the Net
Profits or Net Losses of the Company and any distributions made by the
Company, and the right to participate in the management of the
business, affairs and properties of the Company, and also including
the right to vote on, consent to, or otherwise participate in any
decision or action of or by the Members granted pursuant to this
Agreement or the Oregon Act.
"NET CASH FLOW" means the Company's funds available for distribution
in accordance with Section 7.2, which will be determined with respect
to any period of operation as:
(a) the sum of all cash receipts received during such
period (including the net proceeds of borrowings but
excluding Capital Contributions)
(b) minus the sum of each of the following:
(i) all costs and expenses of the Company paid
during such period (other than depreciation
or other similar noncash expenses)
including, without limitation, principal
payments and other payments in the nature
of debt service on the Financing and any
other loan, capitalized lease or other
obligation of indebtedness
(ii) any other cash expenditures made by the
Company, and
(iii) funds paid into Reserves as required during
such period for the establishment of or
addition to such Reserves as the Managers
shall reasonably deem necessary or
appropriate for the proper operation of the
business of the Company
(c) plus the amount by which any such Reserves shall be
reduced by the Managers.
"NET LOSSES" and "NET PROFITS" means, for each Fiscal Year or other
period, an amount equal to the Company's taxable income or loss for
such year or period, determined in accordance with IRC ss.703(a) (for
this purpose, all items of income, gain, loss or deduction required to
be stated separately pursuant to IRC ss.703(a)(1) shall be included in
taxable income or loss), with the adjustments required by the IRC
ss.704(b) Regulations.
"OFFICER" is defined in Section 4.7.
3
<PAGE> 8
"OREGON ACT" means the Oregon Limited Liability Company Act, Oregon
Revised Statutes Chapter 63 (Section 63.001 et seq.), as amended from
time to time (or any corresponding provisions of succeeding law).
"PERCENTAGE INTEREST" means the interest of a Member in the Company,
determined by the proportion of Units owned by such Member to the
total number of Units outstanding, and as adjusted from time to time
in accordance with the terms of this Agreement.
"PERSON" means any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors, and assigns of such
Person where the context so permits.
"REGULATIONS" means the regulations promulgated under the IRC, as such
regulations may be amended from time to time. All references in this
Agreement to a specific section of the Regulations shall be deemed
also to refer to any corresponding provision of succeeding
regulations.
"RESERVES" means, with respect to any fiscal period, funds set aside
or amounts allocated during such period to reserves which shall be
maintained in amounts deemed sufficient by the Managers for working
capital and to pay taxes, insurance, debt service or other costs or
expenses incident to the ownership or operation of the Company's
business.
"SENIOR CREDIT FACILITIES" means the senior secured credit facilities
provided to the Company by the lenders under that Replacement Credit
Loan Agreement dated as of October 9, 1998, among the Company, the
lenders party thereto, First Union National Bank, as administrative
agent for the lenders, ABN AMRO Bank N.V. as syndication agent for the
lenders and NationsBank, N.A. as documentation agent for the lenders
(as the same may be amended, modified or restated from time to time)
in the original committed amount of $270,000,000.
"SPECIAL MAJORITY INTEREST" means a number of Units which, taken
together, exceed 75% of the aggregate of all Units.
"STT II" means Strategic Timber Trust II, LLC, a Georgia limited
liability company.
"TAX MATTERS MEMBER" means Strategic Timber Partners II, LP, a Georgia
limited partnership, for purposes of IRC ss.ss. 6621 through 6233.
"UNIT" means the unit of measure of all Percentage Interests, which
collectively represent one hundred percent (100%) of all Percentage
Interests.
4
<PAGE> 9
ARTICLE 2: FORMATION OF COMPANY
2.1 EFFECT OF THIS AGREEMENT AND THE OREGON ACT. Except as
otherwise specifically provided for in this Agreement, the rights and
obligations of the Members and the administration, dissolution, liquidation,
and termination of the Company shall be governed by the Oregon Act.
2.2 NAME. The name of the Company is Pioneer Resources, LLC.
2.3 INITIAL PERCENTAGE INTERESTS. The initial Percentage
Interests of and Units held by the Members are as follows:
<TABLE>
<CAPTION>
Name Percentage Interest Units
---- ------------------- -----
<S> <C> <C>
Strategic Timber Partners II, LP 100.0% 100
----- ---
Total = 100.0% 100
</TABLE>
2.4 PERMITTED BUSINESSES. The permitted businesses of the
Company are:
(a) To acquire, hold, own, manage and transfer
timberlands; to sell and otherwise dispose of the timber grown on such
property; and to engage in such other activities as shall be necessary,
desirable or appropriate to effectuate the foregoing purposes. In connection
with the foregoing, the Company shall have full power and authority, directly
to enter into, perform, and carry out contracts of any kind, to borrow money
and to issue other evidences of indebtedness, including guaranties of the
indebtedness of Affiliates (including the Financing which indebtedness may be
secured by mortgages, pledges of partnership interests in other Entities),
security interests or other liens, and to enter into any and all indentures and
other agreements and documents relating to such evidence of indebtedness,
directly or indirectly, and to acquire such assets as may be necessary or
useful in connection with its business.
(b) to accomplish any other lawful business whatsoever.
(c) to exercise all other powers necessary to or
reasonably connected with the Company's business which may be legally exercised
by limited liability companies under the Oregon Act.
(d) to engage in all activities necessary, customary,
convenient, or incident to any of the foregoing.
2.5 PRINCIPAL PLACE OF BUSINESS. The mailing address and
principal place of business of the Company shall be at 5 North Pleasant Street,
New London, New Hampshire 03257. The Company may locate its places of business
and registered office at any other place or places as the Managers may from
time to time deem advisable.
5
<PAGE> 10
2.6 STATUTORY AGENT. The agent for service of process in Oregon
is the Company, and its address is 25310 Jeans Road, Veneta, Oregon, 97487. The
registered office and registered agent may be changed from time to time by
filing the address of the new registered office or the name of the new
registered agent, as the case may be, with the Secretary of State of Oregon
pursuant to the Oregon Act.
2.7 OWNERSHIP. The interest of each Member in the Company is
personal property for all purposes. All property and interests in property,
real or personal, owned by the Company shall be deemed owned by the Company as
an entity, and no Member, individually, shall have any ownership of such
property or interest owned by the Company except as a Member in the Company.
2.8 WAIVER OF RIGHT OF PARTITION. Each of the Members irrevocably
waives, during the term of the Company and during any period of its liquidation
following any dissolution, any right that it may have to maintain any action
for partition with respect to any of the assets of the Company.
2.9 LIMITATIONS. The relationship between and among the parties
shall be limited to the carrying on of the business of the Company in
accordance with the terms of this Agreement. No Member, acting alone, shall
have any authority to act for, or to undertake or assume, any obligation, debt,
duty or responsibility on behalf of any other Member or the Company except as
expressly provided in this Agreement. The Members intend that the Company shall
not be a partnership (including a limited partnership) or joint venture, and
that no Member shall be a partner or joint venturer of any other Member, for
any purposes other than under the IRC and the Regulations and other applicable
federal and state tax laws, and this Agreement shall not be construed to
suggest otherwise.
ARTICLE 3: REPRESENTATIONS AND WARRANTIES
Each Member hereby represents and warrants to each other Member,
severally and not jointly, with respect to himself as follows:
3.1 AUTHORITY; ENFORCEABILITY. Such Member has the power and
authority to execute, deliver and perform this Agreement. Such Member's
execution, delivery and performance of this Agreement is not restricted by or
in violation of (a) any applicable law to which it or he is subject, (b) any
document as to its formation or governance (including articles of incorporation
or bylaws or partnership agreement, as amended or restated), or (c) any
agreement, commitment, order, ruling or proceeding to which it or he is a party
or to which it or he or any of its or his assets are subject.
3.2 SECURITIES COMPLIANCE. Such Member is acquiring its interest
in the Company for his own account, to hold for investment, and with no
intention of dividing his participation with others or reselling or otherwise
participating, directly or indirectly, in a distribution of his interest
6
<PAGE> 11
in the Company, or any portion thereof, and shall not make any sale, transfer
or other disposition of its interest in the Company, or any portion thereof, in
violation of this Agreement, the Securities Act of 1933 as amended or any other
applicable state securities law. The Member understands that the Company is
under no obligation to register the interests in the Company or take any other
action necessary in order to make compliance with an exemption from
registration available. Such Member is an "accredited investor" as defined in
Rule 501(a) promulgated under the Securities Act of 1933, as amended.
ARTICLE 4: RIGHTS AND DUTIES OF MANAGERS; MEETINGS; INDEMNIFICATION;
CONFLICTING INTEREST PROVISIONS DO NOT APPLY
4.1 MANAGEMENT BY MANAGERS.
(a) Generally. Subject to the provisions of Section 4.2,
the powers of the Company shall be exercised by or under the authority of, and
the business, affairs and properties of the Company shall be managed under the
direction of, the Managers. No Member in its capacity as a Member has the
right, power, or authority to act for or on behalf of the Company, to do any
act that would be binding on the Company, or to incur any expenditures on
behalf of the Company.
(b) Decisions. In managing the business and affairs of
the Company and exercising its powers, so long as there is more than one
Manager, the Managers shall act collectively through resolutions adopted at
meetings and in written consents pursuant to Sections 4.4 and 4.6. No Manager
has the right, power, or authority to act for or on behalf of the Company, to
do any act that would be binding on the Company, or to incur any expenditures
on behalf of the Company, except in accordance with the immediately preceding
sentence. Decisions or actions taken by the Managers in accordance with this
Agreement (including this Section 4.1 and Section 4.2) shall constitute
decisions or actions by the Company and shall be binding on each Manager,
Member, Officer, and employee of the Company.
4.2 DECISIONS REQUIRING MEMBER CONSENT. Notwithstanding any
power or authority granted the Managers under the Oregon Act, the Articles of
Organization or this Agreement,
(a) the Managers may not make any decision or take any
action for which the consent of a Special Majority Interest or other consent of
the Members is expressly required by the Articles of Organization or this
Agreement, without first obtaining such consent; and
(b) the Managers may not make any of the following
decisions or actions without first obtaining the unanimous consent of all
Members:
(i) the dissolution of the Company pursuant to
the Oregon Act,
(ii) the merger of the Company pursuant to the
Oregon Act,
7
<PAGE> 12
(iii) the sale, exchange, lease, or other
disposition of all or substantially all of the property of the
Company,
(iv) the admission of any new Member;
(v) the amendment of the Articles of
Organization or this Agreement,
(vi) the issuance of any Units, or
(vii) the redemption by the Company of all or a
portion of any Member's Membership Interest.
Each Member may, with respect to any vote, consent, or approval that
it is entitled to grant pursuant to this Agreement, grant or withhold such
vote, consent, or approval in its sole discretion.
4.3 MANAGERS.
(a) Number of Managers. The number of Managers of the
Company is one, until such number is changed by a Special Majority Interest.
(b) Initial Managers. The Manager of the Company is
Thomas P. Broom.
(c) Resignation and Removal. Each Manager (whether an
initial or a successor Manager) shall cease to be a Manager upon the earliest
to occur of the following events:
(i) such Manager shall be removed, with or
without cause, by Members holding a Special Majority Interest at a meeting of
the Members called for that purpose;
(ii) such Manager shall resign as a Manager, by
giving notice of such resignation to the Members; or
(iii) such Manager shall die or become incapable
of performing, substantially all of the normal duties of a Manager.
(d) Vacancies. Any vacancy in any Manager position may
be filled by Members holding a Special Majority Interest at a meeting of the
Members called for that purpose.
4.4 MEETINGS OF MANAGERS. The following provisions apply to
meetings of Managers:
(a) Regular Meetings. Regular meetings of the Managers
may be held on such dates and at such times as shall be determined by the
Managers, with notice of such regular meeting schedule being given to each
Manager that was not present at the meeting at which it was adopted. The
Company shall give reminder notices of regular meetings of the Managers
8
<PAGE> 13
specifying the place and time of such meeting that is delivered to each other
Manager at least five days prior to such meeting. Neither the business to be
transacted at, nor the purpose of, such regular meeting need be specified in
the notice (or waiver of notice) thereof.
(b) Special Meetings. Special meetings of the Managers
may be called by any Manager by notice specifying the place and time of such
meeting that is delivered to each other Manager at least 24 hours prior to such
meeting. The business to be transacted at, and the purpose of, such special
meeting shall be specified in the notice (or waiver of notice) thereof.
(c) Quorum. Unless otherwise expressly provided in this
Agreement, at any meeting of the Managers, a majority of the Managers shall
constitute a quorum for the transaction of business, and an act of a majority
of the Managers who are present at such a meeting at which a quorum is present
shall be the act of the Managers.
(d) Single Manager. The provisions of this Section 4.4
are inapplicable at any time that there is only one Manager.
4.5 MEETINGS OF MEMBERS. The following provisions apply to
meetings of the Members:
(a) Annual Meeting. An annual meeting of the Members for
the transaction of such business as may properly come before the meeting shall
be held on such date and at such time as the Managers shall specify in the
notice of the meeting, which shall be delivered to each Member at least 10 days
prior to such meeting. Neither the business to be transacted at, nor the
purpose of, such annual meeting need be specified in the notice (or waiver of
notice) thereof.
(b) Special Meeting. Special meetings of the Members
may be called by the Managers or by Members having among them at least 75% of
the Units. Any such meeting shall be held on such date and at such time as the
Person calling such meeting shall specify in the notice of the meeting, which
shall be delivered to each Member at least 10 days prior to such meeting. The
business to be transacted at, and the purpose of, such special meeting shall be
specified in the notice.
(c) Quorum. Unless otherwise expressly provided in this
Agreement, at any meeting of the Members, a Special Majority Interest,
represented either in person or by proxy, shall constitute a quorum for the
transaction of business, and an act of a Special Majority Interest shall be the
act of the Members, unless the vote of a greater or lesser proportion or number
is otherwise required by the Oregon Act, by the Articles of Organization, or by
this Agreement.
(d) Interested Members. Unless otherwise expressly
provided in this Agreement or required by applicable law, Members who have an
interest (economic or otherwise) in the outcome of any particular matter upon
which the Members vote or consent may vote or consent upon any such matter, and
their Units, vote or consent, as the case may be, shall be counted in the
determination of whether the requisite matter was approved by the Members.
9
<PAGE> 14
4.6 PROVISIONS APPLICABLE TO ALL MEETINGS. In connection with
any meeting of the Managers, Members, or any committee of the Managers, the
following apply:
(a) Place of Meeting. Any such meeting shall be held at
the principal place of business of the Company, unless the notice of such
meeting (or resolution of the Managers) specifies a different place, which need
not be in the State of Oregon.
(b) Waiver of Notice Through Attendance. Attendance of a
Person at such meeting (including attendance pursuant to Section 4.6(d)) shall
constitute a waiver of notice of such meeting, except where such Person attends
the meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
(c) Action by Written Consent. Any action required or
permitted to be taken at such a meeting may be taken without a meeting, without
prior notice, and without a vote if a consent or consents in writing, setting
forth the action so taken, is signed by the Managers or Members having not
fewer than the minimum number of Units or votes that would be necessary to take
the action at a meeting at which all Members, Managers, or members of the
committee, as applicable, entitled to vote on the action were present and
voted.
(d) Meetings by Telephone. Managers and Members may
participate in and hold such meeting by means of conference telephone, video
conference, or similar communications equipment by means of which all Persons
participating in the meeting can hear each other.
(e) Proxies. Members may vote their Units personally,
or may grant proxies to vote Units held by them. A Member may appoint a proxy
by executing a writing that authorizes another person or persons to act on the
Member's behalf. An appointment of a proxy is valid when received by the
Secretary of the Company. An appointment of a proxy is revocable by the Member
granting it unless the appointment form conspicuously states that it is
irrevocable and the appointment is coupled with an interest. The Company is
entitled to accept the proxy's vote or other action as that of the Member
making the appointment.
4.7 OFFICERS. The Managers may designate one or more Persons to be
officers of the Company ("Officers"), and any Officers so designated shall have
such titles, authorities, duties, and salaries as the Managers may delegate to
them. Any Officer may be removed as such, either with or without cause, by the
Managers. The initial Officers of the Company are as follows:
10
<PAGE> 15
President C. Edward Broom
Vice President Christopher J. Broom
Vice President, Treasurer &
Chief Financial Officer Thomas P. Broom
Vice President Vladimir Harris
Vice President Nicholas C. Brunet
Assistant Secretary William H. Bradley
Vice President & Secretary Joseph E. Rendini
4.8 LIMITATIONS ON LIABILITY OF MANAGERS AND OFFICERS. Each
Manager and Officer shall act in a manner he believes in good faith to be in
the best interests of the Company and with such care as an ordinarily prudent
person in a like position would use under similar circumstances. No Manager or
Officer shall be liable to the Company, or its Members, for any action taken in
managing the business or affairs of the Company if he performs the duties of
his office in compliance with the standard contained in this Section 4.8. No
Manager or Officer has guaranteed nor does any Manager or Officer have any
obligation with respect to the return of a Member's Capital Contributions or
profits from the operation of the Company. No Manager shall be liable to the
Company or to any Member for any loss or damage sustained by the Company or any
Member except loss or damage resulting from such Manager's failure to meet the
standard contained in this Section 4.8, from intentional misconduct or knowing
violation of law or a transaction for which the Manager received a personal
benefit in violation or breach of the provisions of this Agreement. Each
Manager and Officer shall be entitled to rely on information, opinions, reports
or statements, including financial statements or other financial data prepared
or presented in accordance with the provisions of the Oregon Act.
4.9 INDEMNIFICATION; REIMBURSEMENT OF EXPENSES; INSURANCE. To
the fullest extent permitted by the Oregon Act:
(a) the Company shall indemnify each Member, Manager and
Officer who was, is, or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding
("Proceeding"), any appeal therefrom, or any inquiry or investigation
preliminary thereto, by reason of the fact that he or she is or was a
Member, Manager or Officer, from and against any loss, cost, expense,
judgment, settlement, penalty or fine with respect to such a
Proceeding;
(b) the Company shall pay or reimburse each Member,
Manager or Officer for expenses incurred by him or her (i) in advance
of the final disposition of a Proceeding to which such Manager or
Officer was, is, or is threatened to be made a party, and (ii) in
connection with his or her appearance as a witness or other
participation in any Proceeding.
The provisions of this Section 4.9 shall not be exclusive of any other right
under any applicable law, provision of the Articles of Organization or this
Agreement, or otherwise. The Company may purchase and maintain insurance to
protect itself and any Manager, Officer, employee, or
11
<PAGE> 16
agent of the Company, whether or not the Company would have the power to
indemnify such Person under this Section 4.9. As required by the Oregon Act, no
Member, Manager or Officer shall be entitled to indemnification or payment or
reimbursement of expenses pursuant to this Section 4.9 for or in connection
with (i) intentional misconduct or knowing violation of law or (ii) any
transaction for which he received a personal benefit in violation or breach of
any provision of this Agreement.
ARTICLE 5: RIGHTS AND OBLIGATIONS OF MEMBERS
5.1 LIMITATION ON LIABILITY. Each Member's liability shall be
limited as set forth in the Financing Documents, this Agreement, the Oregon
Act, and other applicable law.
5.2 NO LIABILITY FOR COMPANY OBLIGATIONS. No Member will have any
personal liability for any debts or losses of the Company, except as provided
by applicable law and the Financing Documents.
5.3 LIST OF MEMBERS. Upon written request of any Member, the
Company shall provide a list showing the names, addresses and Membership
Interest of all Members, and the other information required by Sections 63.771
and 63.887 of the Oregon Act and maintained pursuant to Section 8.2.
5.4 ACTIONS OF MEMBERS. Except to the extent otherwise
specifically provided in this Agreement or under the Oregon Act, any action on
the part of the Company that requires the approval of the Members shall be
approved upon the affirmative vote or consent of a majority of Members
(determined by Percentage Interest). No Member voting against any action of the
Company, including without limitation any merger, sale, exchange, lease or
other disposition of all or substantially all of the property of the Company or
amendment to the Articles of Organization, shall have the benefit of any
so-called "dissenter's rights" which may be granted by the Oregon Act.
5.5 PRIORITY AND RETURN OF CAPITAL. Except as may be expressly
provided in Article 7, no Member shall have priority over any other Member,
either as to the return of Capital Contributions or as to Net Profits, Net
Losses or distributions.
5.6 NO EXCLUSIVE DUTY TO THE COMPANY. The Members may have other
business interests and may engage in other activities in addition to those
relating to the Company. Neither the Company nor any Member shall have any
right, by virtue of this Agreement, to share or participate in such other
investments or activities of any Member or to the income or proceeds derived
therefrom. No Member shall incur liability to the Company or to any of the
other Members as a result of engaging in any other business or venture.
12
<PAGE> 17
ARTICLE 6: CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS
6.1 GENERALLY.
(a) Initial. Each Member has made an Initial Capital
Contribution in cash or property to the Company as set forth on Exhibit A
attached hereto. By executing this Agreement, each Member agrees that the value
assigned to each non-cash item on Exhibit A was the fair market value of such
asset at the date of contribution.
(b) Additional. No Member shall be required to make an
Additional Capital Contribution to the Company, except as that Member may
otherwise expressly agree in writing. If the Managers determine that the
Company requires additional capital, each Member shall have the right, but not
the obligation, to make an Additional Capital Contribution to the Company. If
some but not all of the Members desire to make additional contributions, such
Additional Capital Contributions shall be made proportionately to the
Percentage Interests of the contributing Members. The Percentage Interests and
Units of the Members shall be adjusted to take into account any Additional
Capital Contributions.
(c) No Interest. No interest shall be paid on any Capital
Contributions.
(d) Annual Reconciliation. The Capital Account of each
Member shall be reconciled annually, at the close of the Company's Fiscal Year.
6.2 MEMBERS' CAPITAL ACCOUNTS.
(a) Generally. A separate Capital Account shall be
established and maintained for each Member. As funded and adjusted in
accordance with this Agreement, the Capital Accounts of the Members shall
reflect the economic agreement of the Members as to their intended interests in
the Company.
(b) IRC ss. 704(b). The determination and maintenance of
the Members' Capital Accounts, and any adjustments thereof, shall be made in a
manner consistent with tax accounting and other principles set forth in IRC ss.
704(b) and IRC ss. 704(b) Regulations.
ARTICLE 7: DISTRIBUTIONS TO MEMBERS
7.1 ALLOCATION OF PROFITS AND LOSSES.
(a) Net Profits and Net Losses Generally. Except as otherwise
provided in Sections 7.1 (b) and (c), the Net Profits and Net Losses shall be
allocated among the Members as follows:
13
<PAGE> 18
(i) First, Net Profits in any year shall be
allocated among the Members until the cumulative Net Profits allocated to the
Members pursuant to this Section 7.1(a)(i) are equal to the cumulative Net
Losses allocated to the Members pursuant to Section 7.1(a)(iii) for all prior
periods, and in proportion to the amount of the Net Losses that were allocated
among the Members for such prior periods;
(ii) Then, Net Profits shall be allocated to the
Members in proportion to their respective Percentage Interests;
(iii) First, Net Losses in any year shall be
allocated among the Members, in proportion to and to the extent of, their
positive Capital Account balances; and
(iv) Then, any remaining amount of Net Losses
shall be allocated to the Members in proportion to their respective Percentage
Interests.
(b) Other Allocation Rules.
(i) Chargeback Allocations. Notwithstanding any
other provision of this Article 7, any item of Company income or gain for any
fiscal year (or any portion of any such item) that is required to be allocated
to a Member under the IRC ss. 704(b) Regulations shall be allocated to such
Member for such fiscal year in the manner so required by such Regulations. This
Section 7.1(b)(i) is intended to comply with the "minimum gain chargeback" and
"partner nonrecourse debt minimum gain chargeback" requirements in such
Regulations and shall be interpreted consistently therewith.
(ii) Qualified Income Offset Allocations. Except
as provided in Section 7.1(b)(i), income or gain shall be allocated to the
Members at such times and in such amounts as may be necessary to comply with
the "qualified income offset" provisions of the IRC ss. 704(b) Regulations.
(iii) Nonrecourse Allocations. "Nonrecourse
deductions" and "nonrecourse liabilities," as defined in the IRC ss. 704(b)
Regulations, for any fiscal year or other period shall be allocated among the
Members in proportion to their respective Percentage Interests. "Partner
nonrecourse deductions" and "partner nonrecourse debt" for any fiscal year or
other period shall be allocated among the Members in accordance with applicable
Regulations under IRC ss.ss. 704 and 752.
(c) Curative Allocations. The allocations set forth in
Sections 7.1(b)(i), (ii) and (iii) above (the "Regulatory Allocations") are
intended to comply with certain of the requirements of the IRC ss. 704(b)
Regulations. The Regulatory Allocations may not be consistent with the manner
in which the Members intend to share distributions from the Company, which is
ratably in accordance with their respective Percentage Interests. Accordingly,
the Managers are hereby is authorized to divide other allocations of income,
gain, deduction or loss among the Members so as to prevent the Regulatory
Allocations from distorting the manner in which distributions from
14
<PAGE> 19
the Company are intended to be shared among the Members pursuant to this
Agreement. The Managers shall have the discretion to accomplish this result in
any reasonable manner.
(d) Tax Allocations. In accordance with IRC ss. 704(c)
and the Regulations thereunder, income, gain, loss and deduction with respect
to any property contributed to the capital of the Company or with respect to
any property that has been revalued pursuant to the IRC ss.704(b) Regulations
shall, solely for tax purposes, be allocated among the Members so as to take
account of any variation between the adjusted basis of such property to the
Company for federal income tax purposes and its fair market value at the date
of contribution or revaluation.
7.2 DISTRIBUTIONS.
(a) The Company shall make distributions to the Members:
(i) to enable the Members to pay federal, state and local income taxes
attributable to their Membership Interests (including quarterly tax
distributions), such distributions to be made in an amount equal to each
Member's Percentage Interest of the Company's taxable income for the period
multiplied by an assumed tax rate of 36%, and (ii) at such other times as the
Managers may determine (except in connection with the termination and winding
up of the Company), and all such distributions under this clause (ii) shall be
made among the Members in proportion to their Percentage Interests. Assets or
cash available for distribution in connection with the termination and winding
up of the Company shall be distributed in accordance with the provisions of
Article 11.
7.3 LIMITATION UPON DISTRIBUTIONS. No distribution shall be made
to Members if prohibited by the Oregon Act or the Financing Documents.
ARTICLE 8: BOOKS AND RECORDS
8.1 ACCOUNTING PERIOD. The Company's accounting period is the
calendar year.
8.2 RECORDS, AUDITS AND REPORTS. At the expense of the Company,
the chief operating officer of the Company shall maintain records and accounts
of all operations and expenditures of the Company. The Company shall keep at
its principal place of business the following records:
(a) A current list of the full name and last known
address of each Member;
(b) Copies of records to enable a Member to determine
the relative voting rights, if any;
(c) A copy of the Articles of Organization of the Company
and all amendments to them;
15
<PAGE> 20
(d) Copies of the Company's federal, state, and local
income tax returns and reports, if any, for the
three most recent years;
(e) Copies of this Agreement, together with any
amendments hereto; and
(f) Copies of any financial statements of the Company
for the three most recent years.
8.3 BOOKS OF ACCOUNT AND RECORDS. Proper and complete records and
books of account shall be kept or shall be caused to be kept by the Company in
which shall be entered fully and accurately all transactions and other matters
relating to the Company's business in such detail and completeness as is
customary and usual for businesses of the type engaged in by the Company. The
books and records shall at all time be maintained at the principal executive
office of the Company and shall be open to the reasonable inspection and
examination of the Members or their duly authorized representatives during
reasonable business hours.
8.4 METHODS OF ACCOUNTING. All income tax and financial reports
and returns of the Company shall be prepared on an accounting basis approved by
the Managers. All elections with respect to tax matters to be made by or for
the Company shall be made by the Tax Matters Member.
8.5 TAX MATTERS MEMBER.
(a) The taking of any action and the incurring of any
expense by the Tax Matters Member in connection with any federal, state or
local tax controversy or proceeding, except to the extent required by law, is
in the sole and absolute discretion of the Tax Matters Member. The provisions
relating to indemnification of the Members, set forth in Section 4.9 of this
Agreement, shall be fully applicable to the Tax Matters Member in its capacity
as such.
(b) All third-party costs and expenses incurred by the
Tax Matters Member in performing its duties as such (including legal and
accounting fees and expenses) shall be borne by the Company. Nothing contained
herein shall be construed to restrict the Company from engaging tax consultants
to assist the Tax Matters Member in discharging its duties hereunder.
8.6 MATTERS CONCERNING FUNDS. Funds of the Company shall be
deposited in an account or accounts of a type, in form and name and in a bank
or banks selected by the Managers. All funds of the Company shall be used
solely for the business of the Company or distributed as provided herein.
16
<PAGE> 21
ARTICLE 9: TRANSFERABILITY AND WITHDRAWAL
9.1 TRANSFER LIMITATIONS.
(a) Generally. No Member may transfer (whether by sale,
assignment, pledge, hypothecation, exchange, gift, bequest or otherwise),
voluntarily or involuntarily, all or any of its Units (collectively
"TRANSFER"), nor shall any Member have the power to substitute a transferee in
its place as a substituted Member, except (i) with the prior written consent of
a Special Majority Interest of the remaining Members, if any (which consent may
be given or withheld in each Member's sole discretion), (ii) each Member may
pledge its Units as required under the terms of the Financing Documents, or
(iii) pursuant to a merger approved under Section 4.2.
(b) Non-permitted Transferee Has No Right. A Person to
whom a Transfer of any interest is made in contravention of the provisions of
this Section 9.1: (i) shall not become a Member; (ii) shall not be entitled to
participate in any decision in respect of the Company's business in which its
assignor would otherwise have been entitled to participate; (iii) shall have no
right to require any information or accounting of any transactions of the
Company; and (iv) shall not be entitled to vote with respect to any Company
matter. Upon such a Transfer, the transferee shall be entitled only to a share,
based on the percentage of Units transferred, of the Company's Net Profits, Net
Losses and distributions of the Company's assets, if any, in which its assignor
would otherwise have been entitled to share.
(c) Absolute Restriction on Transfers. Notwithstanding
any provision of this Agreement to the contrary, transfer of a Unit to any
Person other than the Company or a Member will not be permitted if the Unit
sought to be transferred, when added to the total of all other Units
transferred within the period of twelve (12) consecutive months ending with the
proposed date of the transfer, results in the termination of the Company under
IRC ss. 708, without the prior written consent of a Special Majority Interest
of the Members. At the request, and at the sole cost and expense, of the
transferring Member, the Company will cooperate with such transferring Member
in any reasonable manner in order to determine whether the prospective transfer
will result in termination of the Company under IRC ss. 708.
9.2 TIME OF TRANSFER. Any transfer of a Unit to a third party
under this Article 9 shall be effective as of midnight of the last day of the
calendar month in which it is made, or, at the election of the Managers, as of
opening of business the day following the date of the transfer (the "Effective
Transfer Date").
9.3 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT OF TRANSFERRED UNIT.
If any Unit is transferred during any accounting period to a third party or to
a Member in compliance with the provisions of this Article 9, and except as
provided in Section 10.2, Net Profits, Net Losses, each item thereof and all
other items attributable to such Unit for such period shall be divided and
allocated between the transferor and the transferee by taking into account
their varying interests
17
<PAGE> 22
during the period in accordance with Article 9 hereof and Code Section 706(d),
using the Effective Transfer Date as the date upon which the change in
ownership of the Unit occurred, and using any conventions permitted by the Code
or the Regulations and selected by the Managers. All distributions on or before
the Effective Transfer Date shall be made to the transferor and all
distributions thereafter shall be made to the transferee. Neither the Company,
the Managers nor any Member shall incur any liability for making allocations
and distributions in accordance with the provisions of this Section 9.3,
whether or not any of them has knowledge of any transfer of ownership of any
Unit.
9.4 NO WITHDRAWAL; EVENTS OF DISSOCIATION. No Member may withdraw
from the Company prior to the termination of the Company. A Member ceases to be
a Member if and only if: (a) a Member assigns his or her entire Membership
Interest (without regard to whether the assignees of such Membership Interest
become Members) or (b) a Member's entire Membership Interest is purchased or
redeemed by the Company. The foregoing is an exclusive list of events of
dissociation ("Events of Dissociation") and shall supersede any contrary
provision of the Oregon Act.
ARTICLE 10: ADDITIONAL MEMBERS
10.1 ADMISSION OF A NEW MEMBER. From the date of the formation of
the Company, any Person may become a Member of this Company as follows:
(a) upon approval by a Special Majority Interest, by the
issuance of the Company of Units for such
consideration as a Special Majority Interest shall
determine, or
(b) as a transferee of a Member's Membership Interest or
any portion thereof (i) permitted under Section
9.1(a) or (ii) subsequently accepted by a Special
Majority Interest, subject to the terms and
conditions of this Agreement.
10.2 ALLOCATION. With respect to allocations of income, gain, loss,
deductions and credits of the Company accrued during the period beginning on
January 1, 1998 and ending on the date of this Agreement (the "Pre-Closing
Period") such items shall be allocated to the Pre- Closing Period as determined
by the Tax Matters Member and subject to the approval of a majority-in-interest
of the Class B Limited Partners of Strategic Timber Partners II, LP, which
approval shall not be unreasonably withheld. No new Members shall be entitled
to any retroactive allocation of losses, income or expense deductions incurred
by the Company. Members holding a Special Majority Interest may, at their
option, at the time a Member is admitted, close the Company books (as though
the Company's tax year had ended) or make pro rata allocations of loss, income
and expense deductions to a new Member for that portion of the Company's tax
year in which a Member was admitted in accordance with the provisions of IRC
ss.706(d) and the Regulations promulgated thereunder.
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<PAGE> 23
ARTICLE 11: DISSOLUTION AND TERMINATION
11.1 TERMINATION AND WINDING UP OF THE COMPANY. The Company shall
terminate upon the first to occur of: (a) the unanimous agreement of all
Members in writing; or (b) the sale of all or substantially all of the property
of the Company and the distribution to the Members of the proceeds of the sale.
No Event of Dissociation shall cause dissolution or termination of the Company.
11.2 METHOD OF DISTRIBUTION UPON WINDING UP. Upon termination of
the Company pursuant to Section 11.1 above, the assets of the Company and the
proceeds of any liquidation shall be applied and distributed in the following
manner and order of priority:
(a) to the payment and discharge of all of the Company's
debts and liabilities, including without limitation any debt under the
Financing Documents, and the expenses of liquidation and dissolution;
(b) to the setting up of any reserves reasonably
necessary for any contingent or unforeseen liabilities or obligations of the
Company;
(c) to the payment of the balance, if any, of the
respective Capital Accounts of the Members (after making the allocations
required under the provisions of Article 8), but if the amount available for
such payment shall be insufficient, then pro rata among all of the Members
according to the respective positive balances of their Capital Accounts at such
time; and
(d) the remainder, if any, to the Members in accordance
with their respective Percentage Interests.
11.3 ORDERLY LIQUIDATION. A reasonable time shall be allowed for
the orderly liquidation of the assets of the Company and the discharge of
liabilities to creditors so as to enable the Members to minimize the normal
losses attendant upon a liquidation.
ARTICLE 12: GENERAL PROVISIONS
12.1 CERTIFICATES REPRESENTING UNITS AND LOST CERTIFICATES.
Certificates representing Units signed by the President (or other senior
officer of the Company) shall be issued upon request to each Member certifying
the number of Units owned by such Member. When such certificates are
countersigned (a) by a transfer agent other than the Company or its employee or
(b) by a registrar other than the Company or its employee, the signature of
such officer may be a facsimile. The Managers shall determine from time to time
the form of such certificates and may have placed thereon any legends they deem
appropriate. A new certificate may be issued in the place of any certificate
theretofore issued by the Company, alleged to have been lost or
19
<PAGE> 24
destroyed, and the Managers may, in their discretion, require the owner of the
lost or destroyed certificate, or his legal representatives, to give the
Company a bond, in such sum as the Managers may direct, to indemnify the
Company against any claim that may be made against the Company on account of
the alleged loss of any such certificate, or the issuance of any such new
certificate.
12.2 CERTIFICATION OF NON-FOREIGN STATUS. In order to comply with
IRC ss. 1445 of the IRC and the applicable Regulations thereunder, if the
disposition by the Company of a United States real property interest as defined
in the IRC and Regulations, each Member shall provide to the Company, an
affidavit stating, under penalties of perjury, (i) the Member's address, (ii)
United States Taxpayer identification number, and (iii) that the Member is not
a foreign person as that term is defined in the IRC and Regulations. Failure by
any Member to provide such affidavit by the date of such disposition shall
authorize the Managers to withhold 10% of each such Member's distributive share
of the amount realized by the Company on the disposition.
12.3 SURVIVAL. The representations, warranties, covenants and
agreements contained in this Agreement or in any certificate, exhibit, schedule
or other document executed and delivered by a party pursuant to, or in
connection with, this Agreement shall continue for the applicable limitations
period provided by law, and the remedies of a party for breaches of such
representations, warranties, covenants or agreements are not affected by any
investigation by, or knowledge of, the non-breaching party prior to the date of
this Agreement. No party has relied on any other representation, warranty or
assurance in entering into this Agreement.
ARTICLE 13: AMENDMENT
13.1 AMENDMENTS. Any amendment to this Agreement shall be made in
writing and signed by Members holding a Special Majority Interest.
ARTICLE 14: MISCELLANEOUS PROVISIONS
14.1 GOOD FAITH EFFORTS; FURTHER ASSURANCES; COOPERATION. The
parties shall in good faith undertake to perform their covenants, agreements
and obligations in this Agreement, to satisfy all conditions, and to cause the
purposes of this Agreement to be accomplished promptly in accordance with its
terms. Upon the execution of this Agreement and thereafter, each party shall do
such things as may be reasonably requested by the other party, at the expense
of the requesting party, in order more effectively to accomplish the purposes
and other agreements contemplated by this Agreement. The parties shall
cooperate with each other and their respective counsel and designees in
connection with any steps required to be taken as part of their respective
rights and obligations under this Agreement.
14.2 NOTICES. Each notice, communication and delivery under this
Agreement: (i) shall be made in writing signed by the party giving it; (ii)
shall specify the section of this Agreement pursuant to which given; (iii)
shall either be delivered in person or by telecopier, a nationally
20
<PAGE> 25
recognized next business day delivery service or first class certified mail,
return receipt requested; (iv) unless delivered in person, shall be given to
the address specified below; (v) shall be deemed to be received (A) if
delivered in person, on the date delivered, or (B) if sent by telecopier, on
the date of telephonic confirmation of receipt or (C) if sent by a nationally
recognized next business day courier service with all costs paid, on the day
after the date delivered to such courier, or (D) if mailed first class
certified mail, return receipt requested, three days after the date so mailed.
The addresses are as follows:
Member: Strategic Timber Partners II, LP
5 North Pleasant Street
New London, New Hampshire 03257
Company: Pioneer Resources, LLC
5 North Pleasant Street
New London, New Hampshire 03257
Such notice shall be given to such other representatives or at such other
addresses as a party may furnish to the other parties pursuant to the
foregoing. If notice is given pursuant to this Section of a permitted successor
or assign of a party, then notice shall thereafter be given as set forth above
also to such successor or assign of such party.
14.3 SUCCESSORS IN INTEREST. This Agreement is binding upon the
parties and their respective legal representatives, heirs, devisees, legatees,
beneficiaries and successors and assigns and inures to the benefit of the
parties and their respective permitted legal representatives, heirs, devisees,
legatees, beneficiaries and other permitted successors and assigns (and to or
for the benefit of no other person , whether an employee or otherwise,
whatsoever).
14.4 SPECIFIC PERFORMANCE. The rights contemplated by this
Agreement are special, unique and of extraordinary character and, thus, if a
party breaches this Agreement, an award of monetary damages would be an
inadequate remedy and the other partner would be entitled (without the posting
of a bond or other security) to equitable relief, including injunctive relief
and specific performance (and each Member hereby irrevocably waives any defense
based on the adequacy of the remedy at law which might be asserted as a bar to
such injunctive relief).
14.5 SEVERABILITY. Any determination by any court of competent
jurisdiction of the invalidity of any provision of this Agreement that is not
essential to accomplishing the purposes of this Agreement shall not affect the
validity of any other provision of this Agreement, which shall remain in full
force and effect and which shall be construed as to be valid under applicable
law.
14.6 REMEDIES AND COSTS. The rights and remedies specified in any
provision of this Agreement are in addition to all other rights and remedies a
party may have under any other agreement or applicable law, including any right
to equitable relief and any right to sue for
21
<PAGE> 26
damages as a result of a breach of this Agreement (whether or not it elects to
terminate this Agreement), and all such rights and remedies are cumulative.
14.7 INTEGRATION; WAIVER. This Agreement and the other agreements
contemplated by this Agreement: (a) supersede all prior negotiations,
agreements and understandings between the parties with respect to its subject
matter and (b) constitute the entire agreement between the parties with respect
to its subject matter. No waiver by any to this Agreement of any provision (or
of a breach of any provision) of this Agreement, whether by conduct or
otherwise, in any one or more instances shall be deemed or construed either as
a further or continuing waiver of any such provision or breach or as a waiver
of any other provision (or of a breach of any other provision) of this
Agreement. No party has relied on any other representation, warranty or
assurance in entering into this Agreement.
14.8 CONTROLLING LAW. This Agreement is governed by, and shall be
construed and enforced in accordance with, the laws of the State of Oregon.
14.9 COPIES. This Agreement may be executed in two or more copies,
each of which shall be deemed an original, and it is not necessary in making
proof of this Agreement or its terms to produce or account for more than one of
such copies.
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<PAGE> 27
DULY EXECUTED by the Member and the Company, as of the day and year
first above written.
STRATEGIC TIMBER PARTNERS II, LP, a Georgia limited
partnership
By: Strategic Timber Two Operating Co., LLC, a Georgia
limited liability company, its general partner
By: Strategic Timber Trust II, LLC, a Georgia
limited liability company, its sole member
By: /s/ Thomas P. Broom
---------------------------------
Thomas P. Broom
Vice President and Manager
PIONEER RESOURCES, LLC, an Oregon limited liability
company
By: Strategic Timber Partners II, LP, a Georgia limited
partnership
By: Strategic Timber Two Operating Co., LLC, a
Georgia limited liability company, its general
partner
By: Strategic Timber Trust II, LLC, a
Georgia limited liability company, its
sole member
By: /s/ Thomas P. Broom
---------------------------------
Thomas P. Broom
Vice President and Manager
* * * * *
<PAGE> 28
EXHIBIT A
INITIAL CAPITAL CONTRIBUTIONS
Each Member has made an Initial Capital Contribution in cash or property to the
Company set forth opposite such Member's name below:
<TABLE>
<CAPTION>
Member Initial Capital Contribution
------ ----------------------------
<S> <C>
Strategic Timber Partners II, LP $100.00
</TABLE>
<PAGE> 1
EXHIBIT 10.5
================================================================================
REPLACEMENT CREDIT AGREEMENT
by and among
PIONEER RESOURCES, LLC
as Borrower
and
FIRST UNION NATIONAL BANK
Individually and as Administrative Agent
and Letter of Credit Issuer
and
ABN AMRO BANK N.V.
Individually and as Syndication Agent
and
NATIONSBANK, N.A.
Individually and as Documentation Agent
and
the other
Lenders
which are or become parties hereto
Dated as of October 9, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. THE CREDIT FACILITIES..................................................................1
Section 1.1. The Revolving Credit...................................................................1
Section 1.2. The Term Credit........................................................................4
Section 1.3. Manner of Borrowing....................................................................5
(a) Generally..............................................................................5
(b) Administrative Agent Reliance on Lender Funding........................................5
(c) Requests...............................................................................6
SECTION 1.4. BORROWING PRO RATA.....................................................................6
SECTION 2. INTEREST...............................................................................6
Section 2.1. Options................................................................................6
Section 2.2. Base Rate Portion......................................................................6
Section 2.3. LIBOR Portions.........................................................................6
Section 2.4. Computation............................................................................7
Section 2.5. Minimum Amounts........................................................................7
Section 2.6. Manner of Rate Selection...............................................................7
SECTION 3. THE NOTES, FEES, PREPAYMENTS, TERMINATIONS AND APPLICATION OF PAYMENTS.................8
Section 3.1. Commitment Fee.........................................................................8
Section 3.2. Administrative Agent's Fees............................................................8
Section 3.3. Letter of Credit Fees..................................................................8
Section 3.4. Prepayments............................................................................8
Section 3.5. Commitment Terminations...............................................................11
Section 3.6. Place and Application of Payments.....................................................12
Section 3.7. Notations and Requests................................................................13
Section 3.8. Capital Adequacy......................................................................14
SECTION 4. THE COLLATERAL AND COMPUTATION OF VALUE OF MERCHANTABLE TIMBER........................14
Section 4.1. The Collateral........................................................................14
Section 4.2. Determination of Value of Merchantable Timber.........................................15
SECTION 5. DEFINITIONS...........................................................................18
Section 5.1. Certain Definitions...................................................................18
Section 5.2. Accounting Terms......................................................................31
SECTION 6. REPRESENTATIONS AND WARRANTIES........................................................31
Section 6.1. Organization and Qualification........................................................31
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
Section 6.2. Financial Reports......................................................................31
Section 6.3. Litigation; Tax Returns; Approvals.....................................................32
Section 6.4. Regulation U...........................................................................32
Section 6.5. No Default.............................................................................32
Section 6.6. ERISA..................................................................................32
Section 6.7. Enforceability.........................................................................33
Section 6.8. Restrictive Agreements.................................................................33
Section 6.9. No Default Under Other Agreements......................................................33
Section 6.10. Status Under Certain Laws..............................................................33
Section 6.11. Full Disclosure........................................................................33
Section 6.12. Compliance with Law....................................................................34
Section 6.13. Solvency, etc..........................................................................34
Section 6.14. Concerning the Timberland..............................................................34
Section 6.15. The Frontier Stumpage Contract.........................................................35
Section 6.16. Concerning the Acquisition Agreement and the Management Agreement......................35
Section 6.17. Year 2000 Compliance...................................................................35
SECTION 7. CONDITIONS PRECEDENT...................................................................35
Section 7.1. Initial Credit Utilization.............................................................35
Section 7.2. Each Credit Obligation.................................................................39
SECTION 8. COVENANTS..............................................................................40
Section 8.1. Maintenance of Property................................................................40
Section 8.2. Taxes..................................................................................40
Section 8.3. Maintenance of Insurance...............................................................40
Section 8.4. Financial Reports......................................................................40
Section 8.5. Inspection.............................................................................42
Section 8.6. Consolidation and Merger...............................................................42
Section 8.7. Transactions with Affiliates...........................................................42
Section 8.8. Capital Expenditures and Acquisitions..................................................42
Section 8.9. Restricted Payments....................................................................43
Section 8.10. Liens..................................................................................43
Section 8.11. Borrowings and Guaranties..............................................................44
Section 8.12. Investments, Loans, Advances and Acquisitions..........................................45
Section 8.13. Sale of Property.......................................................................46
Section 8.14. ERISA..................................................................................47
Section 8.15. Compliance with Laws, etc..............................................................47
Section 8.16. Sale and Leaseback Transactions........................................................48
Section 8.17. Fiscal Year............................................................................48
Section 8.18. Maintenance of Existence...............................................................48
Section 8.19. Leverage Ratio.........................................................................48
Section 8.20. Interest Coverage Ratio................................................................48
Section 8.21. Fixed Charge Coverage Ratio............................................................49
Section 8.22. Interest Rate Protection...............................................................49
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Section 8.23. Timber Coverage Ratio..................................................................49
Section 8.24. Change in the Nature of Business.......................................................49
Section 8.25. General Timber Management Obligations..................................................50
Section 8.26. The Frontier Stumpage Contract and Other Stumpage Rights...............................51
Section 8.27. Future Subsidiaries....................................................................51
Section 8.28. The Management Agreement and the Acquisition Agreement.................................51
Section 8.29. Year 2000 Assessment...................................................................51
SECTION 9. EVENTS OF DEFAULT AND REMEDIES.........................................................52
Section 9.1. Events of Default......................................................................52
Section 9.2. Remedies for Non-Bankruptcy Defaults...................................................53
Section 9.3. Remedies for Bankruptcy Defaults.......................................................54
Section 9.4. Collateral for Undrawn Letters of Credit...............................................54
SECTION 10. CHANGE IN CIRCUMSTANCES REGARDING LIBOR PORTIONS.......................................54
Section 10.1. Change of Law..........................................................................54
Section 10.2. Unavailability of Deposits or Inability to Ascertain the Adjusted LIBOR
Rate...............................................................................54
Section 10.3. Taxes and Increased Costs..............................................................55
Section 10.4. Funding Indemnity......................................................................56
Section 10.5. Lending Branch.........................................................................56
Section 10.6. Discretion of Lenders as to Manner of Funding..........................................57
Section 10.7. Lender Replacement.....................................................................57
SECTION 11. THE GUARANTEES.........................................................................58
Section 11.1. The Guarantees.........................................................................58
Section 11.2. Guarantee Unconditional................................................................58
Section 11.3. Discharge Only Upon Payment in Full; Reinstatement in Certain
Circumstances......................................................................59
Section 11.4. Subrogation............................................................................59
Section 11.5. Waivers................................................................................59
Section 11.6. Stay of Acceleration...................................................................60
SECTION 12. THE AGENTS.............................................................................60
Section 12.1. Appointment and Authorization..........................................................60
Section 12.2. Rights as a Lender.....................................................................60
Section 12.3. Standard of Care.......................................................................61
Section 12.4. Costs and Expenses.....................................................................62
Section 12.5. Indemnity..............................................................................62
</TABLE>
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<TABLE>
<S> <C> <C> <C>
SECTION 13. MISCELLANEOUS..........................................................................62
Section 13.1. Holidays...............................................................................62
Section 13.2. No Waiver, Cumulative Remedies.........................................................62
Section 13.3. Waivers, Modifications and Amendments..................................................62
Section 13.4. Costs and Expenses.....................................................................63
Section 13.5. Stamp Taxes............................................................................63
Section 13.6. Survival of Representations............................................................64
Section 13.7. Construction...........................................................................64
Section 13.8. Accounting Principles..................................................................64
Section 13.9. Headings...............................................................................64
Section 13.10. Severability of Provisions.............................................................64
Section 13.11. Counterparts...........................................................................64
Section 13.12. Binding Nature, Governing Law, Etc.....................................................64
Section 13.13. Notices................................................................................64
Section 13.14. Participants...........................................................................65
Section 13.15. Concerning the Guarantors..............................................................65
Section 13.16. Assignment Agreements..................................................................65
Section 13.17. Submission and Waiver of Jury Trial....................................................66
Section 13.18. Entire Agreement.......................................................................66
Section 13.19. Withholding Taxes......................................................................66
Section 13.20. Set-off Sharing........................................................................68
Signature Page...................................................................................................69
</TABLE>
OMITTED EXHIBITS:
- ----------------
EXHIBIT A - Revolving Credit Note
EXHIBIT B - Term Credit Note
EXHIBIT C - Compliance Certificate
EXHIBIT D - The Transferred Assets
EXHIBIT E - The Transferred Liabilities
EXHIBIT F - Assignment Agreement
EXHIBIT G - Borrowing Certificate
SCHEDULE 6.2 - Contingent Liabilities
SCHEDULE 6.3 - Disclosed Claims; Existing Litigation; Tax Returns; Approvals
SCHEDULE 8.7 - Transactions with Affiliates
SCHEDULE 8.10 - Permitted Liens
SCHEDULE 8.11 - Permitted Debt
SCHEDULE 8.12 - Certain Permitted Investments, Loans and Advances
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<PAGE> 6
PIONEER RESOURCES, LLC
REPLACEMENT CREDIT AGREEMENT
To: The Agents
and the other Lenders from time to time party hereto
Gentlemen:
The undersigned, Pioneer Resources, LLC, an Oregon limited liability
company (the "Borrower"), applies to you for your several commitments, subject
to all of the terms and conditions hereof and on the basis of the
representations and warranties hereinafter set forth, to make credit available
to the Borrower, all as more fully hereinafter set forth.
SECTION 1. THE CREDIT FACILITIES
Section 1.1. The Revolving Credit.
(a) General Terms. Subject to all of the terms and
conditions hereof, each Lender, by its acceptance hereof, severally
agrees to extend a Revolving Credit to the Borrower in the amount of
its Revolving Credit Commitment which may be availed of by the Borrower
in its discretion from time to time, be repaid and used again, during
the period from the date hereof to and including the Termination Date.
The Revolving Credit, subject to all of the terms and conditions
hereof, may be utilized by the Borrower in the form of Revolving Credit
Loans and Letters of Credit, all as more fully hereinafter set forth;
provided, however, that the aggregate amount of the Credit Utilizations
under the Revolving Credit shall at no time exceed the Revolving Credit
Commitments as then in effect; provided further, however, that the
aggregate amount outstanding at any time of L/C Obligations shall be
further limited to $35,000,000.
(b) Revolving Credit Loans. Subject to all of the terms
and conditions hereof, the Revolving Credit may be availed of in the
form of loans ("Revolving Credit Loans"). Each Borrowing of Revolving
Credit Loans shall be made ratably from the Lenders in accordance with
their Revolving Credit Commitments and shall be in a minimum amount of
$500,000. All Revolving Credit Loans made by a Lender to the Borrower
shall be evidenced by a single Revolving Credit Note of the Borrower
(individually a "Revolving Credit Note" and collectively the "Revolving
Credit Notes") payable to the order of such Lender, each Revolving
Credit Note to be in the form (with appropriate insertions) attached
hereto as Exhibit A and to mature on the Termination Date. Without
regard to the face principal amount of each Lender's Revolving Credit
Note, the actual principal amount at any time outstanding and owing by
the Borrower on account thereof shall be the sum of all Revolving
Credit Loans
<PAGE> 7
then or theretofore made thereon by such Lender to the Borrower
less all payments actually received thereon.
(c) Letters of Credit.
(i) General Terms. Subject to the terms,
conditions and limitations hereof (including those set forth
in Section 1.1 hereof), as part of the Revolving Credit, the
Issuer shall issue Letters of Credit (each a "Letter of
Credit") at the request of the Borrower. Each Letter of Credit
shall be issued by the Issuer, but each Lender shall be
obligated to reimburse the Issuer for its pro rata share of
the amount of each drawing thereunder and, accordingly, the
undrawn face amount of each Letter of Credit shall constitute
a pro rata usage of the Revolving Credit Commitments. Each
Letter of Credit shall conform to the Issuer's policies as to
form and shall be a Letter of Credit which the Issuer may
lawfully issue.
(ii) Applications. At any time more than 30 days
in advance of the scheduled Termination Date, the Issuer
shall, subject to all of the terms and conditions hereof, at
the request of the Borrower, issue one or more Letters of
Credit for the account of the Borrower, in a form satisfactory
to the Issuer, in an aggregate face amount up to that set
forth above, upon the receipt of an application for the
relevant Letter of Credit in the form customarily prescribed
by the Issuer for the type of Letter of Credit in question,
duly executed by the Borrower (each an "Application"). Each
Letter of Credit issued hereunder shall (a) be payable in U.S.
dollars and (b) expire not later than one year from issuance
(or be terminable at the option of the Issuer within one year
of issuance) but in any event not beyond the scheduled
Termination Date. Notwithstanding anything contained in any
Application to the contrary, (i) the Borrower's obligation to
pay fees in connection with each Letter of Credit shall be as
set forth in Section 3.3 hereof, (ii) prior to the existence
of an Event of Default, the Issuer will not call for the
funding by the Borrower of any amount under a Letter of
Credit, or any other form of collateral security for the
Borrower's obligations in connection with such Letter of
Credit, before being presented with a drawing thereunder, and
(iii) if the Issuer is not timely reimbursed for the amount of
any drawing under a Letter of Credit on the date such drawing
is paid, the Borrower's obligation to reimburse the Issuer for
the amount of such drawing shall bear interest (which the
Borrower hereby promises to pay upon demand) from and after
the date such drawing is paid at a rate per annum equal at all
times to the interest rate applicable to the Base Rate
Portions when overdue, as such rate is from time to time in
effect. If the Issuer issues any Letters of Credit with an
expiration date that is automatically extended unless the
Issuer gives notice that the expiration date will not so
extend beyond its then scheduled expiration date, the Issuer
will give such notice of non-renewal before the time necessary
to prevent such automatic extension if before such required
notice (i) the expiration date of such Letter of Credit if so
extended would be after the Termination Date, (ii) the
Revolving Credit
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<PAGE> 8
Commitments have been terminated, or (iii) an Event of Default
exists and in any such instance the Required Lenders have
given the Issuer instructions not to so permit the extension
of the expiration date of such Letter of Credit. Without
limiting the generality of the foregoing, the Issuer's
obligation to issue, amend or extend the expiration date of a
Letter of Credit is subject to the conditions of Section 7,
the other terms of this Section 1.1 and the other provisions
of this Agreement and the Issuer will not issue, amend or
extend the expiration date of any Letter of Credit if any
Lender notifies the Issuer of any failure to satisfy or
otherwise comply with such conditions, terms and other
provisions and directs the Issuer not to take such action.
(iii) The Reimbursement Obligation. Subject to
Section 1.1(c)(ii) hereof, the obligation of the Borrower to
reimburse the Issuer for all drawings under a Letter of Credit
issued for the Borrower's account (a "Reimbursement
Obligation") shall be governed by the Application related to
such Letter of Credit, except that reimbursement of each
drawing shall be made in immediately available funds at the
designated office of the Issuer by not later than 1:00 p.m.
(local time at the issuing office of the Issuer) on the date
when such drawing is paid if the Borrower has been notified on
or before noon Charlotte time that the Issuer has or will be
paying such draft; otherwise on the next Business Day. If the
Borrower does not make any such reimbursement payment on the
date due and the Participating Lenders fund their
participations therein in the manner set forth in Section
1.1(c)(iv) below, then all payments thereafter received by the
Issuer in discharge of any of the relevant Reimbursement
Obligations shall be distributed in accordance with Section
1.1(c)(iv) below.
(iv) The Participating Interests. Each Lender, by
its acceptance hereof, severally agrees to purchase from the
Issuer, and the Issuer hereby agrees to sell to each such
Lender (a "Participating Lender"), an undivided percentage
participating interest (a "Participating Interest"), to the
extent of its pro rata share of the Revolving Credit
Commitments, in each Letter of Credit issued by, and each
Reimbursement Obligation owed to, the Issuer. Upon any failure
by the Borrower to pay any Reimbursement Obligation in respect
of a Letter of Credit issued for the Borrower's account at the
time required on the date the related drawing is paid, as set
forth in Section 1.1(c)(iii) above, or if the Issuer is
required at any time to return to the Borrower or to a
trustee, receiver, liquidator, custodian or other Person any
portion of any payment of any Reimbursement Obligation, each
Participating Lender shall, not later than the Business Day it
receives a certificate from the Issuer to such effect, if such
certificate is received before 1:00 p.m. (local time at the
officer of the Issuer), or not later than the following
Business Day, if such certificate is received after such time,
pay to the Issuer an amount equal to its pro rata share of
such unpaid Reimbursement Obligation or returned amount
together with interest on such amount accrued from the date
the related payment was made by the Issuer to the date of such
payment by such Participating Lender at a rate per annum equal
to
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<PAGE> 9
(i) from the date the related payment was made by the Issuer
to the date two (2) Business Days after payment by such
Participating Lender is due hereunder, the Fed Funds Rate for
each such day and (ii) from the date two (2) Business Days
after the date such payment is due from such Participating
Lender to the date such payment is made by such Participating
Lender, the Fed Funds Rate for each such day plus the
Applicable Margin for LIBOR Portions in effect for each such
day. Each such Participating Lender shall thereafter be
entitled to receive its pro rata share of each payment
received in respect of the relevant Reimbursement Obligation
and of interest paid thereon, with the Issuer retaining its
pro rata share as a Lender hereunder.
The several obligations of the Participating Lenders to the
Issuer under this Section 1.1(c)(iv) shall be absolute,
irrevocable and unconditional under any and all circumstances
whatsoever (except, to the extent the Borrower is relieved
from its obligation to reimburse the Issuer for a drawing
under a Letter of Credit because of the Issuer's gross
negligence or willful misconduct in determining that documents
received under the Letter of Credit comply with the terms
thereof) and shall not be subject to any setoff, counterclaim
or defense to payment which any Participating Lender may have
or have had against any one or more of the Borrower, the
Issuer, the Administrative Agent, any other Lender or any
other Person whatsoever. Without limiting the generality of
the foregoing, such obligations shall not be affected by any
Potential Default or Event of Default or by any reduction or
termination of the Revolving Credit Commitment of any Lender,
and each payment by a Participating Lender under this Section
1.1(c)(iv) shall be made without any offset, abatement,
withholding or reduction whatsoever. The Administrative Agent
shall be entitled to offset amounts received for the account
of a Lender under this Agreement against unpaid amounts due
from such Lender hereunder (whether as fundings of
participations, indemnities or otherwise).
(v) Indemnification. Each of the Participating
Lenders shall, to the extent of their respective pro rata
shares, indemnify the Issuer (to the extent not reimbursed by
the Borrower) against any cost, expense (including reasonable
counsel fees and disbursements), claim, demand, action, loss
or liability (except such as result from the Issuer's gross
negligence or willful misconduct) that the Issuer may suffer
or incur in connection with any Letter of Credit. The
obligations of the Participating Lenders under this Section
1.1(c)(v) and all other parts of this Section 1.1(c) shall
survive termination of this Agreement and of all other L/C
Documents.
Section 1.2. The Term Credit. Subject to all of the terms and
conditions hereof, each Lender agrees to make a term loan to the Borrower
(individually a "Term Loan" and collectively the "Term Loans") in the amount set
forth opposite its signature hereto under the heading "Term Credit Commitment"
or on an Assignment Agreement to which it is party (its "Term Credit Commitment"
and collectively the "Term Credit Commitments"). There shall be a single
Borrowing of the Term Loans and the obligations of the Lenders to make
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<PAGE> 10
the Term Loans shall expire on October 9, 1998 unless sooner terminated as
herein provided. The obligations of the Lenders hereunder are several and not
joint and no Lender shall under any circumstances be obligated to make a Term
Loan in excess of its Term Credit Commitment. The Term Loan made by each Lender
shall be evidenced by a Term Credit Note (individually a "Term Credit Note" and
collectively the "Term Credit Notes") in the form (with appropriate insertions)
annexed hereto as Exhibit B. Unless required to be sooner paid, the Borrower
promises to pay the Term Loans in sixteen quarterly installments commencing on
December 31, 1999 and continuing on the last day of each calendar quarter
thereafter to and including September 30, 2003. The first four of such
installments shall each aggregate $2,500,000 as to all Term Credit Notes, the
next four of such installments shall each aggregate $6,250,000 as to all Term
Credit Notes, the next four of such installments shall each aggregate $8,750,000
as to all Term Credit Notes, the next three such installments shall each
aggregate $10,000,000 as to all Term Credit Notes and the last and final
installment shall aggregate $100,000,000 or such other amount as shall be
necessary to pay the Term Credit Notes in full. The Lenders shall each be
entitled to a pro rata share of each such payment of principal in accord with
the amounts of their Term Loans. Amounts prepaid on the Term Loans may not be
reborrowed.
Section 1.3. Manner of Borrowing. (a) Generally. The Borrower shall
give the Administrative Agent notice (which may be written or oral, but if oral,
promptly confirmed in writing) by 1:00 p.m. (Charlotte Time) on any Business Day
of each request for a Borrowing, in each case specifying the amount of such
Borrowing and the date such Borrowing is to be made, which shall be not less
than one Business Day hence. The Administrative Agent shall promptly notify each
Lender of its receipt of each such notice. Not later than 2:00 p.m. (Charlotte
Time) on the date specified for any Borrowing, each Lender shall make the
proceeds of its Loan comprising part of such Borrowing available in immediately
available funds to the Administrative Agent in Charlotte, North Carolina which
shall in turn make such proceeds available to the Borrower.
(b) Administrative Agent Reliance on Lender Funding. Unless the
Administrative Agent shall have been notified by a Lender before the time when
such Lender is scheduled to make payment to the Administrative Agent of the
proceeds of a Loan that such Lender does not intend to make such payment, the
Administrative Agent may assume that such Lender has made such payment when due
and the Administrative Agent may in reliance upon such assumption (but shall not
be required to) make available to the Borrower the proceeds of the Loan to be
made by such Lender and if any Lender has not in fact made such payment to the
Administrative Agent, such Lender shall, on demand, pay to the Administrative
Agent the amount made available to such Borrower attributable to such Lender
together with interest thereon in respect of each day during the period
commencing on the date such amount was made available to Lender and ending on
(but excluding) the date such Lender pays such amount to the Administrative
Agent at a rate per annum equal to the Fed Funds Rate. If such amount is not
received from such Lender by the Administrative Agent immediately upon demand,
the Borrower will, on demand, repay to the Administrative Agent the proceeds of
the Loan attributable to such Lender with interest thereon at a rate per annum
equal to the interest rate applicable to the relevant Loan.
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<PAGE> 11
(c) Requests. All requests for Borrowings and selection of interest
rates to be applicable thereto may be written or by facsimile transmission. The
Borrower agrees that the Administrative Agent may rely on any such notice given
by any person the Administrative Agent in good faith believes is an Authorized
Representative without the necessity of independent investigation (the Borrower
hereby indemnifying the Administrative Agent and Lenders from any liability or
loss ensuing from such reliance).
Section 1.4. Borrowing Pro Rata. Each Borrowing under the Commitments
shall be made pro rata from the Lenders in accordance with the respective
amounts of the Commitments under which such Borrowing is being effected and no
Lender shall under any circumstances be obligated to extend credit hereunder in
excess of the amount of its Commitments, the obligations of the Lenders under
this Agreement to be several and not joint.
SECTION 2. INTEREST.
Section 2.1. Options. Subject to all of the terms and conditions of
this Section 2, portions of the principal indebtedness evidenced by each Class
of Notes (all of the indebtedness evidenced by each Class of Notes bearing
interest at the same rate for the same period of time being hereinafter referred
to as a "Portion") may, at the option of the Borrower, bear interest with
reference to the Base Rate (a "Base Rate Portion") or with reference to the
Adjusted LIBOR Rate ("LIBOR Portions"), and Portions may be converted from time
to time from one basis to the other. All of the indebtedness evidenced by each
Class of Notes which is not part of LIBOR Portion shall constitute a single Base
Rate Portion. All of the indebtedness evidenced by each Class of Notes which
bears interest with reference to a particular Adjusted LIBOR Rate for a
particular Interest Period shall constitute a single LIBOR Portion. The Borrower
promises to pay interest on each Portion at the rates and times specified in
this Section 2.
Section 2.2. Base Rate Portion. Each Base Rate Portion shall bear
interest (which the Borrower promises to pay at the times herein provided), at
the rate per annum determined by adding the Applicable Margin to the Base Rate
as in effect from time to time, provided that if a Base Rate Portion is not paid
when due (whether by lapse of time, acceleration or otherwise), such Portion
shall bear interest (which the Borrower promises to pay at the times hereinafter
provided), whether before or after judgment, for the period from the date such
Portion became due and until payment in full thereof, at the rate per annum
determined by adding 2% to the interest rate which would otherwise be applicable
thereto from time to time. Interest on the Base Rate Portions shall be payable
on the last day of each March, June, September and December in each year and at
maturity of the Notes and interest after maturity shall be due and payable upon
demand.
Section 2.3. LIBOR Portions. Each LIBOR Portion shall bear interest
(which the Borrower promises to pay at the times herein provided) for each
Interest Period selected therefor at a rate per annum equal to the Adjusted
LIBOR Rate for such Interest Period plus the Applicable Margin, provided that if
any LIBOR Portion is not paid when due (whether by lapse of time, acceleration
or otherwise) such Portion shall bear interest (which the
-6-
<PAGE> 12
Borrower promises to pay at the times hereinafter provided) whether before or
after judgment, for the period from the date such Portion became due and until
payment in full thereof, through the end of the Interest Period then applicable
thereto at the rate per annum determined by adding 2% to the interest rate
otherwise applicable thereto, and effective at the end of such Interest Period
such LIBOR Portion shall automatically be converted into and added to the
applicable Base Rate Portion and shall thereafter bear interest at the interest
rate applicable to such Base Rate Portion after default. Interest on each LIBOR
Portion shall be due and payable on the last day of each Interest Period
applicable thereto and, if an Interest Period is longer than three months, then
at the end of each three month period and at the end of such Interest Period,
and interest after maturity shall be due and payable upon demand. The Borrower
shall notify the Administrative Agent on or before 1:00 p.m. (Charlotte time) on
the third Business Day preceding the end of an Interest Period applicable to a
LIBOR Portion whether such LIBOR Portion is to continue as a LIBOR Portion, in
which event the Borrower shall notify the Administrative Agent of the new
Interest Period selected therefor, and in the event the Borrower shall fail to
so notify the Administrative Agent, such LIBOR Portion shall automatically be
converted into and added to the applicable Base Rate Portion as of and on the
last day of such Interest Period. The Administrative Agent shall promptly notify
each Lender of each notice received from the Borrower pursuant to the foregoing
provisions. Anything contained herein to the contrary notwithstanding, the
obligation of the Lenders to create, continue or effect by conversion any LIBOR
Portion shall be conditioned upon the fact that at the time no Potential Default
or Event of Default shall have occurred and be continuing. There shall be not
more than six LIBOR Portions extant at any one time.
Section 2.4. Computation. Interest on the Notes and all fees, charges
and commissions due hereunder shall be computed on the basis of a year of 360
days for the actual number of days elapsed.
Section 2.5. Minimum Amounts. Each LIBOR Portion shall be in a minimum
amount of $3,000,000 and thereafter in integral multiples of $100,000.
Section 2.6. Manner of Rate Selection. The Borrower shall notify the
Administrative Agent by 1:00 p.m. (Charlotte time) at least three Business Days
prior to the date upon which it requests that any LIBOR Portion be created or
that any part of the Base Rate Portion be converted into a LIBOR Portion (such
notice to specify in each instance the amount thereof and the Interest Period
selected therefor) and the Administrative Agent shall promptly advise each
Lender of each such notice. If any request is made to convert a LIBOR Portion
into the applicable Base Rate Portion, such conversion shall only be made so as
to become effective as of the last day of the Interest Period applicable
thereto. All requests for the creation, continuance or conversion of Portions
under this Agreement shall be irrevocable. Such requests may be written or by
facsimile transmission or telecopy and the Administrative Agent is hereby
authorized to honor requests for creations, continuances and conversions
received by it from any person purporting to be a person authorized to act on
behalf of the Borrower hereunder, the Borrower hereby indemnifying the
Administrative Agent and the Lenders from any liability or loss ensuing from so
acting.
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<PAGE> 13
SECTION 3. THE NOTES, FEES, PREPAYMENTS, TERMINATIONS AND APPLICATION OF
PAYMENTS.
Section 3.1. Commitment Fee. For the period from the date hereof to and
including the Termination Date, the Borrower shall pay to the Administrative
Agent for the ratable account of the Lenders with Revolving Credit Commitments a
commitment fee at the rate per annum equal to the Applicable Margin for
commitment fees as from time to time in effect on the average daily unused
amount of the Revolving Credit Commitments. Such fee shall be payable quarterly
in arrears on the last day of each March, June, September and December and on
the Termination Date, unless the Revolving Credit Commitments are terminated in
whole on an earlier date, in which event the fees for the period from the date
of the last payment made pursuant to this Section 3.1 through the effective date
of such termination in whole shall be paid on the date of such earlier
termination in whole.
Section 3.2. Administrative Agent's Fees. The Borrower shall pay to and
for the sole account of the Administrative Agent such fees as the Borrower and
the Administrative Agent may agree upon in writing from time to time. Such fees
shall be in addition to any fees and charges the Administrative Agent may be
entitled to receive under the other Loan Documents.
Section 3.3. Letter of Credit Fees. The Borrower shall pay to the
Administrative Agent for the ratable account of the Lenders in accord with the
respective amounts of their Revolving Credit Commitments, a Letter of Credit fee
computed at the Applicable Margin for LIBOR Portions on the maximum amount of
the Letters of Credit from time to time outstanding and undrawn, such fee to be
paid quarterly in arrears on the last day of each December, March, June and
September in each year to and including, and on, the Termination Date. In
addition, on the date of issuance of each Letter of Credit the Borrower shall
pay the Issuer for its own account a fee computed at the rate of 1/8 of 1% per
annum on the face amount of such Letter of Credit for the period from the date
of issuance to the scheduled expiry date thereof (or if such scheduled expiry
date is longer than a year, then for such first year, with the fee for each full
year or portion thereof thereafter to be paid on the annual anniversary dates of
such Letter of Credit), such fee to be retained by the Issuer for its own
account. In addition, the Borrower shall pay to the Issuer such issuing,
processing, drawing, amendment and other fees and charges as the Issuer
customarily imposes in connection with the issuance of letters of credit of the
type in question, the payment of drafts thereunder or amendments thereto.
Section 3.4. Prepayments. (a) Optional Prepayments. The Borrower shall
have the privilege of prepaying without premium or penalty and in whole or in
part (but if in part, then in a minimum amount of $500,000) any Borrowing at any
time upon prior facsimile transmission or telephonic notice from the Borrower to
the Administrative Agent on or before 1:00 p.m. (Charlotte time) on the Business
Day of such prepayment. Any amount prepaid under the Revolving Credit
Commitments may, subject to the terms and conditions of this Agreement, be
borrowed, repaid and borrowed again.
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<PAGE> 14
(b) Mandatory Prepayments.
(i) Commitment Reductions. If the outstanding amount of
Credit Utilizations under the Revolving Credit Commitments shall at any time
exceed the amount of the Revolving Credit Commitments as the same may from time
to time be reduced pursuant hereto, the Borrower shall promptly prepay the
Revolving Credit Loans by the amount of such excess, provided if and when the
Revolving Credit Loans are paid in full there are L/C Obligations outstanding,
the amount of the prepayment (but not more than the L/C Obligations) shall
instead be paid to the Administrative Agent to be held as collateral security
for the L/C Obligations.
(ii) Asset Sale Proceeds. An amount equal to any and all
net cash proceeds (i.e., gross proceeds net of out-of-pocket expenses and
property, transfer and similar taxes (i.e., taxes other than those measured by
income, gross receipts or capital gains)) incurred by the Borrower in effecting
the sale or other disposition) received by the Borrower and its Subsidiaries
from the sale or disposition (whether voluntary or involuntary) of fixed or
capital assets (in any event including the proceeds of sales of Timberland and
other land but not including ordinary course of business sales of stumpage and
cutting rights where payment is to be made primarily over time as Timber is
harvested by the purchaser of such rights or other sales of such rights if made
in the ordinary course of business if (i) the aggregate amount of advance
payments received or to be received by the Borrower (i.e., payments other than
payments made as and for Timber actually taken by the purchaser and within 30
days of the taking thereof) under each such contract or series of related
contracts does not exceed $15,000,000, (ii) each such contract shall provide for
the severance and taking of the Timber in question within not more than two
years of the date the contract in question becomes effective and (iii) the
Administrative Agent shall be notified of each such contract and the
Administrative Agent shall reduce the Value of Merchantable Timber by removing
therefrom the amount of such value which the Administrative Agent believes is
represented by the amount of advance payments made or due thereon (based on the
percentage such advance payment represents of the total appraised value of the
Timber subject to such contract), such reduction to be made effective as and
when such payments are received) shall be paid over promptly (but in any event
within two Business Days of receipt) to the Administrative Agent for application
as set forth in clause (vi) of this Section 3.4(b); provided, however, that (i)
the foregoing provisions shall be inapplicable to funds received by the
Administrative Agent under the Collateral Documents if and so long as, pursuant
to the terms of the Collateral Documents, the same are to be held by the
Administrative Agent and disbursed for (or to reimburse the Borrower and its
Subsidiaries for the cost of) the restoration, repair or replacement of the
property in respect of which such proceeds were received, (ii) no prepayment
shall be required with respect to net proceeds received from the ordinary course
of business sale or other disposition of personal property which is worn out,
obsolete or, in the good faith judgment of the Borrower and its Subsidiaries no
longer necessary to the efficient conduct of their business as then conducted
and (iii) no prepayment shall be required out of $5,000,000 of net proceeds
received by the Borrower and its Subsidiaries in any calendar year which are not
otherwise excepted from prepayment hereunder but if the net proceeds from a
single transaction or series of substantially concurrent transactions exceeds
$2,500,000, then such proceeds shall be remitted to the
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<PAGE> 15
Administrative Agent for application hereunder. Nothing herein contained shall
in any manner impair or otherwise affect the prohibitions against the sale or
other disposition of Collateral or other assets contained herein.
(iii) Excess Cash Flow. On the 31st day of March of each
year (commencing March 31, 1999) the Borrower shall pay over to the
Administrative Agent for application as set forth in clause (vi) of this Section
3.4(b) an amount equal to 75% of Excess Cash Flow for the immediately preceding
fiscal year, provided that (i) if as of the last day of any fiscal year the
Timber Coverage Ratio is less than 55%, no payment shall be required under this
clause (iii) with respect to such fiscal year and (ii) Excess Cash Flow for the
fiscal year ended December 31, 1998 shall be computed solely for the period from
the date the Restructuring is consummated to December 31, 1998.
(iv) Equity Offerings. Promptly (but in any event within
two Business Days of receipt) upon receipt thereof by the issuer or seller, the
Borrower shall pay over to the Administrative Agent for application as set forth
in clause (vi) of this Section 3.4(b), an amount equal to one hundred percent of
all net cash proceeds received by the issuer or seller from Equity Offerings,
provided that (aa) no such prepayment shall be required out or in respect of the
portion of such net cash proceeds applied to the payment of the Bridge Loan,
(ab) no such prepayment shall be required out of the issuance and sale of a
limited partnership interest in STP II if and to the extent that such proceeds
are either (A) applied to the redemption or acquisition of the equity interest
of Mach One in STP II and the amount expended for such redemption or acquisition
does not exceed the agreed value specified therefor in the October 9, 1998 First
Amended and Restated Agreement of Limited Partnership for STP II as in existence
on the date hereof and in the form provided to the Lenders (the "STP II
Partnership Agreement"), and such sale and redemption or acquisition does not
result in a Change of Control or (B) applied to the redemption or acquisition of
the interest of members of the Demers Group in STP II and if but only if the
Required Lenders consent thereto, the Bridge Loan has been paid in full, the
Final Covenant Levels have been attained, the amount expended for such
redemption or acquisition does not exceed the agreed value of the interest
redeemed or repurchased as set forth in the STP II Partnership Agreement, after
giving effect to such sale and purchase or redemption a Change of Control shall
not have occurred and the Demers (Immediate) Group shall retain an interest in
STP II of a size such that the matters reflected on Exhibit G of the STP II
Partnership Agreement cannot occur if the Demers (Immediate) Group objects
thereto; and (ac) if the Bridge Loan has been paid in full and the Final
Covenant Levels have been attained, no such prepayment shall be required out of
the proceeds of an Equity Offering if and to the extent such proceeds are used
within 30 days of the date of receipt to pay for the purchase by the Borrower of
Timberland satisfying the criteria set forth in, and if the Borrower takes the
steps set forth in, Section 4.2(c) hereof. The foregoing to the contrary
notwithstanding, up to $3,000,000 of the proceeds of an Equity Offering by STT
II or STP II may be utilized by them to make an earnest money of similar deposit
on timberland to be acquired by them rather than to prepay the Obligations if
but only if (i) no Default or Event of Default has occurred and is continuing
and (ii) the only recourse of the seller of such timberland for breach of any
obligations in connection with such acquisition to such deposit.
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<PAGE> 16
(v) September Harvest Confirmation Holdback. Any amounts
payable to STP II under the Escrow Agreement dated October 9, 1998 between First
Union National Bank as escrowee, Frontier, STP II and Gregory M. Demers, as
member representative, shall be paid over to the Administrative Agent for
application to the Revolving Credit Notes.
(vi) Application of Certain Prepayments. Payments which
the Borrower is required to make pursuant to clauses (ii) through (iv),
inclusive, of this Section 3.4(b) shall be first applied as and for a mandatory
prepayment of the Term Credit Notes until payment in full thereof, then to the
prepayment of Revolving Credit Loans until payment in full thereof, then to be
held by the Administrative Agent as collateral security for the L/C Obligations
up to the full amount thereof and with any balance remaining released back to
the Borrower.
Section 3.5. Commitment Terminations.
(a) Voluntary Terminations. The Borrower shall have the right at
any time and from time to time upon not less than five Business Days prior
notice to the Administrative Agent (which shall promptly notify the Lenders) to
terminate the Commitments in whole or in part (but if in part then in a minimum
amount of $5,000,000 or such lesser amount as will terminate the Commitments in
full). No termination of the Commitments hereunder (whether voluntary or
required) may be reinstated.
(b) Mandatory Reductions. The Revolving Credit Commitments shall
be automatically and ratably reduced by the positive difference, if any, between
(i) each payment required to be made by the Borrower pursuant to clause (ii)
through (iv), inclusive, of Section 3.4(b) hereof (including any amount of such
payment which exceeds the amount of the Credit Utilizations as then outstanding)
and (ii) the amount of such payment which, pursuant to Section 3.4(b)(vi) is
applied as and for a mandatory prepayment of the Term Credit Notes.
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<PAGE> 17
Section 3.6. Place and Application of Payments. All payments hereunder
shall be made to the Administrative Agent at its office at One First Union
Center, 301 South College Street, Charlotte, North Carolina 28288 and in
immediately available funds, prior to 1:00 p.m. (Charlotte time) on the date of
such payment. All such payments shall be made without setoff or counterclaim and
without reduction for, and free from, any and all present and future levies,
imposts, duties, fees, charges, deductions withholdings, restrictions or
conditions of any nature imposed by any government or any political subdivision
or taxing authority thereof. Any payments received after 1:00 p.m. (Charlotte
time) shall be deemed received upon the following Business Day. The
Administrative Agent shall remit to each Lender its proportionate share of each
payment of principal, interest and fees received by the Administrative Agent
from the Borrower by 1:00 p.m. (Charlotte time) on the day of its receipt and
its proportionate share of each such payment received by the Administrative
Agent after 1:00 p.m. (Charlotte time) on the Business Day following the day of
its receipt by the Administrative Agent. In the event the Administrative Agent
does not remit any amount to any Lender when required by the preceding sentence,
the Administrative Agent shall pay to such Lender interest on such amount until
paid at a rate per annum equal to the Fed Funds Rate. The Borrower hereby
authorizes the Administrative Agent to automatically debit any of its accounts
with it for any principal, interest and fees when due under the Notes or this
Agreement and to transfer the amount so debited from such account to the
Administrative Agent for application as herein provided. The Administrative
Agent shall notify the Borrower of each such debit promptly after it is made,
but its failure to do so will not impair the validity of such debit or result in
any liability of the Administrative Agent to the Borrower. Unless the Borrower
otherwise directs, payments shall be deemed first applied to the Base Rate
Portion until payment in full thereof, with any balance applied to the
applicable LIBOR Portions in the order in which their Interest Periods expire.
Prepayments of the Term Credit Notes shall be applied pro rata to the reduction
of the remaining installment maturities due thereon. All payments (whether
voluntary or required) shall be accompanied by any amount due the Lenders under
Section 10.4 hereof, but no acceptance of such a payment without requiring
payment of amounts due under Section 10.4 shall preclude a later demand by the
Lenders for any amount due them under Section 10.4 in respect of such payment.
In the event that any mandatory prepayment called for by Section 3.4(b)
hereof would necessitate a prepayment of a LIBOR Portion on a day other than the
last day of the Interest Period applicable thereto and such prepayment would
require the Borrower to make a payment to any of the Lenders under Section 10.4
hereof, then in lieu of making such a prepayment the Borrower may instead
deposit the amount of the prepayment with the Administrative Agent to be held by
it until the same can be applied to the applicable Loans without requiring the
Borrower to make a payment under Section 10.4 hereof. The amount so held by the
Administrative Agent may, at the option of the Borrower, be invested in
investments of the types permitted by clauses (c), (d), (e), (f), (g) or (i) of
Section 8.12 hereof or in deposit accounts of the Administrative Agent or any
bank affiliate thereof provided that the same mature on or before the first day
or which the same can be applied to the applicable Loans without requiring a
payment under Section 10.4 hereof. If and so long as no Potential Default or
Event of Default has occurred and is continuing hereunder all earnings on such
investments shall be released from time to time to the Borrower. All
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<PAGE> 18
amounts deposited pursuant hereto and all investments and proceeds thereof shall
be (and hereby are) pledged by the Borrower to the Administrative Agent to
secure the Obligations, the Borrower agreeing to execute and deliver such
additional documents as the Administrative Agent may reasonably require to
effectuate the foregoing, and all of such may be applied to the reduction of the
Obligations upon the occurrence of an Event of Default hereunder.
Anything contained herein to the contrary notwithstanding, all payments
and collections received in respect of the Loan Documents received, in each
instance, by the Administrative Agent or any of the Lenders after the occurrence
of an Event of Default shall be remitted to the Administrative Agent and
distributed as follows:
(a) first, to the payment of any outstanding reasonable costs
and expenses incurred by the Administrative Agent or Issuer in
monitoring, verifying, protecting, preserving or enforcing the liens on
the Collateral or in protecting, preserving or enforcing rights under
the Loan Documents and in any event including all reasonable costs and
expenses of a character which the Borrower has agreed to pay under
Section 13.4 hereof (such funds to be retained by the Administrative
Agent and Issuer for its own account unless it has previously been
reimbursed for such costs and expenses by the Lenders, in which event
such amounts shall be remitted to the Lenders to reimburse them for
payments theretofore made to the Administrative Agent and Issuer);
(b) second, to the payment of any outstanding interest or
other fees or amounts due under the Notes, L/C Documents or this
Agreement other than for principal, ratably as among the Lenders in
accord with the amount of such interest and other fees or amounts owing
each;
(c) third, to the payment of the principal of the Notes, the
Reimbursement Obligations and the Hedging Liabilities and to be held by
the Administrative Agent to secure L/C Obligations which are not yet
Reimbursement Obligations up to the full amount thereof, pro rata in
accordance with the then amount of each;
(d) fourth, to the Lenders ratably in accord with the amounts
of any other indebtedness, obligations or liabilities of the Borrower
or Guarantors owing to each of them and secured by the Collateral
Documents unless and until all such indebtedness, obligations and
liabilities have been fully paid and satisfied; and
(e) fifth, to the Borrower or whoever may be lawfully
entitled thereto.
Section 3.7. Notations and Requests. All advances made against the
Notes, the status of all amounts evidenced by the Notes as constituting part of
a Base Rate Portion or LIBOR Portion and the rates of interest and Interest
Periods applicable to such Portions shall be recorded by the Lenders on their
books or, at their option in any instance, endorsed on the reverse side of the
Notes and the unpaid principal balances and status, rates and Interest Periods
so recorded or endorsed by the Lenders shall be prima facie evidence in any
court
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<PAGE> 19
or other proceeding brought to enforce the Notes of the principal amount
remaining unpaid thereon, the status of the borrowings evidenced thereby and the
interest rates and Interest Periods applicable thereto. Prior to any negotiation
of any Note the Lender holding such Note shall endorse thereon the status of all
amounts evidenced thereby as constituting part of the applicable Base Rate
Portion or a LIBOR Portion and the rates of interest and the Interest Periods
applicable thereto.
Section 3.8. Capital Adequacy. If any Lender shall determine that any
change in applicable law, rule or regulation regarding capital adequacy, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof or compliance by such Lender (or its lending office) with
any request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on such Lender's capital as
a consequence of its obligations hereunder or credit extended by it hereunder or
the Letters of Credit or its participation therein to a level below that which
such Lender could have achieved but for such law, rule, regulation, change or
compliance (taking into consideration such Lender's policies with respect to
capital adequacy) by an amount deemed by such Lender to be material, then from
time to time as specified by such Lender the Borrower shall pay such additional
amount or amounts as will compensate such Lender for such reduction. Any Lender
claiming compensation hereunder shall submit a certificate to the Borrower
setting forth the computation of the amount due and such certificate shall be
deemed prima facie correct. In making any such computation, the affected Lender
may use reasonable averaging and attribution methods.
SECTION 4. THE COLLATERAL AND COMPUTATION OF VALUE OF MERCHANTABLE
TIMBER.
Section 4.1. The Collateral. The Obligations shall be secured by valid
and perfected first liens on the inventory, accounts receivable, contract rights
(including rights under the Acquisition Agreement) or proceeds thereof, notes
receivable, general intangibles (including rights in and to bank and other
depository accounts except that the Borrower and the Guarantors need not take
any steps to perfect a lien on accounts maintained in proximity to its
operations for the purpose of paying amounts owing (as opposed to receiving
collections) provided that the total balance on deposit in such accounts shall
not exceed $250,000), fixtures, furniture, equipment (other than aircraft and
vehicles covered by a certificate of title law), Timberland (provided that the
Timberland which is the subject of the Frontier Stumpage Contract will be
subject to the rights of Frontier and its successors and assigns thereunder) and
other land of the Borrower and the Guarantors, by the capital stock or other
equity interests in the Subsidiaries owned by the Borrower, by the rights of STT
II in the escrow referred to in Section 3.4(b)(v) hereof and by all equity
interests in the Borrower and STP II, in each instance whether now owned or
hereafter acquired (collectively the "Collateral"), and the Borrower and the
Guarantors agree that they will from time to time at the request of the
Administrative Agent or the Required Lenders execute and deliver and cause to be
executed and delivered such documents and do such acts and things as the
Administrative Agent or Required Lenders may reasonably request in order to
provide for
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<PAGE> 20
or perfect such liens. The foregoing to the contrary notwithstanding, (i) unless
and until an Event of Default has occurred and is continuing the Borrower need
not deliver any note receivable to the Administrative Agent which has a
principal balance of $1,000,000 or less, (ii) the Administrative Agent's liens
on the equity interests in the Borrower and STP II shall be subordinate to a
lien thereon securing the Bridge Loan and (iii) the Collateral shall not include
the Transferred Assets.
The Borrower and the Guarantors agree to promptly, but in any event
within 30 days of the date hereof, make such arrangements as shall be necessary
or appropriate to assure that all proceeds of the Collateral are deposited (in
the same form as received) in accounts maintained with, or under the dominion
and control of, the Administrative Agent, such accounts to constitute special
restricted accounts, the Borrower and the Guarantors acknowledging that the
Administrative Agent has (and is hereby granted) a first priority lien on such
accounts and all funds contained therein to secure the Obligations. If and to
the extent that proceeds are deposited in accounts maintained with financial
institutions other than the Administrative Agent, it shall be a condition to the
Borrower's and the Guarantors' right to so effect such deposits more than 30
days after the date hereof that the banks of account have delivered to the
Administrative Agent letters satisfactory to the Administrative Agent in form
and substance pursuant to which such banks of account acknowledge the
Administrative Agent's lien thereon, waive any right of offset or bankers' liens
thereon (other than with respect to account maintenance charges and returned
items) and that collected amounts on deposit in such accounts will only be
transferred to the Administrative Agent from and after notice from the
Administrative Agent to that effect. The Lenders agree with the Borrower and the
Guarantors that if and so long as no Event of Default has occurred or is
continuing hereunder, amounts on deposit in the accounts maintained with the
Administrative Agent will (subject to the rules and regulations of the
Administrative Agent as from time to time in effect applicable to demand deposit
accounts) be made available to the Borrower and the Guarantors for use in the
conduct of their businesses and the Administrative Agent will give no notice to
other banks of account pursuant to the immediately preceding sentence. Upon the
occurrence of an Event of Default, the Administrative Agent may apply the funds
on deposit in such accounts to the Obligations.
Section 4.2. Determination of Value of Merchantable Timber.
(a) Quarterly Determinations. The Value of Merchantable Timber
shall be determined from time to time based upon appraisals of the same and
other factors as hereinafter set forth. Within 30 days after the close of each
calendar quarter, the Borrower shall cause Mason Bruce & Girard, Inc. or another
independent appraiser of national reputation in the appraisal of timberlands who
is acceptable to the Required Lenders (an "Acceptable Appraiser") to submit an
appraisal to the Lenders appraising the value of the Merchantable Timber as of
the close of such calendar quarter in accord with sound timber appraisal
methods, generally using both the comparable sales and income approaches to a
determination of value. Each such appraisal shall generally use the methodology
set forth in the appraisal of Mason Bruce & Girard, Inc. as of August 31, 1998
and heretofore delivered to the Lenders (the "Initial Appraisal") and shall
include an update on endangered species and fire damage issues and any
regulatory issues which impact the amount or cost of
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<PAGE> 21
harvesting Timber from the Timberland, provided that future appraisals shall be
based in part on a current independent cruise of portions of the Timberland in
accord with prudent industry practice if and to the extent that the Borrowers's
normal random Timberland cruise samplings reveal variances outside industry
norms. The Value of Merchantable Timber shall then be adjusted by the Borrower
by (i) deleting any amounts included in the appraisal in respect of land values
or values for pre-Merchantable Timber or Timber which is not mortgaged, (ii)
adjusting the value of Merchantable Timber included consisting of Stumpage
Rights to account for any obligations of the Borrower or the Guarantors to the
owners of the land underlying such Merchantable Timber and (iii) making
adjustments on account of the Frontier Stumpage Contract and advance payments or
prepayments under stumpage sales and similar arrangements. The Borrower shall
then notify the Administrative Agent of its determination of the Value of
Merchantable Timber and the Administrative Agent shall make such other
adjustments as the Administrative Agent in good faith deems appropriate under
the circumstances (including adjustments in discount rates and factors and
selecting among appraisal methodologies). The Administrative Agent shall consult
with the Borrower in connection with such adjustments but its determination
shall be final and conclusive absent bad faith. The Administrative Agent shall
then notify the Borrower and the Lenders of the Value of Merchantable Timber to
be used until the next redetermination.
(b) Exogenous Factors. In the event (i) that any material amount
of the Merchantable Timber is damaged or destroyed by fire or other casualty or
(ii) of the imposition of any new or more restrictive Governmental Requirements
not accounted for in the most recent appraisal which could materially impact the
value of the Merchantable Timber or the ability to harvest the same or (iii) of
the termination of any Stumpage Rights, the Borrower shall notify the
Administrative Agent and the Administrative Agent shall after consultation with
the Borrower and the Acceptable Appraiser, to the extent appropriate, adjust the
Value of Merchantable Timber to account for the event which has occurred and
notify the Borrower and the Lenders of such adjustment.
(c) Acquisitions. Promptly upon each acquisition of Timberland by
the Borrower, the Borrower shall promptly mortgage such Timberland to the
Administrative Agent to secure the Obligations and shall comply with the
requirements of clauses (iii) and (vi) below. If the Borrower desires that such
Timberland be included in the Value of Merchantable Timber it shall comply with
the following conditions and the Value of Merchantable Timber shall be
redetermined under the procedures set forth in Section 4.2(a) hereof and the
Administrative Agent shall notify the Borrower and the Lenders of such
redetermination. The conditions to inclusion of acquired Timberland in the Value
of Merchantable Timber are as follows:
(i) the Administrative Agent shall have been provided
with such information concerning the Timberland to be acquired as it
may reasonably request;
(ii) in the case of acquisitions of Stumpage Rights, the
Administrative Agent shall have been provided with copies of all deeds
or other agreements providing for such stumpage rights and shall have
approved the same in form and substance;
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<PAGE> 22
(iii) the Administrative Agent shall have received such
mortgages, deeds of trust and other Collateral Documents as it may
reasonably require granting it a first lien on the Timberland being
acquired to secure the Obligations and the same shall be duly filed for
record as required to be effective as against purchasers and creditors;
(iv) the Administrative Agent shall have been provided
with a mortgagee's policy or policies of title insurance (or binding
commitment therefor) or an endorsement to the policies theretofore
issued to it insuring the liens of those Collateral Documents creating
Liens on such Timberland to be valid first liens subject to no defects
or objections which are reasonably unacceptable to the Administrative
Agent, together with such endorsements as the Administrative Agent may
require;
(v) the Administrative Agent shall, if it so requests,
have received a report satisfactory to it from an acceptable
independent consultant as to any endangered species, disease,
infestation, fire damage or regulatory issues concerning the Timberland
being acquired;
(vi) if the additional Timberland in question is located
in a state other than one in which Timberland have been previously
mortgaged, the Administrative Agent shall have received an opinion of
counsel reasonably acceptable to it with respect to the mortgage on
such Timberland to the effect that the mortgages and deeds of trust
creating liens on real property or rights to Timber are adequate under
local law for their intended purposes, contain remedial provisions as
customarily required by prudent mortgagees in the state in question and
will not subject the Administrative Agent or the Lenders to taxation in
such state and to the effect that the Borrower is duly licensed or
qualified to do business in the state in question;
(vii) the Administrative Agent shall have received an
appraisal of the additional Timberland being acquired from an
Acceptable Appraiser and conforming to the appraisal requirements set
forth in Section 4.2(a) hereof;
(viii) the Timberlands to be acquired shall be located
within the states of Washington, Oregon, Idaho, California, Montana,
Colorado or Utah; and
(ix) the Borrower shall be deemed to have repeated all of
the representations contained in Section 6.14 hereof with respect to
such additional Timberland as of the date of the acquisition in
question; and
(x) the Timberland in question shall be owned by the
Borrower.
(d) Sales. If Timberland is sold, the Value of Merchantable Timber
shall be adjusted as and if contemplated by Section 8.13(e) hereof.
(e) Conclusiveness of Determination. All determinations by the
Administrative Agent pursuant to the provisions of this Section 4.2 shall be
final and conclusive provided that it has acted in good faith in connection
therewith.
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<PAGE> 23
(f) Initial Determination. The Administrative Agent has determined
that the Value of Merchantable Timber as of September 30, 1998 is at least
$410,000,000 which number shall be used until redetermined or adjusted pursuant
to this Section 4.2. In addition to the other adjustments provided for in this
Section 4.2, the Value of Merchantable Timber shall be adjusted by the
Administrative Agent to reflect Timber harvested from the Timberland between
August 31, 1998 and the date of the initial Borrowing hereunder (to the extent
not already adjusted) upon receipt by the Administrative Agent of the requisite
information concerning the Timber so harvested.
SECTION 5. DEFINITIONS.
Section 5.1. Certain Definitions. The terms hereinafter set forth when
used herein shall have the following meanings, such definitions to be equally
applicable to the singular and plural of the terms defined:
"Acceptable Appraiser" is defined in Section 4.2.
"Acquisition Agreement" shall mean the Acquisition and Contribution
Agreement dated as of October 9, 1998 among STT II, STP II, Strategic Timber Two
Operating Co., LLC, the Demers Group and Frontier and all exhibits and schedules
thereto, all as amended or modified from time to time as and to the extent
permitted hereby.
"Adjusted LIBOR Rate" shall mean a rate per annum determined pursuant
to the following formula:
Adjusted LIBOR Rate = LIBOR Rate
---------------------------------
100% - Reserve Percentage
"Administrative Agent" shall mean First Union National Bank and any
successor thereto appointed pursuant to Section 12.1 hereof.
"Agents" shall mean the Administrative Agent, ABN AMRO Bank N.V. in its
capacity as Syndication Agent and NationsBank, N.A. in its capacity as
Documentation Agent.
"Affiliate" shall mean any Person, directly or indirectly controlling
or controlled by, or under direct or indirect common control with, another
Person. A Person shall be deemed to control another Person for the purposes of
this definition if such first Person possesses, directly or indirectly, the
power to direct, or cause the direction of, the management and policies of the
second Person, whether through the ownership of voting securities, common
directors, trustees or officers, by contract or otherwise.
"Agreement" shall mean this Replacement Credit Agreement as
supplemented and amended from time to time.
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<PAGE> 24
"Applicable Margin" shall mean, with respect to each type of Portion
and the computation of each fee described below, the rate per annum shown below
for the range of Leverage Ratio specified below:
<TABLE>
<CAPTION>
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V
<S> <C> <C> <C> <C> <C>
Leverage Ratio
(expressed as <4.0 <4.5 but <5.0 but <5.5 but >5.5 to
a ratio to 1) - - >4.0 - >4.5 - >5.0
Base Rate Portion .25% .50% .75% 1.00% 1.25%
LIBOR Portions and 1.75% 2.00% 2.25% 2.50% 2.75%
L/C Fee
Commitment Fee .375% .50% .50% .50% .50%
</TABLE>
The Applicable Margins will be adjusted upon receipt of the Borrower's
quarterly consolidated financial statements for each fiscal quarter of the
Borrower and the related Compliance Certificate, commencing with the quarter
ended March 31, 1999 and shall be at Level IV prior to the determination to be
made as of March 31, 1999. Not later than 5 Business Days after receipt by the
Administrative Agent of the financial statements called for by Section 8.4
hereof for each fiscal quarter of the Borrower ending on or after March 31,
1999, the Administrative Agent shall determine the Leverage Ratio for the
applicable period and shall promptly notify the Borrower and the Lenders of such
determination and of any change in the Applicable Margins resulting therefrom.
Any such change in the Applicable Margins shall be effective as of the date the
Administrative Agent so notifies the Borrower and the Lenders and shall apply to
all Loans outstanding on such date or thereafter made and all computations of
letter of credit and commitment fees for the period from and after such date
(provided that a change resulting in an increase in Applicable Margins shall
become effective no later than 5 Business Days after such quarterly financial
statements should have been received in the event they are not timely
delivered), and such new Applicable Margins shall continue in effect until the
effective date of the next redetermination in accordance with this Section. Each
determination of the Leverage Ratio and Applicable Margins by the Administrative
Agent in accordance with this Section shall be conclusive and binding on the
Borrower and the Lenders absent manifest error and provided it has acted in good
faith in connection therewith.
"Application" is defined in Section 1.1(c)(ii).
"Assignment Agreement" is defined in Section 13.16.
"Auditors" is defined in Section 8.4(b).
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<PAGE> 25
"Authorized Representative" shall mean any of the following and such
other persons as may be designated as such from time to time by the Borrower in
a written notice to the Administrative Agent: Chief Executive Officer, Chief
Financial Officer or any other person designated by either of them.
"Base Rate" shall mean for any day the greater of:
(i) the rate of interest announced by First Union
National Bank from time to time as its prime commercial rate (it being
understood that such rate may not be such Lender's best or lowest
rate), with any change in the Base Rate resulting from a change in said
prime commercial rate to be effective as of the date of the relevant
change in said prime commercial rate; and
(ii) the sum of (x) the rate for that day set forth
opposite the caption "Federal Fund (Effective)" in the daily
statistical release designated as "Composite 3:30 P.M. Quotations for
U.S. Government Securities", or any successor publication, published by
the Federal Reserve Bank of New York or, if such publication shall be
suspended or terminated, the arithmetic average of the rates determined
by the Administrative Agent as the prevailing rates per annum (rounded
upward, if necessary, to the next higher 1/100 of 1%) bid at
approximately 10:00 A.M. (Charlotte time) (or as soon thereafter as is
practicable) on such day by two or more New York or Chicago Federal
funds dealers of recognized standing selected by the Administrative
Agent for the purchase at face value of Federal funds in the secondary
market in an amount comparable to the principal amount owed to the
Administrative Agent for which such rate is being determined and (y)
the rate of 1/2 of 1% per annum.
"Base Rate Portion" shall have the meaning specified in Section 2.1
hereof.
"Borrower" shall mean Pioneer Resources, LLC.
"Borrowing" shall mean the aggregate amount of Loans of a given type
made on a given date and, if part of a LIBOR Portion, having the same Interest
Period.
"Bridge Loan" shall mean the loan in the amount of $35,000,000 made to
STT II having terms (including maturity, interest rate and covenants) acceptable
to the Agents (which shall be assumed in the event that they are the providers
of such Bridge Loan).
"Business Day" shall mean any day except Saturday or Sunday on which
banks are open for business in Chicago, Illinois and New York, New York and,
with respect to LIBOR Portions, dealing in United States dollar deposits in
London, England.
"Capitalized Lease" shall mean any lease or obligation for rentals
which is required to be capitalized on a consolidated balance sheet of the
Borrower and its Subsidiaries in accordance with generally accepted accounting
principles, consistently applied.
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<PAGE> 26
"Capitalized Lease Obligation" shall mean the present discounted value
of the rental obligations under any Capitalized Lease determined on a
consolidated basis in accordance with generally accepted accounting principles
consistently applied.
"Change of Control" shall mean the occurrence of any one or more of the
following events: (i) the Borrower ceases at any time and for any reason to be a
wholly-owned Subsidiary of STP II or (ii) the Demers Group ceases at any time
and for any reason to own both legally and beneficially, at least 33% of the
equity interest in STP II or (iii) any of the equity interest of any member of
the Demers (Immediate) Group is sold as transferred or (iv) any Person shall at
any time be a general partner of STP II other than a Person which is a
wholly-owned subsidiary of STTII or (v) any Person or group of Persons acting in
concert (other than the present equity owners of STT II and STP II and/or the
Demers Group) shall at any time own, either legally or beneficially, more than
25% of the equity interest in STT II or STP II or more than 25% of the voting
equity interest in either of such entities.
"Class of Notes" shall mean the Revolving Credit Notes (taken as a
group) and the Term Credit Notes (taken as a group).
"Collateral" is defined in Section 4.1.
"Collateral Documents" shall mean all mortgages, deeds of trust,
pledges, security agreements, financing statements and other documents as shall
from time to time secure the Obligations.
"Commitments" shall mean the Revolving Credit Commitments and the Term
Credit Commitments.
"Compliance Certificate" shall mean the certificate which is required
to be delivered to the Lenders pursuant to Section 8.4(c) hereof in the form of
Exhibit C.
"Consolidated Debt" shall mean Debt of the Borrower and its
Subsidiaries (other than Debt described in clause (b) of the definition of that
term) computed on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" for any period shall mean the net income of
the Borrower and its Subsidiaries for such period as computed on a consolidated
basis in accordance with GAAP; but excluding any extraordinary profits and
losses and also excluding any taxes on such extraordinary profit and any tax
benefit attributable to such extraordinary loss, it being acknowledged that
gains and losses from ordinary course of business sales of Timber, Timberland
and rights therein are not extraordinary for this purpose.
"Credit Utilizations" shall mean the Loans and L/C Obligations.
"Debt" of any Person shall mean as of any time the same is to be
determined, the aggregate (without duplication) of:
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<PAGE> 27
(a) all indebtedness with respect to borrowed money;
(b) all reimbursement and other obligations with respect
to letters of credit, payment or performance bonds, banker's
acceptances, customer advances and other extensions of credit whether
or not representing obligations for borrowed money;
(c) the aggregate amount of Capitalized Lease
Obligations;
(d) all indebtedness secured by any lien or any security
interest on any Property or assets of such Person, (other than advance
payment arrangements approved in writing by the Administrative Agent)
whether or not the same would be classified as a liability on a balance
sheet;
(e) all indebtedness representing the deferred purchase
price of Property (including all amounts payable in respect of Stumpage
Rights and similar obligations), but excluding all trade payables
incurred in the ordinary course of business; and
(f) all guaranties (other than the subordinated guarantee
of the Bridge Loan permitted by Section 8.11(c), hereof), endorsements
(other than any liability arising out of the endorsement of items for
deposit or collection in the ordinary course of business) and other
contingent obligations in respect or designed to assess payment of, or
any obligations to purchase or otherwise acquire, of any of the
foregoing.
"Demers Group" shall mean (i) Gregory M. Demers, T. Yates Exley,
Derrick Salyers, and James A. Youel, their wives and lineal descendants and/or
trusts for the benefit of any of the same and King Investment Group, Inc. and
Old Pioneer, LLC.
"Demers (Immediate) Group" shall mean (i) Gregory M. Demers, his wife
and lineal descendants and/or trusts for the benefit of any of the same and (ii)
any corporations, partnerships or limited liability companies which the parties
named in clause (i) of this definition control (i.e.; such parties have the
legal power to direct (either directly or through persons elected by them) the
management and policies of such entities, including controlling the actions such
entities take with respect to their investment in STP II).
"EBITDDA" shall mean, with reference to any period, Consolidated Net
Income for such period plus all amounts deducted in arriving at Consolidated Net
Income in respect of (i) Interest Expense for such period, plus (ii) federal,
state and local income taxes of the Borrower and its Subsidiaries for such
period, plus (iii) all amounts properly charged for depreciation, depletion
and/or amortization of assets during such period on the books of the Borrower
and its Subsidiaries The foregoing to the contrary notwithstanding, for all
purposes of this Agreement EBITDDA for the calendar quarter ending March 31,
1998 shall be deemed to be $3,800,000, for the calendar quarter ended June 30,
1998 shall be deemed to be $11,400,000, and for the calendar quarter ended
September 30, 1998 shall be deemed to be $15,200,000.
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<PAGE> 28
"Environmental Indemnity" shall mean an indemnity of the Lenders, the
Issuer and the Agents from the Borrower and STT II as to environmental
liabilities satisfactory in form and substance to the Agents.
"Environmental Laws" shall mean all federal, state and local
environmental, health and safety statutes and regulations, including without
limitation all statutes and regulations establishing quality criteria and
standards for air, water, land and toxic or hazardous wastes and substances.
"Equity Offering" shall mean a direct or indirect public offering,
private placement or other issuance or sale of capital stock or other equity or
membership interests (or warrants, options or other rights therefor) of STT II,
or of STP II or any general or limited partner of STP II other than STT II, the
Demers Group or Mach One.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Event of Default" shall mean any event or condition identified as such
in Section 9.1 hereof.
"Excess Cash Flow" shall mean for the Borrower and its Subsidiaries on
a consolidated basis for any period for which the same is to be computed,
EBITDDA for such period less the sum for such period of regularly scheduled
principal payments and voluntary prepayments made by the Borrower and its
Subsidiaries on Consolidated Debt (other than principal payments made on
Revolving Credit Loans and on any other loans if and to the extent that the
Borrower has the contractual right to reborrow the funds so paid) paid during
such period, Interest Expense paid in cash during such period, cash payments of
income and similar taxes paid during such period, Restricted Payments paid
during such period and capital expenditures (as defined and classified in
accordance with GAAP) funded during such period.
"Fed Funds Rate" shall mean the rate defined in clause (ii)(x) of the
definition of the term "Base Rate".
"Fee Timberland" is defined within the definition of the term
"Timberland."
"Final Covenant Levels" shall mean as of any time the same is to be
determined that the Timber Coverage Ratio is 50% or less, the Leverage Ratio as
of the most recent date of computation was 4.50 to 1 or less and the Interest
Coverage Ratio as of the most recent date of computation was 2.00 to 1 or
greater.
"Fixed Charge Coverage Ratio" shall mean, as at any time the same is to
be determined, the ratio for the period of four consecutive fiscal quarters
ending on the date of computation, of EBITDDA to the sum for such period of
Interest Expense, Restricted Payments and capital expenditures of the Borrower
and its Subsidiaries (as defined and classified in accordance with GAAP). The
foregoing to the contrary notwithstanding, amounts included in computations of
the Fixed Charge Coverage Ratio in respect of Interest
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<PAGE> 29
Expense, Restricted Payments and capital expenditures for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998 shall be as follows:
<TABLE>
<CAPTION>
DEEMED DEEMED
FOR THE CALENDAR DEEMED INTEREST RESTRICTED CAPITAL
QUARTER ENDED: EXPENSE PAYMENTS EXPENDITURES
<S> <C> <C> <C>
3/31/98 $6,175,000 $963,000 $114,000
6/30/98 $6,175,000 $963,000 $424,000
9/30/98 $6,175,000 $963,000 $516,000
</TABLE>
"Frontier" shall mean Frontier Resources, LLC, an Oregon limited
liability company.
"Frontier Stumpage Contract" shall mean the Timber Deed dated as of
October 9, 1998 by and between Frontier and the Borrower in the form heretofore
delivered to the Lenders as the same may hereafter be amended as and to the
extent permitted by the terms of this Agreement.
"GAAP" shall mean generally accepted accounting principles as in effect
from time to time subject to Section 13.8 and applied on a basis which is
consistent with those used in the preparation of the audit report of the
Borrower referred to in Section 6.2 hereof.
"Governmental Body" shall mean the United States of America or any
state or political subdivision thereof any other nation or political subdivision
thereof or any agency, department, commission, board, bureau or instrumentality
of any of them which exercises jurisdiction over the Borrower or any of its
Subsidiaries or any of their assets or the conduct the business of the Borrower
or any of its Subsidiaries in any such jurisdiction.
"Governmental Requirements" shall mean any law, ordinance, order, rule
or regulation by a Governmental Body.
"Guarantors" shall mean any future Subsidiaries of the Borrower and,
from and after payment in full of the Bridge Loan, STP II. Persons providing
guaranties of the Obligations as to which the only recourse is to such Person's
equity interest in the Borrower or STP II shall not, solely as a result thereof,
be deemed Guarantors hereunder.
"Hedging Liabilities" shall mean liabilities of the Borrower to the
Lenders or any of them or to any of their Affiliates arising in connection with
the interest rate hedging activities constituting part of the Hedging Program.
"Hedging Program" is defined is Section 8.22 hereof.
"Initial Appraisal" is defined in Section 4.2(a).
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<PAGE> 30
"Interest Coverage Ratio" shall mean, as of any time the same is to be
determined the ratio, for the period of four consecutive fiscal quarters ending
on the date of computation, of EBITDDA to Interest Expense. The foregoing to the
contrary notwithstanding, computations of the Interest Coverage Ratio as of
March 31, 1998, June 30, 1998 and September 30, 1998 shall be made by utilizing
Interest Expense of $6,175,000 for each of such quarters.
"Interest Expense" shall mean, with reference to any period, the sum of
all interest charges (including imputed interest charges with respect to
Capitalized Lease Obligations, and amortization of debt discount and expense) of
the Borrower and its Subsidiaries for such period determined on a consolidated
basis in accordance with GAAP; provided, however, that for purposes of
determining whether the Final Covenant Levels have been attained and determining
compliance with Sections 8.20 and 8.21 during the four quarters subsequent to
the occurrence of one of the events referred to in the last sentence of Section
8.20, if Debt is repaid substantially concurrently with or in contemplation of
such events, interest on the amount so repaid may be excluded from Interest
Expense.
"Interest Period" shall mean with respect to any LIBOR Portion, the
period used for the computation of interest commencing on the date the relevant
LIBOR Portion is made, continued or effected by conversion and concluding on the
date one, two, three or six months thereafter as selected by the Borrower in its
notice as provided herein; provided that all of the foregoing provisions
relating to Interest Periods are subject to the following:
(a) if any Interest Period would otherwise end on a day
which is not a Business Day, that Interest Period shall be extended to
the next succeeding Business Day, unless in the case of an Interest
Period for a LIBOR Portion the result of such extension would be to
carry such Interest Period into another calendar month in which event
such Interest Period shall end on the immediately preceding Business
Day;
(b) no Interest Period may extend beyond the scheduled
Termination Date;
(c) the interest rate to be applicable to each LIBOR
Portion for each Interest Period shall apply from and including the
first day of such Interest Period to but excluding the last day
thereof; and
(d) no Interest Period may be selected if after giving
effect thereto the Borrower will be unable to make a principal payment
anticipated to become due during such Interest Period without paying
part of a LIBOR Portion on a date other than the last day of the
Interest Period applicable thereto.
For purposes of determining an Interest Period, a month means a period starting
on one day in a calendar month and ending on a numerically corresponding day in
the next calendar month, provided, however, if an Interest Period begins on the
last day of a month or if there is no numerically corresponding day in the month
in which an Interest Period is to end, then such Interest Period shall end on
the last Business Day of such month.
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<PAGE> 31
"Issuer" shall mean First Union National Bank and any successor to
First Union National Bank as Issuer.
"L/C Documents" means the Letters of Credit, any draft or other
document presented in connection with a drawing thereunder, the Applications and
this Agreement.
"L/C Obligations" shall mean the aggregate undrawn face amounts of all
outstanding Letters of Credit and all unpaid Reimbursement Obligations to the
Issuer in respect of drafts drawn and paid under Letters of Credit.
"Letter of Credit" is defined in Section 1.1(c)(i).
"Lenders" shall mean First Union National Bank, the other Lenders
signing this Agreement as lenders and all other lenders becoming parties hereto
pursuant to Section 13.16 hereof.
"Leverage Ratio" shall mean, as of any date of determination, the ratio
of (a) Consolidated Debt as of such date to (b) EBITDDA of the Borrower and its
Subsidiaries (determined on a consolidated basis) for the four fiscal quarters
of the Borrower ending on such date of determination.
"LIBOR Index Rate" shall mean, for any Interest Period applicable to a
LIBOR Portion, the rate per annum (rounded upwards, if necessary, to the next
higher one hundred-thousandth of a percentage point) for deposits in U.S.
Dollars for a period equal to such Interest Period, which appears on the
Telerate Page 3750 as of 11:00 a.m. (London, England time) on the day two
Business Days before the commencement of such Interest Period.
"LIBOR Portion" is defined in Section 2.1.
"LIBOR Rate" shall mean for each Interest Period applicable to a LIBOR
Portion, (a) the LIBOR Index Rate for such Interest Period, if such rate is
available, and (b) if the LIBOR Index Rate cannot be determined, the arithmetic
average of the rates of interest per annum (rounded upwards or downwards, if
necessary, to the nearest 1/100 of 1%) at which deposits in U.S. dollars in
immediately available funds are offered to the Administrative Agent at 11:00
a.m. (London, England time) two (2) Business Days before the beginning of such
Interest Period by three (3) or more major Lenders in the interbank eurodollar
market selected by the Administrative Agent for a period equal to such Interest
Period and in an amount equal or comparable to the principal amount of the LIBOR
Portion scheduled to be made by the Administrative Agent during such Interest
Period.
"Loan" shall mean each loan made pursuant to this Agreement.
"Loan Documents" shall mean this Agreement, the Notes, the Collateral
Documents, the L/C Documents, agreements between the Borrower and any of the
Lenders or any of their Affiliates entered into as part of or pursuant to the
Hedging Program, the Environmental Indemnity, any agreement between the Borrower
and the Administrative
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<PAGE> 32
Agent concerning fees, and all instruments and documents delivered by the
Borrower or any Guarantor under or pursuant to any of the foregoing, all as
amended or modified from time to time pursuant to the terms hereof or thereof.
"Loans" shall mean the Revolving Credit Loans and the Term Loans.
"Mach One" shall mean Mach One Partners, a Georgia limited liability
company.
"Management Agreement" shall mean the Management Services Agreement
made as of October 9, 1998 among Strategic Timber Operating Co., LLC, a Georgia
limited liability company and the Borrowers and all exhibits and schedules
thereto.
"Master Grazing Agreement" shall mean the Grazing Lease dated as of
October 9, 1998 from Pioneer to Frontier.
"Material Adverse Effect" shall mean any material adverse effect on the
(i) financial condition, results of operations or business prospects of the
Borrower and its Subsidiaries taken as a whole, (ii) the validity or
enforceability of any Loan Document, (iii) the ability of the Borrower to pay or
perform its Obligations or to avoid an Event of Default, (iv) the value or
priority of the liens of the Administrative Agent, for the benefit of the
Lenders and the Agents and the Issuer in the Collateral or (v) the ability of
the Agents or any Lender to enforce any of their legal remedies pursuant to the
Loan Documents.
"Merchantable Timber" shall mean all standing trees consisting of
ponderosa pine, douglas fir, redwoods, western larch, white fir, lodgepole pine
and other commercially exploitable species which is located upon the Timberland,
is free of known disease and defect, is not in a location where it is
commercially unfeasible to harvest the same and, at the time of determination,
could be harvested in compliance with all Governmental Requirements and is of a
size and grade such that the harvesting and sale of same could then be
accomplished consistent with all Governmental Requirements and sound
silvicultural practices and which also meets all applicable criteria of
merchantability set forth in consultant's report prepared by Mason, Bruce &
Girard, Inc. for the benefit of the Lenders dated as of October 3, 1998 as to
the initial Timberlands or as to acquisitions in the same general geographic
areas as the initial Timberlands and, in the case of Timberlands located
elsewhere, also satisfies objective criteria of merchantability reasonably
satisfactory to the Administrative Agent and which are consistent with prudent
practice in the area in question.
"Notes" shall mean the Revolving Credit Notes and the Term Credit
Notes.
"Obligations" shall mean all indebtedness, obligations and liabilities
of the Borrower and the Guarantors under the Loan Documents.
"Participating Lenders" is defined in Section 1.1(c)(iv).
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
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<PAGE> 33
"Person" shall mean any individual, corporation, limited liability
company, voluntary association, partnership, joint venture, trust,
unincorporated organization or government (or any agency, instrumentality or
political subdivision thereof).
"Plan" shall mean any employee benefit plan covering any officers or
employees of any Borrower or any Subsidiary, any benefits of which are, or are
required to be, guaranteed by the PBGC.
"Portion" is defined in Section 2.1.
"Potential Default" shall mean any event or condition which, with the
lapse of time, or giving of notice, or both, would constitute an Event of
Default.
"Property" shall mean all assets and properties of any nature
whatsoever, whether real or personal, tangible or intangible, including without
limitation intellectual property.
"Reimbursement Obligation" is defined in Section 1.1(c)(iii).
"Required Lenders" shall mean any Lender or Lenders which in the
aggregate hold at least 66-2/3% of the sum of the aggregate unpaid principal
balance of the Loans, the aggregate credit risk incident to the Letters of
Credit, the unfunded Revolving Credit Commitments and, if the determination is
made prior to the funding of the Term Loans, the Term Credit Commitments.
"Reserve Percentage" shall mean the daily arithmetic average maximum
rate at which reserves (including, without limitation, any supplemental,
marginal and emergency reserves) are imposed on member banks of the Federal
Reserve System during the applicable Interest Period by the Board of Governors
of the Federal Reserve System (or any successor) under Regulation D on
"eurocurrency liabilities" (as such term is defined in Regulation D), subject to
any amendments of such reserve requirement by such Board or its successor,
taking into account any transitional adjustments thereto. For purposes of this
definition, the LIBOR Portions shall be deemed to be eurocurrency liabilities as
defined in Regulation D without benefit or credit for any prorations, exemptions
or offsets under Regulation D.
"Restricted Payments" is defined in Section 8.9.
"Restructuring" shall mean, collectively, (i) the acquisition by STP II
of 100% of the equity and members interest in the Borrower, (ii) the transfer by
the Borrower of the Transferred Assets to Frontier and (iii) the assumption by
Frontier of the Transferred Liabilities, all on and as provided for in the
Acquisition Agreement and otherwise in a manner acceptable to the Agents.
"Revolving Credit Commitments" shall mean the commitments of the
Lenders to extend credit pursuant to Section 1.1 hereof in the amounts set forth
under the heading "Revolving Credit Commitment" opposite their signatures hereto
or on an Assignment Agreement to which they are a party all as reduced from time
to time pursuant to the terms
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<PAGE> 34
of this Agreement. The initial aggregate amount of the Revolving Credit
Commitments is $70,000,000.
"Revolving Credit" shall mean the credit facility established pursuant
to Section 1.1 hereof.
"Revolving Credit Loans" is defined in Section 1.1 hereof.
"Revolving Credit Notes" is defined in Section 1.1 hereof.
"Stumpage Rights" is defined within the definition of the term
"Timberland."
"STP II" shall mean Strategic Timber Partners II, LP, a Georgia limited
partnership.
"STP II Partnership Agreement" is defined in Section 3.4(b)(iv) hereof.
"STT II" shall mean Strategic Timber Trust II, LLC, a Georgia limited
liability company.
"Subsidiary" shall mean, for any Person, any Person of which more than
fifty percent (50%) of the outstanding stock or comparable equity interests
having ordinary voting power for the election of the board of directors, board
of managers or similar governing body (irrespective of whether or not, at the
time, stock or other equity interests of any other class or classes of such
corporation or other entity shall have or might have voting power by reason of
the happening of any contingency) is at the time directly or indirectly owned by
such Person or by one or more of its Subsidiaries. Unless otherwise expressly
provided, all references herein to a "Subsidiary" or "Subsidiaries," shall mean
a Subsidiary or Subsidiaries of the Borrower. A Subsidiary shall be deemed
"wholly owned" by a Person only if all equity interests in such Subsidiary
(whether or not voting) are directly owned by the Person in question.
"Telerate Page 3750" shall mean the display designated as "Page 3750"
on the Telerate Service (or such other page as may replace Page 3750 on that
service or such other service as may be nominated by the British Bankers'
Association as the information vendor for the purpose of displaying British
Bankers' Association Interest Settlement Rates for U.S. Dollar deposits).
"Term Credit Commitments" shall mean the commitments of the Lenders to
extend credit pursuant to Section 1.2 hereof in the amounts set forth under the
heading "Term Credit Commitment" opposite their signatures hereto or on an
Assignment Agreement to which they are a party. The Term Credit Commitments are
in the amount of $200,000,000.
"Term Credit Notes" is defined in Section 1.2 hereof.
"Term Loans" is defined in Section 1.2 hereof.
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<PAGE> 35
"Termination Date" shall mean September 30, 2003 or such earlier date
on which the Commitments are terminated in whole pursuant to Sections 3.5, 9.2
or 9.3 hereof.
"Timber" shall mean all trees, timber, whether severed or unsevered,
and including standing and downed timber, stumps and cut timber and all logs and
other forest products.
"Timber Coverage Ratio" shall mean, as of any time the same is to be
determined, the ratio (expressed as a percentage) of Consolidated Debt to the
Value of Merchantable Timber.
"Timberland" shall mean (i) all lots and tracts of land owned by the
Borrower or any of the Guarantors the primary value of which consists of the
Timber located thereon ("Fee Timberland") and (ii) all lots and tracts of land
owned by others on which there is located standing or downed Timber which is
owned by the Borrower or the Guarantors under arrangements such that the rights
of the Borrower or the Guarantors as the case may be to sever and remove such
Timber are indefeasible and superior to the rights of the owners of such tracts
of land and their creditors ("Stumpage Rights"). Anything contained hereinabove
to the contrary notwithstanding, unless the context otherwise requires, all
references to Timberland shall be deemed to include a reference to the Timber
located thereon. Timberland shall not include cut over lands and, accordingly,
the Administrative Agent shall, at the request and expense of the Borrower,
release its lien from cut over lands if such lands are not needed for access to
Timberland and no Default or Event of Default has occurred and is continuing.
"Transferred Assets" shall mean the assets of the Borrower listed on
Exhibit D hereto.
"Transferred Liabilities" shall mean the liabilities of the Borrower
listed on Exhibit E hereto.
"Value of Merchantable Timber" shall mean the value of Merchantable
Timber as determined by the Borrower and approved by the Administrative Agent
and adjusted from time to time pursuant to the provisions of Sections 4.2 and
8.13(d) hereof; provided however that (i) only Merchantable Timber on which the
Administrative Agent has a valid and perfected first lien (subject, however, to
the rights of any other purchaser of stumpage rights as to which the
Administrative Agent's lien has been subordinated) to secure the Obligations
shall be included in such calculations and (ii) any hereafter acquired
Merchantable Timber shall only be included in the Merchantable Timber if it is
owned by the Borrower and it has complied with all requirements of Section
4.2(c) hereof.
"Year 2000 Problem" means any significant risk that computer hardware,
software, or equipment containing embedded microchips essential to the business
or operations of the Borrower or any of its Subsidiaries will not, in the case
of dates or time periods occurring after December 31, 1999, function at least as
efficiently and reliably as in the case of times or time periods occurring
before January 1, 2000, including the making of accurate leap year calculations.
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Section 5.2. Accounting Terms. Any accounting term not otherwise
specifically defined in this Agreement shall have the meaning customarily given
to such term in accordance with GAAP as in effect on the date hereof, and
consistent with those used in the preparation of the financial statements of the
Borrower and its Subsidiaries audited by the Auditors and referred to in Section
6.2 hereof. Where the character or amount of any asset or liability or item of
income or expense is required to be determined or any consolidation or other
accounting computation is required to be made for the purpose of this Agreement,
it shall be done in accordance with GAAP, to the extent applicable, except where
such principles are inconsistent with the requirements of this Agreement. If a
change in GAAP occurs, the financial statements called for by Section 8.4 may be
prepared on the basis of GAAP as then in effect, but computations of compliance
with the covenants herein contained shall be based on GAAP as in effect on the
date hereof.
SECTION 6. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Lenders as follows:
Section 6.1. Organization and Qualification. The Borrower and its
Subsidiaries are duly organized, validly existing and in good standing under the
laws of their respective states of incorporation or organization, have full and
adequate corporate power to carry on their business as now conducted and are
duly licensed or qualified in all jurisdictions wherein the nature of their
activities requires such licensing or qualifying and in which the failure to be
so licensed or qualified could result in a Material Adverse Effect. The Borrower
and each Guarantor has full right, power and authority to enter into this
Agreement and the other Loan Documents to which it is a party, the Borrower has
full right, power and authority to make the Borrowings herein provided for and
to execute and issue its Notes in evidence thereof, and the Borrower and the
Guarantors have full right, power and authority to perform each and all of the
matters and things herein and therein provided for. Immediately after giving
effect to the Restructuring, the Borrower will have no Subsidiaries.
Section 6.2. Financial Reports. The Borrower has heretofore delivered
to each Lender a copy of the consolidated balance sheet of the Borrower and its
Subsidiaries as at December 31, 1997 and the related consolidated statements of
income, changes in equity and cash flows for the twelve month period then ending
as audited by Arthur Andersen LLP and a copy of consolidated and consolidating
balance sheets of the Borrower and its Subsidiaries as at June 30, 1998 and of
consolidated and consolidating income statements and cash flow statements for
the Borrower and its Subsidiaries for the quarterly fiscal period then ending
and for the year to date. Such financial statements have been prepared in
accordance with GAAP and fairly reflect the financial position of the Borrower
and its Subsidiaries as of the dates thereof, and the results of their
operations for the periods covered thereby. The Borrower and its Subsidiaries
have no known material contingent liabilities other than as indicated on said
financial statements or as set forth on Schedule 6.2. Since said date of June
30, 1998, there has been no change in the financial condition or results of
operations of the Borrower and its Subsidiaries taken as a whole, except those
disclosed in writing to the Lenders prior to the date of this Agreement and
those which could not have a Material Adverse Effect. The Borrower has also
delivered to the Lenders (i) a pro forma balance
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sheet of the Borrower immediately after giving effect to the Restructuring and
(ii) projections of financial performance for the Borrower for the five-year
period ended December 31, 2003. Such pro forma balance sheet reflects fairly the
financial position of the Borrower immediately after giving effect to the
Restructuring. Such projections reflect the Borrower's best estimate of its
financial performance over the period covered by such statements based upon the
information currently available to the Borrower and upon estimates and
assumptions which it believes to be reasonable.
Section 6.3. Litigation; Tax Returns; Approvals. Except as set forth on
Schedule 6.3, there is as of the date hereof no litigation, labor controversy or
governmental proceeding pending, nor to the knowledge of the Borrower
threatened, against the Borrower or any Subsidiary thereof involving a
reasonable possibility of an outcome which could result in a Material Adverse
Effect. All United States federal and material state and local income tax
returns for the Borrower and its Subsidiaries required to be filed have been
filed on a timely basis (taking into account any extension of time within which
to file), and all amounts required to be paid as shown by said returns have been
paid, except for amounts that are being contested in good faith by appropriate
proceedings and for which adequate reserves have been established in accordance
with GAAP. Except as set forth on Schedule 6.3, there are no claims for taxes
being asserted against the Borrower and its Subsidiaries for any fiscal year
involving a reasonable possibility of an outcome which could result in a
Material Adverse Effect. No authorization, consent, license, exemption or filing
or registration with any court or governmental department, agency or
instrumentality, is or will be necessary to the valid execution, delivery or
performance by the Borrower or any Guarantor of the Loan Documents to which it
is a party.
Section 6.4. Regulation U. Neither the Borrower nor any of its
Subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System) and no part of the proceeds of
any Loan or other extension of credit hereunder will be used to purchase or
carry any margin stock or to extend credit to others for such a purpose.
Section 6.5. No Default. No Potential Default or Event of Default
exists on the date hereof.
Section 6.6. ERISA. The Borrower and its Subsidiaries are in compliance
in all material respects with ERISA to the extent applicable to them and neither
the Borrower nor any Subsidiary thereof has received any notice to the contrary
from the PBGC or any other governmental entity or agency except where such
noncompliance could not result in a Material Adverse Effect. No steps have been
taken to terminate any Plan other than a "standard termination" meeting the
requirements of Section 4041(b) of ERISA, and no contribution failure has
occurred with respect to any Plan sufficient to give rise to a lien under
Section 302(f) of ERISA. No condition exists or event or transaction has
occurred with respect to any Plan which is reasonably likely to result in the
incurrence by the Borrower or any Subsidiary thereof of any fine, penalty or
liability (other than the liability for making contributions when due to such
Plan in accordance with Section 302 of ERISA)
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which could have a Material Adverse Effect. Neither the Borrower nor any
Subsidiary thereof has any contingent liability with respect to any
post-retirement benefit, other than liability for continuation coverage
described in Part 6 of Title I of ERISA that could reasonably be expected to
have a Material Adverse Effect, except as disclosed in writing to the Lenders
prior to the date hereof.
Section 6.7. Enforceability. This Agreement and the other Loan
Documents are the legal, valid and binding agreements of the Borrower and
Guarantors, enforceable against them in accordance with their terms, except as
may be limited by (a) bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium or other similar laws or judicial decisions for the relief
of debtors or the limitation of creditors' rights generally and (b) any
equitable principles relating to or limiting the rights of creditors generally
or any equitable remedy which may be granted to cure any defaults.
Section 6.8. Restrictive Agreements. Neither the Borrower nor any
Guarantor is a party to any contract or agreement, or subject to any charge or
other corporate restriction, which affects its ability to execute, deliver and
perform the Loan Documents to which it is a party and repay its indebtedness,
obligations and liabilities under the Loan Documents or which materially and
adversely affects or, insofar as the Borrower can reasonably foresee, could
result in a Material Adverse Effect or would in any respect materially and
adversely affect the Borrower's or such Guarantor's legal ability to repay the
indebtedness, obligations and liabilities under the Loan Documents, or any
Lender's or the Administrative Agent's rights under the Loan Documents.
Section 6.9. No Default Under Other Agreements. Neither the Borrower
nor any Subsidiary is in default with respect to any note, indenture, loan
agreement, mortgage, lease, deed, or other agreement to which it is a party or
by which it or its Property is bound, which default could materially and
adversely affect any Lender's or any Administrative Agent's rights under the
Loan Documents or result in a Material Adverse Effect.
Section 6.10. Status Under Certain Laws. Neither the Borrower nor any of
its Subsidiaries is an "investment company" or a person directly or indirectly
controlled by or acting on behalf of an "investment company" within the meaning
of the Investment Company Act of 1940, as amended, or a "holding company," or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or a "subsidiary company" of a "holding company," within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
Section 6.11. Full Disclosure. The statements and information furnished
to the Administrative Agent and the Lenders in connection with the negotiation
of this Agreement and the commitments by the Lenders to provide all or part of
the financing contemplated hereby, do not, taken as a whole, contain any untrue
statement of a material fact or omit a material fact necessary, in the context
in which it is furnished, to make the material statements contained therein or
herein not misleading except for such thereof as were corrected in subsequent
written statements furnished the Lenders, the Lenders acknowledging that as to
any projections furnished to any Lender, the Borrower only
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represents that the same were prepared on the basis of information and
estimates the Borrower believes to be reasonable.
Section 6.12. Compliance with Law. (a) The Borrower and its
Subsidiaries are not in default under any Governmental Requirement, license or
demand (including without limitation ERISA, the Occupational Safety and Health
Act of 1970 and laws and regulations establishing quality criteria and standards
for air, water, land and toxic waste) of any Governmental Body, default with
respect to or under which might have consequences which may result in a Material
Adverse Effect.
(b) Without limiting the generality of the foregoing, the Borrower and
its Subsidiaries are in compliance with all applicable state and federal
environmental, health and safety statutes and regulations, including, without
limitation, regulations promulgated under the Resource Conservation and Recovery
Act of 1976, 42 U.S.C. ss.ss.6901 et seq., except where failure to be in
compliance would not result in a Material Adverse Effect and, will not have
acquired, incurred or assumed, directly or indirectly, any contingent liability
in connection with the release of any toxic or hazardous waste or substance into
the environment and the Borrower and its Subsidiaries have received no notice
from any Governmental Body which is contrary to any of the foregoing except
contingent liabilities which could not result in a Material Adverse Effect.
Insofar as known to the responsible officers of the Borrower and its
Subsidiaries, the Borrower and its Subsidiaries will not be the subject of any
evaluation under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. ss.ss.9601 et seq except to the extent
such evaluation could not result in any Material Adverse Effect.
Section 6.13. Solvency, etc. Immediately after giving effect to the
Restructuring, (i) the assets of the Borrower and of each Guarantor, at a fair
valuation, will exceed its liabilities, including contingent liabilities, (ii)
the remaining capital of the Borrower and of each Guarantor will not be
unreasonably small to conduct or in relation to its business or any transaction
in which it intends to engage, and (iii) the Borrower and each Guarantor will
not have incurred debts, and does not intend to incur debts, beyond its ability
to pay such debts as they mature. For purposes of this Section, "debt" means any
liability on a claim, and "claim" means (i) right to payment, whether or not
such right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured; or (ii) right to an equitable remedy for breach of performance if
such breach gives rise to a payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured, or unsecured.
Section 6.14. Concerning the Timberland. The Borrower has legal or
practical access, for forest management and timber harvest purposes, sufficient
to remove the Timber from the Timberland on a commercially feasible basis, to
all portions of the Timber on the Timberland over existing public roads, over
easements appurtenant to the Timberland or over roads across the Timberland or
otherwise and such title and access are free and clear of all Liens not
permitted hereunder. To the best knowledge of the Borrower, the Timber
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located on and forming part of the Timberland is in good condition, is
marketable and substantially free from pests, blight, fungus, disease or other
infestation and from any other condition which would materially impair its value
and the Borrower will be able to harvest the Timber in the ordinary course of
its business not impeded, prohibited or delayed by any current or prospective
private contract or Governmental Requirement. The Borrower has delivered to the
Administrative Agent true and correct copies of all contracts or agreements for
the sale of Timber on the Timberland and there are no defaults under such
contracts or agreements. The Borrower has delivered true and correct copies of
all deeds, contracts and agreements creating Stumpage Rights to the Lenders, all
such deeds, contracts and agreements are unamended and in full force and effect
and, subject to their terms, create rights in and to the related Timber prior
and superior to the rights of the owners of the lands on which such Timber is
located and their creditors and the Borrower and the other parties to such
deeds, contracts and agreements are in compliance with all of their respective
material obligations thereunder.
Section 6.15. The Frontier Stumpage Contract. The Borrower has delivered
to the Administrative Agent a true copy of the Frontier Stumpage Contract and
all amendments thereto. Both the Borrower and Frontier are in compliance with
all of their material obligations under the Frontier Stumpage Contract and the
Borrower has received no notice from Frontier to the contrary.
Section 6.16. Concerning the Acquisition Agreement and the Management
Agreement. The Borrower has delivered true copies of the Acquisition Agreement
and the Management Agreement and all amendments and modifications thereto to the
Lenders. The Borrower (and, to the best of its knowledge, the other parties
thereto) are in full compliance with their obligations under the Acquisition
Agreement and the Management Agreement and the same are in full force and
effect.
Section 6.17. Year 2000 Compliance. The Borrower has conducted a
comprehensive review and assessment of the computer applications of the Borrower
and has made inquiry of its material suppliers, vendors (including data
processors) and customers, with respect to any defect in computer software, data
bases, hardware, controls and peripherals related to the occurrence of the year
2000 or the use at any time of any data which is before, on or after December
31, 1999, in connection therewith. Based on the foregoing review, assessment and
inquiry, the Borrower believes that no such defect could reasonably be expected
to have a material adverse effect on the business or financial affairs of the
Borrower.
SECTION 7. CONDITIONS PRECEDENT.
Section 7.1. Initial Credit Utilization. At or prior to the time
of the initial Credit Utilization, the following conditions precedent shall have
been satisfied:
(a) the Administrative Agent shall have received the
following for the account of the Lenders (each to be properly executed
and completed) and the same shall have been approved as to form and
substance by the Agents:
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(i) the Notes;
(ii) copies (executed or certified as may be
appropriate) for each Lender of all legal documents or
proceedings taken in connection with the execution and
delivery of the Loan Documents, to the extent the Agents or
their counsel may reasonably request, together with
appropriate certificates of incumbency;
(iii) the Collateral Documents and any financing
statements reasonably requested by the Administrative Agent in
connection therewith;
(iv) the partnership agreements, by-laws,
operating agreements, management agreements and good standing
certificates for the Borrower and each Guarantor;
(v) a mortgagee's policy or policies of title
insurance (or binding commitments therefor) in the aggregate
amount of at least $270,000,000 from an acceptable title
insurer insuring the liens of those Collateral Documents
creating liens on real property or standing Timber to be valid
first liens (subject to the rights of Frontier and its
successors and assigns in the case of the Timber subject to
the Frontier Stumpage Contract) subject to no defects or
objections which are reasonably unacceptable to the Agents,
together with such direct access reinsurance agreements and
endorsements (including without limitation a revolving credit
endorsement and variable rate endorsements) as the Agents may
require;
(vi) evidence of the maintenance of insurance by
the Borrower and Guarantors as required hereby or by the
Collateral Documents together with mortgagee loss payable and
notice of cancellation clauses, in favor of the Administrative
Agent and acceptable to the Agents;
(vii) financial projections for the Borrower
running at least through the Termination Date;
(viii) receipt and verification of satisfactory
adjustments to the Initial Appraisal reflecting the
elimination of any assets otherwise included therein which are
Transferred Assets, making adjustments (which shall not be
material and may be estimates) for Timber harvested between
the date of the Initial Appraisal and the date of the initial
Credit Utilization hereunder and providing for any adjustments
in prices and pricing assumptions (none of which shall be
material) since the date thereof;
(ix) copies of the Borrower's current and
proposed Timber harvesting plans for the Timberland (including
a ten year harvesting plan under so called "Option A" for the
Timberland of the Borrower formerly owned by Coastal
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Forestlands, Ltd.) and a report from an independent consultant
acceptable to the Agents attesting to the feasibility of such
plans;
(x) a report from a consultant acceptable to the
Agents reviewing the existence, and the historic and potential
damage due to, disease and infestation in the Timberlands and
with respect to endangered or threatened species on the
Timberlands;
(xi) a satisfactory review of the insurance
program of the Borrower and the Guarantors;
(xii) completion by the Agents of a satisfactory
review of the Borrower's and its affiliates' legal and
ownership structure and of the Borrower's plans for the
management of its Timberlands and of harvesting therefrom;
(xiii) copies of all deeds, contracts and
agreements creating Stumpage Rights; and
(xiv) a certificate of an Authorized
Representative attesting to the fact that the Agents have
received true copies of the Acquisition Agreement, the
Management Agreement, all amendments thereto, and all material
agreements transferring the Transferred Assets and Transferred
Liabilities (copies of all of such to be attached to such
Certificate).
(b) the liens of the Collateral Documents shall have been
duly perfected in the manner required by law so as to be effective
against all creditors of and purchasers from the Borrower and
Guarantors;
(c) the Agents shall be reasonably satisfied with
environmental matters;
(d) arrangements shall have been made reasonably
satisfactory to the Agents for the discharge of all liens on assets of
the Borrower and Guarantors which, pursuant to the terms hereof, are
not permitted to exist beyond the initial Borrowing hereunder and all
Debt which is not permitted hereby to remain outstanding after the
initial Borrowing hereunder shall have been paid or its payment duly
provided for in a manner acceptable to the Agents;
(e) the Agents shall be satisfied that after giving
effect to the Restructuring and any harvesting adjustment for Timber
harvested through September 30, 1998 the Value of Merchantable Timber
shall be in excess of $410,000,000 and that the aggregate Value of
Merchantable Timber after giving effect to such harvesting adjustment,
together with the value of the Borrower's premerchantable Timber and
other real property shall be in excess of $470,000,000;
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(f) the Restructuring shall have been consummated as
contemplated hereby and by the Acquisition Agreement without any change
or modification to the Acquisition Agreement or waiver of any
conditions set forth therein except for such modifications and waivers
as may be approved by the Agents, all Governmental Requirements with
respect thereto shall have been satisfied and all requisite consents,
approvals and withholdings of objection from Governmental Bodies shall
have been obtained (or the period within which the same can be lodged
shall have expired, in the case of withholdings of objection);
(g) the Management Agreement shall be in full force and
effect and shall not have been amended or modified in any respect;
(h) the Agents shall have received evidence satisfactory
to them that no event has occurred or condition exists which could have
a Material Adverse Effect on the Borrower after giving effect to the
Restructuring;
(i) the Agents shall have received evidence satisfactory
to them that the Bridge Loan has been funded and that the proceeds
thereof have been advanced to STP II as equity capital, that STP II has
received additional equity capital from sources other than borrowed
money of not less than $10,000,000 and that not less $65,000,000 of the
purchase price for STT II's acquisition of all equity interests in the
Borrower has either been satisfactorily deferred or funded through
additional equity contributions to STP II.
(j) all legal matters incident to the transactions
contemplated hereby (including the Restructuring) shall be acceptable
to the Lenders and their counsel and the Agents shall have received for
the account of the Lenders the favorable written opinion of acceptable
counsel in form and substance and subject to such conditions,
qualifications and assumptions as shall be reasonably satisfactory to
the Agents and their counsel with respect to:
(i) the existence and good standing of the
Borrower and Guarantors in the jurisdictions of their
incorporation or organization and their qualification to do
business in each state where Timberland included in the Value
of Merchantable Timber is located;
(ii) the power and authority of the Borrower and
Guarantors to enter into the Loan Documents and to perform and
observe their obligations thereunder;
(iii) the fact that the execution and delivery of
the Loan Documents will not, nor will the observance or
performance of any of the matters or things herein or therein
provided for, contravene (x) any provision of law or (y) of
the charter or bylaws or organizational documents of the
Borrower or Guarantors or (z) of any material agreement known
to counsel and binding
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upon the Borrower or Guarantors or affecting a substantial
portion of their properties or assets taken as a whole;
(iv) the due authorization for and the validity
and enforceability (except to the extent affected by
bankruptcy, insolvency or other laws relating to or affecting
the enforcement of creditors' rights and remedies generally)
of the Loan Documents;
(v) the fact no governmental authorization or
consent or approval of any other person, firm or corporation
or of the stockholders or members of the Borrower or
Guarantors is, required with respect to the lawful execution,
delivery and performance of the Loan Documents or the
Restructuring;
(vi) the absence, to the knowledge of counsel, of
any material pending or threatened litigation or
administrative proceeding which, if adversely determined,
could reasonably be expected to result in a Material Adverse
Effect;
(vii) the fact that the mortgages and deeds of
trust creating liens on real property or rights to Timber are
adequate under local law for their intended purposes, contain
remedial provisions as customarily required by prudent
mortgagees in the state in question, will not require the
Administrative Agent to qualify to do business in the state in
question and will not subject the Agents or the Lenders to
taxation in such state; and
(viii) such other matters as the Agents or their
counsel may reasonably require.
Section 7.2. Each Credit Obligation. The obligation of the Lenders to
make any Loan (including the first Loan) and of the Issuer to issue each Letter
of Credit shall be subject to the following conditions precedent:
(a) each of the representations and warranties set forth
in Section 6 hereof shall be and remain true and correct as of said
time, except that the representations and warranties made under Section
6.2 (except the last sentence thereof) shall be deemed to refer to the
most recent financial statements furnished to the Lenders pursuant to
Section 8.4 hereof;
(b) no Potential Default or Event of Default shall have
occurred and be continuing;
(c) in the case of the issuance of any Letter of Credit,
the Issuer shall have received a properly completed Application
therefor and, in the case of an extension or increase in the amount of
the Letter of Credit, the Issuer shall have received a written request
therefor, in a form acceptable to the Issuer, with such Application or
written request, in each case to be accompanied by the fees required by
this Agreement;
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(d) such Credit Utilization will not cause the total
outstanding Credit Utilizations hereunder to exceed the amount of the
Administrative Agent's title insurance on the Timberland (provided that
the Administrative Agent may in writing approve lesser coverages as to
specific tracts if the aggregate of coverages on all tracts equals or
exceeds such amount); and
(e) the Administrative Agent shall have received (which
may be by facsimile transmission) a Borrowing Certificate in the form
annexed hereto as Exhibit G.
SECTION 8. COVENANTS.
It is understood and agreed that so long as credit is in use or
available under this Agreement or any amount remains unpaid on any Note or any
Hedging Liability or Letter of Credit is outstanding except to the extent
compliance in any case or cases is waived in writing by the Required Lenders:
Section 8.1. Maintenance of Property. The Borrower will, and will cause
each Subsidiary to, keep and maintain all of its Properties necessary or useful
in its business in good condition, and make all necessary renewals,
replacements, additions, betterments and improvements thereto, except where the
failure to do so could not result in a Material Adverse Effect.
Section 8.2. Taxes. The Borrower will, and will cause each Subsidiary
to, duly pay and discharge all material taxes, rates, assessments, fees and
governmental charges upon or against the Borrower or any Subsidiary or against
its Properties in each case before the same becomes delinquent and before
penalties accrue thereon unless and to the extent that the same is being
contested in good faith and by appropriate proceedings.
Section 8.3. Maintenance of Insurance. The Borrower will, and will
cause each Subsidiary to, (i) maintain insurance with insurers recognized as
financially sound and reputable by prudent business persons in such forms and
amounts and against such risks as is usually carried by companies engaged in
similar business and owning similar Properties in the same general areas in
which the Borrower or such Subsidiary operates and (ii) comply with the
insurance requirements of the Collateral Documents. The Borrower shall provide
the Administrative Agent with copies of all insurance policies maintained by it
upon the Administrative Agent's request.
Section 8.4. Financial Reports. The Borrower will, and will cause each
Subsidiary to, maintain a system of accounting in accordance with sound
accounting practice and will furnish promptly to each of the Lenders and their
duly authorized representatives such information respecting the business and
financial condition of the Borrower and its Subsidiaries as may be reasonably
requested and, without any request, will furnish each Lender:
(a) as soon as available, and in any event within 45 days
after the close of each quarterly fiscal period of the Borrower a copy
of consolidated and consolidating
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balance sheets, income statements and cash flow statements for the
Borrower and its Subsidiaries for such quarterly period and the year to
date and for the corresponding periods of the preceding fiscal year,
all in reasonable detail, prepared by the Borrower and certified by the
chief financial officer of the Borrower;
(b) as soon as available, and in any event within 90 days
after the close of each fiscal year of the Borrower, a copy of an
unqualified audit report for such year and accompanying financial
statements, including consolidated balance sheets, change in
stockholder or member's equity, statements of income and statements of
cash flow for the Borrower and its Subsidiaries showing in comparative
form the figures for the previous fiscal year of the Borrower and its
Subsidiaries, all in reasonable detail, prepared and certified by
Arthur Andersen, LLP or other independent public accountants of
nationally recognized standing selected by the Borrower and reasonably
satisfactory to the Required Lenders (the "Auditors");
(c) as soon as available, and in any event within 45 days
after the close of each quarterly fiscal period of the Borrower a
certificate of the chief financial officer of the Borrower, setting
forth a computation in reasonable detail of compliance with Sections
8.8, 8.9, 8.19, 8.20, 8.21 and 8.23, hereof and computations of the
Leverage Ratio as of the last day of such quarterly fiscal period (and,
in the case of the last quarterly fiscal period of each year of Excess
Cash Flow for the fiscal year then completed (or, in the case of fiscal
year 1998, for the period from the date the Restructuring is
consummated to December 31, 1998)) and to state that no Potential
Default or Event of Default exists hereunder as of the date of such
certificate, or if such a Potential Default or Event of Default exists,
the nature thereof shall be specified; such certificate to also include
a report on sales of land not constituting Timberland;
(d) no later than forty-five (45) days after the close of
each fiscal quarter of the Borrower, a report prepared by the
management of the Borrower as to a discussion and analysis of the
Borrower's operations, including harvest activities, market conditions
and near term prospects.
(e) on or before the fifteenth day of each month a report
signed by an Authorized Representative setting forth for the
immediately preceding month, (i) the volumes of all Merchantable Timber
cut or removed from the Timberlands, (ii) data concerning the Frontier
Stumpage Contract including volumes of merchantable logs harvested,
(iii) the volume of Timber cut or removed by any Person other than
Persons authorized by the Borrower or which has been lost, damaged or
destroyed by fire, windstorm, condemnation, disease, infestation, act
of any Governmental Body or third parties (specifying the species and
volume of Timber which has been so destroyed or damaged) and (iv) such
other information as the Administrative Agent may reasonably specify
from time to time with respect to the management of and activities on
the Timberlands;
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(f) by December 1 of each year, the Borrower shall
furnish to the Lenders a report signed by an Authorized Representative
showing its timber harvesting plan for the ensuing year;
(g) promptly after knowledge thereof shall have come to
the attention of any responsible officer of the Borrower, written
notice of any threatened or pending litigation or governmental
proceeding against the Borrower or any Subsidiary which could result in
a Material Adverse Effect and of the occurrence of any Potential
Default or Event of Default; and
(h) by December 1 of each year, financial projections for
the Borrower and its Subsidiaries through the Termination Date in such
detail and with such supporting data and statements of assumptions as
is reasonably acceptable to the Administrative Agent.
Section 8.5. Inspection. The Borrower shall, and shall cause each
Subsidiary to, permit each of the Lenders, by their representatives and agents,
to inspect any of its Properties, corporate books and financial records of the
Borrower and each Subsidiary, to examine and make copies of the books of
accounts and other financial records of the Borrower and its Subsidiaries and to
discuss the affairs, finances and accounts of the Borrower and its Subsidiaries
with, and to be advised as to the same by, its officers at such reasonable times
and reasonable intervals as either the Administrative Agent or the Required
Lenders may request. The Borrower shall pay the reasonable costs and expenses of
the Administrative Agent in connection with any audit or inspection of the
Borrower's and its Subsidiaries' books and records which occurs while a
Potential Default or Event of Default is continuing.
Section 8.6. Consolidation and Merger. The Borrower will not, and will
not permit any Subsidiary to, consolidate with or merge into any Person, or
permit any other Person to merge into it, except that any Subsidiary may merge
into the Borrower or into any other wholly-owned Subsidiary.
Section 8.7. Transactions with Affiliates. Except as set forth on
Schedule 8.7, the Borrower will not, and will not permit any Subsidiary to,
enter into any transaction, including without limitation, the purchase, sale,
lease or exchange of any Property, or the rendering of any service, with any
Affiliate of the Borrower except pursuant to the reasonable requirements of the
Borrower's or such Subsidiary's business and upon fair and reasonable terms no
less favorable than Borrower or such Subsidiary than would be obtained in a
comparable arm's-length transaction with a Person not an Affiliate of the
Borrower or such Subsidiary.
Section 8.8. Capital Expenditures and Acquisitions. The Borrower will
not, and will not permit any Subsidiary to, expend or become obligated for
capital expenditures (as defined and classified in accordance with GAAP
consistently applied but in any event including the liability of the Borrower
and its Subsidiaries in respect of Capitalized Leases, costs of improvements to
land and acquisitions of land) or acquire all or any substantial part
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of the stock, assets or business of any other Person if after giving effect
thereto the aggregate amount expended by the Borrower and its Subsidiaries
during any fiscal year on account of such capital expenditures and acquisitions
would exceed $3,000,000 provided that the Borrower may acquire Timberland out of
the proceeds of Equity Offerings if and to the extent permitted by Section
3.4(b)(iv)(ac) hereof or in exchange for equity interests if but only if it has
demonstrated to the reasonable satisfaction of the Administrative Agent in each
instance that it will be able to remain in compliance with the terms of this
Agreement throughout its term after giving effect to the acquisition in
question.
Section 8.9. Restricted Payments. The Borrower shall not during any
fiscal year declare or pay any distributions in respect of any membership
interest of the Borrower or directly or indirectly purchase, redeem or otherwise
acquire or retire any membership interest of the Borrower (collectively,
"Restricted Payments"); provided, however, that (a) the Borrower may make
Restricted Payments during any fiscal year of up to $1,000,000 if but only if
(i) each such Restricted Payment is made within thirty days after receipt by the
Lenders of financial reports pursuant to Section 8.4(b) hereof and (ii) after
giving effect to the Restricted Payment no Potential Default or Event of Default
has occurred and is continuing and such Restricted Payments shall not exceed the
amount necessary to satisfy the income tax liabilities of its members solely
with respect to their pro rata share of the Borrower's nonseparately computed
income and other separately stated items of income, loss, deduction or credit of
the Borrower (all within the meaning of Section 1366 of the Internal Revenue
Code of 1986) and any comparable income tax liability imposed on such members by
any State or other locality, and (b) so long as no Potential Default or Event of
Default shall then exist or result therefrom, the Borrower may make additional
Restricted Payments of not more than $4,200,000 per fiscal year each of which
shall not exceed the amount of interest which will become due on the Bridge Loan
within ten days of the date of the Restricted Payment in question.
Section 8.10. Liens. The Borrower will not, and will not permit any
Subsidiary to, pledge, mortgage or otherwise encumber or subject to or permit to
exist upon or be subjected to any lien, charge or security interest of any kind
(including any conditional sale or other title retention agreement and any lease
in the nature thereof), on any of its Properties of any kind or character at any
time owned by the Borrower or any Subsidiary, other than:
(a) liens, pledges or deposits for worker's compensation,
unemployment insurance, old age benefits or social security
obligations, taxes, assessments, statutory obligations or other similar
charges, good faith deposits made in connection with tenders, contracts
or leases to which the Borrower or a Subsidiary is a party or other
deposits required to be made in the ordinary course of business,
provided in each case the obligation secured is not overdue or, if
overdue, is being contested in good faith by appropriate proceedings
and adequate reserves have been provided therefor in accordance with
GAAP and that the obligation is not for borrowed money, customer
advances or trade payables;
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(b) the pledge of assets for the purpose of securing an
appeal or stay or discharge in the course of any legal proceedings,
provided that the aggregate amount of liabilities of the Borrower or a
Subsidiary so secured by a pledge of property permitted under this
subsection (b) including interest and penalties thereon, if any, shall
not be in excess of $500,000 at any one time outstanding;
(c) the liens created under the Collateral Documents;
(d) liens for property taxes and assessments or
governmental charges or levies which are not yet due and payable or
which are being contested in good faith by appropriate proceedings and
for which adequate reserves have been established in accordance with
GAAP;
(e) liens incidental to the conduct of business or the
ownership of properties and assets (including, without limitation,
warehousemen's, and attorneys' liens and statutory landlords' liens) or
other liens of like general nature incurred in the ordinary course of
business and not in connection with the borrowing of money, provided in
each case, the obligation secured is not more than 30 days overdue or,
if overdue, is being contested in good faith by appropriate actions or
proceedings;
(f) survey exceptions or encumbrances, easements or
reservations, or rights of others for rights-of-way, utilities and
other similar purposes, or zoning or other restrictions as to the use
of real properties, which are necessary or desirable for the conduct of
the activities of the Borrower and its Subsidiaries or which
customarily exist on properties of persons engaged in similar
activities and similarly situated and which do not in any event
materially impair their use in the operation of the business of the
Borrower and its Subsidiaries;
(g) liens discharged (or arrangements for the discharge
thereof satisfactory to the Administrative Agent have been made)
concurrently with the initial extension of credit hereunder;
(h) liens identified on Schedule 8.10 hereto;
(i) liens on hereafter acquired personal Property
securing payment of the purchase price thereof or Debt incurred to
finance such purchase price provided that the Debt secured thereby is
permitted by Section 8.11(f) hereof; and
(j) extensions, renewals and replacements of any lien
described in Sections 8.10(a) through (f) or (i) above, provided that
the principal amount of the Debt secured thereby is not increased and
that the lien is not extended to other property.
Section 8.11. Borrowings and Guaranties. The Borrower will not, and will
not permit any Subsidiary to, issue, incur, assume, create or have outstanding
any Debt, nor be
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or remain liable, whether as endorser, surety, guarantor or otherwise, for or in
respect of any Debt of any other Person, other than:
(a) Debt of the Borrower and Guarantors arising under or
pursuant to this Agreement or the other Loan Documents;
(b) the liability of the Borrower and its Subsidiaries
arising out of the endorsement for deposit or collection of commercial
paper received in the ordinary course of business;
(c) the guaranty by the Borrower of the Bridge Loan
provided that the obligations of the Borrower thereunder are
subordinated in right of payment to the prior payment of the
Obligations pursuant to written subordination provisions acceptable to
the Agents;
(d) Debt in the form of payment obligations for Stumpage
Rights provided that such payments are scheduled over time such that it
is reasonable to assume the same can be repaid from the proceeds of
sale of the related Timber;
(e) Debt listed on Schedule 8.11 hereto; and
(f) Debt not otherwise permitted hereby aggregating not
more than $500,000 at any one time outstanding.
Section 8.12. Investments, Loans, Advances and Acquisitions. The
Borrower will not, and will not permit any Subsidiary to, make or retain any
investment (whether through the purchase of stock, obligations or otherwise) in
or make any loan or advance to, any other Person, or acquire substantially as an
entirety the Property or business of any other Person, other than:
(a) loans and advances from any existing Subsidiary to
the Borrower, from the Borrower to any existing Subsidiary and from any
existing Subsidiary to any existing Subsidiary;
(b) acquisitions permitted by Section 8.8 hereof;
(c) investments in certificates of deposit having a
maturity of one year or less issued by any Lender or any United States
commercial bank having capital and surplus of not less than
$250,000,000, and investments in Eurodollar deposits with branches or
offices located outside of the United States of any of the Lenders;
(d) investments in commercial paper rated P-1 by Moody's
Investors Service, Inc. or A-1 by Standard & Poor's Ratings Group, a
division of McGraw Hill Companies maturing within 270 days of the date
of issuance thereof;
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(e) marketable obligations for which the full faith and
credit of the United States is pledged for the repayment of principal
and interest thereof; provided that such obligations have a final
maturity of no more than one year from the date acquired;
(f) repurchase, reverse repurchase agreements and
security lending agreements collateralized by securities of the type
described in subsection (e), provided that the Borrower or Subsidiary,
as the case may be, which is a party to such arrangement shall hold
(individually or through an Administrative Agent) all securities
relating thereto during the entire term of each such arrangement;
(g) investments, loans and advances existing on the date
hereof and listed on Schedule 8.12;
(h) loans and advances to employees of the Borrower or
its Subsidiaries for reasonable travel, entertainment and relocation
expenses in the ordinary course of business;
(i) shares of so-called "money market funds" registered
under the Investment Company Act of 1940, as amended, organized and
operating in the United States of America, having total net assets of
$250,000,000 or more and investing primarily in securities of the
character described in Sections 8.12(c), (d) and (e);
(j) advances, deposits, down payments and prepayments on
account of firm purchase orders made in the ordinary course of
business; and
(k) investments, loans and advances not otherwise
permitted hereby aggregating not more than $500,000 at any one time
outstanding.
Section 8.13. Sale of Property. The Borrower will not and will not
permit any Subsidiary to, sell, lease, assign, transfer or otherwise dispose of
all or a material part of their Property or any Timberland or any interest
therein to any other Person; provided, however, that if and so long as no
Potential Default or Event of Default has occurred and is continuing or would
result therefrom the Borrower and its Subsidiaries may make:
(a) sales and other dispositions of inventory (including
sales of cut timber harvested by the buyer) in the ordinary course of
business and whether pursuant to long term contract or otherwise;
(b) sales, leases or other dispositions of machinery,
equipment and land not constituting Timberland that is obsolete,
unusable or not needed for the Borrower's or such Subsidiary's
operations in the ordinary course of its business;
(c) grazing leases, cabin leases, grants of fishing,
hunting and mineral rights, rights of access, easements and rights of
way provided in each case that the same do
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not impair the value of any tract of the Timberland in any material
respect or interfere with the efficient harvesting of Timber therefrom;
(d) sales of stumpage and cutting rights on market terms
and in the ordinary course of business of the type exempted from
prepayment by the third parenthetical clause of Section 3.4(b)(ii)
hereof; and
(e) cash sales of Timberland, provided that (i) the
Administrative Agent shall have reduced the Value of Merchantable
Timber to account for the sale in question (such adjustment to include
an adjustment to the value of the remainder of the Timberland if the
Administrative Agent believes that its value will be impaired by the
sale of the tract or tracts in question) and shall be satisfied that
after giving effect thereto the Timber Coverage Ratio will not be
greater than that required by Section 8.23 hereof; (ii) the sale of the
tracts in question will not impair access to the remainder of the
Timberland or the amount of Timber which may be harvested therefrom
over any period; (iii) the Administrative Agent shall have received
such information as it may reasonably require to evaluate the sale in
question and to make the determinations called for by clauses (i) and
(ii) above, including opinions of the Acceptable Appraiser if requested
and (iv) arrangements shall have been made which are satisfactory to
the Administrative Agent for its receipt of any prepayment required by
Section 3.4(b)(ii) hereof in connection with such sale.
The Administrative Agent shall at the request and expense of the
Borrower release its liens on Property sold in compliance with the foregoing
requirements if and so long as no Potential Default or Event of Default has
occurred and is continuing.
For purposes of this Section, "material part" shall mean Property
having an aggregate fair market value (as determined in good faith by the
Borrower's or Subsidiary's board of directors or managers) in excess of
$500,000.
Section 8.14. ERISA. The Borrower will, and will cause each Subsidiary
to, promptly pay and discharge all obligations and liabilities arising under
ERISA of a character which if unpaid or unperformed may to result in the
imposition of a lien against any of its Property, and will promptly notify the
Administrative Agent of (a) the occurrence of any reportable event (as defined
in ERISA) for which the notice requirement has not been waived by the PBGC and
which is reasonably likely to result in the termination by the PBGC of any Plan,
(b) receipt of any notice from PBGC of its intention to seek termination of any
such Plan or appointment of a trustee therefor, and (c) its intention to
terminate or withdraw from any Plan, other than a "standard termination" meeting
the requirements of Section 4041(b) of ERISA. The Borrower will not, and will
not permit any Subsidiary to, terminate any such Plan or withdraw therefrom
unless it shall be in compliance with all of the terms and conditions of this
Agreement after giving effect to any liability to PBGC resulting from such
termination or withdrawal.
Section 8.15. Compliance with Laws, etc. The Borrower will, and will
cause each of its Subsidiaries to, comply in all material respects with all
Governmental Requirements,
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including Environmental Laws, except where the failure to do so would not have
a Material Adverse Effect.
Section 8.16. Sale and Leaseback Transactions. Neither the Borrower nor
any of its Subsidiaries shall, directly or indirectly, enter into any
arrangement with any Person providing for the Borrower or such a Subsidiary to
lease or rent Property that the Borrower or any Subsidiary has or will sell or
otherwise transfer to such Person.
Section 8.17. Fiscal Year. The Borrower and every Subsidiary thereof
shall have a fiscal year ending on December 31.
Section 8.18. Maintenance of Existence. The Borrower shall, and shall
cause each Subsidiary to, maintain its legal existence except for mergers
permitted by Section 8.6 hereof. The Borrower will not amend its operating
agreement in any manner which may materially and adversely affect the Lenders.
Section 8.19. Leverage Ratio. As of the last day of each fiscal quarter
the Borrower shall have a Leverage Ratio of not more than that specified for
such quarter below:
<TABLE>
<CAPTION>
For fiscal quarters ending between Leverage Ratio shall not exceed
<S> <C>
The date hereof through March 31, 2000 7.25 to 1
April 1, 2000 through March 31, 2001 6.00 to 1
April 1, 2001 through March 31, 2002 5.00 to 1
April 1, 2002 and all fiscal quarters ended 4.50 to 1
thereafter
</TABLE>
The forgoing to the contrary notwithstanding, if any of the proceeds of
an Equity Offering are used to acquire or redeem any of the interest of the
Demers Group in STP II or to pay for the purchase of Timberland by the Borrower
then the Borrower shall thereafter have a Leverage Ratio as of the last day of
each fiscal quarter of not more than 4.5 to 1.
Section 8.20.Interest Coverage Ratio. The Borrower shall have an Interest
Coverage Ratio as of the last day of each fiscal quarter of not less than that
specified for such fiscal quarter below:
<TABLE>
<CAPTION>
For fiscal quarters ending between Interest Coverage Ratio shall not be less than
<S> <C>
The date hereof through March 31, 2000 1.40 to 1
April 1, 2000 through March 31, 2001 1.50 to 1
April 1, 2001 through March 31, 2002 1.75 to 1
</TABLE>
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<TABLE>
<S> <C>
April 1, 2002 and all fiscal quarters 2.00 to 1
ended thereafter
</TABLE>
The forgoing to the contrary notwithstanding, if any of the proceeds of
an Equity Offering are used to acquire or redeem any of the interest of the
Demers Group in STP II or to pay for the purchase of Timberland by the Borrower
then the Borrower shall thereafter have an Interest Coverage Ratio as of the
last day of each fiscal quarter of not less than 2.0 to 1.
Section 8.21. Fixed Charge Coverage Ratio. The Borrower shall have a
Fixed Charge Coverage Ratio as of the last day of each fiscal quarter of not
less than 1.2 to 1.
Section 8.22. Interest Rate Protection. Within 30 days from the date
hereof, the Borrower shall enter into an interest rate hedging program with a
party and on terms reasonably acceptable to the Administrative Agent pursuant to
which the Borrower will, at least, be protected against an increase in the LIBOR
Rate for three month Interest Period above a rate reasonably acceptable to the
Administrative Agent as to a notional principal amount of $100,000,000 through
September 30, 2003 (such hedges and any other interest rate hedging approved in
writing by the Administrative Agent is herein referred to as the "Hedging
Program"). The Borrower will on a regular basis review its interest rate risk
and hedging strategy with a view to managing its interest rate risk prudently
and economically.
Section 8.23. Timber Coverage Ratio. The Borrower shall at all times
maintain a Timber Coverage Ratio of not greater than that specified below:
<TABLE>
<CAPTION>
Timber Coverage Ratio shall
From and Including To and Including not be greater than
<S> <C> <C>
The date hereof March 31, 2000 65%
April 1, 2000 March 31, 2001 60%
April 1, 2001 March 31, 2002 55%
April 1, 2002 At all times thereafter 50%
</TABLE>
The forgoing to the contrary notwithstanding, if any of the proceeds of
an Equity Offering are used to acquire or redeem any of the interest of the
Demers Group in STP II or to pay for the purchase of Timberland by the Borrower
then the Borrower shall thereafter have a Timber Coverage Ratio of not more than
50% at all times.
Section 8.24. Change in the Nature of Business. The Borrower will
not, and will not permit any of its Subsidiaries to engage in any business or
activity other than the ownership
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and management of Timberland, the sale of Timber produced therefrom and
activities incidental thereto.
Section 8.25. General Timber Management Obligations. The Borrower
will cause the Timberland to be operated in accord with sound silvicultural
practices. The Borrower further covenants and agrees:
(a) Harvesting Operations. Harvesting of Timber shall be
carried out in a manner consistent with applicable Governmental
Requirements and with a view to optimizing the commercial return from
the Timberlands.
(b) Restrictions on Grazing and Use of Fire. The Borrower
shall not permit grazing of livestock on the Fee Timberland in such a
way as to be materially injurious to forest regeneration, soils or
forest growth (it being acknowledged by the Lenders that the rights
granted by the Master Grazing Agreement shall not be deemed to have
such an effect), or use fire on the Timberland for eradication of
noxious growth or for any other reason, provided, however, application
of fire in a controlled manner for the benefit of Timber production
("prescribed burning") may be utilized in the management of the
Timberlands or the Timber if (a) local fire protection agencies are
notified and all fire protection and other applicable Governmental
Requirements are followed, (b) appropriate equipment and trained
personnel are available and utilized, (c) fire is applied only when
weather conditions are favorable, and (d) the prescribed burning area
is isolated from other areas by appropriate natural or man-made fire
breaks.
(c) Salvage. To the extent economically feasible, all
trees which are dead, diseased, fallen or otherwise damaged by
casualty, shall be salvaged and harvested in accordance with sound
silvicultural practices.
(d) Fire Protection. All measures shall be taken which
are reasonably necessary and economically feasible to protect the
Timberland and the Timber from loss by fire, which measures shall be at
least equal to fire-control practices generally followed by prudent
owners of timber-producing property in the same general area, including
the adoption of suitable prevention and control measures, the
maintenance of adequate fire-fighting equipment, proper disposal of
slash and slabs, and full cooperation with local, state and federal
agencies on matters of fire prevention and control. The Borrower shall
maintain membership in forest protective associations where any of the
Timberland falls within a forest protective district under the
jurisdiction of any such association, and shall pay as due any forest
patrol assessments of any state forester, or of such forest protective
association.
(e) Maintenance of Roads. To the extent economically
feasible, an adequate system of roads and roadways shall be maintained
in such a manner as to permit access of mobile fire-fighting equipment
to all parts of the Timberland.
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(f) Control of Disease and Insects. There shall be
maintained at all times in accordance with sound silvicultural
practices all reasonable and effective measures to prevent the
development of, and to control the spread of, disease and insect
infestation on the Timberland and the Timber, including, but not
limited to, the shifting of logging operations to remove diseased or
insect-infested trees and other trees threatened with disease or insect
infestation, and all other accepted forest sanitation and control
measures as are necessary to prevent the development and spread of
disease and insect infestation.
Section 8.26. The Frontier Stumpage Contract and Other Stumpage Rights.
The Borrower will not amend, modify or terminate the Frontier Stumpage Contract.
The Borrower will perform all of its obligations under the Frontier Stumpage
Contract and will not waive compliance by Frontier with any of its obligations
thereunder. The Borrower shall and shall cause its Subsidiaries to comply with
all of their obligations under any deed, contract or agreement creating Stumpage
Rights and will not amend, modify or terminate same without the written consent
of the Administrative Agent.
Section 8.27. Future Subsidiaries. If the Borrower acquires or forms any
Subsidiary after the date hereof it shall promptly (i) cause such Subsidiary to
guaranty the Obligations by joining in this Agreement as a Guarantor in a manner
acceptable to the Administrative Agent, (ii) shall grant the Administrative
Agent liens on those assets of such Subsidiary embraced within the term
"Collateral" and shall cause such liens to be properly perfected in the manner
required by law and shall deliver to the Administrative Agent such title
insurance policies and searches of public records as the Administrative Agent
may reasonably require in order to assure that perfection and priority of such
liens and (iii) shall cause such Subsidiary to deliver such other documents
(including resolutions and opinions of counsel) as the Administrative Agent may
reasonably require to assure the due organization in existence of such
Subsidiary, its power and authority to become a Guarantor hereunder and to grant
liens on those of its assets embraced within the term "Collateral" and to assure
that the documentation providing for such is valid and enforceable. Promptly
upon payment in full of the Bridge Loan, the Borrower shall cause STT II to
become a Guarantor hereunder and to take the actions specified in clauses (i)
and (iii) of the immediately preceding sentence.
Section 8.28. The Management Agreement and the Acquisition Agreement.
The Borrower shall keep the Management Agreement in full force and effect and
shall not amend, modify or terminate the same. The Borrower shall not consent to
any material amendment of or modification to the Acquisition Agreement and shall
diligently and in good faith enforce its rights thereunder.
Section 8.29. Year 2000 Assessment. The Borrower shall take all actions
necessary and commit adequate resources to assure that its computer-based and
other systems (and those of all Subsidiaries) are able to effectively process
dates, including dates before, on and after January 1, 2000, without
experiencing any Year 2000 Problem that could cause a Material Adverse Effect on
the business or financial affairs of the Borrower and its Subsidiaries taken on
a consolidated basis. At the request of the Administrative Agent, the
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Borrower will provide the Administrative Agent with written assurances and
substantiations (including, but not limited to, the results of internal or
external audit reports prepared in the ordinary course of business) reasonably
acceptable to the Administrative Agent as to the capability of the Borrower and
its Subsidiaries to conduct its and their businesses and operations before, on
and after January 1, 2000, without experiencing a Year 2000 Problem causing a
Material Adverse Effect.
SECTION 9. EVENTS OF DEFAULT AND REMEDIES.
Section 9.1. Events of Default. Any one or more of the following
shall constitute an Event of Default:
(a) Default in the payment when due (whether by lapse of
time, acceleration, requirement for mandatory prepayment under Section
3.4(b) hereof or otherwise) of any principal of any Note, whether at
the stated maturity thereof or at any other time provided in this
Agreement or default for three Business Days in the payment when due of
any interest, fee or other amount payable by the Borrower pursuant to
this Agreement or any other Loan Document;
(b) Default in the observance or performance of any
covenant set forth in Sections 8.6, 8.7, 8.8, 8.9, 8.10, 8.11, 8.12,
8.13, 8.16 or 8.19 through 8.23 or 8.26 or 8.28 hereof, or of any
provision of any Collateral Document requiring the maintenance of
insurance on the Collateral subject thereto or dealing with the use or
remittance of proceeds of such Collateral;
(c) Default in the observance or performance of any other
covenant, condition, agreement or provision hereof or any of the other
Loan Documents and such default shall continue for 30 days after
written notice thereof to the Borrower by the Administrative Agent or
the Required Lenders;
(d) Default shall occur under any Debt in a principal
amount exceeding $1,000,000 of the Borrower or any Subsidiary or
Guarantor, or under any mortgage, agreement or other similar instrument
under which the same may be issued or secured and such default shall
continue for a period of time sufficient to permit the acceleration of
maturity of any indebtedness evidenced thereby or outstanding or
secured thereunder or default in the payment when due of any such Debt
exceeding $1,000,000, subject to the lapse of any period of grace;
(e) Any representation or warranty made herein or in any
Loan Document or in any statement or certificate furnished by it
pursuant hereto or thereto, proves untrue or misleading in any material
respect as of the date made or deemed made pursuant to the terms
hereof;
(f) Any judgment or judgments, writ or writs, or warrant
or warrants of attachment, or any similar process or processes in an
aggregate amount in excess of $1,000,000 shall be entered or filed
against the Borrower or any Subsidiary or
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Guarantor or against any of their respective Property or assets and
remain unstayed and undischarged for a period of 30 days from the date
of its entry;
(g) Any reportable event (as defined in ERISA) which
constitutes grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a
trustee to administer or liquidate any such Plan, shall have occurred
and be continuing thirty (30) days after written notice to such effect
shall have been given to the Borrower by any Lender; or any such Plan
shall be terminated other than in a "standard termination" meeting the
requirements of Section 4041(b) of ERISA; or a trustee shall be
appointed by the appropriate United States District Court to administer
any such Plan; or the Pension Benefit Guaranty Corporation shall
institute proceedings to administer or terminate any such Plan;
(h) A Change of Control shall occur;
(i) The Borrower or any Subsidiary thereof or any
Guarantor shall (i) have entered involuntarily against it an order for
relief under the Bankruptcy Code of 1978, as amended, (ii) admit in
writing its inability to pay, or not pay, its debts generally as they
become due or suspend payment of its obligations, (iii) make an
assignment for the benefit of creditors, (iv) apply for, seek, consent
to, or acquiesce in, the appointment of a receiver, custodian, trustee,
conservator, liquidator or similar official for it or any substantial
part of its Property, (v) file a petition seeking relief or institute
any proceeding seeking to have entered against it an order for relief
under the Bankruptcy Code of 1978, as amended or any similar statute,
to adjudicate it insolvent, or seeking dissolution, winding up,
liquidation, reorganization, arrangement, marshalling of assets,
adjustment or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors or fail
to file an answer or other pleading denying the material allegations of
any such proceeding filed against it, or (vi) fail to contest in good
faith any appointment or proceeding described in Section 9.1(i) hereof;
or
(j) A custodian, receiver, trustee, conservator,
liquidator or similar official shall be appointed for the Borrower, any
Subsidiary or any Guarantor or any substantial part of its respective
Property, or a proceeding described in Section 9.1(i)(v) shall be
instituted against the Borrower or any Subsidiary and such appointment
continues undischarged or any such proceeding continues undismissed or
unstayed for a period of 30 days.
Section 9.2. Remedies for Non-Bankruptcy Defaults. When any Event of
Default, other than an Event of Default described in subsections (i) and (j) of
Section 9.1 hereof, has occurred and is continuing, the Administrative Agent, if
directed by the Required Lenders, shall give notice to the Borrower and take any
or all of the following actions: (a) terminate the remaining Commitments
hereunder on the date (which may be the date thereof) stated in such notice, (b)
declare the principal of and the accrued interest on the Notes to be forthwith
due and payable and thereupon the Notes including both principal and interest,
shall be and become immediately due and payable without further demand,
presentment, protest or notice
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of any kind, and (c) take any action or exercise any remedy under any of the
Loan Documents or exercise any other action, right, power or remedy permitted by
law. Any Lender may exercise the right of set off with regard to any deposit
accounts or other accounts or investments maintained by the Borrower or any
Guarantor with any of the Lenders.
Section 9.3. Remedies for Bankruptcy Defaults. When any Event of
Default described in subsections (i) or (j) of Section 9.1 hereof has occurred
and is continuing, then the Notes and other Obligations shall immediately become
due and payable without presentment, demand, protest or notice of any kind, and
the obligation of the Lenders to extend further credit pursuant to any of the
terms hereof shall immediately terminate.
Section 9.4. Collateral for Undrawn Letters of Credit. If and when (x)
any Event of Default, other than an Event of Default described in subsections
(i) or (j) of Section 9.1, has occurred and is continuing, the Borrower shall,
upon demand of the Issuer, and (y) any Event of Default described in subsections
(i) or (j) of Section 9.1 has occurred, the Borrower shall, without notice or
demand from the Issuer, immediately pay to the Issuer the full amount of each
Letter of Credit to be held by it as a security for the Obligations, the
Borrower agreeing to immediately make each such payment and acknowledging and
agreeing the Issuer would not have an adequate remedy at law for failure of the
Borrower to honor any such demand and that the Issuer shall have the right to
require the Borrower to specifically perform such undertaking whether or not any
draws had been made under the Letters of Credit.
SECTION 10. CHANGE IN CIRCUMSTANCES REGARDING LIBOR PORTIONS.
Section 10.1. Change of Law. Notwithstanding any other provisions of
this Agreement or any Note to the contrary, if at any time after the date hereof
with respect to LIBOR Portions, any Lender shall determine in good faith that
any change in applicable law or regulation or in the interpretation thereof
makes it unlawful for such Lender to create or continue to maintain any LIBOR
Portion or to give effect to its obligations as contemplated hereby, such Lender
shall promptly give notice thereof to the Borrower and to the Administrative
Agent to such effect, and such Lender's obligation to create, continue or
convert any such affected LIBOR Portions under this Agreement shall terminate
until it is no longer unlawful for such Lender to create or maintain such
affected Portion. The Borrower shall prepay the outstanding principal amount of
any such affected LIBOR Portion, together with all interest accrued thereon and
all other amounts due and payable to the Lenders under Section 10.4 of this
Agreement, on the earlier of the last day of the Interest Period applicable
thereto and the first day on which it is illegal for such Lender to have such
LIBOR Portion outstanding; provided, however, the Borrower may convert the LIBOR
Portions into a Base Rate Portion, subject to all of the terms and conditions of
this Agreement.
Section 10.2. Unavailability of Deposits or Inability to Ascertain the
Adjusted LIBOR Rate. Notwithstanding any other provision of this Agreement or
any Note to the contrary, if prior to the commencement of any Interest Period
the Administrative Agent or Required
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Lenders shall determine (i) that deposits in the amount of any LIBOR Portion
scheduled to be outstanding are not available to it in the relevant market or
(ii) by reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Adjusted LIBOR Rate, then the
Administrative Agent or Required Lenders shall promptly give telephonic or
facsimile notice thereof to the Borrower, the Administrative Agent and the other
Lenders (such notice to be confirmed in writing), and the obligation of the
Lenders to create, continue or convert any such LIBOR Portion in such amount and
for such Interest Period shall terminate until deposits in such amount and for
the Interest Period selected by the Borrower shall again be readily available in
the relevant market and adequate and reasonable means exist for ascertaining the
Adjusted LIBOR Rate. Upon the giving of such notice, the Borrower may elect to
either (i) pay or prepay, as the case may be, such affected Portion or (ii)
convert the LIBOR Portions into a Base Rate Portion, subject to all terms and
conditions of this Agreement.
Section 10.3. Taxes and Increased Costs. With respect to the LIBOR
Portions, if any Lender shall determine in good faith that any change in any
applicable law, treaty, regulation or guideline (including, without limitation,
Regulation D of the Board of Governors of the Federal Reserve System) or any new
law, treaty, regulation or guideline, or any interpretation of any of the
foregoing by any governmental authority charged with the administration thereof
or any central bank or other fiscal, monetary or other authority having
jurisdiction over such Lender or its lending branch or the LIBOR Portions
contemplated by this Agreement (whether or not having the force of law) ("Change
in Law") shall:
(i) impose, modify or deem applicable any reserve,
special deposit or similar requirements against assets held by, or
deposits in or for the account of, or loans by, or any other
acquisition of funds or disbursements by, such Lender (other than
reserves included in the determination of the Adjusted LIBOR Rate);
(ii) subject such Lender, any LIBOR Portion or any Note to
any tax (including, without limitation, any United States interest
equalization tax or similar tax however named applicable to the
acquisition or holding of debt obligations and any interest or
penalties with respect thereto), duty, charge, stamp tax, fee,
deduction or withholding in respect of this Agreement, any LIBOR
Portion or any Note except such taxes (x) as may be measured by the
overall net income of such Lender or its lending branch and imposed by
the jurisdiction, or any political subdivision or taxing authority
thereof, in which such Lender's principal executive office or its
lending branch is located, and (y) any U.S. Taxes (as defined in
Section 13.19(c) hereof) that are deductible or otherwise directly
payable by the Borrower, which shall be governed exclusively by Section
13.19 hereof;
(iii) change the basis of taxation of payments of principal
and interest due from the Borrower to such Lender hereunder or under
any Note (other than by a change in taxation of the overall net income
of such Lender); or
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(iv) impose on such Lender any penalty with respect to the
foregoing or any other condition regarding this Agreement, any LIBOR
Portion or any Note;
and such Lender shall determine that the result of any of the foregoing is to
increase the cost (whether by incurring a cost or adding to a cost) to such
Lender of making or maintaining any LIBOR Portion hereunder or to reduce the
amount of principal or interest received by such Lender, then the Borrower shall
pay to such Lender from time to time as specified by such Lender such additional
amounts as such Lender shall reasonably determine are sufficient to compensate
and indemnify it for such increased cost or reduced amount. If any Lender makes
such a claim for compensation, it shall provide to the Borrower a certificate
setting forth such increased cost or reduced amount as a result of any event
mentioned herein specifying such Change in Law, and such certificate shall be
conclusive and binding on the Borrower as to the amount thereof except in the
case of manifest error. Upon the imposition of any such cost, the Borrower may
prepay any affected Loan, subject to the other provisions of this Agreement. If
any Lender makes a claim under this Section 10.3 or Section 3.7 hereof it will,
at the request of the Borrower assign its Loans and Commitments to another
financial institution pursuant to and in accordance with the conditions and
requirements of Section 13.16 except that it shall be entitled to compensation
under Section 10.4 hereof as though its LIBOR portions had been prepaid rather
than assigned.
Section 10.4. Funding Indemnity. (a) In the event any Lender shall incur
any loss, cost, expense or premium (including, without limitation, any loss,
cost, expense or premium incurred by reason of the liquidation or re-employment
of deposits or other funds acquired by such Lender to fund or maintain any LIBOR
Portion or the relending or reinvesting of such deposits or amounts paid or
prepaid to such Lender) as a result of:
(i) any payment or prepayment of a LIBOR Portion on a
date other than the last day of the then applicable Interest Period for
any reason;
(ii) any failure by the Borrower to borrow, continue or
convert any LIBOR Portion on the date specified in the notice given
pursuant to this Agreement; or
(iii) the occurrence of any Event of Default;
then, upon the demand of such Lender, the Borrower shall pay to such Lender such
amount as will reimburse such Lender for such loss, cost or expense.
(b) If any Lender makes a claim for compensation under this
Section 10.4, it shall provide to the Borrower a certificate setting forth the
amount of such loss, cost or expense in reasonable detail and such certificate
shall be deemed prima facie correct.
Section 10.5. Lending Branch. Each Lender may, at its option, elect to
make, fund or maintain its LIBOR Portions hereunder at the branch or office
specified opposite its signature on the signature page hereof or such other of
its branches or offices as such Lender may from time to time elect.
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Section 10.6. Discretion of Lenders as to Manner of Funding.
Notwithstanding any provision of this Agreement to the contrary, each Lender
shall be entitled to fund and maintain its funding of all or any part of its
Loans in any manner it sees fit, it being understood however, that for the
purposes of this Agreement all determinations hereunder shall be made as if the
Lenders had actually funded and maintained each LIBOR Portion during each
Interest Period for such LIBOR Portion through the purchase of deposits in the
relevant interbank market having a maturity corresponding to such Interest
Period and bearing an interest rate equal to the LIBOR Rate, for such Interest
Period.
Section 10.7. Lender Replacement. Unless the Required Lenders seek
indemnification, payment, or reimbursement under, or invoke the provisions of,
Section 3.8, 10 or Section 13.19(c) hereof, if the Borrower is obligated to pay
to any Lender any amount under Section 3.8, 10, or Section 13.19(c), or if a
Lender requests that its LIBOR Portions be converted into a Base Rate Portion,
the Borrower may, so long as no Potential Default or Event of Default then
exists, replace such Lender with a new Lender reasonably acceptable to the
Administrative Agent, and such Lender hereby agrees to be so replaced subject to
the following:
(a) The obligations of the Borrower hereunder to the
Lender to be replaced (including such increased or additional costs
incurred from the date of notice to the Borrower of such increase or
additional costs through the date such Lender is replaced hereunder)
shall be paid in full to such Lender concurrently with such replacement
together with any amount which would be due such Lender under Section
10.4 hereof in connection with payment of its Loans;
(b) The replacement Lender shall be a Lender that is not
subject to the increased costs arising under such Sections which may
have effectuated the Borrower's election to replace any Lender
hereunder;
(c) Each such replacement Lender shall execute and
deliver to the Administrative Agent such documentation reasonably
satisfactory to the Administrative Agent pursuant to which such Lender
is to become a party hereto with Commitments equal to those of the
Lender being replaced and shall make a Loan or Loans in the aggregate
principal amount equal to the aggregate outstanding principal amount of
the Loan or Loans of the Lender being replaced;
(d) Upon such execution of such documents referred to in
clause (c) and repayment of the amounts referred to in clause (a), the
replacement Lender shall be a "Lender" with Commitment as specified
hereinabove and all rights and obligations of a Lender hereunder and
the Lender being replaced shall cease to be a "Lender" hereunder,
except with respect to indemnification provisions under this Agreement,
which shall survive as to such replaced Lender;
(e) The Administrative Agent shall reasonably cooperate
in effectuating the replacement of any Lender hereunder, but at no time
shall the Administrative Agent be obligated to initiate any such
replacement; and
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(f) Any Lender replaced hereunder shall be replaced at
the Borrower's sole cost and expense and at no cost or expense to the
Administrative Agent.
SECTION 11. THE GUARANTEES.
Section 11.1. The Guarantees. To induce the Lenders to provide the
credits described herein and in consideration of benefits expected to accrue to
each Guarantor by reason of the Commitments and for other good and valuable
consideration, receipt of which is hereby acknowledged, each Guarantor hereby
unconditionally and irrevocably guarantees jointly and severally to the
Administrative Agent, the Lenders, the Issuer and each other holder of any of
the Borrower's obligations under the Loan Documents, the due and punctual
payment of all present and future indebtedness, obligations and liabilities of
the Borrower evidenced by or arising out of the Loan Documents, including, but
not limited to, the due and punctual payment of principal of and interest on the
Notes and the due and punctual payment of all other obligations now or hereafter
owed by the Borrower under the Loan Documents as and when the same shall become
due and payable, whether at stated maturity, by acceleration or otherwise,
according to the terms hereof and thereof. In case of failure by the Borrower
punctually to pay any indebtedness guaranteed hereby, each Guarantor hereby
unconditionally agrees jointly and severally to make such payment or to cause
such payment to be made punctually as and when the same shall become due and
payable, whether at stated maturity, by acceleration or otherwise, and as if
such payment were made by the Borrower.
Section 11.2. Guarantee Unconditional. The obligations of each Guarantor
as a guarantor under this Section 11 shall be unconditional and absolute and,
without limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by:
(a) any extension, renewal, settlement, compromise,
waiver or release in respect of any obligation of the Borrower or of
any other Guarantor under this Agreement or any other Loan Document or
by operation of law or otherwise;
(b) any modification or amendment of or supplement to
this Agreement or any other Loan Document;
(c) any change in the existence, structure or ownership
of, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting, the Borrower, any other Guarantor, or any of
their respective assets, or any resulting release or discharge of any
obligation of the Borrower or of any other Guarantor contained in any
Loan Document;
(d) the existence of any claim, set-off or other rights
which the Guarantor may have at any time against the Administrative
Agent, any Lender or any other Person, whether or not arising in
connection herewith;
(e) any failure to assert, or any assertion of, any claim
or demand or any exercise of, or failure to exercise, any rights or
remedies against the Borrower, any other Guarantor or any Collateral;
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(f) any application of any sums by whomsoever paid or
howsoever realized to any obligation of the Borrower, regardless of
what obligations of the Borrower remain unpaid,
(g) any invalidity or unenforceability relating to or
against the Borrower or any other Guarantor for any reason of this
Agreement or of any other Loan Document or any provision of applicable
law or regulation purporting to prohibit the payment by the Borrower of
the principal of or interest on any Note or any other amount payable by
it under the Loan Documents; or
(h) any other act or omission to act or delay of any kind
by any Administrative Agent, any Lender or any other Person or any
other circumstance whatsoever that might, but for the provisions of
this paragraph, constitute a legal or equitable discharge of the
obligations of the Guarantor under this Section 11.
Section 11.3. Discharge Only Upon Payment in Full; Reinstatement in
Certain Circumstances. Each Guarantor's obligations under this Section 11 shall
remain in full force and effect until the Commitments are terminated and the
principal of and interest on the Notes, the L/C Obligations and all other
amounts payable by the Borrower under this Agreement and all other Loan
Documents shall have been paid in full. If at any time any payment of the
principal of or interest on any Note or any other amount payable by the Borrower
under the Loan Documents is rescinded or must be otherwise restored or returned
upon the insolvency, bankruptcy or reorganization of the Borrower or of a
Guarantor, or otherwise, each Guarantor's obligations under this Section 11 with
respect to such payment shall be reinstated at such time as though such payment
had become due but had not been made at such time.
Section 11.4. Subrogation. No Guarantor will exercise any rights which
it may acquire by way of subrogation by any payment made hereunder, or
otherwise, until the Notes, the L/C Obligations and all other amounts payable by
the Borrower under the Loan Documents shall have been paid in full and after the
termination of the Commitments. If any amount shall be paid to a Guarantor on
account of such subrogation rights at any time prior to the later of (a) the
payment in full of the Notes and the L/C Obligations and all other amounts
payable by such Guarantor hereunder and (y) the termination of all the
Commitments, such amount shall be held in trust for the benefit of the
Administrative Agent and the Lenders and shall forthwith be paid to the
Administrative Agent and the Lenders or be credited and applied upon the
Borrower's obligations under the Loan Documents, whether matured or unmatured,
in accordance with the terms of this Agreement. Notwithstanding any other
provision hereof, the right to recovery against each Guarantor under this
Section 11 shall not exceed $1.00 less than the amount which would render such
Guarantor's obligations under this Section 11 void or voidable under applicable
law, including without limitation fraudulent conveyance law.
Section 11.5. Waivers. Each Guarantor irrevocably waives acceptance
hereof, presentment, demand, protest and any notice not provided for herein, as
well as any
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requirement that at any time any action be taken by any Administrative Agent,
any Lender or any other Person against the Borrower, another Guarantor or any
other Person.
Section 11.6. Stay of Acceleration. If acceleration of the time for
payment of any amount payable by the Borrower under this Agreement or any other
Loan Document is stayed upon the insolvency, bankruptcy or reorganization of the
Borrower, all such amounts otherwise subject to acceleration under the terms of
this Agreement or the other Loan Documents shall nonetheless be payable jointly
and severally by the Guarantors hereunder forthwith on demand by any
Administrative Agent or any Lender.
SECTION 12. THE AGENTS.
Section 12.1. Appointment and Authorization. Each Lender hereby appoints
and authorizes each bank named herein as an Agent to take such action as Agent
on its behalf and to exercise such powers hereunder and under the Loan Documents
as are designated to such Agent by the terms hereof and thereof together with
such powers as are reasonably incidental thereto. The Agents shall not have any
duties or responsibilities, except those expressly set forth herein, nor shall
the Agents have or be deemed to have any fiduciary relationship with any Lender,
and no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Agents in such respective capacities. Any Agent or
the Issuer may resign at any time by sending twenty (20) days prior written
notice to the Borrower and the Lenders and may be removed by the Required
Lenders upon twenty (20) days' prior written notice to the Borrower and the
Lenders. In the event of any such resignation or removal the Required Lenders
may appoint a replacement Agent or Issuer, subject to the reasonable approval of
the Borrower if no Potential Default or Event of Default has occurred and is
continuing, which shall succeed to all the rights, powers and duties of the
resigning or removed Agent or Issuer hereunder and under the other Loan
Documents. Any resigning or removed Agent or Issuer shall be entitled to the
benefit of all the protective provisions hereof with respect to its acts as an
Agent or Issuer hereunder, but no successor Administrative Agent or Issuer shall
in any event be liable or responsible for any actions of its predecessor. If the
Agent resigns or is removed and no successor is appointed, the rights and duties
of the Agent shall be automatically assumed by the Required Lenders (i) the
Borrower shall be directed to make all payments due each Lender hereunder
directly to such Lender and (ii) the Agent's rights in the Collateral Documents
shall be assigned without representation, recourse or warranty to the Lenders as
their interests may appear.
Section 12.2. Rights as a Lender. The Agents and Issuer have and reserve
all of the rights, powers and duties under the Loan Documents as any Lender may
have and may exercise the same as though they were not Agents or the Issuer and
the terms "Lender" or "Lenders" as used herein and in all of such documents
shall, unless the context otherwise expressly indicates, include the Agents and
Issuer in their individual capacities as Lenders. Without limiting the
generality of the forgoing, each Agent may make loans to, issue letters of
credit for the account of, accept deposits from, acquire equity interests in and
generally engage in any kind of banking, trust, financial advisory or other
business with the Borrower
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and its Affiliates as though it were not an Agent hereunder and under the other
Loan Documents and without notice to or consent of the Lenders.
Section 12.3. Standard of Care. The Lenders acknowledge that they have
received and approved copies of the Loan Documents, the Acquisition Agreement,
the Management Agreement and such other information and documents concerning the
transactions contemplated and financed hereby as they have requested to receive
and/or review. The Agents and Issuer make no representations or warranties of
any kind or character to the Lenders or each other with respect to the validity,
enforceability, genuineness, perfection, value, worth or collectibility hereof
or of the other Loan Documents or of the liens provided for thereby or of any
other documents called for hereby or thereby or of the Collateral. The Agents
need not verify the worth, value or existence of the Collateral and may rely
exclusively on reports of the Borrower in making computations hereunder. Neither
any Agent nor the Issuer nor any director, officer employee, Agent or
representative thereof (including any security trustee therefor) shall in any
event be liable for any clerical errors or errors in judgment, inadvertence or
oversight, or for action taken or omitted to be taken by it or them under the
Loan Documents or in connection herewith or therewith except for its or their
own gross negligence or willful misconduct. The Agents shall not be liable for
the acts and omissions of each other. Neither the Agents nor the Issuer shall
incur liability under or in respect of the Loan Documents by acting upon any
notice, certificate, warranty, instruction or statement (oral or written) of
anyone (including anyone in good faith believed by it to be authorized to act on
behalf of the Borrower), unless it has actual knowledge of the untruthfulness of
same. Either the Administrative Agent or the Issuer may execute any of its
duties hereunder by or through employees, agents, and attorneys-in-fact and
shall not be answerable to the Lenders for the default or misconduct of any such
agents or attorneys-in-fact selected with reasonable care. The Agents and the
Issuer shall be entitled to advice of counsel concerning all matters pertaining
to the agencies hereby created and its duties hereunder, and shall incur no
liability to anyone and be fully protected in acting upon the advice of such
counsel with respect to such matters. The Administrative Agent and the Issuer
shall be entitled to assume that no Potential Default or Event of Default exists
unless notified to the contrary by a Lender. The Agents and the Issuer shall in
all events be fully protected in acting or failing to act in accord with the
instructions of the Required Lenders. Upon the occurrence of an Event of Default
hereunder, the Administrative Agent shall take such action with respect to the
enforcement of its liens on the Collateral and the preservation and protection
thereof as it shall be directed to take by the Required Lenders but unless and
until the Required Lenders have given such direction, the Administrative Agent
shall take or refrain from taking such actions as it deems appropriate and in
the best of interest of all Lenders. The Agents and the Issuer shall in all
cases be fully justified in failing or refusing to act hereunder unless it shall
be indemnified to its reasonable satisfaction by the Lenders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Administrative Agent may treat the owner
of any Note as the holder thereof until written notice of transfer shall have
been filed with it signed by such owner in form satisfactory to the
Administrative Agent. Each Lender acknowledges that it has independently and
without reliance on the Agents and the Issuer or any other Lender and based upon
such information, investigations and inquiries as it deems appropriate made its
own credit analysis and decision to extend credit to the Borrower. It shall be
the
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responsibility of each Lender to keep itself informed as to the creditworthiness
of the Borrower and Guarantors and the Agents and the Issuer shall have no
liability to any Lender with respect thereto. Any subagent for the
Administrative Agent or the Issuer shall be entitled to the benefit of the
foregoing provisions as though specifically named therein.
Section 12.4. Costs and Expenses. Each Lender agrees to reimburse the
Agents and the Issuer for all out-of-pocket costs and expenses suffered or
incurred by such Agents or any security trustee in performing its duties
hereunder and under the other Loan Documents or in the exercise of any right or
power imposed or conferred upon such Administrative Agent hereby or thereby, to
the extent the Agents are not promptly reimbursed for same by the Borrower or
out of the Collateral, all such costs and expenses to be borne by the Lenders
ratably in accordance with the amounts of their respective Commitments.
Section 12.5. Indemnity. The Lenders shall ratably indemnify and hold
the Agents, the Issuer and their directors, officers, employees, agents or
representatives (including as such any security trustee therefor) harmless from
and against any liabilities, losses, costs or expenses suffered or incurred by
them under the Loan Documents or in connection with the transactions
contemplated hereby or thereby, regardless of when asserted or arising, except
to the extent they are promptly reimbursed for the same by the Borrower or out
of the Collateral and except to the extent that any event giving rise to a claim
was caused by the gross negligence or willful misconduct of the party seeking to
be indemnified. If the Administrative Agent has remitted any funds to any Lender
in reliance upon the assumption that such funds are in the course of being
remitted to it by the Borrower or is ever required to return any funds remitted
to a Lender then and in any such event such Lender agrees to promptly remit
and/or return the funds in question to the Administrative Agent.
SECTION 13. MISCELLANEOUS.
Section 13.1. Holidays. If any principal of any of the Notes shall fall
due on a Saturday, Sunday or on another day which is a legal holiday for lenders
in the States of Illinois, North Carolina or New York, interest at the rates
such Notes bear for the period prior to maturity shall continue to accrue on
such principal from the stated due date thereof to and including the next
succeeding Business Day on which the same is payable.
Section 13.2. No Waiver, Cumulative Remedies. No delay or failure on the
part of any Administrative Agent or Lender in the exercise of any power or right
shall operate as a waiver thereof, nor as an acquiescence in any default nor
preclude any other or further exercise thereof, or the exercise of any other
power or right, and the rights and remedies hereunder of the Administrative
Agent and the Lenders are cumulative to, and not exclusive of, any rights or
remedies which any of them would otherwise have.
Section 13.3. Waivers, Modifications and Amendments. Any provision of
the Loan Documents (other than documents creating Hedging Liabilities) may be
amended, modified, waived or released and any Potential Default or Event of
Default and its consequences may be rescinded and annulled upon the written
consent of the Required Lenders; provided, however, that without the consent of
each Lender no such amendment, modification or
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waiver shall increase the amount or decrease the pro rata share or extend the
terms of such Lender's Commitments or reduce the interest rate applicable to or
extend the scheduled maturity of its Notes or reduce the amount of the fees to
which it is entitled hereunder and without the consent of all Lenders no such
amendment, modification, release or waiver shall change any provision of this
sentence or release all or any substantial (in value) part of the collateral
security afforded by the Collateral Documents, except in connection with a sale
or other disposition, thereof, or release the Guarantors or amend or waive
Section 8.23 hereof. No amendment, modification or waiver of the Agents' or
Issuer's protective provisions shall be effective without the prior written
consent of the affected Agent or Issuer, as applicable. The Administrative Agent
may, without the consent of any Lender, (i) release its lien on any portion of
the Collateral which is being sold or disposed of by the Borrower or owning
Guarantor if any prepayment required as a result of such sale is made and (ii)
subordinate its lien to easements, possessory rights, cutting rights and
permitted sales of stumpage and timber rights and enter into other arrangements
concerning its liens which will not in its reasonable judgment materially impair
the value thereof.
Section 13.4. Costs and Expenses. The Borrower agrees to pay on demand
all reasonable out-of-pocket costs and expenses of the Agents and Issuer in
connection with the negotiation, preparation, execution, delivery, recording
and/or filing and/or release of the Loan Documents and the other instruments and
documents to be delivered hereunder or thereunder or in connection with the
transactions contemplated hereby or thereby or in connection with any consents
hereunder or thereunder or waivers or amendments hereto or thereto, including
the reasonable fees and out-of-pocket expenses of counsel for the Agents and
Issuer with respect to all of the foregoing, and all recording, filing, title
insurance, subagent's or other fees, costs and taxes incident to perfecting a
lien upon the Collateral, and all costs and expenses (including reasonable
attorneys' fees), incurred by the Agents, the Issuer, the Lenders or any other
holders of a Note in connection with a default or the enforcement of the Loan
Documents and the other instruments and documents to be delivered hereunder or
thereunder. The Borrower agrees to reimburse the Administrative Agent for the
costs of all examinations and audits of the Collateral and all costs of
appraisers and consultants. The Borrower agrees to indemnify and save the
Lenders, the Agents, the Issuer any subagent and any security trustee for the
Lenders harmless from any and all liabilities, losses, costs and expenses
incurred by the Lenders or the Agents or the Issuer any security trustee or any
subagent in connection with any action, suit or proceeding brought against the
Agents or the Issuer, security trustee or any Lender by any Person which arises
out of the transactions contemplated or financed hereby or by the other Loan
Documents or out of any action or inaction by any Agent, any security trustee or
any Lender hereunder or thereunder, except for such thereof as is caused by the
gross negligence or willful misconduct of the party indemnified. The provisions
of this Section 13.4 and the other protective provisions of this Agreement
hereof shall survive payment of the Notes.
Section 13.5. Stamp Taxes. Although the Borrower is of the opinion, and
has been so advised by its counsel, that no documentary or similar taxes are
payable in respect to the Loan Documents, the Borrower agrees that they will pay
such taxes, including interest and penalties, in the event any such taxes are
assessed, irrespective of when such assessment is made and whether or not any
credit to it is then in use or available.
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Section 13.6. Survival of Representations. All representations and
warranties made in the Loan Documents or in certificates given pursuant hereto
shall survive the execution and delivery of the Loan Documents, and shall
continue in full force and effect with respect to the date as of which they were
made as long as any credit is in use or available hereunder.
Section 13.7. Construction. The parties hereto acknowledge and agree
that the Loan Documents shall not be construed more favorably in favor of one
than the other based upon which party drafted the same, it being acknowledged
that all parties hereto contributed substantially to the negotiation and
preparation of this Agreement and the Loan Documents.
Section 13.8. Accounting Principles. All computations of compliance with
the financial terms hereof shall be made on the basis of GAAP as in effect on
the date hereof except to the extent otherwise explicitly herein provided.
Section 13.9. Headings. Article and Section headings used in this
Agreement are for convenience of reference only and are not a part of this
Agreement for any other purpose.
Section 13.10. Severability of Provisions. Any provision of this
Agreement which is unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction. All rights, remedies
and powers provided in the Loan Documents may be exercised only to the extent
that the exercise thereof does not violate any applicable mandatory provisions
of law, and all the provisions of the Loan Documents are intended to be subject
to all applicable mandatory provisions of law which may be controlling and to be
limited to the extent necessary so that they will not render the Loan Documents
invalid or unenforceable.
Section 13.11. Counterparts. This Agreement may be executed in any
number of counterparts, and by different parties hereto on separate
counterparts, and all such counterparts taken together shall be deemed to
constitute one and the same instrument.
Section 13.12. Binding Nature, Governing Law, Etc. This Agreement shall
be binding upon the Borrower and Guarantors and their successors and assigns,
and shall inure to the benefit of the Lenders, the Agents and the Issuer and the
benefit of their successors and assigns, including any subsequent holder of an
interest of the Notes. This Agreement and the Notes and the rights and duties of
the parties hereto shall be construed and determined in accordance with, and
shall be governed by the internal laws of the State of Illinois without regard
to principles of conflicts of law. This Agreement, together with the other Loan
Documents, constitutes the entire understanding of the parties with respect to
the subject matter hereof and any prior agreements, whether written or oral,
with respect thereto are superseded hereby except for prior understandings
related to fees payable to the Agents. The Borrower may not assign its rights
hereunder without the written consent of the Lenders.
Section 13.13. Notices. All communications provided for herein shall be
in writing or by telecopy, except as otherwise specifically provided for
hereinabove, addressed to the
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appropriate party at their respective addresses set forth opposite their
respective signatures hereto, or at such other address as shall be designated by
any party hereto in a written notice to each other party pursuant to this
Section 13.13. Any notice shall be in writing and shall be deemed to have been
given or made when served personally or when received if sent by United States
mail, and any notice given by telex or telecopy means shall be deemed given when
transmitted (receipt confirmed by the sender's transmission equipment); provided
that any notice to the Administrative Agent or any Lender under Sections 1 and 2
hereof shall only be effective upon receipt.
Section 13.14. Participants. Each Lender shall have the right at its own
cost to grant participations (to be evidenced by one or more agreements or
certificates of participation) in the Loans made by such Lender at any time and
from time to time to one or more other financial institutions, provided that no
such participant shall have any rights under this Agreement or any other Loan
Documents (the participant's rights against the Lender granting its
participation to be those set forth in the participation agreement between the
participant and such Lender). Each such Lender shall be entitled to the benefits
of the yield protection provisions hereof to the extent such Lender would have
been so entitled had no such participation been sold. In connection with the
sale of any such participation, no Lender shall agree with a participant not to
grant amendments, modifications or waivers hereunder except for amendments,
modifications and waivers of a character which can only be made with consent of
such Lender acting alone, or with the consent of all Lenders, pursuant to the
terms of Section 13.3 hereof.
Section 13.15. Concerning the Guarantors. All references to the
"Guarantors" herein shall be deemed references to the Guarantors and to each of
them, jointly and severally except to the extent that the context explicitly
otherwise requires.
Section 13.16. Assignment Agreements. Each Lender may, from time to time,
with the consent of the Borrower, the Issuer and Administrative Agent (which
will not in any instance be unreasonably withheld and which consents shall not
be required in the case of an assignment to an Affiliate of the assigning
Lender), sell or assign to other institutions part of the indebtedness evidenced
by the Notes and participation in the Letter of Credit then owned by it pursuant
to written agreements executed by the assignor, the assignee and the Borrower,
which agreements shall specify in each instance the portion of the indebtedness
evidenced by the Notes which is to be assigned to each such assignor and the
portion of the Commitments and credit risk incident to the Letters of Credit of
the assignor to be assumed by it (the "Assignment Agreements"), provided that
the Borrower, the Issuer and Administrative Agent may in their sole discretion
withhold their consent to any assignment by a Lender of less than $5,000,000 of
its Commitments, or Loans, further provided that nothing herein contained shall
restrict, or be deemed to require any consent as a condition to, or require
payment of any fee in connection with, any sale, discount or pledge by any
Lender of any Note or other obligation hereunder to a Federal Reserve Bank. The
Assignment Agreements shall be in the form annexed hereto as Exhibit F as in
such other form as all signatories thereto shall approve. Upon the execution of
each Assignment Agreement by the assignor, the assignee and the Borrower and
consent thereto by the Administrative Agent and the Issuer, if applicable (i)
such assignee shall thereupon become a
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"Lender" for all purposes of this Agreement with Commitments in the amounts set
forth in such Assignment Agreement and with all the rights, powers and
obligations afforded a Lender hereunder, (ii) the assignor shall have no further
liability for funding the portion of its Commitment assumed by such other Lender
and (iii) the address for notices to such Lender shall be as specified in the
Assignment Agreement, and the Borrower shall execute and deliver Notes to the
assignee Lender, all such Notes to constitute "Notes" for all purposes of this
Agreement, and there shall be paid to the Administrative Agent, as a condition
to such assignment, an administration fee of $3,500 plus any reasonable
out-of-pocket costs and expenses incurred by it in effecting such assignment,
such fee to be paid by the assignor or the assignee as they may mutually agree,
but under no circumstances shall any portion of such fee be payable by or
charged to the Borrower.
Section 13.17. Submission and Waiver of Jury Trial. EACH PARTY HERETO
HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT
COURT FOR THE NORTHERN DISTRICT OF ILLINOIS (EASTERN DIVISION) AND OF ANY
ILLINOIS STATE COURT SITTING IN CHICAGO FOR THE PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THE LOAN DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO
THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY
CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. EACH OF THE BORROWER, THE ADMINISTRATIVE AGENT AND THE
LENDERS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 13.18. Entire Agreement. This Agreement constitutes the entire
understanding of the parties with respect to the subject matter hereof and any
prior agreements, whether written or oral, with respect thereto are superseded
hereby.
Section 13.19. Withholding Taxes.
(a) U.S. Withholding Tax Exemptions. Each Lender that is not a United
States person (as such term is defined in Section 7701(a)(30) of the Code) shall
submit to the Borrower and the Administrative Agent on or before the date the
initial Borrowing is made hereunder or, if later, the date such Lender becomes a
Lender hereunder, two duly completed and signed copies of either Form 1001
(relating to such Lender and entitling it to a complete exemption from
withholding on all amounts to be received by such Lender, including fees,
pursuant to this Agreement and the Loans) or Form 4224 (relating to all amounts
to be received by such Lender, including fees, pursuant to this Agreement and
the Loans) of the United States Internal Revenue Service. Thereafter and from
time to time, each such Lender shall submit to the Borrower and the
Administrative Agent such additional duly completed and signed copies of one or
the other of such Forms (or such successor forms as shall be adopted from time
to time by the relevant United States taxing authorities) as may be (i) notified
by the Borrower or Administrative Agent to such Lender and (ii)
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required under then-current United States law or regulations to avoid or reduce
United States withholding taxes on payments in respect of all amounts to be
received by such Lender, including fees, pursuant to this Agreement or the
Loans. Upon the request of the Borrower or Administrative Agent, each Lender
that is a United States person (as such term is defined in Section 7701(a)(30)
of the Code) shall submit to the Borrower a certificate to the effect that it is
such a United States person.
(b) Inability of Lender to Submit Forms. If any Lender determines, as a
result of any change in applicable law, regulation or treaty, or in any official
application or interpretation thereof, that it is unable to submit to the
Borrower any form or certificate that such Lender is obligated to submit
pursuant to subsection (a) of this Section 13.19, or that such Lender is
required to withdraw or cancel any such form or certificate previously submitted
or any such form or certificate otherwise become ineffective or inaccurate, such
Lender shall promptly notify the Borrower and Administrative Agent of such fact
and the Lender shall to that extent not be obligated to provide any such form or
certificate and will be entitled to withdraw or cancel any affected form or
certificate, as applicable.
(c) Payment of Additional Amounts. If, as a result of any change in
applicable law, regulation or treaty, or in any official application or
interpretation thereof after the date of this Agreement or, if later, the date a
Lender becomes a Lender hereunder, the Borrower is required by law or regulation
to make any deduction, withholding or backup withholding of any taxes, levies,
imposts, duties, fees, liabilities or similar charges of the United States of
America, any possession or territory of the United States of America (including
the Commonwealth of Puerto Rico) or any area subject to the jurisdiction of the
United States of America ("U.S. Taxes") from any payments to a Lender in respect
of Loans then or thereafter outstanding, or other amounts owing hereunder, the
amount payable by the Borrower will be increased to the amount which, after
deduction from such increased amount of all U.S. Taxes required to be withheld
or deducted therefrom, will yield the amount required under this Agreement to be
payable with respect thereto; provided that the Borrower shall not be required
to pay any additional amount pursuant to this subsection (c) to any Lender that
(i) is not, on the date this Agreement is executed by such Lender or, if later,
the date such Lender became a Lender hereunder, either (x) entitled to submit
Form 1001 relating to such Lender and entitling it to a complete exemption from
withholding on all amounts to be received by such Lender, including fees,
pursuant to this Agreement and the Loans or Form 4224 relating to all amounts to
be received by such Lender, including fees, pursuant to this Agreement and the
Loans or (y) a U.S. person (as such term is defined in Section 7701(a)(30) of
the Code), or (ii) has failed to submit any form or certificate that it was
required to file pursuant to subsection (a) of this Section 13.19 and entitled
to file under applicable law, or (iii) is no longer entitled to submit Form 1001
or Form 4224 as a result of any change in circumstances other than a change in
applicable law, regulation or treaty or in any official application or
interpretation thereof. Within 30 days after the Borrower's payment of any such
U.S. Taxes, the Borrower shall deliver to the Administrative Agent, for the
account of the relevant Lender(s), originals or certified copies of official tax
receipts evidencing such payment. The obligations of the Borrower under this
subsection (c) shall survive the payment in full of the Loans and the
termination of the Commitments. If any Lender or the Administrative Agent
determines it has received or
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been granted a credit against or relief or remission for, or repayment of, any
taxes paid or payable by it because of any U.S. Taxes paid by a Borrower and
evidenced by such a tax receipt, such Lender or the Administrative Agent shall,
to the extent it can do so without prejudice to the retention of the amount of
such credit, relief, remission or repayment, pay to the Borrower such amount as
such Lender or Administrative Agent determines is attributable to such deduction
or withholding and which will leave such Lender or Administrative Agent (after
such payment) in no better or worse position than it would have been in if such
Borrower had not been required to make such deduction or withholding. Nothing in
this Agreement shall interfere with the right of each Lender and the
Administrative Agent to arrange its tax affairs in whatever manner it thinks fit
nor oblige any Lender or the Administrative Agent to disclose any information
relating to its tax affairs or any computations in connection with such taxes.
Section 13.20. Set-off Sharing. Each Lender agrees with each other Lender
a party hereto that in the event such Lender shall receive and retain any
payment, whether by set-off or application of deposit balances or otherwise
("Set-off"), on or in respect of any Note or other obligation outstanding under
the Loan Documents in excess of the amount to which it is entitled under this
Agreement, then such Lender shall purchase for cash at face value, but without
recource, ratably from each of the other Lenders such amount of the Notes or
other Obligations held by each such other Lender (or interest therein) as shall
be necessary to cause such payment to be shared in accord with Section 3.6
hereof; provided, however, that if any such purchase is made by any Lender, and
if such excess payment or part thereof is thereafter recovered from such
purchasing Lender, the related purchases from the other Lenders shall be
rescinded ratably and the purchase price restored as to the portion of such
excess payment so recovered, but without interest. Each Lender agrees that it
will not exercise rights of set off without the consent of the Administrative
Agent.
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Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall be a contract between us for the purposes hereinabove set forth.
Dated as of October 9, 1998.
PIONEER RESOURCES, LLC
By /s/ [illegible]
-------------------------------------
Its
----------------------------------
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<PAGE> 75
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY US
AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE
NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE
BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY
US TO BE ENFORCEABLE.
Accepted and agreed to as of the day and year last above written.
Revolving Credit Commitment: FIRST UNION NATIONAL BANK
$11,666,666.68 Individually and as Administrative Agent
and Letter of Credit Issuer
By /s/ [illegible]
--------------------------------------------
Its Vice President
----------------------------------------
Term Credit Commitment: Address: One First Union Center
$33,333,333.32 301 South College Street, DC-5
Charlotte, North Carolina 28288-0737
Attention: Scott Santa Cruz
Lending Office:
[Same As Above
Attention: Operations]
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<PAGE> 76
Revolving Credit Commitment: ABN AMRO BANK N.V., individually and
$11,666,666.67 as Syndication Agent
By /s/ Wayne Rancourt
----------------------------------------
Its Vice President
--------------------------------------
By /s/ Judy Chica
----------------------------------------
Its Group Vice President
--------------------------------------
Term Credit Commitment: Address: ABN AMRO Bank N.V.
$33,333,333.33 135 South LaSalle Street
Suite 2805
Chicago, Illinois 60674-9135
Attention: Credit Administration
Telephone: (312) 904-8835
Facsimile: (312) 904-8840
with a copy to:
One Union Square
600 University Street, Suite 2323
Seattle, Washington 98101
Attention: David McGinnis
Telephone: (206) 587-0342
Facsimile: (206) 682-5641
Lending Office:
[Same As Above
Attention: Operations]
<PAGE> 77
Revolving Credit Commitment: NATIONSBANK, N.A.
$8,944,444.44 individually and as Documentation Agent
By /s/ Joseph L. Corah
-----------------------------------------
Its Vice President
-------------------------------------
Term Credit Commitment: Address: 100 North Tryon Street
$25,555,555.56 NC1-007-08-05
Charlotte, North Carolina 28255
Attention: Joe Corah
Telephone: (704) 386-4197
Facsimile: (704) 386-5694
Lending Office:
One Independent Center
NC1-001-15-03
101 North Tryon Street
Charlotte, North Carolina 28255-0001
Facsimile: (704) 386-5694
<PAGE> 78
Revolving Credit Commitment: U. S. BANK NATIONAL ASSOCIATION
$10,500,000.00
By /s/ John R. Sather
----------------------------------------
Its Vice President
------------------------------------
Term Credit Commitment: Address: 800 Willamette Street, Third Floor
$30,000,000.00 Eugene, Oregon 97401
Attention: John R. Sather
Telephone: (541) 465-4122
Facsimile: (541) 342-6755
Lending Office:
[Same As Above]
<PAGE> 79
Revolving Credit Commitment: KEYBANK NATIONAL ASSOCIATION
$6,481,481.48
By /s/ Mary K. Young
----------------------------------------
Its Commercial Banking Officer
------------------------------------
Term Credit Commitment: Address: 700 Fifth Avenue
WA31-10-4612
$18,518,518.52 Seattle, Washington 98104
Attention: Mary Young
Telephone: (206) 684-6085
Facsimile: (206) 684-6035
Lending Office:
[Same As Above]
<PAGE> 80
Revolving Credit Commitment: THE BANK OF NOVA SCOTIA
$6,481,481.48
By /s/ Daryl K. Hogge
----------------------------------------
Its Officer
------------------------------------
Term Credit Commitment: Address: 888 S.W. Fifth Avenue, Suite 750
$18,518,518.52 Portland, Oregon 97204
Attention: Daryl Hogge
Telephone: (503) 222-4169
Facsimile: (503) 222-5502
Lending Office:
[Same As Above]
<PAGE> 81
Revolving Credit Commitment: UNION BANK OF CALIFORNIA, N.A.
$6,481,481.48
By /s/ Henry G. Montgomery
------------------------------------------
Its Vice President
-------------------------------------
Term Credit Commitment: Address: 350 California Street, 6th Floor
$18,518,518.52 San Francisco, California 94104
Attention: Buddy Montgomery
Telephone: (415) 705-5011
Facsimile: (415) 705-5093
Lending Office:
[Same As Above]
<PAGE> 82
Revolving Credit Commitment: AMSOUTH BANK
$2,592,592.59
By /s/ Donald M. Sinclair
-----------------------------------------
Its Vice President
------------------------------------
Term Credit Commitment: Address: 1900 Fifth Avenue North
$7,407,407.41 Birmingham, Alabama 35203
Attention: Donald M. Sinclair
Telephone: (205) 801-0349
Facsimile: (205) 583-4436
Lending Office:
[Same As Above]
<PAGE> 83
Revolving Credit Commitment: BANQUE NATIONALE DE PARIS
$2,592,592.59
By /s/ David W. Low
-----------------------------------------
Its Vice President
------------------------------------
Term Credit Commitment: Address: 180 Montgomery Street, 3rd Floor
$7,407,407.41 San Francisco, California 94104
Attention: David Low
Telephone: (415) 956-0707
Facsimile: (415) 296-8954
Lending Office:
[Same As Above]
<PAGE> 84
Revolving Credit Commitment: FIRST SECURITY BANK, N.A.
$2,592,592.59
By /s/ Mark C. Johnson
----------------------------------------
Its Senior V.P.
------------------------------------
Term Credit Commitment: Address: 4949 Meadows Road
$7,407,407.41 Lake Oswego, Oregon 97035
Attention: Mark C. Johnson
Telephone: (503) 675-3258
Facsimile: (503) 675-3209
Lending Office:
[Same As Above]
<PAGE> 1
Exhibit 10.6
================================================================================
================================================================================
LOAN AGREEMENT
BY AND AMONG
STRATEGIC TIMBER PARTNERS, LP
AS THE BORROWER,
THE LENDERS NAMED HEREIN
AND
ABN AMRO BANK N.V.
AS THE AGENT
April 27, 1998
================================================================================
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I DEFINITIONS.................................................................................2
Section 1.1 Defined Terms..........................................................................2
Section 1.2 Other Interpretive Provisions.........................................................26
(a) Accounting Terms......................................................................26
(b) Other Terms...........................................................................26
(c) Performance; Time.....................................................................26
(d) Laws..................................................................................26
(e) Rounding..............................................................................27
(f) Schedules And Exhibits................................................................27
ARTICLE II THE CREDITS................................................................................27
Section 2.1 Amounts And Terms Of Commitments......................................................27
(a) Revolving Credit Facility.............................................................27
(b) Limitation On Each Lender's Obligation................................................27
(c) Funding Of Loans To The Agent.........................................................27
(d) Disbursement Of Loans To The Borrower.................................................28
(e) General Provisions Relating To Revolving Loans........................................28
(f) Permitted Uses Of Loan Proceeds.......................................................28
Section 2.2 Notes.................................................................................29
(a) Notations In The Lenders' Books And Records...........................................29
Section 2.3 Repayment Of Principal Amount Of Loans................................................29
Section 2.4 Payment Of Interest On The Loans......................................................29
(a) Loans.................................................................................29
(b) Interest Payment Dates................................................................29
(c) Interest Upon Events Of Default.......................................................29
(d) Limitations On Interest Rates.........................................................29
Section 2.5 Procedure For The Borrowing Of Loans..................................................30
Section 2.6 Conversion And Continuation Elections.................................................30
Section 2.7 Optional Prepayments..................................................................31
Section 2.8 Mandatory Prepayments.................................................................32
Section 2.9 Commitment Fee For Providing Commitments..............................................32
Section 2.10 Calculation Of Interest And Fees......................................................32
</TABLE>
i.
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<TABLE>
<S> <C> <C> <C>
Section 2.11 Payments..............................................................................32
Section 2.12 Payment On Non-Business Days..........................................................33
Section 2.13 Application Of Payments...............................................................33
Section 2.14 Distribution Of Payments..............................................................33
Section 2.15 The Agent's Right To Assume Funds Available For Loans.................................33
Section 2.16 The Agent's Right To Assume Payments Will Be Made By The Borrower.....................34
ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY.....................................................34
Section 3.1 Taxes.................................................................................37
Section 3.2 Illegality............................................................................38
Section 3.3 Increased Costs.......................................................................38
Section 3.4 Inability To Determine Rates..........................................................38
Section 3.5 Prepayment Of LIBOR Loans.............................................................38
Section 3.6 Capital Requirements..................................................................39
Section 3.7 Certificates Of Lenders...............................................................39
Section 3.8 Substitution Of Lenders...............................................................39
Section 3.9 Survival..............................................................................40
ARTICLE IV CONDITIONS PRECEDENT TO CLOSING AND THE MAKING OF LOANS....................................40
Section 4.1 Conditions Precedent To The Closing...................................................40
(a) Corporate Documents...................................................................40
(b) Loan Documents........................................................................41
(c) Opinion Of Borrower's Counsel.........................................................42
(d) J.A. Bel Acquisition Documents........................................................42
(e) Baal Acquisition Documents............................................................42
(f) Quatre Parish Acquisition Documents...................................................43
(g) Griffin Documents.....................................................................43
(h) Governmental Consents.................................................................43
(i) Third Party Consents..................................................................43
(j) Consummation Of The Timberlands Acquisition...........................................43
(k) Opening Timber Valuation..............................................................43
(l) Opening Pro Forma Balance Sheet.......................................................44
(m) Initial Equity Investment.............................................................44
</TABLE>
ii.
<PAGE> 4
<TABLE>
<S> <C> <C>
(n) Financial Statements..................................................................44
(o) Harvest Plan..........................................................................44
(p) Confirmation Regarding Operating Projections..........................................44
(q) Environmental Review..................................................................44
(r) Material Agreements...................................................................44
(s) Access Rights And Servitudes..........................................................44
(t) Entitlements..........................................................................45
(u) Title Policies........................................................................45
(v) Solvency Certificate..................................................................45
(w) Insurance.............................................................................45
(x) No Material Adverse Change............................................................45
(y) UCC Searches..........................................................................45
(z) No Litigation.........................................................................45
(aa) The Borrower's Bring-Down Certificate.................................................46
(bb) Fee Letter............................................................................46
(cc) Escrow Instructions...................................................................46
(dd) Funds Transfer Memorandum.............................................................46
(ee) Fees And Costs........................................................................46
(ff) Subordinated Bridge Loan Documents....................................................46
(gg) Other Documents.......................................................................46
Section 4.2 The Making Of Loans...................................................................47
ARTICLE V THE BORROWER'S REPRESENTATIONS AND WARRANTIES..............................................47
Section 5.1 Organization, Power And Authority Of The Borrower.....................................47
Section 5.2 Organization, Power And Authority of The Borrower's Subsidiaries......................47
Section 5.3 Loan Documents Authorized; Binding Obligations........................................48
Section 5.4 No Conflict...........................................................................48
Section 5.5 Capital Structure.....................................................................48
Section 5.6 Financial Condition...................................................................48
Section 5.7 No Material Adverse Change............................................................49
Section 5.8 Ownership Of Properties...............................................................49
Section 5.9 Litigation............................................................................49
Section 5.10 Material Documents; Third Party Consents..............................................49
Section 5.11 No Government Consents Needed.........................................................49
</TABLE>
iii.
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C> <C>
Section 5.12 Solvency..............................................................................50
Section 5.13 Management And Labor Agreements.......................................................50
Section 5.14 ERISA Compliance......................................................................50
Section 5.15 Certain Representations And Warranties Concerning The Timberlands.....................51
(a) Condition.............................................................................51
(b) Acres And Volume......................................................................51
(c) Description Of The Land...............................................................51
Section 5.16 Margin Regulations....................................................................51
Section 5.17 Taxes.................................................................................51
Section 5.18 Intellectual Property Rights..........................................................52
Section 5.19 Other Regulations.....................................................................52
Section 5.20 Brokers' Fees.........................................................................52
Section 5.21 Nature Of Representations And Warranties..............................................52
ARTICLE VI INSURANCE..................................................................................52
Section 6.1 Insurance By The Borrower And Services................................................52
Section 6.2 General Insurance Requirements........................................................53
(a) Workers' Compensation Insurance.......................................................53
(b) Employer's Liability Insurance........................................................53
(c) General Liability Insurance...........................................................53
(d) Automobile Liability Insurance........................................................53
(e) Excess Insurance......................................................................53
(f) Standing Timber.......................................................................53
Section 6.3 Endorsements..........................................................................53
Section 6.4 Waiver Of Subrogation.................................................................54
Section 6.5 Conditions............................................................................54
Section 6.6 Evidence Of Insurance.................................................................55
Section 6.7 Failure To Maintain Insurance.........................................................55
ARTICLE VII AFFIRMATIVE COVENANTS OF THE BORROWER AND SERVICES.........................................55
Section 7.1 Records And Reports...................................................................55
(a) Quarterly Borrower-Prepared Financial Statements......................................55
(b) Annual Audited Financial Statements...................................................56
</TABLE>
iv.
<PAGE> 6
<TABLE>
<S> <C> <C>
(c) Accountants' Statement................................................................56
(d) Compliance Certificate................................................................56
(e) Borrowing Base Certificate............................................................57
(f) Quarterly Timber Report...............................................................57
(g) Merchantable Timber Valuation Reports.................................................57
(h) Harvest Plans.........................................................................58
(i) Management Letter.....................................................................58
(j) Financial Forecasts...................................................................58
(k) Other Reports.........................................................................58
(l) Notices...............................................................................58
(m) ERISA.................................................................................59
(n) Other Information.....................................................................59
Section 7.2 Maintenance Of Rights And Properties..................................................59
(a) Maintenance Of Existence And Rights...................................................59
(b) Maintenance Of Properties.............................................................60
Section 7.3 Taxes And Other Liabilities...........................................................60
Section 7.4 Inspection Of Books And Records.......................................................60
Section 7.5 Harvesting Of Timber..................................................................60
Section 7.6 Compliance With Laws..................................................................60
Section 7.7 Interest Rate Protection..............................................................60
Section 7.8 Agreements............................................................................61
Section 7.9 Supplemental Disclosure...............................................................61
Section 7.10 Further Assurances....................................................................61
Section 7.11 Year 2000.............................................................................61
ARTICLE VIII NEGATIVE COVENANTS OF THE BORROWER.........................................................61
Section 8.1 Limitation On Liens...................................................................61
Section 8.2 Disposition Of Assets.................................................................63
Section 8.3 Consolidations And Mergers............................................................63
Section 8.4 Acquisitions; Loans And Investments...................................................64
Section 8.5 Limitation On Indebtedness............................................................64
Section 8.6 Transactions With Affiliates..........................................................65
Section 8.7 Use Of Proceeds.......................................................................66
Section 8.8 Lease Obligations.....................................................................66
</TABLE>
v.
<PAGE> 7
<TABLE>
<S> <C> <C>
Section 8.9 Capital Expenditures..................................................................66
Section 8.10 Restricted Distributions..............................................................66
Section 8.11 Modification Of Certain Agreements....................................................68
Section 8.12 Maintenance Of Business...............................................................68
Section 8.13 ERISA.................................................................................68
Section 8.14 No Use Of Any Lender's Name...........................................................68
Section 8.15 Accounting Changes....................................................................68
ARTICLE IX FINANCIAL COVENANTS OF THE BORROWER AND SERVICES...........................................69
Section 9.1 Minimum Interest Coverage Ratio.......................................................69
Section 9.2 Maximum Leverage Ratio................................................................70
ARTICLE X EVENTS OF DEFAULT AND REMEDIES.............................................................70
Section 10.1 Events Of Default.....................................................................70
(a) Installments Of Principal.............................................................70
(b) Other Payments........................................................................70
(c) Cross Defaults........................................................................70
(d) Representations And Warranties Of The Borrower........................................71
(e) Specific Defaults.....................................................................71
(f) Other Defaults........................................................................71
(g) Insolvency; Voluntary Proceedings.....................................................71
(h) Involuntary Proceedings...............................................................71
(i) Material Adverse Change...............................................................72
(j) Monetary Judgments....................................................................72
(k) Non-Monetary Judgments................................................................72
(l) Collateral............................................................................72
(m) ERISA.................................................................................72
(n) Change In Key Investors...............................................................72
(o) Change in Management..................................................................72
Section 10.2 Waiver Of Default.....................................................................72
Section 10.3 Remedies..............................................................................72
Section 10.4 Set-Off...............................................................................73
(a) Rights Of Set-Off.....................................................................73
(b) The Agent's Consent To Set-Off Required...............................................73
</TABLE>
vi.
<PAGE> 8
<TABLE>
<S> <C> <C>
Section 10.5 Sharing Of Payments...................................................................73
Section 10.6 Rights And Remedies Cumulative........................................................74
ARTICLE XI THE AGENT..................................................................................74
Section 11.1 Appointment And Authorization.........................................................74
Section 11.2 Delegation Of Duties..................................................................74
Section 11.3 Exculpatory Provisions................................................................74
Section 11.4 Reliance By The Agent.................................................................75
Section 11.5 Notice Of Default.....................................................................75
Section 11.6 Credit Decision.......................................................................76
Section 11.7 Indemnification.......................................................................76
Section 11.8 The Agent In Individual Capacity......................................................77
Section 11.9 Successor Agent.......................................................................77
Section 11.10 Collateral Matters....................................................................77
ARTICLE XII MISCELLANEOUS..............................................................................78
Section 12.1 Amendments And Waivers................................................................78
Section 12.2 Notices...............................................................................79
Section 12.3 No Waiver By Agent Or The Lenders.....................................................79
Section 12.4 Entire Agreement; Construction........................................................80
Section 12.5 Indemnification.......................................................................80
Section 12.6 Costs And Expenses....................................................................80
Section 12.7 Reliance By The Lenders...............................................................81
Section 12.8 Marshalling; Payments Set Aside.......................................................81
Section 12.9 No Set-Offs By The Borrower...........................................................81
Section 12.10 Successors And Assigns................................................................82
Section 12.11 Assignments, Participations, Etc......................................................82
Section 12.12 Headings..............................................................................84
Section 12.13 Severability..........................................................................84
Section 12.14 Notification Of Addresses, Lending Offices, Etc.......................................84
Section 12.15 No Third Parties Benefited............................................................84
Section 12.16 Relationship Of Parties...............................................................84
Section 12.17 Time..................................................................................85
Section 12.18 Counterparts..........................................................................85
Section 12.19 Joinder to Subordination Agreement....................................................85
</TABLE>
vii.
<PAGE> 9
<TABLE>
<S> <C> <C>
Section 12.20 Equitable Relief......................................................................85
Section 12.21 Notice Of Claims; Claims Bar..........................................................85
Section 12.22 Waiver Of Punitive Damages............................................................85
Section 12.23 Governing Law.........................................................................85
Section 12.24 Service Of Process....................................................................86
Section 12.25 Waiver Of Jury Trial..................................................................86
Section 12.26 Submission to Jurisdiction............................................................86
</TABLE>
viii.
<PAGE> 10
LOAN AGREEMENT
THIS LOAN AGREEMENT is entered into as of April 27, 1998, by and among
STRATEGIC TIMBER PARTNERS, LP, a Delaware limited partnership company (the
"Borrower"), as the borrower, the LENDERS (as defined below) and ABN AMRO BANK
N.V., not in its individual capacity, but solely in its capacity as the Agent.
RECITALS
A. The Borrower was formed under the laws of the State of Delaware for
the purpose of acquiring and owning Timberlands, including, initially, certain
Timberlands situated in Allen, Beauregard, Calcasieu, and Jefferson Davis
Parishes, Louisiana and more particularly described in Part A to SCHEDULE 2 (the
"Bel/Quatre Timberlands").
B. Griffin and the J.A. Bel Sellers have entered into the J.A. Bel
Purchase Agreement pursuant to which the J.A. Bel Sellers have agreed to sell,
transfer and convey by act of sale to Griffin and Griffin has agreed to purchase
from the J.A. Bel Sellers (the "J.A. Bel Acquisition") all of the J.A. Bel's
Sellers' undivided right, title and interest in that portion of the Bell/Quatre
Timberlands more particularly described in Part A.1 to SCHEDULE 2 (the "J.A. Bel
Timberlands") and certain related assets (collectively, the "J.A. Bel
Timberlands Assets").
C. Griffin and Baal Land Corporation have entered into the Baal
Purchase Agreement pursuant to which Baal Land Corporation has agreed to sell,
transfer and convey by act of sale to Griffin and Griffin has agreed to purchase
from Baal Land Corporation (the "Baal Acquisition") all of Baal Land
Corporation's undivided right, title and interest in the J.A. Bel Timberlands
Assets.
D. Griffin and the Quatre Parish Sellers have entered into the Quatre
Estate Purchase Agreement pursuant to which the Quatre Parish Sellers have
agreed to sell, transfer and convey by act of sale to Griffin and Griffin has
agreed to purchase from the Quatre Parish Sellers (the "Quatre Estate
Acquisition") all of the Quatre Parish Sellers' undivided right, title and
interest in that portion of the Bel/Quatre Timberlands more particularly
described in Part A.2 to SCHEDULE 2 (the "Quatre Estate Timberlands") and
certain related assets (collectively, the "Quatre Estate Timberlands Assets";
the J.A. Bel Timberlands Assets and the Quatre Estate Timberlands Assets are
collectively referred to as the "Timberlands Assets").
E. Griffin and LTP have entered into the Griffin Contract of Sale
pursuant to which Griffin has agreed, in a related, substantially simultaneous
back-to-back transaction, to sell, transfer and convey by act of sale to LTP,
and LTP has agreed to purchase from Griffin (the "Griffin Acquisition") all of
Griffin's right, title and interest in and to the Timberlands Assets, and LTP in
turn has agreed to contribute and assign all of its right, title and interest
in, to and under the Griffin Contract of Sale and the other Griffin Acquisition
Documents to the Borrower pursuant to the LTP Assignment.
F. Concurrently herewith, Strategic Timber Trust is entering into the
Subordinated Bridge Loan Agreement with the Subordinated Bridge Lenders and the
Subordinated Bridge
1.
<PAGE> 11
Agent pursuant to which the Subordinated Bridge Lenders have agreed to advance
to Strategic Timber Trust contemporaneously with the Closing the Subordinated
Bridge Loan, with the entire proceeds thereof, net of related transaction costs,
to be immediately contributed by Strategic Timber Trust to the Borrower to fund
a portion of the purchase price of the Timberlands Assets.
G. The Borrower has requested that the Lenders and the Agent enter into
this Agreement pursuant to which the Lenders severally agree (in accordance with
their respective Commitments) to advance to the Borrower (i) at Closing, Loans
in an amount equal to a portion of the availability under the Lenders' Aggregate
Commitment (subject to the Borrowing Base) for the purpose of funding (1) a
portion of the purchase price of the Timberlands Assets and (2) related
transaction costs and (ii) thereafter from time to time, Loans, subject to the
terms and conditions of this Agreement including availability under the
Borrowing Base, for general business purposes, including the acquisition of
additional Timberlands.
H. The Lenders have agreed to make the Loans described in this
Agreement available to the Borrower, but only on the terms, subject to the
conditions and in reliance on the representations and warranties set forth
below.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants set forth below, and intending to be legally bound, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings:
"ABN AMRO" means ABN AMRO Bank N.V., a Dutch banking corporation.
"Acquisition" means any transaction, or any series of related
transactions, by which the Borrower or any of its Subsidiaries directly or
indirectly (a) acquires any ongoing business or all or substantially all of the
assets of any firm, partnership, limited liability company, real estate
investment trust, business trust or other similar trust, joint venture,
corporation or division thereof, whether through purchase of assets, merger or
otherwise, (b) acquires (in one transaction or as the most recent transaction in
a series of transactions) control of at least a majority of the capital stock of
a corporation having ordinary voting power for the election of directors, (c)
acquires control of fifty percent (50.0%) or more of the ownership interest in
any partnership, limited liability company or joint venture or (d) in a single
or in a series of related transactions, from one or more Persons, acquires
assets, including Timberlands and other related Properties and facilities,
including mills and other Timber conversion or processing facilities, having an
aggregate, all-in purchase price of at least $2,000,000.
"Acquisition Documents" means, collectively, the J.A. Bel Acquisition
Documents, the Baal Acquisition Documents, the Quatre Parish Acquisition
Documents and the Griffin Acquisition Documents.
2.
<PAGE> 12
"Adjusted LIBOR" means, for each Interest Period in respect of LIBOR
Loans comprising part of the same Borrowing, an interest rate per annum (rounded
upward to the nearest 1/16th of one percent (0.0625%)) determined pursuant to
the following formula:
Adjusted LIBOR = LIBOR
-----------------------------------------------
1.00 - Eurodollar Reserve Percentage
The Adjusted LIBOR shall be adjusted automatically as of the effective date of
any change in the Eurodollar Reserve Percentage.
"Affected Lender" has the meaning set forth in SECTION 3.8.
"Affiliate" means, with respect to any Person, each other Person which,
directly or indirectly, controls, is controlled by or is under common control
with such Person (excluding any trustee under, or any committee with
responsibility for administering, any Pension Plan or Employee Benefit Plan). A
Person shall be deemed to be "controlled by" another Person if such other Person
possesses, directly or indirectly, power (a) to vote five percent (5.0%) or more
of the securities (on a fully diluted basis) having ordinary voting power for
the election of directors, managing general partners or managing members or (b)
to direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.
"Agent" means ABN AMRO, not when acting in its individual capacity, but
solely when acting in its capacity as the Agent under this Agreement or any of
the other Loan Documents, and any successor Agent.
"Agent-Related Persons" means the Agent, and any successor Agent,
together with their respective Affiliates, and the officers, directors,
employees, agents and attorneys-in-fact of such Persons.
"Agent's Payment Office" means the address for payments set forth on
the signature page hereto in relation to the Agent or such other address as the
Agent may from time to time specify in accordance with SECTION 12.2.
"Aggregate Commitment" means the combined Commitments of the Lenders in
the initial aggregate principal amount of Two Hundred Fifteen Million Dollars
($215,000,000).
"Agreement" means this Loan Agreement dated as of April 27, 1998,
including all amendments, modifications and supplements hereto and all
appendices, exhibits and schedules to any of the foregoing, and shall refer to
the Agreement as the same may be in effect from time to time.
"Applicable Margin" means with respect to any Base Rate Loan or any
LIBOR Loan, as applicable, the following margin, expressed as a percentage,
based on the current Leverage Ratio maintained by the Borrower as determined as
of the end of the most recent Fiscal Quarter for which the Borrower has
furnished a Compliance Certificate to the Agent pursuant to SECTION 7.1(E):
3.
<PAGE> 13
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
LEVERAGE RATIO LOANS
- ------------------------------------------------------------------------------
Applicable
Applicable Margin for
Margin for Base Rate
LIBOR Loans Loans
==============================================================================
<S> <C> <C>
Less than 2.0:1.0 0.50% 0.00%
- ------------------------------------------------------------------------------
Less than 3.0:1.0 but greater than 0.60% 0.00%
or equal to 2.0:1.0
- ------------------------------------------------------------------------------
Less than 4.0:1.0 but greater than 0.75% 0.00%
or equal to 3.0:1.0
- ------------------------------------------------------------------------------
Less than 5.0:1.0 but greater than 1.25% 0.00%
4.0:1.0
- ------------------------------------------------------------------------------
Greater than or equal to 5.0:1.0 1.75% 0.50%
- ------------------------------------------------------------------------------
</TABLE>
Notwithstanding anything to the contrary contained in this Agreement, (a) the
Applicable Margin applying to Base Rate Loans outstanding during the Bridge
Period shall be 1.25, (b) the Applicable Margin applying to LIBOR Loans having
an Interest Rate Determination Date occurring prior to the end of the Fiscal
Quarter during the Bridge Period shall be 2.50%, (c) the Applicable Margin
applying to any Base Rate Loan outstanding after the Bridge Period shall have
ended shall be subject to increase or decrease, as provided above, based on the
current Leverage Ratio, with any change in the Applicable Margin being effective
as of the first day of the Fiscal Quarter next succeeding such date of
determination (provided that if any Base Rate Loan is repaid after the end of
any Fiscal Quarter but prior to the delivery of the Compliance Certificate for
such Fiscal Quarter, such Base Rate Loan shall, for such period, continue to
have the same Applicable Margin as applied during the prior fiscal Quarter), and
(d) the Applicable Margin applying to any LIBOR Loan having an Interest Rate
Determination Date occurring after the end of any Fiscal Quarter but prior to
the delivery of the Compliance Certificate for such Fiscal Quarter shall be
based on the Leverage Ratio calculated as set the last day of the most recent
Fiscal Quarter for which the Borrower has delivered a Compliance Certificate;
provided that in no event shall the Borrower be entitled to a decrease in the
Applicable Margin applying to outstanding Base Rate Loans if a Default or an
Event of Default has occurred and is continuing at the time such decrease
otherwise would become effective.
4.
<PAGE> 14
"Applicable Rate" means the following rate, expressed as a percentage,
based on the Leverage Ratio maintained by the Borrower as determined as of the
end of the most recent Fiscal Quarter for which the Borrower has furnished a
Compliance Certificate to the Agent pursuant to SECTION 7.1(E):
<TABLE>
<CAPTION>
- ------------------------------------------------------------
LEVERAGE RATIO UNUTILIZED
COMMITMENT
- ------------------------------------------------------------
Applicable Rate
============================================================
<S> <C>
Less than 2.0:1.0 0.18%
- ------------------------------------------------------------
Less than 3.0:1.0 but greater than 0.20%
or equal to 2.0:1.0
- ------------------------------------------------------------
Less than 4.0:1.0 but greater than 0.25%
or equal to 3.0:1.0
- ------------------------------------------------------------
Less than 5.0:1.0 but greater than 0.40%
4.0:1.0
- ------------------------------------------------------------
Greater than or equal to 5.0:1.0 0.50%
- ------------------------------------------------------------
</TABLE>
Notwithstanding anything to the contrary contained in this Agreement, (a) the
Applicable Rate applying to the period from the Closing through the end of the
Bridge Period shall be 0.50% and (b) the Applicable Rate applying to any period
after the Bridge Period shall have ended shall be subject to increase or
decrease, as provided above, based on the current Leverage Ratio determined with
any change in the Applicable Rate being effective as of the first day of the
Fiscal Quarter next succeeding such date of determination; provided that in no
event shall the Borrower be entitled to a decrease in the Applicable Rate if a
Default or Event of Default has occurred and is continuing at the time such
decrease would become effective.
"Assignee" has the meaning set forth in SECTION 12.11(A).
"Assignment and Acceptance" has the meaning specified in SECTION
12.11(A).
"Attorney Costs" means and includes all reasonable fees and
disbursements of any law firm or other external counsel, the allocated cost of
internal legal services and all disbursements of internal counsel.
"Baal Acquisition" has the meaning set forth in RECITAL C.
"Baal Acquisition Documents" means the Baal Purchase Agreement,
together with all acts of sale, acts of assignment, bills of sale, possession
affidavits, affidavits regarding access, affidavits regarding timber deeds and
mineral leases, escrow instructions and all other agreements, documents and
instruments executed and delivered in connection with the consummation of the
Baal Acquisition.
"Baal Land Corporation" means Baal Land Corporation, a Louisiana
corporation.
5.
<PAGE> 15
"Baal Purchase Agreement" means the Agreement to Purchase and Sell
effective as of February 11, 1998, between Baal Land Corporation and Griffin,
and all final schedules, exhibits and attachments thereto.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978, as
codified under Title 11 of the United States Code, and the Bankruptcy Rules
promulgated thereunder, as amended.
"Base Rate" means for any day, the higher of (a) the per annum floating
rate established by ABN AMRO at its branch office in Chicago, Illinois as its
"prime rate" for domestic (United States) commercial loans in effect on such
day, and (b) one-half of one percent (0.50%) in excess of the Federal Funds Rate
in effect on such day. ABN AMRO's prime rate is a rate set by ABN AMRO based
upon various factors, including ABN AMRO's costs and desired return, general
economic conditions and other factors, and is neither directly tied to an
external rate of interest or index or necessarily the lowest nor best rate of
interest actually charged by ABN AMRO at any given time to any customer or
particular class of customers for any particular credit extension. ABN AMRO may
make commercial or other loans at rates of interest at, above or below its prime
rate.
"Base Rate Loan" means a Loan that bears interest based on the Base
Rate.
"Bel/Quatre Timberlands" has the meaning set forth in RECITAL A.
"Borrower" has the meaning set forth in the PREAMBLE.
"Borrower Partnership Agreement" means the First Amended and Restated
Agreement of Limited Partnership of the Borrower dated April 23, 1998.
"Borrowing" means a borrowing under this Agreement consisting of Loans
made to the Borrower on the same day by the Lenders pursuant to ARTICLE II.
"Borrowing Base" means, as calculated for the Borrower as of any date
of determination, an amount equal to the sum of (a) an amount equal to eighty
percent (80.0%) of the contract price for all Timber sold forward under Eligible
Timber Agreements (calculated on the basis of the applicable floor or minimum
price over the remaining term of such Eligible Timber Agreements), whether title
to such underlying Timber transfers immediately, as under a timber deed, or at
the time such Timber is harvested, plus (b) an amount equal to sixty percent
(60.0%) of the Value of Merchantable Timber. The Borrowing Base advance rate
percentage applicable under clause (b), above, shall be reduced incrementally
and automatically by two percent (2.0%) on each anniversary of the Closing Date
(i.e., to 58% on the first anniversary of the Closing, 56% on the second
anniversary, 54% on the third anniversary and so on).
"Borrowing Base Certificate" means a certificate signed by the chief
financial officer of the Borrower, substantially in the form set forth in
EXHIBIT C, completed with appropriate insertions.
"Bridge Period" means the period, commencing with the Closing Date and
ending with the last day of the Fiscal Quarter during which all Subordinated
Bridge Obligations shall have
6.
<PAGE> 16
been repaid and satisfied in full and the Subordinated Bridge Guaranty shall
have been terminated.
"Business" means the acquisition, ownership, management and harvesting
of Timber and activities incidental thereto.
"Business Day" means any day other than a Saturday, Sunday or other day
on which banking institutions in the States of Illinois, New York or Louisiana
are authorized or required by law or other governmental action to close, except
that if any determination of a "Business Day" shall relate to a LIBOR Loan, the
term "Business Day" shall also mean a day on which dealings are carried on in
the London interbank market.
"Canal" means Canal Forest Resources, Inc.
"Capital Expenditures" means all expenditures for any fixed assets or
improvements or for replacements, substitutions or additions thereto, that have
a useful life of more than one (1) year and which are required to be capitalized
under GAAP.
"Capital Lease Obligation" means, with respect to any capital lease,
the amount of the obligation of the lessee thereunder that, in accordance with
GAAP, would appear on a balance sheet of such Person in respect of such Capital
Lease or otherwise be disclosed in a note to such balance sheet.
"Cash Equivalents" means:
(A) securities issued or unconditionally guaranteed or insured
by the United States Government or any agency or any State thereof and backed by
the full faith and credit of the United States or such State having maturities
of not more than one (1) year from the date of acquisition;
(B) certificates of deposit, time deposits, Eurodollar time
deposits, repurchase agreements, reverse repurchase agreements or bankers'
acceptances, having in each case a tenor of not more than one (1) year, issued
by any Lender, or by any nationally or state chartered commercial bank or any
branch or agency of a foreign bank licensed to conduct business in the United
States having combined capital and surplus of not less than $100,000,000 whose
short term securities are rated at least A-1 by Standard & Poor's Rating Group
and P-1 by Moody's Investors Service, Inc.; and
(C) commercial paper of an issuer rated at least A-1 by
Standard & Poor's Rating Group or P-1 by Moody's Investors Service, Inc. and in
either case having a tenor of not more than two hundred and seventy (270) days.
"Change in Key Investors" means any of (a) Strategic Timber Trust shall
cease to own of record and beneficially at least a majority of the aggregate
Partnership Units (as defined in and determined pursuant to the Borrower
Partnership Agreement) in the Borrower, (b) STOC shall cease to be the sole
general partner of the Borrower, (c) Strategic Timber Trust shall cease to own
of record and beneficially one hundred percent (100.0%) of the outstanding
shares of STOC or (d) until the closing of an initial public offering of shares
of Strategic Timber Trust resulting
7.
<PAGE> 17
in net issuance proceeds of at least $85,000,000, one or more of C. Edward
Broom, Thomas P. Broom and Christopher Broom shall comprise less than a majority
of the Board of Directors of STT.
"Change in Key Management" means the Borrower shall have failed to
employ or engage within thirty (30) days following the Closing Date and shall
thereafter cease to employ or to have engaged as an independent contractor a
forestry management director or consultant (including as to silviculture issues)
reasonably acceptable to the Agent.
"Charges" means all federal, state, county, city, municipal, local,
foreign or other governmental taxes, levies, assessments, charges or claims, in
each case then due and payable, upon or relating to (a) the Collateral, (b) the
Loans, (c) the Borrower's employees, payroll, income or gross receipts, (d) the
Borrower's ownership or use of any of its Properties or assets or (e) any other
aspect of the Borrower's business.
"Closing" means the time at which each of the conditions precedent set
forth in SECTION 4.1 shall have been duly satisfied by the Borrower, as
determined by the Lenders, in their discretion.
"Closing Date" means the date on which the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended, and the
Treasury Regulations adopted thereunder.
"Collateral" means all Property and interests in Property, and all
proceeds thereof, including the Property covered by the Collateral Documents,
now existing or hereafter acquired, that may at any time be or become subject to
a Lien granted or created in favor of the Agent, for the benefit of itself and
the Lenders, to secure the full and complete payment and performance of the
Borrower's Obligations under this Agreement and under the other Loan Documents.
"Collateral Documents" means, collectively, (a) the Timberlands
Mortgages, the Security Agreement, the Financing Statements naming the Borrower
as debtor and such other agreements, assignments, documents and instruments from
time to time executed and delivered by the Borrower granting, assigning or
transferring or otherwise evidencing or relating to any Lien granted, assigned
or transferred to the Agent or any Lender pursuant to or in connection with the
transactions contemplated by this Agreement and (b) any amendments, supplements,
modifications, renewals, restatements, replacements, consolidations,
substitutions and extensions of any of the foregoing.
"Commitment" means, as to each Lender, the amount set forth on SCHEDULE
1 next to such Lender's name.
"Commitment Percentage" means, as to any Lender, the percentage
equivalent of such Lender's Commitment divided by the Aggregate Commitment.
"Compliance Certificate" means a certificate signed by the Borrower's
chief financial officer, substantially in the form set forth in EXHIBIT D, with
such changes therein as the Agent
8.
<PAGE> 18
may from time to time reasonably request for the purpose of having such
certificate disclose the matters certified therein and the method of computation
thereof.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend, letter of credit or other obligation of another,
including any such obligation directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business),
co-made or discounted or sold with recourse by that Person, or in respect of
which that Person is otherwise directly or indirectly liable, including any such
obligation for which that Person is in effect liable through any agreement
(contingent or otherwise) (a) to purchase, repurchase or otherwise acquire such
primary obligations or any property constituting direct or indirect security
therefor, or (b) to advance or provide funds (i) for the payment or discharge of
any such primary obligation (whether in the form of loans, advances, capital
stock purchases, capital contributions or otherwise), or (ii) to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet item, level of income or
financial condition of the primary obligor, or (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (d) otherwise to assure or hold harmless the holder
of any such primary obligation against loss in respect thereof, or (e) to make
payment for any products, materials or supplies or for any transportation,
services or lease regardless of the non-delivery or non-furnishing thereof, in
any such case if the purpose or intent of such agreement is to provide assurance
that such obligation will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such obligation will be
protected (in whole or in part) against loss in respect thereof. The amount of
any Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guaranty or other support
arrangement.
"Continuation Date" means any date on which the Borrower elects to
continue a LIBOR Loan into another Interest Period.
"Control Agreement" means a control agreement entered between the
Borrower and a depository institution at which the Borrower maintains a deposit
account, a securities intermediary at which the Borrower maintains a security
account or a commodities intermediary at which the Borrower maintains a
commodity account (as such terms are defined and used in Articles 8 and 9 of the
UCC), and acknowledged by the Agent, with respect to each such deposit account,
security account or commodity account, as the case may be.
"Conversion Date" means any date on which the Borrower elects to
convert a Base Rate Loan to a LIBOR Loan or a LIBOR Loan to a Base Rate Loan.
"Cutting Rights Agreements" means all timber deeds, timber leases,
timber mortgages, cutting rights agreements and other agreements, contracts,
arrangements or other contractual obligations, whether now existing or hereafter
entered into, whereby the Borrower or its
9.
<PAGE> 19
predecessors in interest have granted, grant or will grant to third Persons the
right to cut, harvest or otherwise remove Timber from the Timberlands or any
other real property owned or leased by the Borrower.
"Default" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise remedied
during such time) constitute an Event of Default.
"Default Rate" has the meaning set forth in SECTION 2.4(C).
"Designated Deposit Account" means the deposit account designated by
the Borrower from time to time by written notice to the Agent, for the purpose
of receiving the disbursement of Loans which designation shall be subject to the
Agent's prior written approval.
"Designation of Responsible Persons" means a separate Designation of
Responsible Persons dated the date of this Agreement, executed by an authorized
officer of the Borrower, substantially in the form of EXHIBIT F, identifying the
officers of the Borrower as having authority to request, convert or continue
Loans hereunder.
"Disclosure Schedule" means SCHEDULE 3.
"Disposition" means the sale, lease, conveyance or other disposition by
the Borrower of any of its respective Property or other assets in a single
transaction or related series of transactions.
"Dollars," "dollars" and "$" each mean lawful money of the United
States of America.
"Domestic Lending Office" means, with respect to each Lender, the
office of that Lender designated as such in the signature pages hereto or such
other office of the Lender as it may from time to time specify to the Borrower
and the Agent.
"Due Inquiry" means any and all inquiry, investigation and analysis
which a prudent Person would undertake and complete with diligence with the
intent of coming to an understanding appropriate to the scope of importance of
the subject to which the inquiry relates.
"EBITDDA" means, as calculated for the Borrower, on a consolidated
basis for any period as of any date of determination, the sum of (a) Net Income,
plus (b) all amounts treated as expenses for depreciation and the amortization
of intangibles of any kind to the extent included in the determination of Net
Income, plus (c) all amounts treated as expenses for the depletion of Timber
from the Timberlands, plus (d) Net Interest Expense to the extent included in
the determination of Net Income, plus (e) net taxes on income attributable to
the business of the Borrower and actually payable by the Borrower.
"Eligible Assignee" means (a) a commercial bank organized under the
laws of the United States, or any State thereof, and having combined capital and
surplus of at least $100,000,000; (b) a commercial bank organized under the laws
of any other country which is a member of the Organization for Economic
Cooperation and Development ("OECD"), or a political subdivision of any such
country, and having a combined capital and surplus of at least $100,000,000;
10.
<PAGE> 20
provided, however, that such bank is acting through a branch or agency located
in the country in which it is organized or another country which is also a
member of the OECD or the Cayman Islands; (c) the central bank of any country
which is a member of the OECD; (d) a finance company or other financial
institution or fund (whether a corporation, partnership, trust or other entity)
that is engaged in making, purchasing or otherwise investing in commercial loans
in the ordinary course of its business and having a combined capital and surplus
of at least $100,000,000; (e) an insurance company organized under the laws of
the United States, or any state thereof, and having a combined capital and
surplus of at least $100,000,000; (f) any Lender party to this Agreement; (g)
any Lender Affiliate and (h) any other Person approved by the Agent and the
Borrower, such approval not to be unreasonably withheld; provided, however, that
(1) the Borrower's approval shall not be required so long as an Event of Default
has occurred and is continuing and (ii) an Affiliate of the Borrower shall not
qualify as an Eligible Assignee.
"Eligible Timber Agreement" means a Cutting Rights Agreement or a
Timber Sales Agreement:
(A) which is entered into by the Borrower with a Person (other
than (i) an Affiliate of the Borrower or (ii) a Governmental Authority) having a
minimum rating by Moody's Services, Inc. of Baa3 or Standard & Poor's
Corporation of BBB-;
(B) which is subject to the Agent's perfected fully
enforceable first priority Lien and no other Lien except a Permitted Lien;
(C) which has a remaining term to maturity (assuming the
exercise of all options to extend) of not greater than two (2) years (but
without inclusion of possible extensions of such term of up to an aggregate of
six (6) months on account of force majeure events);
(D) as and to the extent to which the contract price remains
unpaid or outstanding and title to the Timber subject to such Cutting Rights
Agreement or Timber Sale Agreement has not been transferred from the Borrower;
(E) which has a fixed floor or minimum price for Timber to be
cut or harvested;
(F) as to which the Lenders' Forestry Consultant has confirmed
the volume estimate;
(G) as to which the other Person party to such Cutting Rights
Agreement or Timber Sales Agreement has not disputed liability; and
(H) as to which the other Person party to such Cutting Rights
Agreement or Timber Sales Agreement has not commenced a voluntary Insolvency
Proceeding or had an order for relief or similar order or decree has been
entered in an involuntary Insolvency Proceeding in respect of such Person; and
(I) as to which a copy of which has been furnished to and is
reasonably acceptable to the Agent.
11.
<PAGE> 21
"Employee Benefit Plan" means any Pension Plan and any employee welfare
benefit plan, as defined in Section 3(1) of ERISA, that is maintained for the
employees of any Person or any ERISA Affiliate of such Person.
"Environmental Indemnity" means the Environmental Indemnity dated as of
the date of this Agreement, executed and delivered by the Borrower and Strategic
Timber Trust, jointly and severally and in solido, in favor of and to each of
the Lenders and the Agent.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.
"ERISA Affiliate" means, as applied to any Person, any trade or
business (whether or not incorporated) under common control with the Borrower
within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and
(o) of the Code for purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a Pension
Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate from a Pension
Plan subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation
of operations which is treated as such a withdrawal under Section 4062(e) of
ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA
Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is
in reorganization; (d) the filing of a notice of intent to terminate, the
treatment of a Plan amendment as a termination under Section 4041 or 4041A of
ERISA, or the commencement of proceedings by the PBGC to terminate a Pension
Plan or Multiemployer Plan; (e) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Pension Plan or
Multiemployer Plan; or (f) the imposition of any liability under Title IV of
ERISA, other than PBGC premiums due but not delinquent under Section 4007 of
ERISA, upon the Borrower or any ERISA Affiliate.
"Eurodollar Reserve Percentage" means the reserve percentage (expressed
as a decimal, rounded upward to the nearest 1/100th of one percent (0.01%)) in
effect on the date LIBOR for such Interest Period is determined (whether or not
applicable to any Lender) under regulations issued from time to time by the
Federal Reserve Board for determining the maximum reserve requirement (including
any emergency, supplemental or other marginal reserve requirement) with respect
to Eurocurrency funding (currently referred to as "Eurocurrency liabilities")
having a term comparable to such Interest Period.
"Event of Default" means any of the events or circumstances set forth
in SECTION 10.1.
"Event of Loss" means, with respect to any Property, any of the
following: (a) any material loss, destruction or damage of such Property,
including any destruction of Timber due to fire, disease or infestation, or (b)
any actual condemnation, seizure or taking, by exercise of the power of eminent
domain or otherwise, of such Property, or confiscation of such Property or the
requisition of the use of such Property to the extent compensation is paid for
such loss, whether under an insurance policy or otherwise.
12.
<PAGE> 22
"Federal Funds Rate" means, for any period, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Board (including any such
successor,"H.15(519)") for such day opposite the caption "Federal Funds
(Effective)". If on any relevant day such rate is not yet published in
H.15(519), the rate for such day will be the rate set forth in the daily
statistical release designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m.
Quotation") for such day under the caption "Federal Funds Effective Rate". If on
any relevant day the appropriate rate for such previous day is not yet published
in either H.15(519) or the Composite 3:30 p.m. Quotation, the rate for such day
will be the arithmetic mean of the rates for the last transaction in overnight
Federal funds arranged prior to 9:00 a.m., New York Time, on that day by each of
three leading brokers of Federal funds transactions in New York City selected by
the Agent.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or any successor thereto.
"Fee Letter" means the side letter relating to fees dated the date of
this Agreement, between the Borrower and ABN AMRO.
"Financing Statements" means the UCC-1 financing statements and the
UCC-1F farm product statements duly executed by the Borrower, as debtor, in
favor of the Agent, as secured party, and caused to be filed prior to the
Closing in the jurisdictions set forth on SCHEDULE 4.
"Fiscal Quarter" means each fiscal quarter of the Borrower ending on
each March 31, June 30, September 30 and December 31.
"Fiscal Year" means each fiscal year of the Borrower or ending on each
December 31.
"Form 1001" has the meaning set forth in SECTION 3.1(G).
"Form 4224" has the meaning set forth in SECTION 3.1(G).
"Form W-8" has the meaning set forth in SECTION 3.1(G)(II)(A).
"Funded Debt" means, as calculated for the Borrower on a consolidated
basis as of any date of determination, the total amount of all interest bearing
obligations (including all issued and undrawn letters of credit), which
obligations shall include the principal amount outstanding under all Loans
advanced by the Lenders hereunder, but shall specifically exclude Capital Lease
Obligations.
"Funding Date" means with respect to any proposed Borrowing hereunder,
the date funds are advanced to the Borrower for any Loan.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other Person as may be approved by a significant segment of
13.
<PAGE> 23
the accounting profession, which are applicable to the circumstances as of the
date of determination.
"Governmental Authority" means (a) any foreign, federal, state, county,
parish or municipal government, or political subdivision thereof, (b) any
governmental or quasi-governmental agency, authority, board, bureau, commission,
department, instrumentality or public body, (c) any court or administrative
tribunal or (d) with respect to any Person, any arbitration tribunal or other
non-governmental authority to whose jurisdiction that Person has consented.
"Griffin" means Griffin Logging, Inc., an Arkansas corporation.
"Griffin Acquisition" has the meaning set forth in RECITAL E.
"Griffin Acquisition Documents" means the Griffin Contract of Sale and
the LTP Assignment, together with all acts of sale, acts of assignment, bills of
sale, possession affidavits, affidavits regarding access, affidavits regarding
timber deeds and mineral leases, escrow instructions and all other agreements,
documents and instruments executed and delivered in connection with the
consummation of the Griffin Acquisition.
"Griffin Contract of Sale" means the Contract for the Purchase and Sale
of Real Property dated April 15, 1998 between Griffin and LTP, and all final
schedules, exhibits and attachments thereto.
"Gross Interest Expense" means, as calculated for the Borrower on a
consolidated basis for any period as at any date of determination, interest
expense for such period (including all commissions, discounts, fees and other
charges under letters of credit and similar instruments and under any Rate
Contract) classified and accounted for in accordance with GAAP.
"Harvest Plan" means the ten (10) year harvest plan of the Borrower for
the harvesting and sale of Timber and stumpage, as amended or modified from time
to time with the approval of the Agent.
"Indebtedness" means, as to any Person, (a) all indebtedness of such
Person for borrowed money, including, without limitation, all amounts
outstanding under this Agreement and any of the other Loan Documents, (b) all
capital leases of such Person (but excluding any operating leases), (c) to the
extent of the outstanding Indebtedness thereunder, all obligations of such
Person that are evidenced by a promissory note or other instrument representing
an extension of credit to such Person, whether or not for borrowed money, (d)
all obligations of such Person for the deferred purchase price of Property or
services (other than trade or other accounts payable in the ordinary course of
business in accordance with customary industry terms), (e) all obligations of
such Person of the nature described in clauses (a), (b), (c) or (d), above, and
not otherwise included therein that is secured by a Lien on assets of such
Person, whether or not that Person has assumed such obligation or whether or not
such obligation is non-recourse to the credit of such Person, but only to the
extent of the fair market value of the assets so subject to the Lien, (f) all
obligations of such Person arising under acceptance facilities or under
facilities for the discount of accounts receivable of such Person, (g) all
obligations of such
14.
<PAGE> 24
Person to reimburse the issuer of any letter of credit issued for the account of
such Person, whether drawn or undrawn, (h) all obligations of such Person to a
counterparty under any Rate Contract and (i) all Contingent Obligations of such
Person.
"Indemnified Matters" has the meaning set forth in SECTION 12.5.
"Indemnitees" has the meaning set forth in SECTION 12.5.
"Initial Budget" has the meaning set forth in SECTION 8.8(B).
"Initial Equity Investment" means $55,000,000, which is the aggregate
minimum amount of the initial equity capitalization of the Borrower made by
Strategic Timber Trust and LTP (exclusive of the contribution by Strategic
Timber Trust of the proceeds of the Subordinated Bridge Loan) immediately prior
to the consummation of the Timberlands Acquisition.
"Insolvency Proceeding" means (a) any case, action or proceeding before
any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution, winding-up
or relief of debtors, or (b) any general assignment for the benefit of
creditors, composition, marshalling of assets for creditors or other, similar
arrangement in respect of its creditors generally or any substantial portion of
its creditors, in each of case (a) and (b) undertaken under federal, state or
foreign law, including the Bankruptcy Code.
"Interest Coverage Ratio" means, as calculated quarterly for the
Borrower on a consolidated basis as of the last day of each Fiscal Quarter on a
rolling four (4) Fiscal Quarter basis, the ratio of (a) EBITDDA to (b) Net
Interest Expense.
"Interest Differential" means, with respect to any prepayment of a
LIBOR Loan on a day other than an Interest Payment Date on which such LIBOR Loan
matures, the difference between (a) the per annum interest rate payable with
respect to such LIBOR Loan as of the date of the prepayment and (b) the Adjusted
LIBOR on, or as near as practicable to, the date of the prepayment for a LIBOR
Loan commencing on such date and ending on the last day of the applicable
Interest Period. The determination of the Interest Differential by the Agent
shall be conclusive in the absence of manifest error.
"Interest Payment Date" means, with respect to any LIBOR Loan, the last
day of each Interest Period applicable to such Loan and, with respect to Base
Rate Loans, the last Business Day of each Fiscal Quarter, and each date a Base
Rate Loan is converted into a LIBOR Loan; provided, however, that if any
Interest Period for a LIBOR Loan exceeds three (3) months, interest shall also
be paid on the date which falls three (3) months after the beginning of such
Interest Period.
"Interest Period" means, as to any LIBOR Loan, the period commencing on
the date of such LIBOR Loan and ending with respect to LIBOR Loans, on the
numerically corresponding day (or, if there is no numerically corresponding day,
on the last day) in the calendar month that is one (1), two (2), three (3) or
six (6) months thereafter, in each case as the Borrower may elect; provided,
however, that (a) no Interest Period with respect to any LIBOR Loan shall end
later than the Maturity Date, (b) if an Interest Period would end on a day that
is not a Business Day,
15.
<PAGE> 25
such Interest Period shall be extended to the next succeeding Business Day
unless such next succeeding Business Day would fall in the next calendar month,
in which case such Interest Period shall end on the immediately preceding
Business Day, and (c) interest shall accrue from and including the first
Business Day of an Interest Period to but excluding the last Business Day of
such Interest Period.
"Interest Rate Determination Date" means each date for calculating the
LIBOR for purposes of determining the interest rate in respect of an Interest
Period. The Interest Rate Determination Date shall be the second Business Day
prior to the first day of the related Interest Period for such LIBOR Loan.
"Investment" means, when used in connection with any Person, any
investment by or of that Person, whether by means of purchase or other
acquisition of securities of any other Person or by means of loan, advance,
capital contribution, guaranty or other debt or equity participation or
interest, or otherwise, in any other Person, including any partnership, joint
venture or limited liability company interests of such Person in any other
Person. The amount of any Investment shall be the original principal or capital
amount thereof less all returns of principal or equity thereon (and without
adjustment by reason of the financial condition of such other Person) and shall,
if made by the transfer or exchange of Property other than cash, be deemed to
have been made in an original principal or capital amount equal to the fair
market value of such Property.
"Investment Company Act" means the Investment Company Act of 1940, as
amended (15 U.S.C.ss.80a-1 et seq.).
"IRS" means the Internal Revenue Service and any Governmental Authority
succeeding to any of its principal functions under the Code.
"J.A. Bel Acquisition" has the meaning set forth in RECITAL B.
"J.A. Bel Acquisition Documents" means the J.A. Bel Purchase Agreement,
together with all acts of sale, acts of assignment, bills of sale, possession
affidavits, affidavits regarding access, affidavits regarding timber deeds and
mineral leases and escrow instructions and all other agreements, documents and
instruments executed and delivered in connection with the consummation of J.A.
Bel Acquisition.
"J.A Bel Purchase Agreement" means the Agreement to Purchase and Sell,
effective as of January 21, 1998, between the J.A. Bel Sellers and Griffin, and
all final schedules, exhibits and attachments thereto.
"J.A. Bel Sellers" means, collectively, (a) the Estate of Albert B.
Fay, represented by Albert B. Fay, Jr., its executor, and Marion Fay Monsen, its
executrix, (b) Belfay, Inc., a Texas corporation, (c) Bayou Breeze, Inc. of
Texas, a Texas corporation, (d) MFM Cloche, Inc., a Texas corporation, (e)
Ernest Bel Fay Louisiana Trust, represented by Carolyn Grant Fay, Marie Bel Fay,
Carolyn Fay Yocum and John Spencer Fay, its trustees, (f) Shadowfax Corporation
of Texas, a Texas corporation, (g) Marie Bel Fay Properties, Inc., a Texas
corporation, (h) Trust under the Will of James Ware Gardiner, represented by
Albert Krafcheck, Harris S. Jacobs and Elliot Lefkowitz, its trustees, (i) Bel
Bois Corporation, a Louisiana corporation, (j) JBB
16.
<PAGE> 26
Properties, Inc., a Louisiana corporation, (k) Belwood, Inc., a Louisiana
corporation, (l) Ernest F. Bel Trust, represented by William D. Blake and
Katherine K. Blake, its trustees, (m) Della Krause Thielen Testamentary Trust A
for John Chadick Thielen, represented by John Chadick Thielen and Katherine
Thielen Hoffman, trustees, (n) Della Krause Thielen Testamentary Trust A for
Katherine Thielen Hoffman, represented by John Chadick Thielen and Katherine
Thielen Hoffman, trustees, (o) John Chadick Thielen Properties, Inc., a
Louisiana corporation, (p) Katherine Thielen Hoffman Properties, Inc., a
Louisiana corporation, (q) Belarbor Corporation, a Louisiana corporation, and
(r) Piney Woods Corp., a Washington corporation.
"J.A. Bel Timberlands" has the meaning set forth in RECITAL B.
"J.A. Bel Timberlands Assets" has the meaning set forth in RECITAL B.
"Land" means the real property owned of record by the Borrower.
"L&M" means Larson & McGowin, Inc., forestry consultants to the
Borrower.
"Lender Affiliate" means a Person engaged primarily in the business of
commercial banking and that is an Affiliate of a Lender or of a Person of which
a Lender is an Affiliate.
"Lenders" means the banks, financial institutions or other
institutional lenders which have executed signature pages to this Agreement and
such other Assignees, banks, financial institutions or other institutional
lenders as shall hereafter execute and deliver an Assignment and Acceptance with
respect to all or any portion of the Commitments and the Loans advanced and
maintained pursuant to the Commitments, in each case pursuant to and in
accordance with SECTION 12.11.
"Lenders' Forestry Consultant" means such forest management consultant
as may be engaged by the Lenders for the purposes set forth in this Agreement,
which consultant may be the same independent forest management consultant as
engaged by the Borrower.
"Lending Office" means, with respect to any Lender, the office or
offices of the Lender specified as its "Domestic Lending Office" opposite its
name on the applicable signature page hereto, or such other office or offices of
the Lender as it may from time to time notify the Borrower and the Agent.
"Leverage Ratio" means, as calculated quarterly as of the last day of
each Fiscal Quarter on a rolling four (4) Fiscal Quarter basis, the ratio of (a)
Total Funded Debt to (b) EBITDDA.
"LIBOR" means, with respect to any Loan to be made, continued as or
converted into a LIBOR Loan, the London Inter-Bank Offered Rate (determined by
the Agent), rounded upward to the nearest 1/16th of one percent (0.0625%), at
which Dollar deposits are offered to ABN AMRO by major banks in the London
interbank market at or about 11:00 a.m., London Time, on the Interest Rate
Determination Date with respect to such Loan in an aggregate amount
approximately equal to the amount of such Loan and for a period of time
comparable to the number of days in the applicable Interest Period. The
determination of LIBOR by the Agent shall be conclusive in the absence of
manifest error.
17.
<PAGE> 27
"LIBOR Loan" means a Loan that bears interest based on Adjusted LIBOR.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment for security, security interest, encumbrance, levy, lien or charge of
any kind, whether voluntarily incurred or arising by operation of law or
otherwise, against any Property, including any agreement to grant any of the
foregoing, any conditional sale or other title retention agreement, any lease in
the nature of a security interest.
"Loan" means a Loan advanced to the Borrower pursuant to SECTION 2.1 by
the Lenders under their Commitments according to their respective Commitment
Percentages, which Loan may be in the form of either a Base Rate Loan or a LIBOR
Loan, depending upon the context.
"Loan Documents" means this Agreement, the Notes, the Collateral
Documents, the Subordination Agreement, the Environmental Indemnity, the Fee
Letter, and any and all other agreements (including any Rate Contract),
documents and instruments executed and delivered by or on behalf of or in
support of the Borrower to any Lender or the Agent or their respective
authorized designee evidencing or otherwise relating to the Loans as the same
may from time to time be amended, modified, supplemented, extended or renewed.
"LTP" means Louisiana Timber Partners, LLC, a Georgia limited liability
company and a limited partner of the Borrower.
"LTP Assignment" means the Partial Assignment and Assumption of
Contract dated April 24, 1998 between LTP and the Partnership and consented to
by Griffin, together with all acts of sale, acts of assignment, bills of sale
and all other agreements, documents and instruments executed and delivered in
connection with the consummation of the assignment of the Griffin Acquisition
Documents (and the transfer and conveyance of the Timberlands Assets) to the
Borrower.
"Mandatory Prepayment" means any mandatory prepayment of the principal
amount of Loans made or required to be made pursuant to SECTION 2.8.
"Margin Regulations" means, collectively, Regulations G, T, U and X
adopted by the Federal Reserve Board (12 C.F.R. Parts 207, 220, 221 and 224,
respectively).
"Material Adverse Change" means any set of circumstances or events
which (a) has or could reasonably be expected to have any material adverse
effect whatsoever upon the validity or enforceability of any Loan Document, (b)
is or could reasonably be expected to be material and adverse to the condition
(financial or otherwise), properties, business or operations of the Borrower,
(c) impairs materially or could reasonably be expected to impair materially the
ability of the Borrower to pay or perform its Obligations or to avoid an Event
of Default, (d) impairs materially or could reasonably be expected to impair
materially the value or priority of the Lien of the Agent, for the benefit of
the Lenders and the Agent, in the Collateral or (e) impairs materially or could
reasonably be expected to impair materially the ability of the Agent or any
Lender to enforce any of its legal remedies pursuant to the Loan Documents.
"Maturity Date" means April 25, 2003.
18.
<PAGE> 28
"Maximum Availability" has the meaning set forth in SECTION 2.1(A)
"Merchantable Timber" means any tree which, by reference to the
applicable species code and product code, meets the standards for
merchantability listed on the Special Tally Instructions for Merchantable
Standards prepared by L&M set forth in SCHEDULE 5.
"Merchantable Timber Valuation Report" has the meaning set forth in
SECTION 7.1(G)(I).
"Multiemployer Plan" shall mean a "multiemployer plan", within the
meaning of Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA
Affiliate makes, is making or is obligated to make contributions or, during the
preceding three (3) calendar years, has made, or been obligated to make,
contributions.
"Net Income" means, as calculated for the Borrower on a consolidated
basis for any period as at any date of determination, the net income (or loss)
of the Borrower for such period taken as a single accounting period.
"Net Interest Expense" means, as calculated on a consolidated basis for
the Borrower for any period as at any date of determination, (a) Gross Interest
Expense, less (b) interest income for that period and Rate Contract payments
received.
"Non-Bank Lender Tax Certificate" has the meaning set forth in SECTION
3.1(G)(II)(A).
"Note" means a promissory note dated the date of issuance, executed by
the Borrower and payable to the order of a Lender in the stated principal amount
of such Lender's Commitment, substantially in the form of EXHIBIT A, and any and
all replacement, extensions, substitutions and renewals of any such promissory
note.
"Notice of Borrowing" means a notice given by the Borrower to the Agent
in accordance with SECTION 2.5, substantially in the form of EXHIBIT B, with
appropriate insertions.
"Notice of Conversion/Continuation" means a notice given by the
Borrower to the Agent in accordance with SECTION 2.6, substantially in the form
of EXHIBIT E, with appropriate insertions.
"Obligations" means all loans, advances, debts, liabilities and
obligations, for monetary amounts owing, in each case on a joint and several
basis, by the Borrower to the Lenders or the Agent, whether due or to become
due, matured or unmatured, liquidated or unliquidated, contingent or
non-contingent, and all covenants and duties regarding such amounts, of any kind
or nature, present or future, whether or not evidenced by any note, agreement or
other instrument, arising under or in respect of any of the Loan Documents or
under or in respect of any Rate Contract. This term includes, without
limitation, all principal, interest (including interest that accrues after the
commencement against the Borrower of any action under the Bankruptcy Code),
fees, including, without limitation, any and all arrangement fees, loan fees,
commitment fees, agent fees and any and all other fees, expenses, costs or other
sums (including Attorney Costs) chargeable to the Borrower under any of the Loan
Documents.
19.
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"Opening Timber Valuation" means the Timber Estimate Report dated
February 17, 1998, prepared by L&M, establishing an estimate of the volume of
Merchantable Timber on the Bel/Quatre Timberlands in combination with the Timber
Appraisals Review and Value Reconciliation dated April 24, 1998, prepared by
Canal.
"Operating Lease Obligations" means, with respect to any operating
lease, the amount of the obligations of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such Person in respect
of such operating lease or otherwise be disclosed in a note to such balance
sheet.
"Opinion of Borrower's Counsel (SAB)" means the favorable written legal
opinion of Sutherland, Asbill & Brennan LLP, special counsel to the Borrower,
STOC and LTP, addressed to the Lenders and the Agent.
"Opinion of Borrower's Counsel (LPRH)" means the favorable written
legal opinion of Locke Purnell Rain Harrell, special Louisiana counsel to the
Borrower, addressed to the Lenders and the Agent.
"Ordinary Course of Business" means, in respect of any transaction
involving the Borrower, the ordinary course of the Borrower's business, as
conducted by the Borrower in accordance with past practice or, in the absence of
past practice, consistent with accepted prudent practices in the timber industry
and, in each case, undertaken by the Borrower in good faith and not for purposes
of evading any covenant or restriction in any Loan Document.
"Originating Lender" has the meaning set forth in SECTION 12.11(D).
"Other Taxes" has the meaning specified in SECTION 3.1(B).
"Over Advance" has the meaning set forth in SECTION 2.8.
"Participant" has the meaning set forth in SECTION 12.11(D).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal investors under ERISA.
"Pension Plan" means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA which the Borrower sponsors, maintains, or
to which it makes, is making or is obligated to make contributions, or in the
case of multiple employer plan (as described in Section 4064(a) of ERISA) has
made contributions at any time during the immediately preceding five (5) plan
years.
"Permitted Asset Disposition" has the meaning set forth in SECTION
8.2(B).
"Permitted Distribution Date" has the meaning set forth in SECTION
8.10(A)(III).
"Permitted Distributions" has the meaning set forth in SECTION
8.10(A)(III).
"Permitted Interest Distributions" has the meaning set forth in SECTION
8.10(A)(I).
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"Permitted Liens" has the meaning set forth in SECTION 8.1.
"Permitted LTP Tax Distributions" has the meaning set forth in SECTION
8.10(A)(II).
"Permitted Title Exceptions" means, collectively, all matters listed as
exceptions to title in the Title Policies.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, business or other trust,
unincorporated organization, association, corporation, institution, public
benefit corporation, firm, joint stock company, estate, entity or Governmental
Authority.
"Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which the Borrower sponsors or maintains or to which the Borrower makes,
is making, or is obligated to make contributions and includes any Pension Plan.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, whether tangible or intangible.
"Public Utility Holding Company Act" means the Public Utility Holding
Company Act of 1935, as amended (15 U.S.C. ss. 79 et seq.).
"Quatre Parish Acquisition" has the meaning set forth in RECITAL D.
"Quatre Parish Acquisition Documents" means the Quatre Parish Purchase
Agreement, together with all acts of sale, acts of assignment, bills of sale,
possession affidavits, affidavits regarding access, affidavits regarding timber
deeds and mineral leases and escrow instructions and all other agreements,
documents and instruments executed and delivered in connection with the
consummation of the Quatre Parish Acquisition.
"Quatre Parish Purchase Agreement" means the Agreement to Purchase and
Sell effective as of January 21, 1998, between the Quatre Parish Sellers and
Griffin, and all final schedules, exhibits and attachments thereto.
"Quatre Parish Sellers" means, collectively, (a) the Estate of Albert
B. Fay, represented by Albert B. Fay, Jr., its executor, and Marion Fay Monsen,
its executrix, (b) Multi Parish, Inc., a Texas corporation, (c) Flanders Grove,
Inc., a Texas corporation, (d) MFM Quatre, Inc., a Texas corporation, (e) Ernest
Bel Fay Louisiana Trust, represented by Carolyn Grant Fay, Marie Bel Fay,
Carolyn Fay Yocum and John Spencer Fay, its trustees, (f) Spotted Horse
Corporation, a Texas corporation, (g) MBF Properties, Inc., a Texas corporation,
(h) Four Parishes, Inc., a Louisiana corporation, (i) Tejeanne, Inc., a
Louisiana corporation, (j) Ernest F. Bel Trust, represented herein by William D.
Blake and Katherine K. Blake, its trustees, (k) Della Krause Thielen
Testamentary Trust A for John Chadick Thielen, represented by John Chadick
Thielen and Katherine Thielen Hoffman, Trustees, (l) Della Krause Thielen
Testamentary Residuary Trust for John Chadick Thielen, represented by John
Chadick Thielen and Katherine Thielen Hoffman, Trustees, (m) Della Krause
Thielen Testamentary Residuary Trust for Katherine Thielen Hoffman, represented
by John Chadick Thielen and Katherine Thielen Hoffman Trustees, (n) Della Krause
Thielen Testamentary Trust for Morgan Elizabeth Thielen,
21.
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represented by John Chadick Thielen and Katherine Thielen Hoffman, Trustees, (o)
Della Krause Thielen Testamentary Trust for Carson Chadick Thielen, represented
by John Chadick Thielen and Katherine Thielen Hoffman, trustees, (p) Della
Krause Thielen Testamentary Trust for John Colin Thielen, represented by John
Chadick Thielen and Katherine Thielen Hoffman, trustees, (q) Della Krause
Thielen Testamentary Trust for Katherine Anne Hoffman, represented by John
Chadick Thielen and Katherine Thielen Hoffman, trustees, (r) Della Krause
Thielen Testamentary Trust for Taylor Ann Hoffman, represented by John Chadick
Thielen and Katherine Thielen Hoffman, trustees, (s) Della Krause Thielen
Testamentary Trust for Robert Dean Hoffman, III, represented by John Chadick
Thielen and Katherine Thielen Hoffman, trustees, (t) Schonvervald, Inc., a
Louisiana corporation, (u) Idylease, Inc., a Louisiana corporation, (v) Vier
Corporation, a Louisiana corporation and (w) Liberty Logs Corp., a Washington
corporation.
"Quatre Parish Timberlands" has the meaning set forth in RECITAL D.
"Quatre Parish Timberlands Assets" has the meaning set forth in RECITAL
D.
"Rate Contract" means an interest rate or currency swap, cap or other
agreement or arrangement designed to provide protection against fluctuations in
interest or currency exchange rates.
"Replacement Lender" has the meaning set forth in SECTION 3.8.
"Reportable Event" means, any of the events set forth in Section
4043(c) of ERISA or the regulations thereunder, other than any such event for
which the 30-day notice requirement under ERISA has been waived in regulations
issued by the PBGC.
"Required Lenders" means (a) at such time as there shall be two (2) or
fewer Lenders, all Lenders, and (b) at all other times, Lenders then holding at
least fifty-one percent (51.0%) of the then aggregate unpaid principal amount of
all Loans then outstanding or, if no Loans are then outstanding, Lenders then
having at least fifty-one percent (51.0%) of the Aggregate Commitments; provided
that, so long as any of the Subordinated Bridge Obligations remain outstanding
and there shall be at least one (1) Lender under this Agreement which is not
also a Lender under and as defined in the Subordination Bridge Loan Agreement,
Required Lenders must include at least one (1) Lender (as defined in this
Agreement) which is not also a Lender under the Subordinated Bridge Loan
Agreement.
"Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule, regulation, guideline or determination of an arbitrator
or of a Governmental Authority, in each case applicable to or binding upon the
Person or any of its Property or to which the Person or any of its Property is
subject.
"Responsible Person" means the Persons identified by the Borrower on a
Designation of Responsible Persons as having authority to request, convert or
continue Loans hereunder on behalf of the Borrower.
"Revolving Credit Facility" means the Two Hundred Fifteen Million
Dollar ($215,000,000) five year revolving credit facility described in SECTION
2.1 to be provided to the
22.
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Borrower by the Lenders having a Commitment according to each such Lender's
Commitment Percentage.
"SEC" means the Securities and Exchange Commission and any successor
thereto.
"Security Agreement" means the Security Agreement dated as of the date
of this Agreement, executed by the Borrower and the Agent, for the benefit of
the Lenders and the Agent.
"Solvent" means, as to any Person at any time, that (a) the fair value
of the Property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities) as
such value is established and liabilities evaluated for purposes of Section
101(31) of the Bankruptcy Code; (b) the present fair saleable value of the
Property of such Person is not less than the amount that will be required to pay
the probable liability of such Person on its debts as they become absolute and
matured; (c) such Person is able to pay its debts and other liabilities
(including disputed, contingent and unliquidated liabilities) as they mature in
the normal course of business; (d) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities mature; and (e) such Person is not engaged in
a business or a transaction for which such Person's property would constitute
unreasonably small capital.
"STOC" means Strategic Timber Operating Co., a Delaware corporation and
the sole general partner of the Borrower.
"Strategic Timber Trust" means Strategic Timber Trust, Inc., a Georgia
corporation which intends, upon the filing of its initial tax return with the
IRS, to elect to be classified as a real estate investment trust under Section
856 of the Code and as limited partner of the Borrower.
"Subordinated Bridge Agent" means ABN AMRO solely when acting as the
Agent under and as defined in the Subordinated Bridge Loan Agreement, and any
successor Agent thereto.
"Subordinated Bridge Guaranty" means the Guaranty dated as of the date
of this Agreement, by the Borrower in favor of the Subordinated Bridge Lenders
and the Subordinated Bridge Agent.
"Subordinated Bridge Lenders" means the banks, financial institution
and other institutional lenders party from time to time to the Subordinated
Bridge Loan Agreement in their individual capacities as lenders.
"Subordinated Bridge Loan" means the $85,000,000 bridge term loan made
by the Subordinated Bridge Lenders to Strategic Timber Trust pursuant to and in
accordance with the terms of the Subordinated Bridge Loan Agreement.
"Subordinated Bridge Loan Agreement" means that Bridge Loan Agreement
dated as of the same date as this Agreement, among Strategic Timber Trust, as
the borrower, the Subordinated Bridge Lenders and the Subordinated Bridge Agent.
23.
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"Subordinated Bridge Obligations" means all Contingent Obligations and
other liabilities and obligations guaranteed or incurred by the Borrower
pursuant to or arising under the Subordinated Bridge Guaranty.
"Subordination Agreement" means the Subordination Agreement dated as of
the Closing Date, among the Subordinated Bridge Agent on behalf of itself and
the Subordinated Bridge Lenders, the Agent on behalf of itself and the Lenders,
the Borrower and Strategic Timber Trust.
"Subsidiary" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business entity
of which more than fifty percent (50.0%) of the voting stock or other equity
interests (in the case of Persons other than corporations), is owned or
controlled directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof.
"Taxes" has the meaning set forth in SECTION 3.1(A).
"Timber" means all trees, timber to be cut from the Land or otherwise,
timber, whether severed or unsevered and including standing and down timber,
stumps and cut timber remaining on the Land or otherwise, and logs, wood chips
and other forest products, whether now located on or hereafter planted or
growing in or on the Land or otherwise or now or hereafter removed from the Land
or otherwise for sale or other disposition.
"Timberlands" means real property suitable and principally used for
timber production.
"Timberlands Assets" has the meaning set forth in RECITAL D.
"Timberlands Acquisition" means the acquisition by the Borrower of the
Timberlands Assets at Closing pursuant to the Griffin Acquisition Documents.
"Timberlands Mortgages" means, collectively, the separate Mortgages,
Assignments of Leases and Rents and Security Agreement, dated as of the date of
this Agreement executed by the Borrower, as mortgager, in favor of the Agent, as
mortgagee, and duly notarized, with respect to the Bel/Quatre Timberlands
situated in Allen, Beauregard, Calcasieu and Jefferson Davis Parishes,
Louisiana, in each case caused to be recorded in the official records of such
parish, and following the Closing, shall include, at the Agent's and the
Lenders' discretion, following the satisfactory completion of appropriate legal,
environmental and other due diligence, such additional deeds of trust or
mortgages as may be executed by the Borrower in favor of or for the benefit of
the Agent with respect to additional Land acquired by the Borrower, in each case
in form and substance satisfactory to the Agent and the Lenders and duly
recorded in the official records of the appropriate jurisdiction is which such
acquired Land is situated.
"Timber Sales Agreements" means all timber sales agreements, log sales
agreements, purchase orders, purchase and sale agreements and other contractual
obligations, whether now existing or hereafter entered into, whereby the
Borrower, as seller, is or may become obligated to cut, harvest or otherwise
remove Timber harvested from the Land or to otherwise obtain Timber and to sell,
exchange or deliver such Timber to third Persons.
"Title Company" means Commonwealth Land Title Insurance Company.
24.
<PAGE> 34
"Title Policies" has the meaning set forth in SECTION 4.1(X).
"Total Funded Debt" means, as calculated for the Borrower on a
consolidated basis as of any date of determination, the total Funded Debt of the
Borrower and its Subsidiaries.
"Transferee" has the meaning specified in SECTION 12.11(E).
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of Illinois; provided, however, in the event
that, by reason of mandatory provisions of law, any and all of the attachment,
perfection or priority of the Lien of the Agent, for the benefit of the Lenders
and the Agent, in and to the Collateral is governed by the Uniform Commercial
Code as in effect in a jurisdiction other than the State of Illinois, the term
"UCC" shall mean the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such
provision.
"Unfunded Pension Liability" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Plan's assets, determined in accordance with the assumptions used for funding
the Pension Plan pursuant to Section 412 of the Code for the applicable plan
year.
"Value of Merchantable Timber" means, as of any date of determination,
the aggregate value of the Merchantable Timber standing on Land owned by the
Borrower and subject to a first priority Timberlands Mortgage in favor of the
Agent insured under an ALTA extended lenders policy of title insurance in favor
or for the benefit of the Agent, in a form and such coverage amounts and subject
to such limits and exceptions acceptable to the Agent and the Lenders, as
determined by the most recent Merchantable Timber Valuation Report (exclusive of
any Timber subject (a) to an Eligible Timber Agreement or (b) to a Cutting
Rights Agreement or Timber Sales Agreement which would be an Eligible Timber
Agreement but for (and to the extent that) such Cutting Rights Agreement or
Timber Sales Agreement does not satisfy the condition set forth in CLAUSE (D) of
the definition of "Eligible Timber Agreement", in each case as of such date),
less the value of that portion of such Merchantable Timber which (i) stands on
Land which has been sold, conveyed or otherwise transferred by the Borrower,
(ii) has become subject to an Eligible Timber Agreement or (iii) has suffered a
casualty, in the reasonable discretion of the Agent, such that it no longer
constitutes Merchantable Timber, in each case since the date of the most recent
Merchantable Timber Valuation Report; provided that in respect of any Borrowing
to finance the Acquisition of additional Timberlands and for the period
extending through the date of the delivery of the next Merchantable Timber
Valuation Report, there shall also be included in "Value of Merchantable Timber"
the value of the Merchantable Timber on the Land to be acquired as part of such
Acquisition as determined based on a Merchantable Timber appraisal or valuation
reviewed by Lenders' Forestry Consultant and acceptable to the Agent, in each
case to the extent such Merchantable Timber (and the Land on which it stands) is
made subject to a first priority Timberlands Mortgage in favor of the Agent
insured under an ALTA extended lenders policy of title insurance in favor or for
the benefit of the Agent and the Lenders.
25.
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SECTION 1.2 OTHER INTERPRETIVE PROVISIONS.
(A) ACCOUNTING TERMS. Any accounting term used in this
Agreement shall have, unless otherwise specifically provided herein, the meaning
customarily given such term in accordance with GAAP, and all financial data
required to be submitted by this Agreement shall be prepared and computed,
unless otherwise specifically provided herein, in accordance with GAAP. That
certain terms or computations are explicitly modified by the phrase "in
accordance with GAAP" shall in no way be construed to limit the foregoing. In
the event that GAAP changes during the term of this Agreement such that the
covenants contained in ARTICLE IX would then be calculated in a different manner
or with different components, (a) the parties hereto agree to amend this
Agreement in such respects as are necessary to conform those covenants as
criteria for evaluating the Borrower's financial condition to substantially the
same criteria as were effective prior to such change in GAAP and (b) the
Borrower shall be deemed to be in compliance with the covenants contained in the
aforesaid subsections during the sixty (60) day period following any such change
in GAAP if and to the extent that the Borrower and Services would have been in
compliance therewith under GAAP as in effect immediately prior to such change.
(B) OTHER TERMS. All other undefined terms contained in this
Agreement shall, unless the context indicates otherwise, have the meanings
provided for by the UCC to the extent the same are used or defined therein. The
words "herein," "hereof" and "hereunder" and other words of similar import refer
to this Agreement as a whole, including the Exhibits and Schedules attached to
this Agreement, all of which are by this reference incorporated into this
Agreement, and not to any particular provision of this Agreement. The term
"including" is not limiting and means "including, without limitation," and
"including but not limited to." The term "documents" includes any and all
instruments, documents, agreements, certificates, indentures, notices and other
writings, however evidenced. The term "or" is disjunctive; the term "and" is
conjunctive. The term "shall" is mandatory; the term "may" is permissive.
Wherever from the context it appears appropriate, each term stated in either the
singular or plural shall include the singular and plural, and pronouns stated in
the masculine, feminine or neuter gender shall include the masculine, feminine
and the neuter.
(C) PERFORMANCE; TIME. Whenever any performance obligation
hereunder (other than a payment obligation) shall be stated to be due or
required to be satisfied on a day other than a Business Day, such performance
shall be made or satisfied on the next succeeding Business Day unless otherwise
indicated. In the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including"; the words "to"
and "until" each mean "to but excluding", and the word "through" means "to and
including." If any provision of this Agreement refers to any action taken or to
be taken by any Person, or which such Person is prohibited from taking, such
provision shall be interpreted to encompass any and all means, direct or
indirect, of taking, or not taking, such action.
(D) LAWS. References to any statute or regulation are to be
construed as including all statutory and regulatory provisions consolidating,
amending, replacing, supplementing or interpreting the statute or regulation.
26.
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(E) ROUNDING. Any financial ratios required to be maintained
by the Borrower pursuant to this Agreement shall be calculated by dividing the
appropriate component by the other component, carrying the result to one place
more than the number of places by which such ratio is expressed in this
Agreement and rounding the result up or down to the nearest number (with a
round-up if there is no nearest number) to the number of places by which such
ratio is expressed in this Agreement.
(F) SCHEDULES AND EXHIBITS. Any reference to an "Article,"
"Section," "Subsection," "Schedule" or "Exhibit" shall refer to the relevant
Article, Section or Subsection of or Schedule or Exhibit to this Agreement,
unless specifically indicated to the contrary.
ARTICLE II
THE CREDITS
SECTION 2.1 AMOUNTS AND TERMS OF COMMITMENTS.
(A) REVOLVING CREDIT FACILITY. Upon the terms, subject to the
conditions and in reliance upon the representations and warranties of the
Borrower set forth in this Agreement and in the other Loan Documents, each
Lender having a Commitment severally agrees to make Loans of immediately
available funds to the Borrower, on a revolving basis, from the Closing until
the Business Day immediately preceding the Maturity Date, in an aggregate
principal amount outstanding not to exceed at any one time the lesser of (i) an
amount equal to such Lender's Commitment and (ii) an amount equal to such
Lender's Commitment Percentage of the Borrowing Base (the lesser of (A) the
Aggregate Commitment or (B) the Borrowing Base being the "Maximum
Availability").
For the purpose of determining the amount of the Borrowing Base available at any
one time, the amount available shall be the total amount of the Borrowing Base
as set forth in the most recent Borrowing Base Certificate delivered to the
Agent pursuant to SECTION 7.1(E).
(B) LIMITATION ON EACH LENDER'S OBLIGATION. With respect to
any Borrowing of Loans requested by the Borrower pursuant to a complying Notice
of Borrowing delivered to the Agent pursuant to SECTION 2.5, each Lender's
obligation to advance funds in the form of Loans to the Borrower shall be
limited to an amount equal to the Lender's Commitment Percentage of such
Borrowing (obtained by multiplying the Borrowing amount by the Lender's
Commitment Percentage).
(C) FUNDING OF LOANS TO THE AGENT. Following the Agent's
receipt of a complying Notice of Borrowing and the Agent's determination that
the conditions precedent to a requested Borrowing set forth in ARTICLE IV have
been duly satisfied, the Agent shall promptly notify each Lender having a
Commitment of (i) the amount of the requested Borrowing and such Lender's
Commitment Percentage thereof and (ii) the requested Funding Date, which (A) if
a LIBOR Loan is requested, shall be no earlier than the third Business Day
following the date on which the Agent so notifies such Lender and, (B) if a Base
Rate Loan is requested shall be no earlier than the following Business Day.
Except as specifically provided in the escrow instructions referred to in
SECTION 4.1(CC) and the funds transfer memorandum referred to in
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SECTION 4.1(DD) with respect to the Loans to be advanced at Closing, not later
than 1:00 p.m., Chicago, Illinois time, on the requested Funding Date, each
Lender having a Commitment shall have advanced its Loan to the Agent at the
Agent's Payment Office in immediately available funds. No Lender shall have any
liability to any Borrower for the failure of such Lender to advance funds for
any Loan unless and until each condition precedent to the applicable Borrowing
has been duly satisfied or has been waived in writing by Required Lenders. The
Borrower shall have no right to enforce any obligation of a Lender to fund any
Loan unless and until each condition precedent to the applicable Borrowing has
been duly satisfied or has been waived in writing by Required Lenders. The
Agent's determination that the conditions precedent to any Borrowing have been
duly satisfied shall be conclusive and binding on all Lenders for purposes of
determining when the Lenders shall be obligated to advance funds to the Agent.
(D) DISBURSEMENT OF LOANS TO THE BORROWER. On the requested
Funding Date, the Agent shall disburse in immediately available funds to the
Designated Deposit Account specified in the Notice of Borrowing an amount equal
to the Loans advanced by Lenders to the Agent's Payment Office with respect to
such Borrowing.
(E) GENERAL PROVISIONS RELATING TO REVOLVING LOANS. Each Loan
made by a Lender hereunder shall, at the Borrower's option in accordance with
the terms of this Agreement, be either in the form of a Base Rate Loan or a
LIBOR Loan; provided that (i) LIBOR Loans shall not be available for Borrowing
under this SECTION 2.1 until the earlier of (1) sixty (60) days following the
Closing Date or (2) delivery to the Borrower by ABN AMRO, in its sole discretion
as the syndication agent in respect of the Commitments, of written notice that
Borrowings of LIBOR Loans are available based on the satisfactory completion of
ABN AMRO's syndication of the Commitments to the capital markets, and (ii) in no
event shall the Borrower maintain at any time LIBOR Loans having, more than five
(5) different Interest Periods. The Borrower shall repay the principal amount of
the Loans in the amounts and in the manner set forth in SECTION 2.3 and pay
interest accrued on the Loans at the rates and in the manner set forth in
SECTION 2.4. Amounts borrowed by the Borrower under the Aggregate Commitments
may be repaid and, prior to the Maturity Date and subject to the applicable
terms and conditions precedent to Borrowings hereunder, reborrowed.
(F) PERMITTED USES OF LOAN PROCEEDS. The Borrower shall use
the Loan proceeds only for the purposes of financing (a) together with the
Initial Equity Investment, a portion of the purchase price of the Timberlands
Acquisition (as consummated through the Griffin Acquisition) paid on the Closing
Date, (b) related transaction costs and (c) working capital and other general
business needs, including, subject to the terms and conditions of this
Agreement, including availability under the Borrowing Bases, acquisitions of
additional Timberlands, and the funding of Permitted Interest Distributions,
Permitted LTP Tax Distributions and Permitted Distributions. Notwithstanding the
foregoing, the Borrower may not use the proceeds of Loans advanced under this
Agreement to prepay or repay the Subordinated Bridge Loan (other than,
specifically, payments of interest accrued and payable on the Subordinated
Bridge Loan, the payment of which is a permitted use of Loan proceeds) or any
other Indebtedness or other obligations due or payable under or in respect of
the Subordinated Bridge Loan Agreement or to make any distribution or to fund
any loan to or for the benefit of Strategic Timber Trust to enable Strategic
Timber Trust to make any such prepayment or repayment.
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SECTION 2.2 NOTES. The Loans made by each Lender shall be evidenced by
separate Notes executed by the Borrower and made payable to the order of such
Lender in the stated principal amount equal to its Commitment.
(A) NOTATIONS IN THE LENDERS' BOOKS AND RECORDS. Each Lender
shall make notations in its books and records regarding the date, amount and
maturity of each Loan made by it and the amount of each repayment or prepayment
of principal and payment of interest made by the Borrower with respect to such
Loan. Each Lender is irrevocably authorized by the Borrower to endorse its Note
and each Lender's record shall be conclusive absent manifest error; provided,
however, that the failure of a Lender to make, or an error in making, such a
notation with respect to any Loan shall not limit or otherwise affect the
Obligations of the Borrower hereunder or under any such Note to such Lender.
SECTION 2.3 REPAYMENT OF PRINCIPAL AMOUNT OF LOANS. Subject to the
terms of this Agreement relating to optional earlier repayments of Loans and the
acceleration of maturities, the Borrower shall repay the Lenders the entire
outstanding principal amount of the Loans and all other unpaid amounts
outstanding under the Revolving Credit Facility on the Maturity Date.
SECTION 2.4 PAYMENT OF INTEREST ON THE LOANS.
(A) LOANS. Subject to SECTION 2.4(C), each Loan shall bear
interest on the outstanding principal amount thereof from the date when made,
continued or converted until paid in full at a rate per annum equal to the Base
Rate or the Adjusted LIBOR, as the case may be, plus the Applicable Margin.
(B) INTEREST PAYMENT DATES. Interest on each Loan shall be
paid in arrears on each Interest Payment Date. Interest shall also be paid on
the date of any prepayment of any Loans pursuant to this Agreement for the
portion of the Loans so prepaid and upon payment (including prepayment) in full
thereof.
(C) INTEREST UPON EVENTS OF DEFAULT. Upon the occurrence of an
Event of Default and so long as such Event of Default shall continue, including
after acceleration (whether before or after entry of judgment), the Borrower
shall, at the option of Required Lenders, pay interest on the principal amount
of each Loan then outstanding at a rate per annum which is determined by adding
two percent (2.00%) to the Applicable Margin applicable to such Loan (the
"Default Rate").
(D) LIMITATIONS ON INTEREST RATES. Notwithstanding any
provision in this Agreement, the Notes or any of the other Loan Documents, the
total liability for payments in the nature of interest shall not exceed the
applicable limits imposed by any applicable federal or state interest rate laws.
If any payments in the nature of interest, additional interest and other charges
made hereunder or under any of the Loan Documents are held to be in excess of
the applicable limits imposed by any applicable federal or state law, the amount
held to be in excess shall be considered payment of principal under the Notes
and the indebtedness evidenced thereby shall be reduced by such amount in the
inverse order of maturity so that the total liability for payments in the nature
of interest, additional interest and other charges shall not exceed the
applicable limits imposed by any applicable federal or state interest rate laws.
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SECTION 2.5 PROCEDURE FOR THE BORROWING OF LOANS.
(A) Each Borrowing of Loans shall be made upon the Borrower's
irrevocable written notice delivered to the Agent in the form of a Notice of
Borrowing, executed by a Responsible Person of the Borrower, with appropriate
insertions (which Notice of Borrowing must be received by the Agent prior to
12:00 noon, Chicago, Illinois time, (i) three (3) Business Days prior to the
requested Funding Date, in the case of LIBOR Loans, and (ii) one (1) Business
Day prior to the requested Funding Date, in the case of Base Rate Loans),
specifying:
(A) The amount of the Borrowing, which shall
be in integral multiples of One Million Dollars ($1,000,000)
and, if LIBOR Loans are requested, in an aggregate minimum
principal amount of Five Million Dollars ($5,000,000) or any
integral multiple of $1,000,000 in excess thereof;
(B) the requested Funding Date, which shall
be a Business Day;
(C) whether the Borrowing is to be comprised
of LIBOR Loans or Base Rate Loans;
(D) the duration of the Interest Period
applicable to any such LIBOR Loans included in such notice. If
the Notice of Borrowing shall fail to specify the duration of
the Interest Period for any Borrowing comprised of LIBOR
Loans, such Interest Period shall be three (3) months; and
(E) the Designated Deposit Account to which
proceeds of the Loans are to be transferred together with
wiring instructions.
(B) Upon receipt of the Notice of Borrowing, the Agent will
promptly notify each Lender having a Commitment of the amount of such Lender's
Commitment Percentage of the requested Borrowing.
(C) Each Lender having a Commitment will make the amount of
its Commitment Percentage of the Borrowing available to the Agent for the
account of the Borrower at the Agent's Payment Office by 1:00 p.m., Chicago,
Illinois time, on the Funding Date requested by the Borrower in funds
immediately available to the Agent. The proceeds of all such Loans will then be
made available to the Borrower on the Funding Date by the Agent by wire transfer
to the Designated Deposit Account specified in the Notice of Borrowing. No
Borrowing of Loans shall be deemed made to the Borrower, and no interest shall
accrue on any such Borrowing, until the related funds have been deposited in the
Designated Deposit Account.
(D) Unless the Lenders having a Commitment shall otherwise
consent, during the existence of a Default or Event of Default, the Borrower may
not elect to have a Loan made as a LIBOR Loan.
SECTION 2.6 CONVERSION AND CONTINUATION ELECTIONS.
(A) The Borrower may upon irrevocable written notice to the
Agent:
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(I) elect to convert on any Business Day, Base Rate
Loans in an amount equal to Five Million Dollars ($5,000,000) or any integral
multiple of $1,000,000 in excess thereof into LIBOR Loans or LIBOR Loans into
Base Rate Loans; or
(II) elect to continue on any Interest Payment Date
any LIBOR Loans maturing on such Interest Payment Date (or any part thereof in
an amount equal to Five Million Dollars ($5,000,000) or any integral multiple of
$1,000,000 in excess thereof);
provided, that if the aggregate amount of LIBOR Loans shall have been reduced,
by payment, prepayment, or conversion of part thereof, to be less than
$5,000,000, such LIBOR Loans shall automatically convert into Base Rate Loans,
and on and after such date the right of the Borrower to continue such Loans as,
and convert such Loans into, LIBOR Loans shall terminate.
(B) The Borrower shall deliver a Notice of
Conversion/Continuation in accordance with SECTION 12.2 to be received by the
Agent prior to 12:00 noon, Chicago, Illinois, time, at least (i) three (3)
Business Days in advance of the Conversion Date or Continuation Date, if any
Loans are to be converted into or continued as LIBOR Loans; and (ii) one (1)
Business Day in advance of the Conversion Date, if any Loans are to be converted
into Base Rate Loans; specifying:
(A) the proposed Conversion Date or
Continuation Date;
(B) the aggregate amount of Loans to be
converted or continued;
(C) the nature of the proposed conversion or
continuation; and
(D) the duration of the requested Interest
Period.
(C) If upon the expiration of any Interest Period applicable
to any LIBOR Loans, the Borrower shall have failed to select a new Interest
Period to be applicable to such LIBOR Loans, the Borrower shall be deemed to
have elected to convert such LIBOR Loans into Base Rate Loans.
(D) Upon receipt of a Notice of Conversion/Continuation, the
Agent will promptly notify each Lender thereof, or, if no timely notice is
provided by the Borrower, the Agent will promptly notify each Lender of the
details of any automatic conversion. All conversions and continuations shall be
made according to each Lender's applicable Commitment Percentage of the
outstanding principal amounts of the Loans with respect to which the notice was
given.
(E) Unless the Required Lenders shall otherwise consent,
during the existence of a Default or Event of Default, the Borrower may not
elect to have a Loan converted into or continued as a LIBOR Loan.
SECTION 2.7 OPTIONAL PREPAYMENTS. Subject to SECTION 3.5, the Borrower
may, at any time or from time to time, upon at least one (1) Business Day's
notice to the Agent in the case of Base Rate Loans, or three (3) Business Days'
notice to the Agent in the case of LIBOR Loans, prepay Loans, in whole or in
part, in amounts of not less than $1,000,000. Such notice of
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prepayment shall specify the date and amount of such prepayment and whether such
prepayment is of Base Rate Loans or LIBOR Loans, or any combination thereof.
Such notice shall be irrevocable and the Agent shall promptly notify each Lender
thereof and of such Lender's Commitment Percentage of such prepayment. If such
notice is given by the Borrower, the Borrower shall make such prepayment and the
payment amount specified in such notice shall be due and payable on the
specified prepayment date, together with accrued interest to such date on the
principal amount prepaid and any amounts required pursuant to SECTION 3.5, but
otherwise without premium or penalty. Any prepayments made pursuant to this
SECTION 2.7 shall be applied first to any Base Rate Loans then outstanding and
then to LIBOR Loans with the shortest Interest Periods remaining.
SECTION 2.8 MANDATORY PREPAYMENTS. If at any time and for any reason
the aggregate principal amount of the Loans then outstanding shall exceed the
Maximum Availability (the amount of such excess, if any, being an "Over
Advance"), whether determined based on the delivery of the most recent Borrowing
Base Certificate or otherwise, the Borrower shall within thirty (30) Business
Days of the Borrower becoming aware of such Over Advance, whether by notice from
the Agent, the delivery of a Merchantable Timber Appraisal Report or otherwise,
repay the full amount of such Over Advance, together with all accrued and unpaid
interest thereon.
SECTION 2.9 COMMITMENT FEE FOR PROVIDING COMMITMENTS. In consideration
of the Lenders' agreement to commit to make the Loans available to the Borrower
as contemplated by this Agreement, the Borrower agrees to pay to the Agent, on
behalf of and for the ratable benefit of the Lenders according to their
respective Commitment Percentage of the Aggregate Commitments, a commitment fee
in an amount equal to the Applicable Rate per annum of the average daily
difference between the Aggregate Commitment and the sum of the aggregate
outstanding principal amount of Loans, due and payable quarterly in arrears on
each Interest Payment Date for the payment of interest on Base Rate Loans, with
the final such payment due and payable on the Maturity Date.
SECTION 2.10 CALCULATION OF INTEREST AND FEES. Interest on the Loans
and all fees payable hereunder shall be computed on the basis of a 360-day year
and the actual number of days elapsed in the period during which such interest
accrues. In computing interest on any Loan, the date of the making of such Loan
shall be included and the date of payment shall be excluded; provided, however,
that if any Loan is repaid on the same day on which it is made, such day shall
be included in computing interest on such Loan. Each change in the interest rate
of the Base Rate Loans based on changes in the Base Rate and each change in the
interest rate of LIBOR Loans based on changes in the Eurodollar Reserve
Percentage shall be effective on the effective date of such change and to the
extent of such change. The Agent shall give the Borrower prompt notice of any
such change in the Base Rate or Eurodollar Reserve Percentage; provided,
however, that any failure by the Agent to provide the Borrower with notice
hereunder shall not affect the Lenders' right to make changes in the interest
rate of the Base Rate Loans based on changes in the Base Rate or changes in the
interest rate of LIBOR Loans based on changes in the Eurodollar Reserve
Percentage.
SECTION 2.11 PAYMENTS. All repayments or prepayments of principal and
all payments of interest, fees, costs, expenses and other sums chargeable to the
Borrower under this
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Agreement, the Notes or any of the other Loan Documents shall be in lawful money
of the United States of America in immediately available funds and delivered to
the Agent, on behalf and for the benefit of the Lenders, not later than 12:00
noon, Chicago, Illinois time, on the date due at the Agent's Payment Office.
SECTION 2.12 PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be
made under this Agreement, the Notes or any of the other Loan Documents shall be
stated to be due on a day which is not a Business Day, such payment shall be
made on the next succeeding Business Day and such extension of time shall in
such case be included in the computation of the payment of interest thereon.
SECTION 2.13 APPLICATION OF PAYMENTS. Except as otherwise expressly
provided in this Agreement or in any other Loan Document, all payments shall be
applied in the following order: (a) then due and payable fees, costs and
expenses; (b) then due and payable interest payments; and (c) then due and
payable principal payments and optional prepayments. In addition, each Lender is
authorized to, and at its sole option may, for the benefit of the Lenders and
the Agent, make advances on behalf of the Borrower for payment of any and all
fees, expenses, charges, costs, principal and interest incurred hereunder or
under the other Loan Documents. To the extent permitted by law, all amounts
advanced by any Lender hereunder or under other provisions of the Loan Documents
shall accrue interest thereon at the Base Rate.
SECTION 2.14 DISTRIBUTION OF PAYMENTS. The Agent shall immediately
distribute to each Lender, at such address as each Lender shall designate, such
Lender's interest in all repayments and prepayments of principal and all
payments of interest, loan fees, commitment fees and other fees, expenses and
costs received by the Agent on the same day and in the same type of funds as
payment was received. In the event the Agent does not distribute such payments
on the same day received, such payment shall accrue interest at the Federal
Funds Rate, which shall be payable by the Agent. The Agent shall indemnify and
hold the Borrower harmless from any claim for overnight interest by any Lender
under this SECTION 2.13.
SECTION 2.15 THE AGENT'S RIGHT TO ASSUME FUNDS AVAILABLE FOR LOANS.
Unless the Agent shall have been notified by any Lender no later than the
Business Day prior to the respective Funding Date of any Loan that such Lender
does not intend to make available to the Agent immediately available funds equal
to such Lender's Commitment Percentage of the total principal amount of such
Loan, the Agent may assume that such Lender has advanced funds in the amount of
such Loan to the Agent on the applicable Funding Date and the Agent may, in
reliance upon such assumption, make available to the Borrower corresponding
funds. The Agent agrees to give prompt notice to the Borrower in the event it
advances funds on behalf of a Lender under this SECTION 2.14; provided, that
failure to give such notice shall in no way limit, restrict or otherwise affect
the Borrower's obligations or the Agent's or any Lender's rights or remedies
under this Agreement and the other Loan Documents. If the Agent has made funds
available to the Borrower based on such assumption and such Loan is not in fact
made available to the Agent by such Lender, the Agent shall be entitled to
recover the corresponding amount of such Loan on demand from such Lender. If
such Lender does not promptly pay such corresponding amount upon the Agent's
demand, the Agent shall notify the Borrower and the Borrower shall repay such
Loan to the Agent. The Agent also shall be entitled to recover from such Lender
interest on such Loan in respect of each day from the date such Loan was made by
the Agent to the Borrower to
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the date such corresponding amount is recovered by the Agent at the Federal
Funds Rate, and the Agent shall indemnify and hold harmless the Borrower from
any claim for such interest.
SECTION 2.16 THE AGENT'S RIGHT TO ASSUME PAYMENTS WILL BE MADE BY THE
BORROWER. Unless the Agent shall have been notified by the Borrower prior to the
date on which any payment to be made by the Borrower hereunder is due that the
Borrower does not intend to remit such payment, the Agent may, in its
discretion, assume that the Borrower has remitted such payment when so due and
the Agent may, in its discretion and in reliance upon such assumption, make
available to each Lender on such payment date an amount equal to such Lender's
Commitment Percentage of such assumed payment. If the Borrower has not in fact
remitted such payment to the Agent, each Lender shall forthwith on demand repay
to the Agent the amount of such assumed payment made available to such Lender,
together with interest thereon in respect of each date from and including the
date such amount was made available by the Agent to such Lender to the date such
amount is repaid to the Agent at the Federal Funds Rate.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
SECTION 3.1 TAXES.
(A) Subject to SECTION 3.1(H), any and all payments by the
Borrower to the Lenders or the Agent under this Agreement shall be made free and
clear of, and without deduction or withholding for, any and all present or
future taxes, fees, duties, levies, imposts, deductions, charges or
withholdings, whatsoever imposed by any Governmental Authority, excluding, in
the case of each Lender and the Agent, such taxes as are imposed on or measured
by the net income of any Lender or the Agent by any jurisdiction under the laws
of which such Lender, or the Agent, as the case may be, is organized or
maintains a Lending Office or any political subdivision thereof (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes").
(B) In addition, the Borrower shall pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Documents (hereinafter referred to as "Other
Taxes").
(C) Subject to SECTIONS 3.1(A) and 3.1(H), if any Taxes or
Other Taxes are directly asserted or imposed against any Lender or the Agent,
the Borrower shall indemnify and hold harmless such Lender or the Agent, as the
case may be, for the full amount of the Taxes or Other Taxes (including any
Taxes or Other Taxes asserted or imposed by any jurisdiction on amounts payable
under this SECTION 3.1) paid by the Lender or the Agent and any liability
(including penalties, interest, additions to tax and expenses) arising therefrom
or with respect thereto, whether or not such Taxes or Other Taxes were correctly
or legally asserted or imposed. Payment under this indemnification shall be made
within thirty (30) days from the date the Lender or the Agent makes written
demand therefor (provided that the Borrower shall have the right to contest in
good faith any such Taxes or Other Taxes through appropriate proceedings).
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The Lender, or the Agent in its discretion also may, but shall not be obligated
to, pay such Taxes or Other Taxes and the Borrower will promptly pay such
additional amounts (including any penalties, interest or expenses, except for,
in the event the Lender or the Agent fails to deliver notice of such assertion
of Taxes or Other Taxes to the Borrower within ninety (90) days after it has
received notice of such assertion or imposition of Taxes or Other Taxes, any
such penalties, interest or expenses which would not have arisen but for the
failure of the Lender or the Agent to so notify the Borrower of such assertion
or imposition of Taxes or Other Taxes) as is necessary in order that the net
amount received by the Lender or the Agent after the payment of such Taxes or
Other Taxes (including any Taxes on such additional amount) shall equal the
amount the Lender or the Agent would have received had not such Taxes or Other
Taxes been asserted or imposed.
(D) If the Borrower shall be required by law to deduct or
withhold any Taxes or Other Taxes from or in respect of any sum payable
hereunder to any Lender or the Agent, then, subject to SECTION 3.1(H):
(I) the sum payable shall be increased as necessary
so that after making all required deductions (including deductions applicable to
additional sums payable under this SECTION 3.1) such Lender or the Agent, as the
case may be, receives an amount equal to the sum it would have received had no
such deduction or withholding been made;
(II) the Borrower shall make such deduction or
withholding; and
(III) the Borrower shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance with
applicable law.
(E) Within thirty (30) days after the date of any payment by
the Borrower of Taxes or Other Taxes, the Borrower, upon the Agent's request,
shall furnish to the Agent the original or a certified copy of a receipt
evidencing payment thereof, or other evidence of payment satisfactory to the
Agent.
(F) If the Borrower fails to pay any Taxes or Other Taxes when
due to the appropriate taxing authority or fail to furnish to the Agent the
required receipts or other required documentary evidence, the Borrower shall
indemnify the Lenders and the Agent for any incremental Taxes or Other Taxes,
interest or penalties that may become payable by any of the Lenders and the
Agent as a result of any such failure.
(G) Each Lender which is a foreign person (i.e., a person
other than a United States person for United States federal income tax purposes)
agrees that:
(I) in the case of any Lender which is a "bank"
within the meaning of Section 881(c)(3)(A) of the Code,
(A) it shall, no later than the Closing Date
(or, in the case of a Lender which becomes a party hereto pursuant to SECTION
12.11 after the Closing Date, the date upon which the Lender becomes a party
hereto) deliver to the Borrower through the Agent two (2) accurate and complete
signed originals of IRS Form 4224 or any successor
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thereto ("Form 4224"), or two accurate and complete signed originals of IRS Form
1001 or any successor thereto ("Form 1001"), as appropriate, in each case
indicating that the Lender is on the date of delivery thereof entitled to
receive payments of principal, interest and fees under this Agreement free from
withholding of United States federal income tax;
(B) if at any time the Agent or such Lender
makes any changes necessitating a new Form 4224 or Form 1001, it shall within
thirty (30) days after such change becomes effective deliver to the Borrower
through the Agent in replacement for, or in addition to, the forms previously
delivered by it hereunder, two accurate and complete signed originals of Form
4224, or two accurate and complete signed originals of Form 1001, as
appropriate, in each case indicating that the Lender is on the date of delivery
thereof entitled to receive payments of principal, interest and fees under this
Agreement free from withholding of United States federal income tax;
(II) in the case of any Lender other than a Lender
described in clause (i) above,
(A) it shall, no later than the Closing Date
(or, in the case of a Lender which becomes a party hereto pursuant to SECTION
12.11 after the Closing Date, the date upon which the Lender becomes a party
hereto) deliver to the Borrower through the Agent two (2) accurate and complete
signed originals of a certificate substantially in the form of EXHIBIT H hereto
(any such certificate, a "Non-Bank Lender Tax Certificate") and two accurate and
complete signed originals of IRS Form W-8 or any successor thereto ("Form W-8")
certifying to such Lender's legal entitlement (assuming compliance by the
Borrower with the terms of this Agreement) to an exemption whereby the Lender is
on the date of delivery thereof entitled to receive payments of principal,
interest and fees under this Agreement free from withholding of United States
Federal income tax;
(B) if at any time the Agent or such Lender
makes any changes necessitating a new Form W-8, it shall within thirty (30) days
after such change becomes effective deliver to the Borrower through the Agent in
replacement for, or in addition to, the forms previously delivered by it
hereunder, two accurate and complete signed originals of Form W-8 certifying to
such Lender's legal entitlement (assuming compliance by the Borrower with the
terms of this Agreement) to an exemption whereby the Lender is on the date of
delivery thereof entitled to receive payments of principal, interest and fees
under this Agreement free from withholding of United States federal income tax;
(III) it shall, before or within thirty (30) days
after the occurrence of any event (including the passing of time but excluding
any event mentioned in (i) or (ii), above) requiring a change in or renewal of
the most recent Form 4224, Form 1001 or Form W-8 previously delivered by such
Lender, deliver to the Borrower through the Agent two accurate and complete
original signed copies of Form 4224, Form 1001 or Form W-8 in replacement for
the forms previously delivered by the Lender; and
(IV) it shall, promptly upon the Lender's or the
Agent's reasonable request to that effect, deliver to the Lender or the Agent
(as the case may be) such other forms or similar documentation as may be
required from time to time by any applicable law, treaty, rule or regulation in
order to establish such Lender's tax status for withholding purposes.
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(H) The Borrower will not be required to pay any additional
amounts in respect of United States federal income tax pursuant to SECTION
3.1(D) to the Agent or any Lender for the account of any Lending Office of such
Lender:
(I) if the obligation to pay such additional amounts
would not have arisen but for a failure by such Lender to comply with its
obligations under SECTION 3.1(G) in respect of such Lending Office; or
(II) if such Lender shall have delivered to the
Borrower a Form 4224, Form 1001 or Form W-8 in respect of such Lending Office
pursuant to SECTION 3.1(G), and such Lender shall not at any time be entitled to
exemption from deduction or withholding of United States federal income tax in
respect of payments by the Borrower hereunder for the account of such Lending
Office for any reason other than a change in United States law or regulations or
in the official interpretation of such law or regulations by any Governmental
Authority charged with the interpretation or administration thereof (whether or
not having the force of law) after the date of delivery of such form.
(I) If, at any time, the Borrower requests any Lender to
deliver any forms or other documentation in addition to those required pursuant
to SECTION 3.1(G)(IV), then the Borrower shall, on demand of such Lender through
the Agent, reimburse such Lender for any costs and expenses (including
reasonable Attorney Costs) reasonably incurred by such Lender in the preparation
or delivery of such forms or other documentation.
(J) If the Borrower is required to pay additional amounts to
any Lender or the Agent pursuant to SECTION 3.1(D), then such Lender shall use
its reasonable best efforts (consistent with legal and regulatory restrictions)
to change the jurisdiction of its Lending Office so as to eliminate any such
additional payment by the Lender which may thereafter accrue if such change in
the judgment of such Lender is not otherwise disadvantageous to such Lender.
SECTION 3.2 ILLEGALITY.
(A) If any Lender shall determine that the introduction of any
Requirement of Law, or any change in any Requirement of Law or in the
interpretation or administration thereof, has made it unlawful, or that any
central bank or other Governmental Authority has asserted that it is unlawful,
for any Lender or its Lending Office to make LIBOR Loans, then, on notice
thereof by the Lender to the Borrower through the Agent, the obligation of that
Lender to make LIBOR Loans shall be suspended until the Lender shall have
notified the Agent and the Borrower that the circumstances giving rise to such
determination no longer exists.
(B) If a Lender shall determine that it is unlawful to
maintain any LIBOR Loan, the Borrower shall prepay in full all LIBOR Loans of
that Lender then outstanding, together with interest accrued thereon, either on
the last day of the Interest Period thereof if the Lender may lawfully continue
to maintain such LIBOR Loans to such day, or immediately, if the Lender may not
lawfully continue to maintain such LIBOR Loans, together with any amounts
required to be paid in connection therewith pursuant to SECTION 3.5.
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(C) If the Lender is required to prepay any LIBOR Loan
immediately as provided in SECTION 3.2(B), then concurrently with such
prepayment, the Borrower shall borrow from the affected Lender, in the amount of
such repayment, a Base Rate Loan.
(D) Before giving any notice to the Agent pursuant to this
SECTION 3.2, the affected Lender shall designate a different Lending Office with
respect to its LIBOR Loans if such designation will avoid the need for giving
such notice or making such demand and will not, in the judgment of the Lender,
be illegal or otherwise disadvantageous to the Lender.
SECTION 3.3 INCREASED COSTS. If any Lender shall determine that, due to
either (a) the introduction of or any change (other than any change by way of
imposition of or increase in the Eurodollar Reserve Percentage included in the
calculation of the LIBOR) in or in the interpretation of any Requirement of Law
or (b) the compliance with any guideline or request from any central bank or
other Governmental Authority (whether or not having the force of law), there
shall be any increase in the cost to such Lender of agreeing to make or making,
funding or maintaining any LIBOR Loans, then the Borrower shall be liable for,
and shall from time to time, upon demand therefor by such Lender, pay to such
Lender such additional amounts as are sufficient to compensate such Lender for
such increased costs.
SECTION 3.4 INABILITY TO DETERMINE RATES. If the Agent shall have
determined that for any reason adequate and reasonable means do not exist for
ascertaining the LIBOR for any requested Interest Period with respect to a
proposed LIBOR Loan or that the LIBOR applicable for any requested Interest
Period with respect to a proposed LIBOR Loan does not adequately and fairly
reflect the cost to the Lenders of funding such Loan, the Agent will forthwith
give notice of such determination to the Borrower and each Lender. Thereafter,
the obligation of the Lenders to make or maintain LIBOR Loans, as the case may
be, hereunder shall be suspended until the Agent, upon the instruction of the
Required Lenders, revokes such notice in writing. Upon receipt of such notice,
the Borrower may revoke any Notice of Borrowing or Notice of
Conversion/Continuation then submitted by it. If the Borrower does not revoke
such notice, the Lenders shall make, convert or continue the Loans, as proposed
by the Borrower, in the amount specified in the applicable notice submitted by
the Borrower, but such Loans shall be made or continued as or converted to Base
Rate Loans instead of LIBOR Loans, as the case may be.
SECTION 3.5 PREPAYMENT OF LIBOR LOANS. In the event that the Borrower
prepays or is required to prepay any LIBOR Loan by acceleration or otherwise or
fails to draw down or convert to a LIBOR Loan after giving notice thereof, the
Borrower agrees to reimburse each Lender for its expenses and funding losses due
to such prepayment or failure to draw. The Borrower and the Lenders hereby agree
that such expenses and funding losses shall consist of the sum of the discounted
monthly differences for each month during the applicable or requested Interest
Period, calculated as follows for each such month:
(A) principal amount of such LIBOR Loan times (number of days
between the date of prepayment and the last day in the applicable Interest
Period divided by 360), times the applicable Interest Differential; plus
(B) all actual out-of-pocket expenses (other than those taken
into account in the calculation of the Interest Differential) incurred by the
Lenders and the Agent (excluding
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allocations of any expense internal to the Lenders and the Agent) and reasonably
attributable to such payment or prepayment; provided that no prepayment fee
shall be payable (and no credit or rebate shall be required) if the product of
the foregoing formula is not a positive number.
SECTION 3.6 CAPITAL REQUIREMENTS. If any Lender shall determine that
any change after the date of this Agreement in any law, rule, regulation or
guideline adopted pursuant to or arising out of the July 1988 report of the
Basle Committee on Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards," or the
adoption after the date hereof of any other Requirement of Law regarding capital
adequacy, or any change after the date of this Agreement in any of the foregoing
or in the enforcement or interpretation or administration of any of the
foregoing by any Governmental Authority charged with the enforcement or
interpretation or administration thereof, or compliance by any Lender (or any
Lending Office of the Lender) or the Lender's holding company with any request
or directive regarding capital adequacy (whether or not having the force of law)
of any such Governmental Authority, has the effect of reducing the rate of
return on the Lender's capital or on the capital of the Lender's holding
company, if any, as a consequence of the maintaining of any of its Commitments
or the making or maintaining any Loan under this Agreement to a level below that
which the Lender or the Lender's holding company could have achieved but for
such adoption, change or compliance (taking into consideration the Lender's
policies and the policies of the Lender's holding company with respect to
capital adequacy) by an amount deemed by the Lender to be material, then, upon
written demand by the Lender, the Borrower shall pay to the Lender, from time to
time such additional amount or amounts as will compensate the Lender or the
Lender's holding company for any such reduction suffered. Without affecting its
rights under this SECTION 3.6 or any other provision of this Agreement, the
Lender agrees that if there is any increase in any cost to or reduction in any
amount receivable by the Lender with respect to which the Borrower would be
obligated to compensate the Lender pursuant to this SECTION 3.6, the Lender
shall use reasonable efforts to select an alternative Lending Office which would
not result in any such increase in any cost to or reduction in any amount
receivable by the Lender; provided, however, that the Lender shall not be
obligated to select an alternative Lending Office if the Lender determines that
(a) as a result of such selection the Lender would be in violation of any
Requirement of Law, or would incur additional costs or expenses, or (b) such
selection would be inadvisable for regulatory reasons.
SECTION 3.7 CERTIFICATES OF LENDERS. Any Lender claiming reimbursement
or compensation pursuant to this ARTICLE III shall deliver to the Borrower (with
a copy to the Agent) a certificate setting forth in reasonable detail the amount
payable and the basis therefor to the Lender hereunder. Such certificate shall
be conclusive and binding on the Borrower in the absence of manifest error.
SECTION 3.8 SUBSTITUTION OF LENDERS. Upon the receipt by the Borrower
from any Lender (an "Affected Lender") of a claim for compensation pursuant to
SECTIONS 3.1, 3.3 or 3.6, the Borrower may: (a) request the Affected Lender to
use its best efforts to obtain a replacement bank or financial institution
satisfactory to the Borrower to acquire and assume all or part of such Affected
Lender's Loans and Commitments (a "Replacement Lender"), (b) request one more of
the other Lenders to acquire and assume all or part of such Affected Lender's
Loans and Commitments or (c) designate a Replacement Lender. Any such
designation of a Replacement
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Lender under clause (a) or (c) shall be subject to the prior written consent of
the Agent (which consent shall not be unreasonably withheld or delayed).
SECTION 3.9 SURVIVAL. The agreements and obligations of the Borrower in
this ARTICLE III shall survive the payment of all other Obligations.
ARTICLE IV
CONDITIONS PRECEDENT TO CLOSING AND THE MAKING OF LOANS
SECTION 4.1 CONDITIONS PRECEDENT TO THE CLOSING. The Closing shall
occur upon the prior satisfaction of each of the conditions precedent set forth
in this SECTION 4.1, as determined by the Lenders and the Agent (all Loan
Documents and other documents to be delivered to the Agent, or any Lender
pursuant to this SECTION 4.1 shall be subject to prior approval as to form and
substance (including as to results) by the Lenders and the Agent).
(A) CORPORATE DOCUMENTS. The Agent shall have received
originals of each of the following:
(I) CERTIFICATE OF THE SECRETARY (THE BORROWER).
Certificate executed by the secretary or assistant secretary of the Borrower, or
of STOC, in its capacity as the Borrower's sole general partner, on behalf of
the Borrower, dated the Closing Date, certifying (A) that such company has the
authority to execute, deliver and perform its obligations under each of the Loan
Documents and the Acquisition Documents to which it is a party, (B) that
attached behind EXHIBIT A to such certificate is a true, correct and complete
copy of (1) the Borrower Partnership Agreement then in full force and effect,
(2) the certificate of limited partnership of the Borrower certified by the
Secretary of State of the State of Delaware as of a date not more than ten (10)
Business Days prior to the Closing Date, and (3) any other organizational
documents of the Borrower then in full force and effect, (C) that attached
behind EXHIBIT B to such certificate is a true, correct and complete copy of the
resolutions adopted by the partners of the Borrower then in full force and
effect authorizing the execution, delivery and performance by the Borrower of
each of the Loan Documents and each of the Acquisition Documents to which it is
a party, ratifying the execution, delivery and performance by the Borrower of
the Acquisition Documents to which it is a party and the consummation of the
Timberlands Acquisition, (D) that attached behind EXHIBIT C to such certificate
is a certificate of the Secretary of State of the States of Delaware, Louisiana
and the state in which is located the Borrower's chief executive office, in each
case dated as of a date not more than ten (10) Business Days prior to the
Closing Date, stating that the Borrower is in good standing in such states, (E)
the name(s) of the officer(s) of the Borrower authorized to execute Loan
Documents and Acquisition Documents on behalf of the Borrower, together with a
sample of the true signatures of such officer(s), and (F) that the Lenders and
the Agent may conclusively rely on such certificate unless and until the
Borrower shall have delivered to the Agent a further certificate canceling or
amending such prior certificate.
(II) CERTIFICATE OF THE SECRETARY (STRATEGIC TIMBER
TRUST). Certificate executed by the secretary or assistant secretary of
Strategic Timber Trust, dated the Closing Date, certifying (A) that Strategic
Timber Trust has the authority to execute, deliver and
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perform its obligations under the Subordination Agreement, (B) that attached
behind EXHIBIT A to such certificate is a true, correct and complete copy of (1)
the bylaws of Strategic Timber Trust then in full force and effect, (2) the
certificate of incorporation of Strategic Timber Trust certified by the
Secretary of State of the State of Georgia as of a date not more than ten (10)
Business Days prior to the Closing Date, and (3) any other organizational
documents the Borrower then in full force and effect, (C) that attached behind
EXHIBIT B to such certificate is a true, correct and complete copy of the
resolutions adopted by the Board of Directors of Strategic Timber Trust then in
full force and effect authorizing the execution, delivery and performance by
Strategic Timber Trust, (D) that attached behind EXHIBIT C to such certificate
is a certificate of the Secretary of State of the State of Delaware and of the
state in which is located Strategic Timber Trust's chief executive office, in
each case dated as of a date not more than ten (10) Business Days prior to the
Closing Date, stating that Strategic Timber Trust is in good standing in such
states, (E) the name(s) of the officers of Strategic Timber Trust authorized to
execute the Subordination Agreement on behalf of Strategic Timber Trust,
together with a sample of the true signatures of such officers and (F) that the
Lenders and the Agent may conclusively rely on such certificate unless and until
Strategic Timber Trust shall have delivered to the Agent a further certificate
canceling or amending such prior certificate.
(B) LOAN DOCUMENTS. The Agent shall have received originals of
each of the following Loan Documents:
(I) THIS AGREEMENT. This Agreement, duly executed by
the Borrower, each of the Lenders and the Agent, together with all completed
SCHEDULES to this Agreement.
(II) NOTES. Separate Notes, duly executed by the
Borrower to each of the Lenders
in the stated principal amount of such Lender's Commitment.
(III) DESIGNATIONS OF RESPONSIBLE PERSONS. Separate
Designations of Responsible Persons, duly executed by an authorized officer of
the Borrower.
(IV) COLLATERAL DOCUMENTS. The Agent shall have
received originals of each of the following Collateral Documents:
(A) TIMBERLANDS MORTGAGES. The separate
Timberlands Mortgages, each duly executed by the Borrower, as mortgagor, and the
Agent, as mortgagee, and duly notarized, together with legal descriptions of the
Land situated in Allen, Beauregard, Calcasieu and Jefferson Davis Parishes,
Louisiana, attached respectively thereto as Exhibit A, which Timberlands
Mortgages shall concurrently with the Closing be caused by the Title Company to
be recorded in the official records of the respective parish in which such Land
is located, with written or verbal confirmation of such recordation to the Agent
by the Title Company to follow immediately thereafter.
(B) SECURITY AGREEMENT. The Security
Agreement, duly executed by the Borrower and the Agent, together with all
completed schedules to the Security Agreement.
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(C) FINANCING STATEMENTS. The Financing
Statements, naming and duly executed by the Borrower, as debtor, and the Agent,
as secured party, including a description of the personal property Collateral
granted or pledged by the Borrower to the Agent as security for the Obligations
(and in the case of farm product filings, a legal description of the real
property where the timber is located), which Financing Statements shall
concurrent with the Closing be caused to be filed with the Governmental
Authorities indicated on SCHEDULE 4.
(D) CONTROL AGREEMENTS. Separate Control
Agreements, duly executed by the Borrower, the Agent and each depository
institution, securities intermediary or commodities intermediary at which the
Borrower shall maintain for its benefit or use a deposit account, securities
account or commodities account.
(V) ENVIRONMENTAL INDEMNITY. The Environmental
Indemnity, duly executed by the Borrower and Strategic Timber Trust, jointly and
severally and in solido, in favor of the Lenders and the Agent, together with
all completed schedules to the Environmental Indemnity.
(VI) COLLATERAL INFORMATION CERTIFICATE. The
Collateral Information Certificate, fully completed, duly executed by the
Borrower, Strategic Timber Trust and LTP.
(VII) SUBORDINATION AGREEMENT. The Subordination
Agreement, duly executed by the Agent on behalf of itself and the Lenders, the
Subordinated Bridge Agent, on behalf of itself and the Subordinated Bridge
Lenders, the Borrower and Strategic Timber Trust.
(C) OPINION OF BORROWER'S COUNSEL. The Agent shall have
received each of the following originally executed Opinions of Borrower's
Counsel:
(I) Opinion of Borrower's counsel (SAB); and
(II) Opinion of Borrower's counsel (LPRH).
(D) J.A. BEL ACQUISITION DOCUMENTS. The Agent shall have
received copies, certified by the Borrower, of all of the duly and fully
executed J.A. Bel Acquisition Documents, including (i) the J.A. Bel Purchase
Agreement, complete with all final schedules, exhibits, attachments and
amendments thereto, (ii) all acts of sale, acts of assignments, bills of sale,
possession affidavits, affidavits regarding access, affidavits regarding timber
deeds and mineral lease and other transfer documents evidencing or relating to
the conveyance of title and interest in the Timberlands Assets and (iii) all
other documents relating to or affecting the J.A. Bel Acquisition, including all
bring-downs and all amendments and modifications to any of the foregoing.
(E) BAAL ACQUISITION DOCUMENTS. The Agent shall have received
copies, certified by the Borrower, of all of the duly and fully executed Baal
Acquisition Documents, including (i) the Baal Purchase Agreement, complete with
all final schedules, exhibits, attachments and amendments thereto, (ii) all acts
of sale, acts of assignments, bills of sale, possession affidavits, affidavits
regarding access, affidavits regarding timber deeds and mineral lease and other
transfer documents evidencing or relating to the conveyance of title and
interest in the Timberlands Assets and (iii) all other documents relating to or
affecting the Baal
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Acquisition, including all bring-downs and all amendments and modifications to
any of the foregoing.
(F) QUATRE PARISH ACQUISITION DOCUMENTS. The Agent shall have
received copies, certified by the Borrower, of all of the duly and fully
executed Quatre Parish Acquisition Documents, including (i) the Quatre Parish
Purchase Agreement, complete with all final schedules, exhibits, attachments and
amendments thereto, (ii) all acts of sale, acts of assignments, bills of sale,
possession affidavits, affidavits regarding access, affidavits regarding timber
deeds and mineral lease and other transfer documents evidencing or relating to
the conveyance of title and interest in the Timberlands Assets and (iii) all
other documents relating to or affecting the Quatre Parish Acquisition,
including all bring-downs and all amendments and modifications to any of the
foregoing.
(G) GRIFFIN DOCUMENTS. The Agent shall have received copies,
certified by the Borrower, of all of the duly and fully executed Griffin
Acquisition Documents, including (i) the Griffin Contract of Sale and the LTP
Assignment, complete with all final schedules, exhibits, attachments and
amendments thereto, (ii) all acts of sale, acts of assignments, bills of sale
and other transfer documents evidencing or relating to the conveyance of title
and interest in the Timberlands Assets and (iii) all other documents relating to
or affecting the Griffin Acquisition, including all bring-downs and all
amendments and modifications to any of the foregoing.
(H) GOVERNMENTAL CONSENTS. The Agent shall have received
written confirmation that all consents, approvals, orders and authorizations,
and all registrations, declarations and filings with, and expirations of waiting
periods imposed by, any Governmental Authority necessary for the consummation of
the Timberlands Acquisition contemplated by the Acquisition Documents have been
obtained.
(I) THIRD PARTY CONSENTS. The Agent shall have received
written confirmation that all consents, approvals and authorizations from third
Persons required under any material agreement, contract or other document
necessary for the consummation of the J.A. Bel Acquisition contemplated by the
J.A. Bel Acquisition Documents, the Baal Acquisition contemplated by the Baal
Acquisition Documents, the Quatre Parish Acquisition contemplated by the Quatre
Parish Acquisition Documents or the Griffin Acquisition contemplated by the
Griffin Acquisition Documents or the grant in the Loan Documents of any Lien in
favor of the Agent or any Lender have been obtained.
(J) CONSUMMATION OF THE TIMBERLANDS ACQUISITION. All
conditions precedent to the closing and consummation of the Timberlands
Acquisition, including all actions to have been taken prior to the closing set
forth in the Griffin Contract of Sale and the LTP Assignment (other than the
payment of the purchase price), and there shall not have been any modification
of a material term or waiver of a material condition precedent without the prior
consent of the Agent.
(K) OPENING TIMBER VALUATION. The Agent shall have received
the Opening Timber Valuation acceptable to the Agent in its sole and absolute
discretion.
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(L) OPENING PRO FORMA BALANCE SHEET. The Agent shall have
received an opening pro forma balance sheet, prepared by the Borrower,
consistently with an internal memorandum prepared by Arthur Andersen LLP
regarding the accounting for the proposed Timberlands Acquisition, including
capitalization structure and the results stated in the opening pro forma balance
sheet.
(M) INITIAL EQUITY INVESTMENT. The opening pro forma balance
sheet delivered to the Agent pursuant to SECTION 4.1(L) shall reflect, in the
partners' equity portion of the balance sheet, an initial equity capitalization
in an amount not less than the Initial Equity Investment, of which an amount
equal to not less than $5,000,000 shall have been contributed by Strategic
Timber Trust.
(N) FINANCIAL STATEMENTS. The Agent shall have received a
certificate of an authorized officer of STOC as the general partner of the
Borrower having responsibility for financial matters, including the preparation
of financial statements, attaching copies of the pro-forma consolidated
statements of income and cash flows for ten (10) years of projected operations
for the Borrower, assuming the consummation of the Timberlands Acquisition.
(O) HARVEST PLAN. The Agent shall have received the Harvest
Plan, which Harvest Plan shall have been reviewed and approved by the Agent.
(P) CONFIRMATION REGARDING OPERATING PROJECTIONS. The Agent
shall have received a report prepared by Canal (i) confirming as reasonable the
proposed log and haul and other expenses estimated and Timber price and
management, fire suppression and other SG&A expense assumptions used by the
Borrower and incorporated into the operating projections prepared by the
Borrower and (ii) verifying the feasibility of such operating projections, which
report shall have been reviewed and approved by the Lenders.
(Q) ENVIRONMENTAL REVIEW. The Agent shall have received a
written environmental report prepared by Harding Lawson Associates, independent
environmental consultants retained by the Borrower, with respect to the Land and
endangered and threatened species, disease and infestation and other Timber
related matters and such additional site assessments, environmental surveys or
audits and other documents or information as to environmental matters as the
Agent shall reasonably require.
(R) MATERIAL AGREEMENTS. The Agent shall have received copies
of all material agreements, contracts, instruments and other documents of the
Borrower, or under which the Borrower has rights, or by which any Property of
the Borrower is bound, including, all Cutting Rights Agreement, Timber Sales
Contracts, supply agreements, royalty contracts, real and personal property
leases, easements, rights-of-way, road use, trackage and other access agreements
and arrangements, mineral leases, hunting leases, management fee agreements,
evidences of indebtedness, processing, distribution or warehousing contracts,
and permits.
(S) ACCESS RIGHTS AND SERVITUDES. The Agent shall have
received satisfactory evidence that all material access rights, rights-of-way
and other servitudes and rights appurtenant to the Land have been obtained,
including such access rights as are necessary for the uninterrupted and orderly
operation of the Business consistent with the Harvest Plan.
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(T) ENTITLEMENTS. The Agent shall have received copies of or
other satisfactory evidence that the Borrower has obtained all governmental
entitlements necessary or useful to enable the Borrower to operate the Business
consistent with the Harvest Plan, including all agreements, authorization,
licenses, permits and other entitlements (and applications for the same)
relating to mineral rights and access to and the use of minerals and other
natural resources (subject to the reservation of mineral rights set forth in the
Acquisition Documents in favor of the J.A. Bel Seller, Baal Land Corporation and
the Quatre Parish Sellers).
(U) TITLE POLICIES. The Agent shall have had commitments
issued to it by the Title Company with respect to the issuance to the Agent, for
the benefit of the Lenders and the Agent, upon the due recordation of the
Timberlands Mortgages in the official records of the respective parish of
separate ALTA lenders' policies of fee title insurance, subject to a survey
exception (the "Title Policies"), insuring the first priority of the Lien
granted in favor of the Agent, with such endorsements as the Agent shall
reasonably require and subject only to the Permitted Title Exceptions.
(V) SOLVENCY CERTIFICATE. The Agent shall have received a
certificate as to solvency, dated as of the Closing Date, prepared, executed and
delivered by the officer of the Borrower having responsibility for financial
matters, including the preparation of financial statements, covering the
Borrower on a pro forma basis, assuming the consummation of Timberlands
Acquisition and all of the transactions contemplated by the Loan Documents,
including the funding of the Loans at Closing and the contribution to the
Borrower by Strategic Timber Partners of the proceeds of the Subordinated Bridge
Loan, which establishes that, immediately upon the consummation of the
Timberlands Acquisition, the then current fair saleable value of the Borrower's
assets will be greater than the amount of the Borrower's liabilities, the
Borrower shall be able to pay its debts as they come due (although not earlier
than the Maturity Date), and that the Borrower shall not have unreasonably small
capital.
(W) INSURANCE. The Agent shall have received the certificates
evidencing the insurance coverages and limits maintained by the Borrower in
compliance with the insurance requirements set forth in ARTICLE VI.
(X) NO MATERIAL ADVERSE CHANGE. There shall have occurred no
Material Adverse Change in the Timberlands Assets or in the prospects for the
Business since the date of the Opening Timber Appraisal.
(Y) UCC SEARCHES. The Agent shall have received certified
copies, dated as of a recent date, of form UCC-3 or UCC-11, as appropriate,
requests for copies or information as the Agent shall request, accompanied by
written evidence (including UCC termination statements) that the Liens indicated
in any such financing statements either constitute a Permitted Lien or have been
or in connection with the Closing will be terminated or released.
(Z) NO LITIGATION. There shall not have been instituted or
overtly threatened any litigation or proceeding in or before any Governmental
Authority to which the Borrower is, or is threatened with becoming, a party and
which, in the Agents' sole discretion, after consultation with counsel, is
determined to pose a risk of resulting in a Material Adverse Change.
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(AA) THE BORROWER'S BRING-DOWN CERTIFICATE. The Agent shall
have received a certificate dated the Closing Date, executed by the president or
a vice president of STOC as the general partner of the Borrower, on behalf of
the Borrower, certifying that:
(I) no Default or Event of Default has occurred and
is continuing; and
(II) the representations and warranties of the
Borrower contained in ARTICLE V of this Agreement are true, accurate and
complete in all material respects (except for such representations and
warranties made as of a specified date which shall be true as of such date),
taking into account the consummation of the Timberlands Acquisition and the
Related Assets Acquisition, as of the Closing Date.
(BB) FEE LETTER. ABN AMRO shall have received the Fee Letter,
duly executed by the Borrower, together with the payment of such fees as are set
forth in the Fee Letter to be paid at Closing (the payment of which shall be
deemed a concurrent condition).
(CC) ESCROW INSTRUCTIONS. The Agent shall have received escrow
instructions, dated the Closing Date, executed by the Title Company, the
Borrower, LTP, Griffin and the Agent, setting forth, among other things, (i) the
mechanics and instructions to convey and transfer title to the Timberlands
assets to the Borrower and to effect the due recording in the recording office
of the applicable Governmental Authorities of all acts of sale, timber mortgage,
financing statements and other affidavits, notices requests for notices and
other documents to be recorded of record, and (ii) the sources and uses of funds
to be funded and disbursed as of the Closing Date in connection with the
Closing.
(DD) FUNDS TRANSFER MEMORANDUM. The Agent shall have received
a funds transfer memorandum dated the Closing Date, executed by the Borrower,
Strategic Timber Trust, the Subordinated Bridge Agent and the Agent setting
forth the sources and uses of cash as at the Closing in order to consummate the
Timberlands Acquisition and the mutual funding of the Loan under this Agreement.
(EE) FEES AND COSTS. The Agent shall have received an amount
equal to the aggregate of the Agent's good faith estimate of all Attorney Costs
and other disbursements incurred by ABN AMRO (including in its capacity as the
Agent) in connection with the Closing of the transactions contemplated
hereunder, including the negotiation and preparation of this Agreement and each
of the other Loan Documents (the payment of which shall be deemed a concurrent
condition), which payment shall be subject to post-Closing adjustment following
receipt by the Agent of all final invoices.
(FF) SUBORDINATED BRIDGE LOAN DOCUMENTS. The conditions
precedent to Closing (as defined in the Subordinated Bridge Loan Agreement) set
forth in Article IV of the Subordinated Bridge Loan Agreement shall have been
satisfied or duly waived by the Subordinated Bridge Lenders.
(GG) OTHER DOCUMENTS. The Agent or the Lenders shall have
received such other documents and information from the Borrower as the Lenders
may reasonably request.
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SECTION 4.2 THE MAKING OF LOANS. The obligation of the Lenders to
advance any Borrowing of Loans is subject to the satisfaction of the following
further conditions precedent:
(A) The Agent shall have received a Notice of Borrowing, with
appropriate insertions, executed by a Responsible Person of the Borrower.
(B) No event shall have occurred and be continuing or would
result from the making of any Loan on such Funding Date which constitutes a
Default or an Event of Default under this Agreement.
(C) The Agent shall have received such other instruments and
documents as it may have reasonably requested from the Borrower in connection
with the requested Borrowing.
ARTICLE V
THE BORROWER'S REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants to each Lender and the
Agent as follows, and agrees that each of said warranties and representations
shall be deemed to continue so long as any of the Commitments shall be available
hereunder or any Loan or other payment Obligation shall remain unpaid or
unsatisfied, and shall apply anew to the making of each Loan.
SECTION 5.1 ORGANIZATION, POWER AND AUTHORITY OF THE BORROWER. The
Borrower is a limited partnership duly formed and validly existing under the
laws of the State of Delaware, is duly qualified to do business and is in good
standing in each jurisdiction where the nature of its business requires such
qualification and where the failure to so qualify would be materially adverse to
the Borrower or its Property, including each state listed in ITEM 5.1 to the
DISCLOSURE SCHEDULE, and has full power and authority and holds all material
requisite governmental licenses, permits and other approvals and entitlements to
enter into and perform its respective obligations under this Agreement, the
Notes, each of the Collateral Documents, and Environmental Indemnity, the Fee
Letter and each of the other Loan Documents to which it is a party, each of the
Acquisition Documents to which it is a party, and to own and hold under lease
its Property and to conduct its business substantially as currently conducted by
it and such business as contemplated to be conducted by it upon and following
the consummation of the transactions contemplated by the Acquisition Documents
and the Loan Documents.
SECTION 5.2 ORGANIZATION, POWER AND AUTHORITY OF THE BORROWER'S
SUBSIDIARIES. As of the Closing the Borrower has no Subsidiaries. As to and in
respect of any bring-down of the representation and warranty set forth in this
SECTION 5.2 subsequent to such time, if the Borrower shall have, subject to
SECTION 8.4, organized, formed or otherwise acquired a Subsidiary, the following
shall supersede and replace the preceding sentence: Each of the Borrower's
Subsidiaries are duly organized and validly existing under the laws of the
jurisdiction of its incorporation or formation, is duly qualified to do business
and is in good standing in each jurisdiction where the nature of its business
requires such qualification and where the failure to so qualify would be
materially adverse to the Borrower or its Property, including each state listed
in ITEM 5.2 to the DISCLOSURE SCHEDULE, and has full power and authority and
holds all requisite governmental licenses, permits and other approvals and
entitlements to enter into and perform its
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obligations under each of the Loan Documents to which it is a party, and to own
and hold under lease its Properties and to conduct its business substantially as
currently conducted by it and such business as contemplated to be conducted by
it.
SECTION 5.3 LOAN DOCUMENTS AUTHORIZED; BINDING OBLIGATIONS. The
execution, delivery and performance of this Agreement, each of the Collateral
Documents to which it is a party, the Environmental Indemnity, the Fee Letter
and each of the other Loan Documents, in each case to which it is a party, have
been duly authorized by all necessary and proper action on the part of the
Borrower. The execution, delivery and payment of the Notes have been duly
authorized by all necessary and proper action on the part of the Borrower. The
Loan Documents constitute legally valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms,
except as enforcement thereof may be limited by bankruptcy, insolvency or other
laws affecting the enforcement of creditors' rights generally and by general
principles of equity, including concepts of materiality, reasonableness, good
faith and fair dealing (regardless whether considered in a proceeding at law or
in equity and the availability of the remedy of specific performance).
SECTION 5.4 NO CONFLICT. The execution, delivery and performance of
this Agreement, the Collateral Documents, the Environmental Indemnity, the Fee
Letter and each of the other Loan Documents, in each case to which the Borrower
is a party, and the execution, delivery and payment of the Notes by the Borrower
will not contravene any provision of the Borrower Partnership Agreement or any
other of the Borrower's organizational documents and will not (a) to the best of
the Borrower's knowledge, after Due Inquiry, contravene, conflict with or
violate any material Requirement of Law, (b) contravene, conflict or violate any
applicable order, writ, judgment, injunction, decree, determination or award of
any Governmental Authority by which the Borrower or any of its Property or
assets may be bound or affected or (c) violate or result in the breach of, or
constitute a default under any loan or credit agreement, indenture or other
document (which documents are, in the aggregate, material) to which the Borrower
is a party or by which the Borrower or any of its Property or assets may be
bound or affected. The Borrower is not in violation or breach of or default
under any material Requirement of Law, order, writ, judgment, injunction,
decree, determination or award or any contract, agreement, lease, license,
indenture or other instrument to which it is a party, the non-compliance with
which, the violation or breach of which or the default under which could with
reasonable likelihood result in a Material Adverse Change.
SECTION 5.5 CAPITAL STRUCTURE. ITEM 5.5 of the DISCLOSURE SCHEDULE sets
forth each of the record and, to the best of the Borrower's knowledge, after Due
Inquiry, beneficial holders of partnership interests in the Borrower (including
voting interests of each such Person), by class and number and including the
percentage of each class owned or to be owned by such Person as of the Closing
Date. Except as set forth in ITEM 5.5 of the DISCLOSURE SCHEDULE, there are no
options, warrants, rights to purchase or similar rights covering the partnership
interests in the Borrower.
SECTION 5.6 FINANCIAL CONDITION. All balance sheets, all statements of
operations, of partners' equity and of changes in cash flow, and other financial
data (other than projections) furnished to the Agent for the purposes of or in
connection with this Agreement or any of the other Loan Documents have been and
will be prepared in accordance with GAAP consistently
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applied throughout the periods involved and will present fairly the financial
condition of the entities involved as of the dates thereof and the result of
their operations for the periods covered thereby. All projections which have
been furnished to the Agent for purposes of or in connection with this Agreement
were prepared in good faith on the basis of the assumptions stated therein,
which assumptions were, in the opinion of the management of the Borrower, fair
in the light of conditions existing at the time of delivery of such forecasts;
and at the time of delivery, the management of the Borrower believed that the
forecasts of the Borrower's future financial performance set forth in the
projections were reasonable and attainable.
SECTION 5.7 NO MATERIAL ADVERSE CHANGE. Since each of (a) the date of
the Opening Timber Appraisal and (b) the date of the most recent financial
statements furnished to the Agent pursuant to SECTION 7.1(B) there has been no
Material Adverse Change.
SECTION 5.8 OWNERSHIP OF PROPERTIES. As of the Closing Date, upon the
consummation of the Timberlands Acquisition, the Borrower shall own good and
marketable title, in the case of real property, and merchantable title, in the
case of personal property, to all of the Timberlands Assets. From and after the
Closing Date, the Borrower owns good and marketable title, in the case of real
property, and merchantable title, in the case of personal property, to all of
the Collateral, free and clear of Liens except for Permitted Liens.
SECTION 5.9 LITIGATION. Except as disclosed in ITEM 5.9 of the
DISCLOSURE SCHEDULE, there are no claims, actions, suits, proceedings or other
litigation pending or, to the best of the Borrower's knowledge, overtly
threatened against the Borrower or any of the Borrower's Property at law or in
equity before any Governmental Authority or, to the best of the Borrower's
knowledge, any investigation by any Governmental Authority of the Borrower's
affairs or Properties which could, if adversely determined, with reasonable
likelihood result in a Material Adverse Change. Other than any liability
incident to the litigation or proceedings disclosed in ITEM 5.9 of the
DISCLOSURE SCHEDULE and other than the Subordinated Bridge Obligations or as
otherwise disclosed on ITEM 8.5 of the DISCLOSURE SCHEDULE, the Borrower has no
contingent liabilities which are material and which are not provided for or
disclosed in the most recent financial statements delivered to the Agent
pursuant to SECTION 7.1(A) or 7.1(B).
SECTION 5.10 MATERIAL DOCUMENTS; THIRD PARTY CONSENTS. ITEM 5.10 of the
DISCLOSURE SCHEDULE lists each of the material agreements, contracts, leases,
licenses (including licenses or sublicenses of intellectual property) and other
documents, including all Cutting Rights Agreements, Timber Sales Agreements and
all rights-of-way, road use, trackage and other access agreements or
arrangements, of the Borrower. Without limiting the generality of the foregoing,
the Borrower is not a party to, nor is all or any portion of the Land subject
to, any Timber Sales Agreement or Cutting Rights Agreement relating to the
Timberlands, whether written or oral, except as disclosed in ITEM 5.10 of the
DISCLOSURE SCHEDULE. Except as further set forth on ITEM 5.10 of the DISCLOSURE
SCHEDULE, no approval, authorization or consent of any Person under any such
document is required to be obtained by the Borrower in order to make or
consummate the transactions contemplated by the Loan Documents, except as has
already been obtained.
SECTION 5.11 NO GOVERNMENT CONSENTS NEEDED. Except as set forth on ITEM
5.11 of the DISCLOSURE SCHEDULE and for the filing of the Financing Statements,
the recording of the
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Timberlands Mortgages, not yet due tax returns and reports or such of the
foregoing as have already been filed, recorded, registered, or otherwise
obtained, no certificate, authorization, permit consent, approval, order,
license, exemption from, or filing or registration or qualification with, any
Governmental Authority is or will be required to authorize, or is otherwise
required in connection with:
(A) the execution and delivery by the Borrower of, and the
payment and performance by the Borrower of its obligations under the Acquisition
Documents and the Loan Documents; and
(B) the creation of the Liens described in and granted by the
Borrower pursuant to the Loan Documents.
SECTION 5.12 SOLVENCY. The Borrower is Solvent.
SECTION 5.13 MANAGEMENT AND LABOR AGREEMENTS. Except as set forth on
ITEM 5.13 to the DISCLOSURE SCHEDULE, there are no agreements relating to the
payment of management fees to any direct or indirect holder of an equity
interest in the Borrower and there are no collective bargaining agreements or
other similar material labor agreements covering any employees of the Borrower.
A true and complete copy of each such agreement has been furnished to the Agent.
SECTION 5.14 ERISA COMPLIANCE. Except as specifically disclosed in ITEM
5.14 of the DISCLOSURE SCHEDULE:
(A) Each Plan is in compliance in all material respects with
the applicable provisions of ERISA, the Code and other federal or state law.
Each Plan which is intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the IRS and to the best knowledge
of the Borrower, nothing has occurred which would cause the loss of such
qualification. The Borrower and each ERISA Affiliate have made all required
contributions to any Plan subject to Section 412 of the Code, and no application
for a funding waiver or an extension of any amortization period pursuant to
Section 412 of the Code has been made with respect to any Plan.
(B) There are no pending or, to the best knowledge of the
Borrower, threatened claims, actions or lawsuits, or actions by any Governmental
Authority, with respect to any Plan which has resulted or could reasonably be
expected to result in a Material Adverse Change. There has been no prohibited
transaction or violation of the fiduciary responsibility rules with respect to
any Plan which has resulted or could reasonably be expected to result in a
Material Adverse Change.
(C) No ERISA Event has occurred or is reasonably expected to
occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither
the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to
incur, any liability under Title IV of ERISA with respect to any Pension Plan
(other than premiums due and not delinquent under Section 4007 of ERISA); (iv)
neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects
to incur, any liability (and no event has occurred which, with the giving of
notice under Section 4219 of ERISA, would result in such liability) under
Section 4201 or 4243 of ERISA with
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respect to a Multiemployer Plan; (v) neither the Borrower nor any ERISA
Affiliate has engaged in a transaction that could be subject to Section 4069 or
4212(c) of ERISA; (vi) neither the Borrower nor any ERISA Affiliate has any
liability with respect to "expected post retirement benefit obligations" within
the meaning of Statement of Financial Accounting Standards No. 106; and (vii)
"no prohibited transaction" (as defined in Section 406 of ERISA and Section 4975
of the Code) that has resulted or could with reasonable likelihood result in a
Material Adverse Change has occurred with respect to any Plan.
SECTION 5.15 CERTAIN REPRESENTATIONS AND WARRANTIES CONCERNING THE
TIMBERLANDS.
(A) CONDITION. The Land and the Timber standing on the Land
are in good condition and are free from all pests, blight, fungus or disease
that would materially impair the value thereof, except as disclosed in ITEM 5.15
of the DISCLOSURE SCHEDULE.
(B) ACRES AND VOLUME. To the best of the Borrower's knowledge,
after Due Inquiry, as of the Closing Date, (i) the Bel/Quatre Timberlands are
comprised of approximately 88,000 acres on which is located approximately
387,209,000 board feet of Merchantable Timber consisting of Loblolly Pine,
Longleaf Pine, Slash Pine, Cypress and Oak as well as other species and (ii) the
Borrower has no basis to form a belief that the value for the Bel/Quatre
Timberlands set forth in the Opening Timber Appraisal is unreasonable.
(C) DESCRIPTION OF THE LAND. The legal descriptions of the
Land attached to the Mortgage Deeds of Trust creating the Liens on the Land
accurately reflect each parcel of real property purported to be conveyed
pursuant to the J.A. Bel Purchase Agreement, the Baal Purchase Agreement and the
Quatre Parish Purchase Agreement and as such parcels are described in the
Opening Timber Appraisal.
SECTION 5.16 MARGIN REGULATIONS. The Borrower does not own any "margin
security" as that term is defined in the Margin Regulations, and the proceeds of
the Loans will be used only for the purposes contemplated in this Agreement
hereunder. None of the Loans will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security, for the purpose of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of the Margin
Regulations.
SECTION 5.17 TAXES. All material federal, state and local tax returns,
reports and statements required to be filed by the Borrower have been filed with
the appropriate Governmental Authorities and all Charges and other impositions
shown thereon to be due and payable by the Borrower have been paid prior to the
date on which any fine, penalty, interest or late charge may be added thereto
for nonpayment thereof, or any such fine, penalty, interest, late charge or loss
has been paid, or the Borrower is contesting its liability therefor in good
faith and has fully reserved all such amounts in the financial statements
delivered to the Agent and the Lenders pursuant to SECTIONS 7.1(A) and 7.1(B).
Proper and accurate amounts have been withheld by the Borrower from its
employees for all periods in full and complete compliance with the tax, social
security and unemployment withholding provisions of applicable federal, state,
local and foreign law and such withholdings have been timely paid to the
respective
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Governmental Authorities. The Borrower has not executed or filed with the IRS or
any other Governmental Authority any agreement or other document extending, or
having the effect of extending, the period for assessment or collection of any
Charges.
SECTION 5.18 INTELLECTUAL PROPERTY RIGHTS. The Borrower possesses and
owns all necessary intellectual property rights and all licenses or sublicenses
of intellectual property which are material to the conduct of its business as
contemplated by the Acquisition Documents and the Loan Documents. The Borrower
conducts its business without infringement or, to the best of the Borrower's
knowledge, after Due Inquiry, claim of infringement of any intellectual property
right of others, except where such infringement or claim of infringement could
not with reasonable likelihood result in a Material Adverse Change. There is no
infringement or, to the best of the Borrower's knowledge, after Due Inquiry,
claim of infringement by others of any intellectual property owned, licensed or
sublicensed by the Borrower.
SECTION 5.19 OTHER REGULATIONS. The Borrower is not: (a) a "public
utility company" or a "holding company," or an "affiliate" or a "subsidiary
company" of a "holding company," or an "affiliate" of such a "subsidiary
company," as such terms are defined in the Public Utility Holding Company Act or
(b) an "investment company," or an "affiliated person" of, or a "promoter" or
"principal underwriter" for, an "investment company," as such terms are defined
in the Investment Company Act.
SECTION 5.20 BROKERS' FEES. Except as specifically disclosed on ITEM
5.20 of the DISCLOSURE SCHEDULE, the Borrower has no obligation to any Person in
respect of any finder's, broker's or investment banker's fee in connection with
the transactions contemplated hereby or by the Acquisition Documents.
SECTION 5.21 NATURE OF REPRESENTATIONS AND WARRANTIES. The Borrower
certifies to each Lender and the Agent that all representations and warranties
made by it in this Agreement and all other Loan Documents are true and correct
in all material respects. Each request by the Borrower for a Borrowing and each
continuation of a LIBOR Loan into another LIBOR Loan and each conversion of a
LIBOR Loan into a Base Rate Loan or a Base Rate Loan into a LIBOR Loan shall
constitute an affirmation that all such representations and warranties remain
true and correct in all material respects. Each representation and warranty made
in this Agreement, in any other Loan Document, and in any other document
delivered to any Lender or the Agent by the Borrower, shall be deemed to have
been relied upon by the Lenders and the Agent notwithstanding any investigation,
inspection or inquiry theretofore or thereafter made by or on behalf of the any
Lender or the Agent, or any funding of Loans by the Lenders.
ARTICLE VI
INSURANCE
SECTION 6.1 INSURANCE BY THE BORROWER AND SERVICES. The Borrower shall
procure at its own expense and maintain in full force and effect at all times on
and after the Closing Date and continuing throughout the term of this Agreement
insurance policies with responsible insurance companies, authorized to do
business in the states and countries in which the Borrower has operations, with
a Best Insurance Reports rating of "A-" or better and an financial size
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category of "IX" or higher, or, if not rated by Best, a Standard & Poors rating
of BBB or higher (and other companies acceptable to the Agent).
SECTION 6.2 GENERAL INSURANCE REQUIREMENTS. The Borrower shall maintain
in full force at all times so long as any Commitment shall be available
hereunder or any Loan or other Obligation shall remain unpaid or unsatisfied,
all of the following:
(A) WORKERS' COMPENSATION INSURANCE. Workers' compensation
insurance as required by applicable state laws.
(B) EMPLOYER'S LIABILITY INSURANCE. Employer's liability
insurance with a $1,000,000 minimum limit per accident.
(C) GENERAL LIABILITY INSURANCE. Liability insurance on an
occurrence basis against claims filed anywhere in the world and occurring
anywhere in the world for personal injury (including bodily injury and death)
and property damage. Such insurance shall provide coverage for
products-completed operations, blanket contractual, explosion, collapse and
underground coverage, broad form property damage, personal injury insurance, and
the hostile fire exception to the pollution liability exclusion with a
$1,000,000 minimum limit per occurrence for combined bodily injury and property
damage.
(D) AUTOMOBILE LIABILITY INSURANCE. Automobile liability
insurance against claims for personal injury (including bodily injury and death)
and property damage covering all owned, leased non-owned and hired motor
vehicles, including loading and unloading, with a $1,000,000 minimum limit per
occurrence for combined bodily injury and property damage and containing
appropriate no-fault insurance provisions wherever applicable.
(E) EXCESS INSURANCE. Excess liability insurance on an
occurrence basis covering claims in excess of the underlying insurance described
in the foregoing SECTIONS 6.2(B), (C) and (D), with a $5,000,000 minimum limit
per occurrence, provided that aggregate limits of liability, if any, shall apply
separately to claims occurring with respect to the Property.
The amounts of insurance required in the foregoing SECTIONS 6.2(B),
(C), (D) and this SECTION 6.2(E) may be satisfied by the Borrower purchasing
coverage in the amounts specified or by any combination of primary and excess
insurance, so long as the total amount of insurance meets the requirements
specified above.
(F) STANDING TIMBER. The Agent acknowledges that as of the
date of this Agreement, insurance covering standing Timber is not available on
commercially reasonable terms and therefore the Lenders are not requiring the
Borrower to purchase such insurance at this time.
SECTION 6.3 ENDORSEMENTS. All policies of insurance to be maintained by
the Borrower shall provide for waivers of subrogation in favor of the Lenders,
the Agent and their respective officers and employees. All policies of liability
insurance required to be maintained by the Borrower under SECTION 6.2, other
than employer's liability, shall be endorsed as follows:
(A) to provide a severability of interest or cross liability
clause;
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(B) to name each Lender and the Agent and their respective
officers, agents and employees as additional insureds; and
(C) to provide that the insurance required in CLAUSE (B),
above, shall be primary and not excess to or contributing with any insurance or
self-insurance maintained by the additional insureds.
SECTION 6.4 WAIVER OF SUBROGATION. The Borrower hereby waives any and
every claim for recovery from each Lender, the Agent and their respective
officers, employees and agents for any and all loss or damage covered by any of
the insurance policies to be maintained under this Agreement to the extent that
such loss or damage is recovered under any such policy. Inasmuch as the
foregoing waiver will preclude the assignment of any such claim to the extent of
such recovery, by subrogation (or otherwise), to an insurance company (or other
Person), the Borrower shall give written notice of the terms of such waiver to
each insurance company which has issued, or which may issue in the future, any
such policy of insurance (if such notice is required by the insurance policy)
and shall cause each such insurance policy to be properly endorsed by the issuer
thereof to, or to otherwise contain one or more provisions that, prevent the
invalidation of the insurance coverage provided thereby by reason of such
waiver.
SECTION 6.5 CONDITIONS.
(A) The Borrower shall promptly notify the Agent of any loss
in excess of $1,000,000 covered by any insurance maintained pursuant to SECTION
6.2.
(B) All policies of insurance to the extent required to be
maintained pursuant to SECTION 6.2(F) shall provide that the proceeds of such
policies shall be payable solely to the Agent pursuant to a standard first
mortgage endorsement substantially equivalent to the Lenders Loss Payable
Endorsement 438BFU or ISO endorsement CP12181091, without contribution; provided
that if the proceeds thereof are less than $1,000,000, such proceeds shall be
paid to the Borrower. The Agent shall have the right to join the Borrower in
adjusting any loss in excess of $1,000,000. All policies (other than in respect
to liability or workers compensation insurance) shall insure the interests of
the Lenders and the Agent, regardless of any breach or violation by the Borrower
of warranties, declarations or conditions contained in such policies, any action
or inaction of the Borrower or others, or any foreclosure relating to the
Property covered by such policies or any change in ownership of all or any
portion of the Property covered by such policies (the foregoing may be
accomplished by the use of the Lenders Loss Payable Endorsement required above).
(C) All policies of insurance required to be maintained
pursuant to this ARTICLE VI shall be endorsed so that if at any time should they
be canceled, or coverage be reduced which affects the interests of the Lenders
or the Agent, such cancellation or reduction shall not be effective as to the
Lender or the Agent for sixty (60) days, except for non-payment of premium which
shall be for ten (10) days, after receipt by the Agent of written notice from
such insurer of such cancellation or reduction.
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(D) The Borrower shall require that all independent loggers
and such Persons as the Borrower shall engage to perform harvesting operations
on the Timberlands shall maintain liability coverage insurance consistent with
industry standards for the applicable region.
SECTION 6.6 EVIDENCE OF INSURANCE. On the Closing Date and on an annual
basis prior to each policy anniversary, the Borrower shall furnish the Agent
with (a) approved certification of all required insurance and (b) a schedule of
the insurance policies held by or for the benefit of the Borrower and required
to be in force by the provisions of this ARTICLE VI. Such certification shall be
executed by each insurer or by an authorized representative of each insurer
where it is not practical for such insurer to execute the certificate itself.
Such certification shall identify the underwriters, the type of insurance, the
insurance limits and the policy term and shall specifically list the special
provisions enumerated for such insurance required by this ARTICLE VI. Upon the
request of the Agent, the Borrower will promptly furnish the Agent with copies
of all insurance policies, binders and cover notes or other evidence of such
insurance relating to the insurance required to be maintained by the Borrower.
The schedule of insurance shall include the name of the insurance company,
policy number, type of insurance, major limits of liability and expiration date
of the insurance policies.
SECTION 6.7 FAILURE TO MAINTAIN INSURANCE. In the event the Borrower
fail to take out or maintain the full insurance coverage required by this
ARTICLE VI, the Agent may (but shall not be obligated to) take out policies of
insurance to protect the Agent's interest and pay the premiums on the same. All
amounts so advanced thereof by the Agent shall become an additional obligation
of the Borrower to the Agent, and the Borrower shall forthwith pay such amounts
to the Agent, together with interest thereon at the rate charged on past-due
payments on Base Rate Loans from the date so advanced. The insurance purchased
under this provision may, but need not, also protect the Borrower's interest.
ARTICLE VII
AFFIRMATIVE COVENANTS OF THE BORROWER
The Borrower each hereby covenants and agrees that, so long as any
Commitment shall be available hereunder or any Loan or other payment Obligation
shall remain unpaid or unsatisfied, unless Required Lenders shall otherwise
waive compliance in writing:
SECTION 7.1 RECORDS AND REPORTS. The Borrower shall maintain a system
of accounting administered in accordance with sound business practices to permit
preparation of financial statements in conformity with GAAP, and deliver to the
Agent and each Lenders:
(A) QUARTERLY BORROWER-PREPARED FINANCIAL STATEMENTS. As soon
as practicable and in any event, commencing with the Fiscal Quarter ending [June
30, 1998], within forty-five (45) days after the end of each Fiscal Quarter, a
consolidated balance sheet of the Borrower, as at the end of such period and the
related consolidated (and, to the extent the Borrower has any Subsidiaries, as
to statements of income only, consolidating) statements of income, partners'
equity and cash flows of the Borrower prepared for such Fiscal Quarter and for
such Fiscal Year to date, setting forth in each case, commencing with the Fiscal
Quarter ending [June 30, 1999], in comparative form the figures for the
corresponding periods of the previous
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Fiscal Year, all in reasonable detail and certified by the chief financial
officer of the Borrower that they (i) are complete and fairly present the
financial condition of the Borrower and its Subsidiaries as at the dates
indicated and the results of its operations and changes in their cash flow for
the periods indicated, (ii) disclose all liabilities of the Borrower and its
Subsidiaries that are required to be reflected or reserved against under GAAP,
whether liquidated or unliquidated, fixed or contingent and (iii) have been
prepared in accordance with GAAP, subject to the absence of footnotes and
changes resulting from audit and normal year-end adjustment;
(B) ANNUAL AUDITED FINANCIAL STATEMENTS. As soon as
practicable and in any event within ninety (90) days after the end of each
Fiscal Year, a consolidated (and, to the extent the Borrower has any
Subsidiaries, consolidating) as at the end of such year and the related
consolidated (and, as to statements of income only, consolidating) statements of
income, partners' equity and cash flows of the Borrower and prepared for such
Fiscal Year, setting forth in each case, in comparative form the figures for the
previous year, all in reasonable detail and (i) in the case of such financial
statements, accompanied by a report thereon of Arthur Andersen LLP or other
independent public accountants of recognized national standing selected by the
Borrower and reasonably satisfactory to the Agent, which report shall not
contain an adverse opinion, a disclaimer of opinion or be qualified or limited
because of a restricted or limited examination by such accountant of any
material portion of the Borrower's records and shall state that such financial
statements present fairly the financial position of the Borrower as at the dates
indicated and the results of its operations and changes in its financial
position for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years (except as otherwise stated therein) and that the
examination by such accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted auditing
standards and (ii) in the case of such consolidating financial statements,
certified by the chief financial officer of the Borrower;
(C) ACCOUNTANTS' STATEMENT. Together with each delivery of
financial statements of the Borrower pursuant to SECTION 7.1(B), a written
statement by the independent public accountants giving the report thereon (i)
stating that their audit examination has included a review of the terms of this
Agreement and the Notes as they relate to accounting matters, (ii) stating
whether, in connection with their audit examination, any condition or event
which constitutes a Default or an Event of Default as they relate to accounting
matters has come to their attention, and if such a condition or event has come
to their attention, specifying the nature and period of existence thereof;
provided that such accountants shall not be liable by reason of any failure to
obtain knowledge of any such Default or Event of Default that would not be
disclosed in the course of their audit examination, and (iii) stating that based
on their audit examination nothing has come to their attention which causes them
to believe that either or both the information contained in the certificates as
they relate to accounting matters delivered therewith pursuant to SECTION
7.1(B), is not correct or that the matters set forth in the Compliance
Certificates delivered therewith for the applicable Fiscal Year are not stated
in accordance with the terms of this Agreement;
(D) COMPLIANCE CERTIFICATE. As soon as practicable and in any
event within forty-five (45) days after the end of each Fiscal Quarter, a
Compliance Certificate dated as of the last day of such Fiscal Quarter, duly
executed by the chief financial officer of the Borrower, with appropriate
insertions satisfactory to the Agent, which Compliance Certificate for the
fourth
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Fiscal Quarter in each Fiscal Year shall also include a certification by the
Borrower that, based on the one year harvesting plans and financial forecasts
furnished to the Agent pursuant to SECTION 7.1(I) and 7.1(J), the Borrower will
be able to comply with its financial covenants set forth in ARTICLE IX during
the current Fiscal Year;
(E) BORROWING BASE CERTIFICATE. As soon as practicable and in
any event within forty-five (45) days after the end of each Fiscal Quarter, a
Borrowing Base Certificate dated as of the last day of such Fiscal Quarter, duly
executed by the chief financial officer of the Borrower with appropriate
insertions satisfactory to the Agent, which Borrowing Base Certificate shall be
subject to review and approval by the Lenders' Forestry Consultant;
(F) QUARTERLY TIMBER REPORT. As soon as practicable and in any
event within forty-five (45) days after the end of each Fiscal Quarter, a
certificate duly executed by the chief financial officer of the Borrower, in
substantially the form of EXHIBIT I, certifying and setting forth a complete
report of all Timber harvesting operations and material Cutting Rights
Agreements for such Fiscal Quarter, which report will be in a form reasonably
acceptable to the Agent and shall require such information as the Agent shall
reasonably require, which information may include the following:
(I) a summary of activity, including a breakdown of
harvesting under stumpage agreements and under other types of agreements, under
(A) all outstanding timber cutting contracts or log sale agreements or auctions
or sales of logs conducted orally on the Timberlands whereby the Borrower as
seller, is or may become obligated to cut, harvest or otherwise remove Timber
from the Timberlands and to sell or deliver such Timber to third Persons, and
(B) all Cutting Rights Agreements and Timber Sales Agreements;
(II) the total amount of Timber cut since the Closing
Date and during the previous Fiscal Quarter classified (A) by Timberlands
parcel, (B) by species and (C) by total volumes removed and acreage disposed of;
(III) all sales, exchanges and other dispositions of
acreage or land during the previous Fiscal Quarter;
(IV) all proceeds received and revenues generated by
each Timberlands parcel by such cutting, harvesting, sale, exchange or other
disposition during the previous Fiscal Quarter and any other receipts from
operation of the Timberlands such as wood use fees;
(V) a summary of operating costs incurred in each
Timberlands parcel by such cutting, harvesting or removal during the previous
Fiscal Quarter; and
(VI) a summary of the status of Timber harvesting and
similar permits applied for and received by the Borrower.
(G) MERCHANTABLE TIMBER VALUATION REPORTS.
(I) As soon as practicable, and in any event within
thirty (30) days after the end of each Fiscal Year, a written valuation
("Merchantable Timber Valuation Report") prepared by an independent timber
appraiser of recognized standing, acceptable to the Agent
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(which may be the Lenders' Forestry Consultant), as to the value of the
Merchantable Timber standing on the Land subject to a Timberlands Mortgage,
which Merchantable Timber Valuation Report, if prepared by any Person other than
Lenders' Forestry Consultant, shall be subject to the review and approval of
Lenders' Forestry Consultant.
(II) As soon as practicable and in any event within
forty-five (45) days after the end of each Fiscal quarter, a written report
prepared by an independent timber appraiser of recognized standing, acceptable
to the Agent, updating the most recently delivered Merchantable Timber Appraisal
Report, which update report shall be subject to the review and approval of
Lenders' Forestry Consultant.
(H) HARVEST PLANS. (i) No later than forty-five (45) days
prior to the end of any Fiscal Year, a one (1) year harvesting plan and a
harvesting plan through at least April 25, 2004 for the Timberlands owned by the
Borrower and (ii) promptly, and in any event within sixty (60) days of the
closing of any Acquisition of Timberlands, which harvest plans shall be in form
and substance reasonably acceptable to the Agent in consultation with the
Lenders' Forestry Consultant;
(I) MANAGEMENT LETTER . No later than forty-five (45) days
after the end of each Fiscal Quarter, a report prepared by the management of the
Borrower as to a discussion and analysis of the Borrower's operations, including
harvest activities, market conditions and near term prospects;
(J) FINANCIAL FORECASTS. No later than forty-five (45) days
prior to the end of any Fiscal Year, a one (1) year (prepared on a quarterly
basis) budget and business plan and a budget and business plan for the Fiscal
Years remaining through December 31, 2004, each including a pro forma balance
sheet and statements of income and cash flows and showing projected operating
revenues, expenses and debt service of the Borrower and the volume of harvesting
anticipated to be done under stumpage agreements and under other types of
agreements;
(K) OTHER REPORTS. Promptly upon receipt thereof, copies of
all reports submitted to the Borrower by independent public accountants in
connection with each annual, interim or special audit of the financial
statements of the Borrower made by such accountants, including any comment
letter submitted by such accountants to management in connection with their
annual audit;
(L) NOTICES. Promptly upon any officer of the Borrower
obtaining knowledge (i) of any condition or event which constitutes a Default or
an Event of Default under this Agreement, (ii) that any Person has given any
notice to the Borrower or taken any other action with respect to a claimed
default or event or condition of the type referred to in SECTION 10.1(C), (iii)
of the institution of any litigation or investigation (or overthreat to
institute) by any Person, including any Governmental Authority involving any
alleged (regardless of whether insured) liability of the Borrower equal to or
greater than $5,000,000 or any adverse determination in any litigation involving
a potential liability of the Borrower equal to or greater than $5,000,000 or
(iv) of any Material Adverse Change, a certificate of a Responsible Person of
the Borrower specifying the notice given or action taken by such Person and the
nature of such claimed
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Default, Event of Default, event or condition and what action the Borrower has
taken, is taking and proposes to take with respect thereto;
(M) ERISA. With reasonable promptness, notice of the
occurrence of any of the following events affecting the Borrower or any ERISA
Affiliate (but in no event more than ten (10) days after such event), and a copy
of any notice with respect to such event that is filed with a Governmental
Authority and any notice delivered by a Governmental Authority to the Borrower
or any ERISA Affiliate with respect to such event:
(I) an ERISA Event;
(II) a material increase in the Unfunded Pension
Liability of any Pension Plan;
(III) the adoption of, or the commencement of
contributions to, any Plan subject to Section 412 of the Code by the Borrower or
any ERISA Affiliate;
(IV) the adoption of any amendment to a Plan subject
to Section 412 of the Code, if such amendment results in a material increase in
contributions or Unfunded Pension Liability;
(V) a "prohibited transaction" (as defined in Section
406 of ERISA and Section 4975 of the Code) that would result in any material
liability to the Borrower or any ERISA Affiliate; or
(VI) any challenge by the IRS to the tax
qualification of any Pension Plan under Section 401 or 501 of the Code; and
(N) OTHER INFORMATION. With reasonable promptness, such other
reports, information and data, including lists of Property and accounts,
budgets, agreements with insurers, forecasts, federal, state and foreign tax
returns and reports, with respect to the Borrower as from time to time may be
reasonably requested by the Agent or any Lender.
All financial statements of the Borrower to be delivered by the
Borrower pursuant to this SECTION 7.1 will be complete and correct and present
fairly the financial condition of the Borrower as of the date thereof; will
disclose all liabilities of the Borrower that are required to be reflected or
reserved against under GAAP, whether liquidated or unliquidated, fixed or
contingent; and will have been prepared in accordance with GAAP (subject, in the
case of interim financial statements, to year-end adjustments). The Borrower
hereby agrees that each time it submits a financial statement, the Borrower
shall be deemed to represent and warrant to the Lenders that such financial
statement complies with all of the preceding requirements set forth in this
paragraph.
SECTION 7.2 MAINTENANCE OF RIGHTS AND PROPERTIES. The Borrower shall:
(A) MAINTENANCE OF EXISTENCE AND RIGHTS. Maintain and preserve
in full force and effect its existence as a limited partnership and all rights,
licenses, leases, qualifications, privileges, franchises and other authority
adequate for the conduct of its business
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except where the lapsing of any of the foregoing could not with reasonable
likelihood result in a Material Adverse Change; and
(B) MAINTENANCE OF PROPERTIES. Maintain, preserve and protect
its properties, assets, equipment and facilities in good order and working
repair and condition (taking into consideration ordinary wear and tear) and from
time to time make, or cause to be made, all needful and proper repairs, renewals
and replacements thereto.
SECTION 7.3 TAXES AND OTHER LIABILITIES. The Borrower shall promptly
pay and discharge all Charges when due and payable, except (a) such as may be
paid thereafter without penalty or (b) such as may be contested in good faith by
appropriate proceedings and for which an adequate reserve has been established
and is maintained in accordance with GAAP. The Borrower shall promptly notify
the Agent of any material challenge, contest or proceeding pending by or against
the Borrower before any taxing authority.
SECTION 7.4 INSPECTION OF BOOKS AND RECORDS. The Borrower shall from
time to time during normal business hours and upon reasonable notice (except
that if an Event of Default shall have occurred and be continuing, no such
notice is required) permit the Agent or any Lender or any of their respective
representatives, to visit all of its offices, places of business and any
property owned or leased by it to discuss its financial matters with its
officers and independent public accountant (and the Borrower hereby authorizes
such independent public accountant to discuss the Borrower's financial matters
with the Agent or such Lender or its representatives whether or not any
representative of the Borrower is present) and to examine (and, at the expense
of the Borrower, photocopy extracts from) any of its books or other corporate
records or to inspect any of the Borrower's or any of its Subsidiaries' places
of business or property. The Borrower shall pay any fees of such independent
public accountant incurred in connection with the Agent's or such Lender's
exercise of its rights pursuant to this SECTION 7.4.
SECTION 7.5 HARVESTING OF TIMBER. The Borrower shall use commercially
reasonable efforts to harvest and sell the Timber on the Timberlands, subject to
all of the requirements and conditions of this Agreement and the other Loan
Documents consistent with sound forestry management.
SECTION 7.6 COMPLIANCE WITH LAWS. The Borrower shall exercise due
diligence in order to comply with the requirements of all applicable
Requirements of Laws, non-compliance with which could with reasonable likelihood
result in a Material Adverse Change; provided, however, that the Borrower may
appeal or contest any act, regulation, judgment, order, decree or direction in
any reasonable manner which shall not, in the opinion of Required Lenders,
adversely affect the Lenders' rights hereunder or adversely affect the priority
of the Agent's or any Lender's Lien in, on and to any of the Collateral.
SECTION 7.7 INTEREST RATE PROTECTION. The Borrower shall have in place
not later than twenty-five (25) days following the Closing, and maintain for
such time as any principal balance of the Loans shall remain outstanding, a Rate
Contract capping for a period of not less than forty-eight (48) months the
Borrower's interest rate risk during each Fiscal Year on notional amounts
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equal to not less than $100,000,000 at an all-in rate of interest less the
Applicable Margin not to exceed six and one and one-half percent (6.5%).
SECTION 7.8 AGREEMENTS. The Borrower shall perform, within all required
time periods (after giving effect to any applicable grace periods), all of its
obligations and enforce all of its rights under each agreement to which it is a
party, including any leases to which it is a party, where the failure to so
perform and enforce could with reasonable likelihood result in a Material
Adverse Change. The Borrower shall not terminate or modify any provision of any
agreement to which the Borrower is a party with respect to which such
termination or modification could with reasonable likelihood result in a
Material Adverse Change.
SECTION 7.9 SUPPLEMENTAL DISCLOSURE. From time to time (in the event
that such information is not otherwise delivered by the Borrower to the Agent or
the Lenders pursuant to this Agreement), so long as there are Obligations
outstanding hereunder, the Borrower shall disclose to the Agent in writing any
material matter hereafter arising which, if existing or occurring at the date of
this Agreement, would have been required to be set forth or described by the
Borrower under the terms of this Agreement or any of the other Loan Documents or
which is necessary to correct any information set forth or described by the
Borrower hereunder or thereunder or in connection herewith which has been
rendered materially inaccurate thereby.
SECTION 7.10 FURTHER ASSURANCES. In addition to the obligations and
documents which this Agreement expressly requires the Borrower to execute,
acknowledge, deliver and perform, the Borrower shall execute and acknowledge (or
cause to be executed and acknowledged) and deliver to the Agent all documents,
and take all actions, that may be reasonably requested by the Agent or the
Lenders from time to time to confirm the rights created or now or hereafter
intended to be created under the Loan Documents, to protect and further the
validity, priority and enforceability of the Liens created under the Collateral
Documents, to subject to the Liens created under the Collateral Documents any
Property intended by the terms of any Loan Document to be covered by the
Collateral Documents, or otherwise to carry out the purposes of the Loan
Documents and the transactions contemplated hereunder and thereunder.
SECTION 7.11 YEAR 2000. The Borrower shall take all action necessary to
assure that the Borrower's computer based systems are able to effectively
process dates including dates on and after January 1, 2000. At the request of
the Agent or any Lender, the Borrower shall provide the Agent or such Lender
with assurance acceptable to the Agent or such Lender, as the case may be, of
the Borrower's year 2000 capability.
ARTICLE VIII
NEGATIVE COVENANTS OF THE BORROWER
The Borrower hereby agrees that, so long as any Lender shall have any
Commitment hereunder, or any Loan or other payment Obligation shall remain
unpaid or unsatisfied, unless the Required Lenders waive compliance in writing:
SECTION 8.1 LIMITATION ON LIENS. The Borrower shall not , nor shall it
permit any of its Subsidiaries to, directly or indirectly, make, create, incur,
assume or suffer to exist any Lien
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upon or with respect to any part of their Property, whether now owned or
hereafter acquired, other than the following (collectively, the "Permitted
Liens"):
(A) Liens created under any Loan Document in favor of the
Agent or any Lender;
(B) Liens created in favor of the Subordinated Bridge Agent
securing the Subordinated Bridge Obligations, provided such Liens are
subordinated in terms of priority and enforcement on and pursuant to the terms
of the Subordination Agreement;
(C) the Permitted Title Exceptions;
(D) other Liens existing as of the Closing Date disclosed on
ITEM 8.1 of the DISCLOSURE SCHEDULE;
(E) Liens securing Indebtedness permitted under SECTION
8.5(F); provided such Liens do not encumber Land subject to a Timberlands
Mortgage;
(F) Liens for taxes, fees, assessments or other governmental
Charges which are not delinquent or remain payable without penalty, or to the
extent that non-payment thereof is permitted by SECTION 7.3; provided that no
notice of lien has been filed or recorded under the Code;
(G) Liens (other than any Lien imposed by ERISA and other than
on the Collateral) consisting of pledges or deposits required in the Ordinary
Course of Business in connection with workers' compensation, unemployment
insurance and other social security legislation;
(H) Liens securing Capital Lease Obligations on Property
subject to such capital leases; provided that such capital leases are permitted
under SECTION 8.8(B);
(I) carriers', warehousemen's, mechanics', loggers',
landlords', materialmen's, repairmen's or other similar Liens (whether arising
by operation of law, contract or otherwise) arising in the Ordinary Course of
Business which are not delinquent or remain payable without penalty or which are
being contested in good faith and by appropriate proceedings, which proceedings
have the effect of preventing the forfeiture or sale of the Property subject
thereto;
(J) access easements, road use rights, utility easements and
other similar easements, licenses, servitudes and permits relating to the Land
granted to Governmental Authorities and other Persons which do not materially
impair the use or worth of the Land;
(K) any interest or title of a lessor;
(L) any money judgment, writ or warrant of attachment or
similar process entered or filed against the Borrower or any of its Subsidiaries
if the judgment it secures shall, within thirty (30) days after the entry
thereof, have been discharged or execution thereof stayed
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pending appeal, or shall have been discharged within thirty (30) days after the
expiration of such stay;
(M) Liens securing (i) the non-delinquent performance of bids,
trade contracts (other than for borrowed money) or statutory obligations, (ii)
Contingent Obligations in respect of surety and appeal bonds, and (iii) other
non-delinquent obligations of a like nature, in each case incurred in the
Ordinary Course of Business; provided all such Liens in the aggregate would not
(even if enforced) with reasonable likelihood result in a Material Adverse
Change; and
(N) Liens arising solely by virtue of any contractual or
statutory or common law provision relating to banker's liens, rights of set-off
or similar rights and remedies as to deposit accounts or other funds maintained
with a creditor depository institution; provided that (i) such deposit account
is not a dedicated cash collateral account and is not subject to restrictions
against access by the Borrower in excess of those set forth by regulations
promulgated by the Federal Reserve Board, and (ii) such deposit account is not
intended by the Borrower or any of its Subsidiaries to provide collateral to the
depository institution.
SECTION 8.2 DISPOSITION OF ASSETS. The Borrower shall not, nor shall it
permit any of its Subsidiaries to, directly or indirectly, sell, assign, lease,
convey, transfer or otherwise dispose of (whether in one or a series of
transactions) any Property or enter into any agreement to do any of the
foregoing, except:
(A) Dispositions of Property, including Dispositions of Land
or Timber, in each case which are made for not less than fair market value, so
long as such Disposition does not (after giving effect to any prepayments made
by the Borrower prior to, or concurrently with, such Disposition) create an Over
Advance (each a "Permitted Asset Disposition");
(B) Dispositions of used, worn-out or surplus equipment in the
Ordinary Course of Business;
(C) Dispositions of equipment to the extent that such
equipment is exchanged for credit against the purchase price of similar
replacement equipment, or the proceeds of such sale are reasonably promptly
applied to the purchase price of such replacement equipment; and
(D) Leases, entered into in the Ordinary Course of Business,
of houses and of other improvements not material to the operation of the
Borrower's Business, leases of portions of the Land that are not suitable for
Timber production or that are not being use for Timber production as of the date
of this Agreement, leases for hunting, fishing or other recreational purposes,
and leases for purposes of growing and harvesting crops other than Timber.
SECTION 8.3 CONSOLIDATIONS AND MERGERS. The Borrower shall not, nor
shall it permit any of its Subsidiaries to, merge or consolidate or enter into
any similar arrangement with or into, directly or indirectly, whether by
operation of law or otherwise, or convey, transfer, lease or otherwise dispose
of (whether in one transaction or in a series of transactions) all or
substantially all of its assets (whether now owned or hereafter acquired) to or
in favor of any Person, except (a) a merger of a wholly-owned Subsidiary of the
Borrower into the Borrower with the Borrower
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being the surviving entity or (b) a merger of a wholly-owned Subsidiary of the
Borrower into another wholly-owned Subsidiary of the Borrower.
SECTION 8.4 ACQUISITIONS; LOANS AND INVESTMENTS. Except as may be
permitted by SECTION 8.3 or 8.9, the Borrower shall not, nor shall it permit any
of its Subsidiaries to, make any Acquisition or enter into any agreement to make
any Acquisition, or make, purchase or acquire any Investment in, any Person or
make any advance, loan, extension of credit or capital contribution to any
Person, including any Affiliate of the Borrower, or make any commitment with
respect to any of the foregoing, except for:
(A) the Timberlands Acquisition to be consummated at Closing;
(B) Acquisitions of Timberlands located within the United
States of America;
(C) investments in Cash Equivalents;
(D) extensions of credit in the form of Contingent Obligations
to the extent expressly permitted by SECTION 8.5;
(E) Investments of the net issuance proceeds of new cash
equity raised by the Borrower subsequent to the Closing; provided that such net
issuance proceeds are invested in the Business;
(F) Investments in the form of any Rate Contract entered into
with any counterparty pursuant to SECTION 7.7; and
(G) Investments set forth on ITEM 8.4 of the DISCLOSURE
SCHEDULE.
Notwithstanding anything to the contrary contained in this Agreement,
Acquisitions other than the Acquisitions expressly permitted under CLAUSE (B),
above, must be approved by all Lenders (rather than Required Lenders); provided
that if, as part of an Acquisition of Timberlands that otherwise would be
permitted under CLAUSE (B), the Borrower is also acquiring other assets related
to and to be used in the Business as to which the portion of the aggregate,
all-in purchase price of such Acquisition allocated to such non-Timberlands
assets does not exceed both (i) $10,000,000 and (ii) twenty percent (20.0%) of
the aggregate, all-in purchase price for such Acquisition, only the approval of
Required Lenders shall be required. Without limiting the generality of the
foregoing, the exception for Acquisitions of Timberlands under CLAUSE (B),
above, is intended to include the acquisition of other ancillary assets related
to and to be used in the Business comprising a nonmaterial portion of the
aggregate, all-in purchase price for such Acquisition. For purposes of the
preceding sentence, "nonmaterial" shall mean having an allocated purchase price
of less than both (1) $1,000,000 and (2) five percent (5.0%) of the aggregate,
all-in purchase price for such Acquisition.
SECTION 8.5 LIMITATION ON INDEBTEDNESS. The Borrower shall not, nor
shall it permit any of its Subsidiaries to, create, incur, assume, suffer to
exist, or otherwise become or remain directly or indirectly liable with respect
to, any Indebtedness, including any Contingent Obligation, except:
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(A) Indebtedness incurred pursuant to this Agreement, the
Notes and the other Loan Documents;
(B) The Subordinated Bridge Obligations incurred pursuant to
the Subordinated Bridge Guaranty, provided that such Subordination Bridge
Obligations are subordinated in right of payment and enforcement to the
Obligations on and pursuant to the terms set forth in the Subordination
Agreement;
(C) Indebtedness incurred pursuant to any Rate Contract
entered into with any counterparty pursuant to SECTION 7.7;
(D) accounts payable to trade creditors for goods and services
and current operating liabilities (not the result of the borrowing of money)
incurred in the Ordinary Course of Business in accordance with customary terms
and paid within the specified time, unless contested in good faith by
appropriate proceedings and reserved for in accordance with GAAP;
(E) Indebtedness existing on the Closing Date and set forth in
ITEM 8.5 of the DISCLOSURE SCHEDULE;
(F) Indebtedness incurred to the seller in connection with the
payment of the purchase price of any Acquisition permitted under SECTION 8.4;
provided that, (i) during the Bridge Period only, in the event of any such
seller-financed Acquisition, the Borrower shall have delivered to the Agent
written projections, in form and substance satisfactory to the Agent,
demonstrating that the pro forma EBITDDA projected by such seller-financed
Acquisition will be sufficient to enable the Borrower to be able to pay the
Indebtedness incurred in respect of such seller-financed Acquisitions as and
when it becomes due and payable, and (ii) the Borrower shall have delivered to
the Agent a certificate of the chief financial officer of the Borrower
certifying that as of the date of the closing of such seller-financed
Acquisition, on a pro forma basis, taking into account the consummation of such
Acquisition and the incurrence of such Indebtedness, that a Default or Event of
Default shall not have occurred and be continuing;
(G) endorsements for collection or deposit in the Ordinary
Course of Business;
(H) Indebtedness incurred in connection with capitalized
leases and operating leases permitted pursuant to SECTION 8.8; and
(I) In addition to the other Indebtedness permitted under this
SECTION 8.5, unsecured Indebtedness in the aggregate principal amount
outstanding at any time not to exceed $200,000.
SECTION 8.6 TRANSACTIONS WITH AFFILIATES. The Borrower shall not, nor
shall it permit any of its Subsidiaries to, enter, directly or indirectly, into
or be a party to any agreement or transaction (including the purchase, sale,
lease or exchange of any Property or the rendering of any services) with any
Affiliate of the Borrower, except (a) as set forth on ITEM 8.6 to the DISCLOSURE
SCHEDULE; (b) with respect to the raising of new equity for the Borrower,
provided that any indebtedness incurred in connection therewith be subordinated
to the Obligations on terms and conditions satisfactory to the Agent, and (c) in
the Ordinary Course of Business and upon fair and reasonable terms that are
approved by the holders of the Borrower's partnership
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interests, fully disclosed to the Agent and no less favorable to the Borrower
than would obtain in a comparable arm's length transaction with a Person not an
Affiliate of the Borrower.
SECTION 8.7 USE OF PROCEEDS. The Borrower shall use the Loan proceeds
only for the purposes described in SECTION 2.1 and in no event shall use any
portion of such proceeds, directly or indirectly, (a) to purchase or carry
Margin Stock, (b) to repay or otherwise refinance indebtedness of the Borrower
or others incurred to purchase or carry Margin Stock, (c) to extend credit for
the purpose of purchasing or carrying any Margin Stock or (d) to acquire any
security in any transaction that is subject to Section 13 or 14 of the
Securities Exchange Act of 1934, as amended.
SECTION 8.8 LEASE OBLIGATIONS. The Borrower shall not, nor shall it
permit any of its Subsidiaries to, create or suffer to exist any obligations for
the payment of rent for any Property under lease or agreement to lease, except
for:
(A) operating leases entered into by the Borrower or any such
Subsidiary after the Closing Date in the Ordinary Course of Business; and
(B) capital leases entered into by the Borrower or any such
Subsidiary after the Closing Date to finance the acquisition of equipment;
provided that the aggregate annual rental payments for all such Capital Lease
Obligations shall not exceed $200,000 in any Fiscal Year. Once a budget for the
Fiscal Years through December 31, 2004 has been reviewed and approved by the
Agent, in its discretion (the "Initial Budget"), the annual maximum cap on
Capital Lease Obligations shall be adjusted to conform to the Initial Budget.
SECTION 8.9 CAPITAL EXPENDITURES. The Borrower shall not, nor shall it
permit any of its Subsidiaries to, make or commit to make in the aggregate
Capital Expenditures during any Fiscal Year in excess of $500,000. In addition,
the unutilized permitted Capital Expenditures from any Fiscal Year may be
carried forward into the next succeeding Fiscal Year. Once the Initial Budget
has been reviewed and approved by the Agent, in its discretion, the annual
maximum cap on Capital Expenditures shall be adjusted to conform to the Initial
Budget.
SECTION 8.10 RESTRICTED DISTRIBUTIONS. The Borrower shall not, nor
shall it suffer or permit any of its Subsidiaries (other than a wholly-owned
Subsidiary of the Borrower) to, declare or make any distribution or payment or
other distribution of assets, properties, cash, rights, obligations or
securities on account of any partnership interest or other equity interest in
such Person or purchase, redeem or otherwise acquire for value any partnership
interest or other equity interest in such Person or any warrants, rights or
options to acquire such partnership interests or other equity interests, now or
hereafter outstanding; provided, that, and subject expressly to the following
terms and conditions:
(A) In the event and for so long as any Subordinated Bridge
Obligation remains outstanding in respect of the original principal amount of
the Subordinated Bridge Loan and any accrued and unpaid interest thereon,
(I) the Borrower shall be permitted to declare and
make distributions to Strategic Timber Trust at the times and in the amounts
necessary to pay, on a timely basis,
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accrued interest on the principal amount of the Subordinated Bridge Loan which
has become due and payable according to the terms of the Subordinated Bridge
Loan Agreement (the "Permitted Interest Distributions"), subject to the
following conditions: (1) the Lenders (or the Agent on behalf of the Lenders)
shall not previously have delivered to the Borrower an Acceleration Notice, a
Payment Default Blockage Notice or an Other Default Blockage Notice (as each
such term is defined in the Subordination Agreement) which continues in effect
and (2) if requested by the Agent, prior to declaring and making any such
Permitted Interest Distribution, the Borrower shall have delivered to the Agent
a copy of the statement of the Subordinated Bridge Lenders (or the Subordinated
Bridge Agent on behalf of the Subordinated Bridge Lenders) as to the amount of
the accrued interest then due and payable;
(II) the Borrower shall be permitted to declare and
make distributions to LTP in respect of income taxes actually payable by LTP (or
by the members of LTP) in respect of and attributable to the Borrower calculated
at and based on the federal and state statutory rates applicable to type of
taxable income (the "Permitted LTP Tax Distributions"), subject to the following
conditions: (1) Permitted LTP Tax Distributions may not be made more frequently
than one per Fiscal Quarter (commencing with the Fiscal Quarter ending September
1998) on a date reasonably close to the April 15, June 15, September 15 and
January 15 dates for the payment of estimated income taxes and (2) the aggregate
amount of all such Permitted LTP Tax Distributions shall not exceed $1,000,000;
and
(III) the Borrower shall further be permitted to
declare and make distributions to the holders of the partnership interests in
the Borrower, in accordance with the terms of the Borrower Partnership Agreement
(the "Permitted Distributions"), subject to the following conditions: (1)
Permitted Distributions shall not be payable any more frequently than once per
Fiscal Quarter commencing in the Borrower's Fiscal Quarter ending September 1998
(each such payment date being a "Permitted Distribution Payment Date") and (2)
no Permitted Distribution shall be made in respect of a Fiscal Quarter unless
both (A) the Agent shall have received not less than five (5) Business Days
prior to the making of such Permitted Distribution each of the Borrowing Base
Certificate, the Borrowing Base certification and the Compliance Certificate
(together with the accompanying company-prepared financial statements for such
Fiscal Quarter) to be delivered for such Fiscal Quarter pursuant to SECTIONS
7.1(D), 7.1(E) and 7.1(F) and (B) the Lenders (or the Agent on behalf of the
Lenders) shall not previously have delivered to the Borrower an Acceleration
Notice, a Payment Default Blockage Notice or an Other Default Blockage Notice )
which continues in effect.
(B) In the event that the original principal amount of the
Subordinated Bridge Loan and all accrued interest thereon shall have been repaid
or otherwise satisfied in full, the Borrower shall be permitted to declare and
make Permitted Distributions on the following terms and subject to the following
conditions: (1) Permitted Distributions shall not be payable any more frequently
than once per Fiscal Quarter and (2) no Permitted Distribution shall be made in
respect of a Fiscal Quarter unless both (A) the Agent shall have received not
less than five (5) Business Days prior to the making of such Permitted
Distribution each of the Borrowing Base Certificate, the Borrowing Base
certification and the Compliance Certificate (together with the accompanying
company-prepared financial statements for such Fiscal Quarter) and (B) no
Default or Event of Default shall then exist or result from the making of such
Permitted Distribution.
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SECTION 8.11 MODIFICATION OF CERTAIN AGREEMENTS. The Borrower shall
not, without the prior written approval of Required Lenders, such approval to be
given in Required Lenders' sole and absolute discretion, (a) amend, supplement,
modify or waive compliance with or consent to any amendment, supplement or other
modification of or waiver of compliance with any of the terms or provisions
contained in, or applicable to (i) the Subordinated Bridge Loan Agreement, the
Subordinated Bridge Guaranty or any mortgage, security agreement or other
collateral document delivered by or on behalf of the Borrower creating a Lien on
Property of the Borrower securing the Subordinated Loan Obligations or (ii) the
Borrower Partnership Agreement or any other material organizational documents of
the Borrower, except that Required Lenders' prior approval shall not be required
for any amendment, supplement, modification or waiver which does not, either
individually or in the aggregate with other amendments, supplements,
modifications or waivers, in any material way adversely affect the Borrower's
ability to pay and perform the Obligations or the Agent's or any Lender's rights
or remedies under any of the Loan Documents, provided that the foregoing
exception is subject to the condition precedent that the Borrower shall have
provided the Agent with a written copy of the proposed amendment, supplement,
modification or waiver at least three (3) Business Days prior to its execution
by the Borrower or, if it is not to be executed by the Borrower, its becoming
effective.
SECTION 8.12 MAINTENANCE OF BUSINESS. The Borrower shall not engage in
any business other than the Business and other activities normally associated
with the operation of the Business.
SECTION 8.13 ERISA. The Borrower shall not, and shall not suffer or
permit any of its ERISA Affiliates to: (a) engage in a "prohibited transaction"
(as defined in Section 406 of ERISA and Section 4975 of the Code) or violation
of the fiduciary responsibility rules with respect to any Plan which has
resulted or could reasonably be expected to result in a Material Adverse Change;
liability of the Borrower; (b) engage in a transaction that could be subject to
Section 4069 or 4212(c) of ERISA; or (c) incur any obligation to contribute to a
Pension Plan required by a collective bargaining agreement or as a consequence
of the acquisition of an ERISA Affiliate, unless the Borrower shall notify the
Agent in writing that it intends to incur such obligation.
SECTION 8.14 NO USE OF ANY LENDER'S NAME. The Borrower shall not use or
authorize any other Person to use any Lender's name or marks in any press
releases, signage, publication or other publicity or medium, including any
prospectus (but excluding any necessary or appropriate filings or submissions to
Governmental Authorities, including the filing of this Agreement with the SEC
solely as an exhibit evidencing an existing material agreement of the Borrower),
without the Agent's or such Lender's advance written authorization.
SECTION 8.15 ACCOUNTING CHANGES. The Borrower shall not change its
Fiscal Year or make any significant change in accounting treatment or reporting
practices, except as required or permitted by GAAP.
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ARTICLE IX
FINANCIAL COVENANTS OF THE BORROWER
The Borrower covenants and agrees that so long as any Loans shall be
outstanding hereunder or any Commitment shall be available hereunder, unless
Required Lenders shall otherwise consent in writing, the Borrower shall perform
all of the following financial covenants. In connection with performance of the
Borrower's obligations under this ARTICLE IX, the Borrower agrees and
understands that all covenants under this ARTICLE IX shall be subject to
quarterly compliance (as measured as of the last day of each Fiscal Quarter), in
each case reviewed by the Lenders based on the respective Fiscal Quarter's
financial statements delivered to the Agent and the Lenders by the Borrower
pursuant to SECTION 7.1(A); provided that (a) the calculation of the minimum
Interest Coverage Ratio set forth in SECTION 9.1 shall commence with and for the
Fiscal Quarter ended June 30, 1999, (b) the calculation of the maximum Leverage
Ratio set forth in SECTION 9.2 shall commence with and for the Fiscal Quarter
which is the later of (i) the Fiscal Quarter immediately following the end of
the Bridge Period or (ii) the Fiscal Quarter ending June 30, 1999, (c) for
purposes of calculating the Interest Coverage Ratio for the Fiscal Quarter
ending (1) June 30, 1999 only, EBITDDA and Net Interest Expense will be
calculated for that Fiscal Quarter, (2) September 30, 1999 only, EBITDDA and Net
Interest Expense will be calculated for that Fiscal Quarter and the immediately
preceding Fiscal Quarter and (3) December 31, 1999 only, EBITDDA and Net
Interest Expense will be calculated for that Fiscal Quarter and the two (2)
immediately preceding Fiscal Quarters, (d) for purposes of calculating the
Leverage Ratio for the Fiscal Quarter ending (A) June 30, 1999 only, EBITDDA
will be annualized by multiplying EBITDDA calculated for that Fiscal Quarter by
four (4), (B) September 30, 1999 only, EBITDDA will be annualized by multiplying
EBITDDA calculated for that Fiscal Quarter and the immediately preceding Fiscal
Quarter by two (2) and (C) December 31, 1999 only, EBITDDA will be annualized by
multiplying EBITDDA calculated for that Fiscal Quarter and the immediately
preceding two (2) Fiscal Quarters by four-thirds (4/3) and (e) for purposes of
calculating the Leverage Ratio, there shall be included in the calculations of
EBITDDA for each of the applicable Fiscal Quarters, a pro forma adjustment equal
to an amount equal to the lesser of (x) three and three-tenths percent (3.3%) of
the purchase price actually paid for any Acquisition of Timberlands in such
Fiscal Year permitted by SECTION 8.4, or (y) an amount approved by the Agent, in
consultation with the Lenders' Forestry Consultant, equal to the EBITDDA
expected to be generated by such Acquisition during the next succeeding four (4)
Fiscal Quarters (provided that actual results will replace such pro forma
adjustments as they become available).
SECTION 9.1 MINIMUM INTEREST COVERAGE RATIO. The Borrower shall not
permit the Interest Coverage Ratio, as measured as of the last day of each
Fiscal Quarter, to be less than the following:
<TABLE>
<CAPTION>
Minimum Interest
Fiscal Quarters Coverage Ratio
--------------- --------------
<S> <C>
April 1, 1999 - June 30, 1999 1.00 to 1.00
July 1, 1999 - September 30, 1999 1.00 to 1.00
October 1, 1999 - December 31, 1999 1.50 to 1.00
</TABLE>
69.
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<TABLE>
<CAPTION>
Minimum Interest
Fiscal Quarters Coverage Ratio
--------------- --------------
<S> <C>
January 1, 2000 - March 31, 2000 1.75 to 1.00
April 1, 2000 - June 30, 2000 2.00 to 1.00
July 1, 2000 - September 30, 2000 2.25 to 1.00
October 1, 2000 and thereafter 2.50 to 1.00
</TABLE>
SECTION 9.2 MAXIMUM LEVERAGE RATIO. The Borrower shall not permit the
Leverage Ratio, as measured as of the last day of each Fiscal Quarter, to be
greater than the following:
<TABLE>
<CAPTION>
Maximum Leverage
Fiscal Quarters Ratio
--------------- -----
<S> <C>
April 1, 1999 - June 30, 1999 6.00 to 1.00
July 1, 1999 - September 30, 1999 5.50 to 1.00
October 1, 1999 - December 31, 1999 5.00 to 1.00
January 1, 2000 and thereafter 4.50 to 1.00
</TABLE>
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
SECTION 10.1 EVENTS OF DEFAULT. The occurrence of any one or more of
the following shall constitute an Event of Default:
(A) INSTALLMENTS OF PRINCIPAL. The Borrower shall fail to pay
any scheduled installment of principal under this Agreement or any of the Notes
on the date such installment shall become due and payable; or
(B) OTHER PAYMENTS. The Borrower shall fail to pay any
installment of interest on any Loan or fail to pay any of the other Obligations
of the Borrower to the Lenders or the Agent arising under this Agreement, the
Notes or any of the other Loan Documents on the date as the same shall become
due and payable, whether by acceleration or otherwise, and such failure shall
not have been cured within three (3) Business Days thereafter; or
(C) CROSS DEFAULTS. The Borrower (i) shall fail to make any
payment in respect of any Indebtedness (including the Subordinated Bridge Loan)
having an aggregate principal amount (including undrawn committed or available
amounts and including amounts owing to all creditors under any combined or
syndicated credit arrangement) of more than $3,000,000 when due (whether by
scheduled maturity, required prepayment, acceleration, demand, or otherwise) and
such failure continues after the applicable grace or notice period, if any,
specified in the document relating thereto on the date of such failure; or (ii)
fail to perform or observe any other material condition or covenant, or any
other event shall occur or condition exist, under any agreement or instrument
relating to any such Indebtedness, and such failure continues after the
applicable grace or notice period, if any, specified in the document relating
thereto on the date of such failure if the effect of such failure, event or
condition is to cause, or to permit the holder or holders of such Indebtedness
or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on
behalf of such holder or holders or beneficiary or
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beneficiaries) to cause such Indebtedness to be declared to be due and payable
prior to its stated maturity (or any Contingent Obligation to become payable or
cash collateral in respect thereof to be demanded); or
(D) REPRESENTATIONS AND WARRANTIES OF THE BORROWER. Any
representation or warranty made by or on behalf of the Borrower in this
Agreement or in any other Loan Document or any statement or certificate at any
time given in writing pursuant hereto or thereto or in connection herewith or
therewith shall be false, misleading or incomplete in any material respect when
made; or
(E) SPECIFIC DEFAULTS. The Borrower shall fail or neglect to
perform, keep or observe any term, covenant or agreement contained in ARTICLE
VIII or ARTICLE IX; or
(F) OTHER DEFAULTS. Subject to SECTIONS 10.1(A), (B) and (E),
the Borrower shall fail or neglects to perform, keep or observe any other term,
covenant, provision or agreement contained in this Agreement or in any of the
other Loan Documents or any other document or agreement executed by the Borrower
in connection herewith or therewith and the same has not been cured to Required
Lenders' satisfaction within ten (10) calendar days after the Borrower shall
become aware thereof, whether by written notice from the Agent or any Lender or
otherwise, or should reasonably have been aware thereof; provided, that if such
Default is not reasonably susceptible to cure within ten (10) days, then the
Borrower shall have such additional time as it reasonably takes to effect such
cure, but in no event longer than thirty (30) days from the occurrence of such
Default, so long as the Borrower promptly commences and diligently pursues such
cure; or
(G) INSOLVENCY; VOLUNTARY PROCEEDINGS. The Borrower or any of
its respective Subsidiaries (i) ceases or fails to be Solvent, or generally
fails to pay, or admits in writing its inability to pay, its debts as they
become due, subject to applicable grace periods, if any, whether at stated
maturity or otherwise; (ii) except as permitted under SECTION 8.3, voluntarily
liquidates, dissolves or ceases to conduct its business in the ordinary course;
(iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes
any action to effectuate or authorize any of the foregoing; or
(H) INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency
Proceeding is commenced or filed against the Borrower or any of its respective
Subsidiaries, or any writ, judgment, warrant of attachment, execution or similar
process, is issued or levied against a substantial part of the Borrower's or any
such Subsidiary's Properties, and any such proceeding or petition shall not be
dismissed, or such writ, judgment, warrant of attachment, execution or similar
process shall not be released, vacated or fully bonded within sixty (60) days
after commencement, filing or levy; (ii) the Borrower or any such Subsidiary
admits the material allegations of a petition against it in any Insolvency
Proceeding, or an order for relief (or similar order under non-U.S. law) is
ordered in any Insolvency Proceeding; or (iii) the Borrower or any such
Subsidiary acquiesces in the appointment of a receiver, trustee, custodian,
conservator, liquidator, mortgagee in possession (or agent therefor), or other
similar Person for itself or a substantial portion of its Property or business;
or
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(I) MATERIAL ADVERSE CHANGE. A Material Adverse Change shall
have occurred; or
(J) MONETARY JUDGMENTS. One or more final (non-interlocutory)
judgments, orders or decrees shall be entered against the Borrower involving in
the aggregate a liability (not covered by independent third-party insurance) as
to any single or related series of transactions, incidents or conditions, in
excess of $5,000,000 and the same shall remain unsatisfied, unvacated and
unstayed pending appeal for a period of thirty (30) days after the entry
thereof; or
(K) NON-MONETARY JUDGMENTS. Any non-monetary judgment, order
or decree shall be rendered against the Borrower which does or would reasonably
be expected to result in a Material Adverse Change, and there shall be any
period of thirty (30) consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall not be
in effect; or
(L) COLLATERAL. Any of the Loan Documents shall for any reason
other than the satisfaction in full of the Obligations thereunder cease to be,
or be asserted by the Borrower not to be, a legal, valid and binding obligation
of the Borrower, enforceable in accordance with its terms, or any of the Liens
purported to be created by any of the Collateral Documents with respect to any
of the Collateral shall for any reason, other than the satisfaction in full of
the Obligations thereunder, cease to be, or be asserted by the Borrower not to
be, a first priority, validly perfected Lien (subject to the Permitted Title
Exceptions); or
(M) ERISA. (i) An ERISA Event shall occur with respect to a
Pension Plan or Multiemployer Plan which has resulted or could reasonably be
expected to result in liability of the Borrower under Title IV of ERISA to the
Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of
$5,000,000; (ii) the aggregate amount of Unfunded Pension Liability among all
Pension Plans at any time exceeds $5,000,000; or (iii) the Borrower or any ERISA
Affiliate shall fail to pay when due, after the expiration of any applicable
grace period, any installment payment with respect to its withdrawal liability
under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in
excess of $5,000,000; or
(N) CHANGE IN KEY INVESTORS. Any Change in Key Investors shall
have occurred; or
(O) CHANGE IN MANAGEMENT. Any Change in Key Management shall
have occurred
SECTION 10.2 WAIVER OF DEFAULT. Any Event of Default may be waived only
with the written consent of Required Lenders; except that an Event of Default
under any of SECTIONS 10.1(A), 10.1(B), 10.1(G) or 10.1(H) may only be waived
with the written consent of all Lenders. Any Event of Default so waived shall be
deemed to have been cured and not to be continuing; but no such waiver shall be
deemed a continuing waiver or shall extend to or affect any subsequent like
default or impair any rights arising therefrom.
SECTION 10.3 REMEDIES. Upon the occurrence and during the continuance
of any Default or Event of Default, the Lenders shall have no obligation to
advance money or extend
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any additional credit to or for the benefit of the Borrower, whether in the form
of Loans or otherwise. In addition, upon the occurrence and during the
continuance of an Event of Default, the Lenders or the Agent, on behalf and for
the ratable benefit of the Lenders, may, at the option of Required Lenders, do
any one or more of the following, all of which are hereby authorized by the
Borrower:
(A) Make advances of Loans after the occurrence of any Event
of Default, without thereby waiving their right to demand payment of the
Obligations under this Agreement, the Notes or any of the other Loan Documents,
or any other rights or remedies described in this Agreement, and without
liability to make any other or further advances, notwithstanding the Agent's or
any Lender's previous exercise of any such rights and remedies;
(B) Declare all or any of the Obligations of the Borrower
under this Agreement, the Notes, the other Loan Documents and any other
instrument executed by the Borrower pursuant to the Loan Documents to be
immediately due and payable, and upon such declaration such obligations so
declared due and payable shall immediately become due and payable; provided that
if such Event of Default is under SECTIONS 10.1(G) or (H), then all of the
Obligations shall become immediately due and payable forthwith without the
requirement of any notice or other action by the Lenders or the Agent; provided,
further, that the declaration to accelerate the Obligations may be rescinded
upon the written election of Required Lenders;
(C) Terminate this Agreement (and the Commitments of the
Lenders set forth herein) as to any future liability or obligation of the
Lenders, but without affecting the Lenders' rights in and to Liens in and on the
Collateral; and
(D) Exercise, in addition to all other rights and remedies
granted hereunder, any and all rights and remedies granted under the Collateral
Documents and other Loan Documents or otherwise available at law or in equity.
SECTION 10.4 SET-OFF.
(A) RIGHTS OF SET-OFF. Regardless of the adequacy of any
Collateral but subject to SECTION 10.4(B), during the continuance of an Event of
Default, any deposits or other sums credited by or due from any Lender to the
Borrower may be set-off against the Obligations and any and all other
liabilities, direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, of the Borrower to the Lenders.
(B) THE AGENT'S CONSENT TO SET-OFF REQUIRED. Each Lender
agrees that it shall not, and that it shall not attempt to, exercise any right
of set-off, banker's lien or similar remedy against any of the Property of the
Borrower without the prior written consent of the Agent.
SECTION 10.5 SHARING OF PAYMENTS. If, other than as expressly provided
elsewhere herein, any Lender shall receive from the Borrower or any other source
whatsoever on account of the Loans made by it any payment (whether voluntary,
involuntary, through the exercise of any right of set-off, bankers' lien,
counterclaim, cross-action, enforcement of any claim evidenced by this Agreement
or any of the other Loan Documents or by proof thereof in any case under the
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Bankruptcy Code or similar proceeding or otherwise) which is in excess of its
respective Commitment Percentage of payments on account of the Loans obtained by
all the Lenders with respect to such Loans, such Lender shall forthwith (a)
notify the Agent of such fact and (b) make such dispositions and arrangements
with each other Lender with respect to such excess, either by way of
distribution until the amount of such excess has been exhausted, assignment of
claims, subrogation or otherwise, as shall result in each such Lender receiving
in respect of the amounts due such Lender, under this Agreement its ratable
share of such payments; provided, however, that if all or any part of such
excess payment is thereafter recovered from such Lender, such disposition and
arrangements shall be rescinded and the amount restored to the extent of such
recovery, but without interest.
SECTION 10.6 RIGHTS AND REMEDIES CUMULATIVE. The Lenders' and the
Agent's rights and remedies under this Agreement shall be cumulative. The
Lenders and the Agent shall have all other rights and remedies not inconsistent
herewith as provided by law or in equity. No exercise by any Lender or the Agent
of one right or remedy shall be deemed an election. No delay by any Lender or
the Agent shall constitute a waiver, election or acquiescence by such party.
ARTICLE XI
THE AGENT
SECTION 11.1 APPOINTMENT AND AUTHORIZATION. Each Lender hereby
irrevocably appoints, designates and authorizes ABN AMRO as and to be the Agent
of such Lender under this Agreement and under each of the other Loan Documents
and each Lender irrevocably authorizes ABN AMRO as the Agent for such Lender to
take such action on its behalf under and subject to the provisions of this
Agreement and each other Loan Document and to exercise such powers and perform
such duties as are expressly delegated to the Agent by the terms of this
Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement or in any other Loan Document, the Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, nor shall the Agent have or be deemed to have any fiduciary relationship
with any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against the Agent in such respective capacities.
SECTION 11.2 DELEGATION OF DUTIES. The Agent may execute any of their
respective duties under this Agreement or any other Loan Document by or through
agents, or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agent or attorney-in-fact
that it selects with reasonable care.
SECTION 11.3 EXCULPATORY PROVISIONS. None of the Agent-Related Persons
shall (a) be liable for any action taken or omitted to be taken by any of them
under or in connection with this Agreement or any other Loan Document (except
for its or such Person's own gross negligence or willful misconduct), or (b) be
responsible in any manner to any of the Lenders for any recital, statement,
representation or warranty made by the Borrower or any Affiliate of the Borrower
or
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any of their respective Affiliates or any officer thereof, contained in this
Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with this Agreement or any other Loan Document, or
for the value of any Collateral or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement, the Notes or any other Loan
Document, or for any failure of the Borrower or any other party to any Loan
Document to perform its obligations hereunder or thereunder. No Agent-Related
Person shall be under any obligation to any Lender to ascertain or to inquire as
to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Loan Document, or to inspect the
properties, books or records of the Borrower or any of its Affiliates.
SECTION 11.4 RELIANCE BY THE AGENT.
(A) The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by any of them to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons, and upon advice and statements of legal counsel (including counsel
to the Borrower), independent accountants and other experts selected by the
Agent. The Agent may deem and treat the payee of any Note as the owner thereof
for all purposes unless a completed and fully executed Assignment and Acceptance
shall have been delivered to the Agent. The Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Required Lenders or all Lenders, as it deems appropriate and, if it so requests,
it shall first be indemnified to its satisfaction by the Lenders against any and
all liability and expense (except those incurred solely as a result of the
Agent's, as the case may be, gross negligence or willful misconduct) which may
be incurred by it by reason of taking or continuing to take any such action. The
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement, the Notes or any of the other Loan Document in
accordance with a request or consent of the Required Lenders or all Lenders, as
may be required, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all of the Lenders and all future holders
of the Notes.
(B) For purposes of determining compliance with the conditions
precedent specified in Article IV, each Lender that has executed this Agreement
or shall hereafter execute and deliver an Assignment and Acceptance in
accordance with SECTION 12.11(A) shall be deemed to have consented to, approved
or accepted or to be satisfied with each document or other matter either sent by
the Agent to such Lender for consent, approval, acceptance or satisfaction, or
required thereunder to be consented to or approved by or acceptable or
satisfactory to the Lender.
SECTION 11.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default,
except, as to the Agent only, with respect to defaults in the payment of
principal, interest and fees required to be paid to the Agent on behalf and for
the benefit of the Lenders, unless the Agent shall have received written notice
from a Lender or the Borrower referring to this Agreement, describing such
Default or Event of Default and stating that such notice is a "notice of
default". In the event that the Agent receives such a notice, the Agent shall
give notice thereof to the Lenders. The Agent shall take such action with
respect to such Default or Event of Default as shall be requested by the
Required
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Lenders or all Lenders, as appropriate; provided, however, that unless and until
the Agent shall have received any such request, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem in the best interest of the
Lenders or as the Agent shall believe necessary to protect the Lenders'
interests in the Collateral.
SECTION 11.6 CREDIT DECISION. Each Lender expressly acknowledges that
none of the Agent-Related Persons has made any representation or warranty to it
and that no act by the Agent hereinafter taken, including any review of the
affairs of the Borrower or any of their respective Affiliates, shall be deemed
to constitute any representation or warranty by the Agent to any Lender. Each
Lender represents to the Agent that it has, independently and without reliance
upon the Agent or any other Lender and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, prospects, operations, property, financial and other condition and
creditworthiness of the Borrower and its Affiliates, and all applicable bank
regulatory laws relating to the transactions contemplated thereby, and made its
own decision to enter into this Agreement and extend credit to the Borrower
under and pursuant to this Agreement. Each Lender also represents that it will,
independently and without reliance upon the Agent and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make such
investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of the Borrower and its Affiliates. Except for notices, reports
and other documents expressly herein required to be furnished to the Lenders by
the Agent hereunder, the Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of the Borrower or any of its Affiliates, which may come into
the possession of any Agent-Related Person.
SECTION 11.7 INDEMNIFICATION. Whether or not the transactions
contemplated hereby shall be consummated, the Lenders agree to and shall
indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by
or on behalf of the Borrower or any guarantor of the Obligations and without
limiting the obligation of such Person to do so), ratably from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs (including Attorneys Costs), expenses and disbursements
of any kind whatsoever which may at any time (including at any time following
the repayment of the Loans and the termination or resignation of the related
Agent) be imposed on, incurred by or asserted against any such Person in such
capacity, but not as Lenders, in any way relating to or arising out of this
Agreement, any of the other Loan Documents or any document contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
or any action taken or omitted by any such Person under or in connection with
any of the foregoing; provided, however, that no Lender shall be liable for the
payment of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from such Person's gross negligence or willful misconduct. Without limitation of
the foregoing, each Lender shall reimburse the Agent upon demand for its ratable
share of any costs or other out-of-pocket expenses (including Attorney Costs)
incurred by the Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement
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(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement, any other
Loan Document, or any document contemplated by or referred to herein to the
extent that such Person is not reimbursed for such expenses by or on behalf of
the Borrower. Without limiting the generality of the foregoing, if the IRS or
any other Governmental Authority of the United States or other jurisdiction
asserts a claim that the Agent did not properly withhold tax from amounts paid
to or for the account of any Lender (because the appropriate form was not
delivered, was not properly executed, or because such Lender failed to notify
the Agent of a change in circumstances which rendered the exemption from, or
reduction of, withholding tax ineffective, or for any other reason), such Lender
shall indemnify the Agent fully for all amounts paid, directly or indirectly, by
the Agent as tax or otherwise, including penalties and interest, and including
any taxes imposed by any jurisdiction on the amounts payable to the Agent under
this SECTION 11.7, together with all costs and expenses (including Attorney
Costs). The obligation of the Lenders in this SECTION 11.7 shall survive the
payment of all Obligations.
SECTION 11.8 THE AGENT IN INDIVIDUAL CAPACITY. ABN AMRO and its
Affiliates and its successors as the Agent, may make loans to, issue letters of
credit for the account of, accept deposits from, acquire equity interests in and
generally engage in any kind of banking, trust, financial advisory or other
business with the Borrower and its Affiliates as though ABN AMRO (or such
successors) were not the Agent hereunder and under the other Loan Documents and
without notice to or consent of the Lenders. With respect to its Loans, ABN AMRO
shall have the same rights and powers under this Agreement as any other Lender
and may exercise the same as though it were not the Agent and the terms "Lender"
and "Lenders" shall include ABN AMRO in its individual capacity.
SECTION 11.9 SUCCESSOR AGENT. The Agent may resign as Agent upon thirty
(30) days' notice to the Lenders and Required Lenders may at any time remove the
Agent. The Agent shall be removed or shall resign as the Agent under this
Agreement and the other Loan Documents, the Required Lenders shall appoint from
among the Lenders a successor Agent for the Lenders, which successor agent,
shall be approved by the Borrower (which consent shall not be unreasonably
withheld or delayed), whereupon such successor agent, shall succeed to the
rights, powers and duties of the Agent, as the case may be, and the term "Agent"
shall mean such successor agent, effective upon its appointment, and the former
Agent's rights, powers and duties as Agent shall be terminated, without any
other or further act or deed on the part of such former Agent or any of the
parties to this Agreement or any holders of the Notes. After any retiring
Agent's removal or resignation as Agent, the provisions of this SECTION 11.9
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was a Agent, as the case may be, under this Agreement and the other
Loan Documents. Further, if any Agent no longer has any Loans or Commitments
hereunder, such Agent shall immediately resign and shall be replaced, and have
the benefits, as set forth in this SECTION 11.9.
SECTION 11.10 COLLATERAL MATTERS.
(A) The Agent is authorized on behalf of all the Lenders,
without the necessity of any notice to or further consent from the Lenders, from
time to time to take any action with respect to any Collateral or the Collateral
Documents which may be necessary to perfect and
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maintain perfected the security interest in and Liens upon the Collateral
granted pursuant to the Collateral Documents.
(B) The Lenders irrevocably authorize the Agent, at its option
and in its discretion, to release any Lien granted to or held by the Agent upon
any Collateral (i) upon termination of the Commitments and payment in full of
all Loans and all other Obligations payable under this Agreement and under any
other Loan Document; (ii) constituting property sold or to be sold or disposed
of as part of or in connection with any Disposition permitted under SECTION 8.2;
(iii) constituting property leased under a lease which has expired or been
terminated in a transaction permitted under this Agreement or is about to
expire, and which has not been, and is not intended to be, renewed or extended;
(iv) consisting of an instrument evidencing Indebtedness or other debt
instrument, if the indebtedness evidenced thereby has been paid in full; or (v)
if approved, authorized or ratified in writing by the Required Lenders or all
the Lenders, as the case may be, as provided in SECTION 12.1(F). Upon request by
the Agent at any time, the Lenders will confirm in writing the Agent's authority
to release particular types or items of Collateral pursuant to this SECTION
11.11(B). Required Lenders may also deliver written directions to the Agent not
to take any specific action permitted by this SECTION 11.11(B) and, following
receipt of such notice, but subject to the other terms of this ARTICLE XI, the
Agent shall cease from taking such action.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 AMENDMENTS AND WAIVERS. No amendment, modification or
waiver of any provision of this Agreement or any other Loan Document, and no
consent with respect to any departure by the Borrower therefrom, shall be
effective unless the same shall be in writing and signed by Required Lenders and
acknowledged by the Agent, and then such waiver shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that no such waiver, amendment, or consent shall, unless in writing and
signed by all the Lenders and acknowledged by the Agent, do any of the
following:
(A) increase or extend the Commitment of any Lender (or
reinstate any Commitment terminated pursuant to SECTION 10.3) or subject any
Lender to any additional obligations;
(B) postpone or delay any date fixed for any payment of
principal, interest, fees or other amounts due to the Lenders (or any of them)
hereunder or under any Loan Document (including in respect of any Mandatory
Prepayment);
(C) reduce the principal of, or the rate of interest specified
herein on any Loan, or of any fees or other amounts payable hereunder or under
any Loan Document;
(D) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which shall be required for the
Lenders or any of them to take any action hereunder;
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(E) amend SECTION 8.4 or this SECTION 12.1;
(F) release all or any substantial part of the Collateral,
except as otherwise may be provided in the Collateral Documents or except where
the consent of the Required Lenders only is specifically provided for;
and, provided further that no amendment, modification, waiver or consent shall,
unless in writing and signed by the Agent in addition to the Required Lenders or
all the Lenders, as the case may be, affect the corresponding rights or duties
of the Agent under this Agreement or any other Loan Document.
SECTION 12.2 NOTICES.
(A) All notices, requests and other communications provided
for hereunder shall be in writing (including, unless the context expressly
otherwise provides, by facsimile transmission, provided that any matter
transmitted by the Borrower by facsimile (i) shall be immediately confirmed by a
telephone call to the recipient at the number specified on the applicable
signature page hereof, and (ii) shall be followed promptly by a hard copy
original thereof) and mailed, faxed or delivered, to the address or facsimile
number specified for notices on the applicable signature page hereof; or, as
directed to the Borrower or the Agent, to such other address as shall be
designated by such party in a written notice to the other parties, and as
directed to each other party, at such other address as shall be designated by
such party in a written notice to the Borrower and the Agent.
(B) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next day) delivery, or transmitted by facsimile machine,
respectively, or if delivered, upon delivery, except that notices pursuant to
ARTICLE II or ARTICLE XI shall not be effective until actually received by the
Agent.
(C) The Borrower and the Lenders acknowledge and agree that
any agreement of the parties to receive certain notices by telephone and
facsimile is for their mutual benefit and convenience. Any party shall be
entitled to rely on the authority of any Person purporting to be a Person
authorized by any other party to give such notice and the party relying on such
authorization shall not have any liability to any other Person on account of any
action taken or not taken by such party in reliance upon such telephonic or
facsimile notice. The obligation of the Borrower to repay the Loans shall not be
affected in any way or to any extent by any failure by the Agent to receive
written confirmation of any telephonic or facsimile notice or the receipt by the
Agent of a confirmation which is at variance with the terms understood by the
Agent to be contained in the telephonic or facsimile notice.
SECTION 12.3 NO WAIVER BY AGENT OR THE LENDERS. No failure or delay on
the part of any Lender or the Agent, in the exercise of any power, right or
privilege under this Agreement, the Notes or any of the other Loan Documents
shall impair such power, right or privilege or be construed to be a waiver of
any default or acquiescence therein, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege.
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SECTION 12.4 ENTIRE AGREEMENT; CONSTRUCTION.
(A) This Agreement, the Notes and each of the other Loan
Documents dated as of the date hereof, taken together, constitute and contain
the entire agreement among the Borrower, the Lenders and the Agent and supersede
any and all prior agreements, negotiations, correspondence, understandings and
communications among the parties, whether written or oral, respecting the
subject matter hereof.
(B) This Agreement is the result of negotiations between and
has been reviewed by each of the Borrower and the Lenders executing this
Agreement as of the Closing Date, the Agent and their respective counsel;
accordingly, this Agreement shall be deemed to be the product of the parties
hereto, and no ambiguity shall be construed in favor of or against the Borrower,
the Lenders or the Agent. The Borrower, the Lenders and the Agent each severally
agrees that it intends the literal words of this Agreement and the other Loan
Documents and that no parole evidence shall be necessary or appropriate to
establish Borrower's, any Lender's or the Agent's actual intentions.
SECTION 12.5 INDEMNIFICATION. To the fullest extent permitted by law,
the Borrower agrees to protect, indemnify, defend and hold harmless each Lender
and the Agent, and each of their respective directors, officers, employees and
agents and any Person who controls any of them within the meaning of the
federal, state and foreign securities laws (each an "Indemnitee") from and
against any liabilities, losses, obligations, damages, penalties, expenses or
costs of any kind or nature and from any suits, judgments, claims or demands
(including in respect of or for Attorney Costs and other reasonable fees and
other disbursements of counsel for and consultants of such Indemnitees in
connection with any investigative, administrative or judicial proceeding,
whether or not such Indemnitees shall be designated a party thereto) based on
any federal, state, local or foreign law or other statutory regulation,
including securities, environmental and commercial law or other statutory
regulation, which arises under common law or at equitable cause or on contract
or otherwise on account of or in connection with any matter or thing or any
action or failure to act by Indemnitees, or any of them, arising out of or
relating to the Loan Documents or any agreement or instrument executed pursuant
to the Loan Documents, except to the extent such liability arises from the
willful misconduct or gross negligence of any of the Indemnitees (collectively,
the "Indemnified Matters"). Upon receiving knowledge of any suit, claim or
demand asserted by any Person that any Lender or the Agent believes is covered
by this indemnity, such Lender or the Agent, as the case may be, shall give the
Borrower notice of the matter and an opportunity to defend it, at the Borrower's
sole cost and expense, with legal counsel of the Borrower's choice, which legal
counsel shall be reasonably satisfactory to the Agent and each affected Lender.
The Agent and each affected Lender may also require the Borrower to defend the
matter. The obligations of the Borrower under this SECTION 12.5 shall survive
the payment and performance of the Obligations and the termination of this
Agreement. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in this SECTION 12.5 may be unenforceable because it is
violative of any law or public policy, the Borrower shall contribute the maximum
portion which it is permitted to pay and satisfy under applicable law to the
payment and satisfaction of all Indemnified Matters incurred by the Indemnitees.
SECTION 12.6 COSTS AND EXPENSES. The Borrower shall, whether or not the
transactions contemplated hereby shall be consummated:
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(A) subject to SECTION 4.1(EE), pay or reimburse ABN AMRO
within thirty (30) days after demand for all reasonable costs and expenses
incurred by ABN AMRO (including in its capacity as the Agent) in connection with
the development, preparation, delivery, administration and execution of, and any
amendment, supplement, waiver or modification to (in each case, whether or not
consummated), this Agreement, any other Loan Document and any other documents
prepared in connection herewith (including any commitment letter and related
documents preceding this Agreement) or therewith, and the consummation of the
transactions contemplated hereby and thereby, including the reasonable Attorney
Costs incurred by ABN AMRO (including in its capacity as the Agent) with respect
hereto and thereto;
(B) pay or reimburse the Agent and, following the occurrence
of an Event of Default, each Lender within thirty (30) days after demand for all
costs and expenses incurred by them in connection with the enforcement,
attempted enforcement, or preservation of any rights or remedies (including in
connection with any "workout" or restructuring regarding the Loans, and
including in any Insolvency Proceeding or appellate proceeding) under this
Agreement, any other Loan Document, and any such other documents, including
Attorney Costs incurred by the Agent, and any Lender; and
(C) pay or reimburse ABN AMRO (including in its capacity as
the Agent) within thirty (30) days after demand for all reasonable audit,
appraisal, appraisal review, environmental inspection and review, search and
filing, registration and recording and other similar costs, fees and expenses,
including the fees and expertise of Lenders' Forestry Consultant, incurred or
sustained by ABN AMRO (including in its capacity as the Agent) in connection
with the matters referred to under clauses (A) and (B) of this SECTION 12.6.
SECTION 12.7 RELIANCE BY THE LENDERS. All covenants, agreements,
representations and warranties made herein by the Borrower shall,
notwithstanding any investigation by the Lenders or the Agent be deemed to be
material to and to have been relied upon by the Lenders and the Agent.
SECTION 12.8 MARSHALLING; PAYMENTS SET ASIDE. Neither the Lenders nor
the Agent, as the holder of any Lien as security for the Obligations, shall be
under any obligation to marshal any assets in favor of the Borrower or any other
Person or against or in payment of any or all of the Obligations. To the extent
that (a) the Borrower makes a payment or payments to the Lenders or the Agent,
or (b) the Lenders or the Agent, on behalf and for the benefit of itself and the
Lenders, enforces its or their Liens or exercises its or their rights of
set-off, and such payment or payments or the proceeds of such enforcement or
set-off or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to a trustee,
receiver or any other party under the Bankruptcy Code or under any other similar
federal or state law, common law or equitable cause, then to the extent of such
recovery the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or set-off had not occurred.
SECTION 12.9 NO SET-OFFS BY THE BORROWER. All sums payable by the
Borrower pursuant to this Agreement, the Notes or any of the other Loan
Documents shall be payable without notice or demand and shall be payable in
United States Dollars without set-off or reduction of any manner whatsoever.
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SECTION 12.10 SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of the Agent and each Lender.
SECTION 12.11 ASSIGNMENTS, PARTICIPATIONS, ETC.
(A) Any Lender may, with the written consent of the Borrower
(at all times other than during the existence of an Event of Default in which
event the Borrower's consent shall not be required) and the Agent (and written
notice to each other Lender), which consents shall not be unreasonably withheld,
at any time assign and delegate to one or more Eligible Assignees (provided that
no written consent of the Borrower or the Agent shall be required in connection
with any assignment and delegation by any Lender to a Lender Affiliate of such
Lender) (each an "Assignee") all, or any ratable part of all, of the Loans, the
Commitments and the other rights and obligations of such Lender hereunder, in a
minimum amount of [$5,000,000]; provided, however, that (i) the Borrower and the
Agent may continue to deal solely and directly with such Lender in connection
with the interest so assigned to an Assignee until (A) written notice of such
assignment, together with payment instructions, addresses and related
information with respect to the Assignee, shall have been given to the Borrower
and the Agent by such Lender and the Assignee; (B) such Lender and its Assignee
shall have delivered to the Borrower and the Agent an Assignment and Acceptance
in the form of EXHIBIT G ("Assignment and Acceptance") together with any Note or
Notes subject to such assignment and (C) the assignor Lender or Assignee has
paid to the Agent a processing fee of $3,500; provided that no processing fee
shall be charged for any assignment to a Lender or a Lender Affiliate, and
further provided that the Borrower shall not pay any fees or costs in connection
with such assignment.
(B) From and after the date that the Agent notifies the
assigning Lender that it has received an executed Assignment and Acceptance and
payment of the above-referenced processing fee, (i) the Assignee thereunder
shall be a party hereto and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such Assignment and Acceptance, shall have
the rights and obligations of a Lender under the Loan Documents, and (ii) the
assignor Lender shall, to the extent that rights and obligations hereunder and
under the other Loan Documents have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Loan Documents.
(C) Within five (5) Business Days after its receipt of notice
from the Agent that the Agent has received an executed Assignment and Acceptance
and payment of the processing fee, the Borrower shall execute and deliver to the
Agent new Notes on the same terms and conditions as the original Notes
evidencing such Assignee's assigned Loans and Commitments and, if the assignor
Lender has retained a portion of its Loans and its Commitments, replacement
Notes in the principal amount of the Loans retained by the assignor Lender (such
Notes to be in exchange for, but not in payment of, the Notes held by such
Lender). Immediately upon each Assignee's making its processing fee payment
under the Assignment and Acceptance, this Agreement, shall be deemed to be
amended to the extent, but only to the extent, necessary to reflect the addition
of the Assignee and the resulting adjustment of the Commitments arising
therefrom. The Commitments allocated to each Assignee shall reduce such
Commitments of the assigning Lender pro tanto.
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(D) Any Lender may at any time sell to one or more commercial
banks or other Persons not Affiliates of the Borrower (a "Participant")
participating interests in any Loans, the Commitment of that Lender and the
other interests of that Lender (the "Originating Lender") hereunder and under
the other Loan Documents; provided, however, that (i) the Originating Lender's
obligations under this Agreement shall remain unchanged, (ii) the Originating
Lender shall remain solely responsible for the performance of such obligations,
(iii) the Borrower and the Agent shall continue to deal solely and directly with
the Originating Lender in connection with the Originating Lender's rights and
obligations under this Agreement and the other Loan Documents, and (iv) no
Lender shall transfer or grant any participating interest under which the
Participant shall have rights to approve any amendment to, or any consent or
waiver with respect to, this Agreement or any other Loan Documents, except to
the extent such amendment, consent or waiver would require unanimous consent of
the Lenders as described in clauses (A), (C) and (D) of the first proviso to
SECTION 12.1. In the case of any such participation, the Participant shall be
entitled to the benefit of SECTIONS 3.1, 3.3, 3.6, 12.1 (but solely with respect
to those matters set forth in clauses (A), (C) and (D) thereof requiring the
consent of all Lenders), and 12.5 as though it were also a Lender hereunder, and
if amounts outstanding under this Agreement are due and unpaid, or shall have
been declared or shall have become due and payable upon the occurrence of an
Event of Default, each Participant shall be deemed to have the right of set-off
in respect of its participating interest in amounts owing under this Agreement
to the same extent as if the amount of its participating interests were owing
directly to it as a Lender under this Agreement.
(E) Each Lender agrees to take normal and reasonable
precautions and exercise due care to maintain the confidentiality of all
information identified as "confidential" by the Borrower and provided to it by
the Borrower, or by the Agent on the Borrower's behalf, in connection with this
Agreement or any other Loan Document, and neither it nor any of its Affiliates
shall use any such information for any purpose or in any manner other than
pursuant to the terms contemplated by this Agreement, except to the extent such
information (i) was or becomes generally available to the public other than as a
result of a disclosure by the Lender, or (ii) was or becomes available on a
non-confidential basis from a source other than the Borrower, provided that such
source is not bound by a confidentiality agreement with the Borrower known to
the Lender; provided, however, that any Lender may disclose such information (A)
at the request or pursuant to any requirement of any Governmental Authority to
which the Lender is subject or in connection with an examination of such Lender
by any such Governmental Authority; (B) pursuant to subpoena or other court
process; (C) when required to do so in accordance with the provisions of any
applicable Requirement of Law; and (D) to such Lender's independent auditors and
other professional advisors, provided that such auditors and professional
advisors shall be required to similarly protect the confidentiality of such
information. Notwithstanding the foregoing, the Borrower authorizes each Lender
to disclose to any Participant or Assignee (each, a "Transferee") and to any
prospective Transferee, such financial and other information in such Lender's
possession concerning the Borrower which has been delivered to the Agent or the
Lenders pursuant to this Agreement or which has been delivered to the Agent or
the Lenders by or on behalf of the Borrower in connection with the Lenders'
credit evaluation of the Borrower prior to entering into this Agreement;
provided that, unless otherwise agreed by the Borrower, such Transferee agrees
in writing to such Lender to keep such information confidential to the same
extent required of the Lenders hereunder.
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(F) Notwithstanding any other provision contained in this
Agreement or any other Loan Document to the contrary, any Lender may assign all
or any portion of the Loans or Notes held by it to any Federal Reserve Bank or
the United States Treasury as collateral security pursuant to Regulation A of
the Board of Governors of the Federal Reserve System and any Operating Circular
issued by such Federal Reserve Bank, provided that any payment in respect of
such assigned Loans or Notes made by the Borrower to or for the account of the
assigning or pledging Lender in accordance with the terms of this Agreement
shall satisfy the Borrower's obligations hereunder in respect to such assigned
Loans or Notes to the extent of such payment. No such assignment shall release
the assigning Lender from its obligations hereunder.
SECTION 12.12 HEADINGS. Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 12.13 SEVERABILITY. Whenever possible, each provision of this
Agreement, the Notes and each of the other Loan Documents shall be interpreted
in such a manner as to be valid, legal and enforceable under the applicable law
of any jurisdiction. Without limiting the generality of the foregoing sentence,
in case any provision of this Agreement, the Notes or any of the other Loan
Documents shall be invalid, illegal or unenforceable under the applicable law of
any jurisdiction, the validity, legality and enforceability of the remaining
provisions, or of such provision in any other jurisdiction, shall not in any way
be affected or impaired thereby.
SECTION 12.14 NOTIFICATION OF ADDRESSES, LENDING OFFICES, ETC. Each
Lender shall notify the Agent in writing of any changes in the address to which
notices to the Lender should be directed, of addresses of its Domestic Lending
Office, of payment instructions in respect of all payments to be made to it
hereunder and of such other administrative information as the Agent shall
reasonably request.
SECTION 12.15 NO THIRD PARTIES BENEFITED. This Agreement is made and
entered into for the sole protection and legal benefit of the Borrower, the
Lenders, the Agent and their permitted successors and assigns, and except as
otherwise expressly provided in this Agreement, no other Person shall be a
direct or indirect legal beneficiary of, or have any direct or indirect cause of
action or claim in connection with, this Agreement or any of the other Loan
Documents. Neither the Agent nor any Lender shall have any obligation to any
Person not a party to this Agreement or other Loan Documents.
SECTION 12.16 RELATIONSHIP OF PARTIES. The relationship between the
Borrower, on the one hand, and the Lenders and the Agent, on the other, is, and
at all times shall remain solely that of a borrower and lenders. Neither any
Lender nor the Agent shall under any circumstances be construed to be partners
or joint venturers of the Borrower or any of its Affiliates; nor shall any
Lenders nor the Agent under any circumstances be deemed to be in a relationship
of confidence or trust or a fiduciary relationship with the Borrower or any of
its Affiliates, or to owe any fiduciary duty to the Borrower or any of its
Affiliates. Neither the Lenders nor the Agent undertake or assume any
responsibility or duty to the Borrower or any of its Affiliates to select,
review, inspect, supervise, pass judgment upon or otherwise inform the Borrower
or any of its Affiliates of any matter in connection with its or their Property,
any Collateral held by the Agent or any Lender or the operations of the Borrower
or any of its Affiliates. The Borrower and each
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of its Affiliates shall rely entirely on their own judgment with respect to such
matters, and any review, inspection, supervision, exercise of judgment or supply
of information undertaken or assumed by any Lender or the Agent in connection
with such matters is solely for the protection of the Lender and the Agent and
neither the Borrower nor any of its Affiliates is entitled to rely thereon.
SECTION 12.17 TIME. Time is of the essence as to each term or provision
of this Agreement and each of the other Loan Documents.
SECTION 12.18 COUNTERPARTS. This Agreement and any amendments, waivers,
consents or supplements hereto may be executed in any number of counterparts,
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.
SECTION 12.19 JOINDER TO SUBORDINATION AGREEMENT. Each Lender agrees
that in becoming a Lender hereunder it is joined as a party to and bound for all
purposes by the terms of the Subordination Agreement applicable to the Senior
Lenders (as defined therein).
SECTION 12.20 EQUITABLE RELIEF. The Borrower recognizes that, in the
event the Borrower fails to perform, observe or discharge any of its obligations
or liabilities under this Agreement, the Notes or any of the other Loan
Documents, any remedy at law may prove to be inadequate relief to the Lenders or
the Agent; therefore, the Borrower agrees that the Lenders or the Agent, if the
Lenders or the Agent so request, shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
SECTION 12.21 NOTICE OF CLAIMS; CLAIMS BAR. THE BORROWER HEREBY AGREES
THAT IT SHALL GIVE PROMPT NOTICE AFTER BECOMING AWARE OF ANY CLAIM OR CAUSE OF
ACTION IT BELIEVES IT HAS, OR MAY SEEK TO ASSERT OR ALLEGE AGAINST ANY LENDER OR
THE AGENT, WHETHER SUCH CLAIM IS BASED IN LAW OR EQUITY, ARISING UNDER OR
RELATED TO THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS OR TO
THE LOANS (OR THE COLLATERAL THEREFOR) CONTEMPLATED HEREBY OR THEREBY OR ANY ACT
OR OMISSION TO ACT BY ANY LENDER OR THE AGENT WITH RESPECT HERETO OR THERETO,
AND THAT IF IT SHALL FAIL TO GIVE SUCH NOTICE TO THE AGENT PRIOR TO THE FIRST
ANNIVERSARY OF HAVING BECOME AWARE OF ANY SUCH CLAIM OR CAUSE OF ACTION, IT
SHALL BE DEEMED TO HAVE WAIVED, AND SHALL BE FOREVER BARRED FROM BRINGING OR
ASSERTING SUCH CLAIM OR CAUSE OF ACTION IN ANY SUIT, ACTION OR PROCEEDING IN ANY
COURT OR BEFORE ANY GOVERNMENTAL AUTHORITY.
SECTION 12.22 WAIVER OF PUNITIVE DAMAGES. NOTWITHSTANDING ANYTHING TO
THE CONTRARY CONTAINED IN THIS AGREEMENT, THE BORROWER HEREBY AGREES THAT IT
SHALL NOT SEEK FROM THE LENDERS OR THE AGENT, UNDER ANY THEORY OF LIABILITY,
INCLUDING, WITHOUT LIMITATION, ANY THEORY IN TORTS, ANY SPECIAL, INDIRECT,
CONSEQUENTIAL OR PUNITIVE DAMAGES.
SECTION 12.23 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS
ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE LAWS OF THE STATE
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OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT
REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, AND ANY APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA.
SECTION 12.24 SERVICE OF PROCESS. SERVICE OF PROCESS ON THE BORROWER OR
THE AGENT OR THE LENDERS IN ANY ACTION SUBJECT TO THIS SECTION 12.24 SHALL BE
EFFECTIVE IF MAILED TO SUCH PARTY AT THE ADDRESS LISTED ON THE SIGNATURE PAGES
HERETO UNLESS PRIOR WRITTEN NOTICE OF ANY CHANGES THEREOF HAS BEEN PREVIOUSLY
DELIVERED.
SECTION 12.25 WAIVER OF JURY TRIAL. THE BORROWER, EACH LENDER AND THE
AGENT, HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH
RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS,
ANY RIGHTS OR OBLIGATIONS HEREUNDER OF THEREUNDER, OR THE PERFORMANCE OF SUCH
RIGHTS AND OBLIGATIONS
SECTION 12.26 SUBMISSION TO JURISDICTION.
(A) EXCEPT AS SET FORTH IN SECTION 12.26(B), THE BORROWER,
EACH LENDER AND THE AGENT, AGREE THAT ALL DISPUTES BETWEEN OR AMONG THEM
ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED BETWEEN OR AMONG THEM, INCLUDING COURSE OF DEALING, COURSE OF
CONDUCT, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE BORROWER,
ANY LENDER OR THE AGENT, IN CONNECTION WITH THE LOAN DOCUMENTS OR ANY
DOCUMENTS RELATED THERETO, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY OR
OTHERWISE, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE
STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF ILLINOIS. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO
THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS. THE BORROWER,
EACH OF THE LENDERS AND THE AGENT HEREBY EXPRESSLY AND IRREVOCABLY WAIVE IN
ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT
CONSIDERING THE DISPUTE, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR
BASED ON THE GROUNDS OF FORUM NON CONVENIENS.
(B) THE BORROWER AGREES THAT THE AGENT AND EACH LENDER SHALL
HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST
THE BORROWER OR ANY COLLATERAL IN A COURT IN ANY LOCATION REASONABLY SELECTED
IN GOOD FAITH TO ENABLE THE AGENT OR ANY LENDER TO REALIZE ON ANY COLLATERAL
OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE AGENT OR
ANY LENDER. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE
COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY THE AGENT OR ANY LENDER TO REALIZE
ON ANY COLLATERAL OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
THE AGENT OR ANY LENDER. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES
ANY OBJECTION IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE AGENT OR
ANY LENDER HAS COMMENCED A PROCEEDING DESCRIBED IN THIS SECTION 12.26(B),
INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY
ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS
(WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
86.
<PAGE> 96
ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR THE
COLLATERAL OR OTHER PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH
IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT, THE NOTES AND THE
OTHER LOAN DOCUMENTS
(C) THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS OF ANY OF THE FOREGOING COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS FOR NOTICE DESIGNATED IN
ACCORDANCE WITH SECTION 12.2, SUCH SERVICE TO BECOME EFFECTIVE FOUR (4) DAYS
AFTER SUCH MAILING.
87.
<PAGE> 97
WITNESS the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.
BORROWER STRATEGIC TIMBER PARTNERS, LP
a Delaware limited partnership,
By: STRATEGIC TIMBER OPERATING CO.,
a Delaware corporation, a general partner
By: /s/ Joseph E. Rendini
-----------------------------------------
Printed Name: Joseph E. Rendini
Title: Vice President, Secretary
and General Counsel
Notices to be sent to:
Strategic Timber Partners, L.P.
5 North Pleasant Street
New London, New Hampshire 03527
Attention: Thomas P. Broom
Telephone: (603) 526-7800
Facsimile: (603) 526-7811
LENDERS ABN AMRO BANK N.V.
/s/ Leif H. Olsson
--------------------------------------------
Leif H. Olsson,
Senior Vice President
/s/ David McGinnis
--------------------------------------------
David McGinnis,
Vice President
Domestic Lending Office
ABN AMRO Bank N.V.
One Union Square
600 University Street, Suite 2323
Seattle, WA 98101-2070
Attention: Operations
Telephone: 206/654-0368
Facsimile: 206/682-5641
88.
<PAGE> 98
Notices to be sent to:
ABN AMRO Bank N.V.
One Union Square
600 University Street, Suite 2323
Seattle, WA 98101-2070
Attention: David McGinnis, Vice President
Telephone: 206/587-0342
Facsimile: 206/682-5641
AGENT ABN AMRO BANK N.V.
/s/ Leif H. Olsson
--------------------------------------------
Leif H. Olsson,
Senior Vice President
/s/ David McGinnis
--------------------------------------------
David McGinnis,
Vice President
Agent's Payment Office:
ABN AMRO Bank, NV
Account No.: 650-001-1789-41
ABA NO.: 026009580
F/O: ABN AMRO Bank - Chicago CPU
Reference: Agency Services (Strategic
Timber Investments)
Notices to be sent to:
ABN AMRO Bank, N.V.
Agency Services
1325 Avenue of the Americas, 9th Floor
New York, NY 10019
Attention: Linda Boardman
Telephone: 212/314-1724
Facsimile: 212/314-1712
89.
<PAGE> 99
With a copy to:
ABN AMRO Bank N.V.
One Union Square
600 University Street, Suite 2323
Seattle, WA 98101-2070
Attention: David McGinnis, Vice President
Telephone: 206/587-0342
Facsimile: 206/682-5641
90.
<PAGE> 100
INDEX OF SCHEDULES [OMITTED]
<TABLE>
<S> <C> <C>
Schedule 1 - Revolving Commitments
Schedule 2 - Timberlands (Real Property Description)
Schedule 3 - Disclosure Schedule
Schedule 4 - Financing Statements
Schedule 5 - Standards for Merchantable Timber
INDEX OF EXHIBITS [OMITTED]
Exhibit A - Form of Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Borrowing Base Certificate
Exhibit D - Form of Compliance Certificate
Exhibit E - Form of Notice of Conversion/Continuation
Exhibit F - Designation of Responsible Persons
Exhibit G - Form of Assignment and Acceptance
Exhibit H - Non-Bank Lender Tax Certificate
Exhibit I - Form of Timber Report Certificate
</TABLE>
<PAGE> 1
EXHIBIT 10.7
================================================================================
================================================================================
BRIDGE LOAN AGREEMENT
BY AND AMONG
STRATEGIC TIMBER TRUST, INC.
AS THE BORROWER,
THE LENDERS NAMED HEREIN
AND
ABN AMRO BANK N.V.
AS THE AGENT
April 27, 1998
================================================================================
================================================================================
<PAGE> 2
<TABLE>
<S> <C>
ARTICLE DEFINITIONS
Section 1.1 Definitions ............................................................. 2
Section 1.2 Other Interpretive Provisions ........................................... 23
(a) Accounting Terms ....................................................... 23
(b) Other Terms ............................................................ 23
(c) Performance; Time ...................................................... 23
(d) Laws ................................................................... 23
(e) Rounding ............................................................... 23
(f) Schedules And Exhibits ................................................. 23
ARTICLE II THE CREDITS ................................................................ 24
Section 2.1 Amounts And Terms Of Commitments ........................................ 24
(a) The Loan Facility ...................................................... 24
(b) Funding Of Loans To The Agent .......................................... 24
(c) Disbursement Of Loans To The Borrower .................................. 24
(d) General Provisions Relating To The Loans ............................... 24
(e) Permitted Uses Of Loan Proceeds ........................................ 25
Section 2.2 Notes ................................................................... 25
(a) Notes .................................................................. 25
(b) Notations In The Lenders' Books And Records ............................ 25
Section 2.3 Repayment Of Principal Amount Of Loans .................................. 25
Section 2.4 Payment Of Interest On The Loans ........................................ 25
(a) Loans .................................................................. 25
(b) Interest Payment Dates ................................................. 25
(c) Interest Upon Events Of Default ........................................ 25
(d) Limitations On Interest Rates .......................................... 26
Section 2.5 Procedure For The Borrowing Of Loans .................................... 26
Section 2.6 Conversion And Continuation Elections ................................... 26
Section 2.7 Optional Prepayments .................................................... 27
Section 2.8 Mandatory Prepayments ................................................... 27
(a) Distributions of Net Operating Cash Flow ............................... 27
(b) Net Equity Issuance Proceeds ........................................... 28
Section 2.9 Calculation Of Interest And Fees ........................................ 28
</TABLE>
i.
<PAGE> 3
<TABLE>
<S> <C>
Section 2.10 Payments ............................................................... 28
Section 2.11 Payment On Non-Business Days ........................................... 28
Section 2.12 Application Of Payments ................................................ 29
Section 2.13 Distribution Of Payments ............................................... 29
Section 2.14 The Agent's Right To Assume Funds Available For Loans .................. 29
Section 2.15 The Agent's Right To Assume Payments Will Be Made By The Borrower ...... 29
ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY .................................... 30
Section 3.1 Taxes ................................................................... 30
Section 3.2 Illegality .............................................................. 33
Section 3.3 Increased Costs ......................................................... 34
Section 3.4 Inability To Determine Rates ............................................ 34
Section 3.5 Prepayment Of LIBOR Loans ............................................... 34
Section 3.6 Capital Requirements .................................................... 35
Section 3.7 Certificates Of Lenders ................................................. 35
Section 3.8 Substitution Of Lenders ................................................. 35
Section 3.9 Survival ................................................................ 35
ARTICLE IV CONDITIONS PRECEDENT TO CLOSING AND THE MAKING
OF LOANS ................................................................... 36
Section 4.1 Conditions Precedent To The Closing ..................................... 36
(a) Corporate Documents .................................................... 36
(b) Loan Documents ......................................................... 38
(c) Opinion Of Borrower's Counsel .......................................... 39
(d) J.A. Bel Acquisition Documents ......................................... 39
(e) Baal Acquisition Documents ............................................. 39
(f) Quatre Parish Acquisition Documents .................................... 39
(g) Griffin Documents ...................................................... 40
(h) Governmental Consents ................................................... 40
(i) Third Party Consents ................................................... 40
(j) Consummation Of The Timberlands Acquisition ............................ 40
(k) Opening Timber Appraisal ............................................... 40
(l) Opening Pro Forma Balance Sheet ........................................ 40
(m) Initial Equity Investment .............................................. 41
</TABLE>
ii.
<PAGE> 4
<TABLE>
<S> <C>
(n) Financial Statements ................................................... 41
(o) Senior Loan Documents .................................................. 41
(p) Harvest Plan ........................................................... 41
(q) Confirmation Regarding Harvest Plan .................................... 41
(r) Environmental Review ................................................... 41
(s) Material Agreements .................................................... 41
(t) Access Rights And Servitudes ........................................... 41
(u) Entitlements ........................................................... 42
(v) Solvency Certificate ................................................... 42
(w) No Material Adverse Change ............................................. 42
(x) UCC Searches ........................................................... 42
(y) No Litigation .......................................................... 42
(z) The Borrower's Bring-Down Certificate .................................. 42
(aa) Fee Letter ............................................................ 43
(bb) Escrow Agreement....................................................... 43
(cc) Funds Transfer Memorandum ............................................. 43
(dd) Fees And Costs ........................................................ 43
(ee) Other Documents ....................................................... 43
ARTICLE V THE BORROWER'S REPRESENTATIONS AND WARRANTIES ............................... 43
Section 5.1 Organization, Power And Authority Of The Borrower ....................... 43
Section 5.2 Organization, Power And Authority of The Borrower's
Subsidiaries........................................................... 44
Section 5.3 Loan Documents Authorized; Binding Obligations........................... 44
Section 5.4 No Conflict ............................................................. 44
Section 5.5 Capital Structure ....................................................... 45
Section 5.6 Financial Condition ..................................................... 45
Section 5.7 No Material Adverse Change .............................................. 45
Section 5.8 Ownership Of Properties ................................................. 45
Section 5.9 Litigation .............................................................. 45
Section 5.10 Material Documents; Third Party Consents ............................... 45
Section 5.11 No Government Consents Needed .......................................... 46
Section 5.12 Solvency ............................................................... 46
Section 5.13 Management And Labor Agreements ........................................ 46
Section 5.14 ERISA Compliance ....................................................... 46
</TABLE>
iii.
<PAGE> 5
<TABLE>
<S> <C>
Section 5.15 Certain Representations And Warranties Concerning The
Timberlands ..................................................................... 47
(a) Condition ................................................................... 47
(b) Acres And Volume ............................................................ 47
Section 5.16 Margin Regulations ..................................................... 47
Section 5.17 Taxes .................................................................. 47
Section 5.18 Intellectual Property Rights ........................................... 48
Section 5.19 Other Regulations ...................................................... 48
Section 5.20 Brokers' Fees .......................................................... 48
Section 5.21 Nature Of Representations And Warranties ............................... 48
ARTICLE VII AFFIRMATIVE COVENANTS OF THE BORROWER AND
SERVICES ............................................................................ 49
Section 6.1 Records And Reports ..................................................... 49
(a) Quarterly Borrower-Prepared Financial Statements ............................ 49
(b) Annual Audited Financial Statements ......................................... 49
(c) Quarterly Timber Report ..................................................... 50
(d) Merchantable Timber Appraisal Reports ....................................... 50
(e) Harvest Plans ............................................................... 51
(f) Management Letter ........................................................... 51
(g) Financial Forecasts ......................................................... 51
(h) Other Reports ............................................................... 51
(i) Notices ..................................................................... 51
(j) ERISA ....................................................................... 51
(k) SEC Filing .................................................................. 52
(l) Material Agreements ......................................................... 52
(m) Other Information ........................................................... 52
Section 6.2 Maintenance of Rights And Properties ................................... 52
(a) Maintenance Of Existence And Rights ......................................... 52
(b) Maintenance Of Properties ................................................... 53
Section 6.3 Taxes And Other Liabilities ............................................. 53
Section 6.4 Inspection Of Books And Records ......................................... 53
Section 6.5 Harvesting Of Timber .................................................... 53
Section 6.6 Compliance With Laws .................................................... 53
</TABLE>
iv.
<PAGE> 6
<TABLE>
<S> <C>
Section 6.7 Agreements .............................................................. 53
Section 6.8 Supplemental Disclosure ................................................. 54
Section 6.9 Further Assurances....................................................... 54
Section 6.10 Year 2000 .............................................................. 54
ARTICLE VIII NEGATIVE COVENANTS OF THE BORRWER......................................... 54
Section 7.1 Limitation On Liens ..................................................... 54
Section 7.2 Disposition Of Assets ................................................... 56
Section 7.3 Consolidations And Mergers .............................................. 56
Section 7.4 Acquisitions; Loans And Investments ..................................... 56
Section 7.5 Limitation On Indebtedness .............................................. 57
Section 7.6 Transactions With Affiliates ............................................ 58
Section 7.7 Use Of Proceeds ......................................................... 58
Section 7.8 Lease Obligations ....................................................... 58
Section 7.9 Capital Expenditures .................................................... 59
Section 7. 10 Restricted Distributions .............................................. 59
Section 7.11 Modification Of Certain Agreements ..................................... 59
Section 7.12 Maintenance Of Business ................................................ 59
Section 7.13 ERISA .................................................................. 59
Section 7.14 No Use Of Any Lender's Name ............................................ 60
Section 7.15 Accounting Changes ..................................................... 60
ARTICLE X EVENTS OF DEFAULT AND REMEDIES .............................................. 60
Section 8. 1 Events Of Default ...................................................... 60
(a) Installments Of Principal ................................................... 60
(b) Other Payments .............................................................. 60
(c) Cross Defaults .............................................................. 60
(d) Representations And Warranties Of The Borrower .............................. 61
(e) Specific Defaults ........................................................... 61
(f) Other Defaults .............................................................. 61
(g) Insolvency; Voluntary Proceedings ........................................... 61
(h) involuntary Proceedings ..................................................... 62
(i) Material Adverse Change ..................................................... 62
(j) Monetary Judgments .......................................................... 62
</TABLE>
v.
<PAGE> 7
<TABLE>
<S> <C>
(k) Non-Monetary Judgments ...................................................... 62
(l) Collateral .................................................................. 62
(m) ERISA ....................................................................... 63
(n) Change In Key Investors...................................................... 63
(o) Change in Management ........................................................ 63
Section 8.2 Waiver Of Default ....................................................... 63
Section 8.3 Remedies ................................................................ 63
Section 8.4 Set-Off ................................................................. 63
(a) Rights Of Set-Off ........................................................... 63
(b) The Agent's Consent To Set-Off Required ..................................... 64
Section 8.5 Sharing Of Payments ..................................................... 64
Section 8.6 Rights And Remedies Cumulative .......................................... 64
ARTICLE XI THE AGENT .................................................................. 64
Section 11.1 Appointment And Authorization .......................................... 64
Section 11.2 Delegation Of Duties ................................................... 65
Section 11.3 Exculpatory Provisions ................................................. 65
Section 11.4 Reliance By The Agent .................................................. 65
Section 11.5 Notice Of Default ...................................................... 66
Section 11.6 Credit Decision ........................................................ 66
Section 11.7 Indemnification ........................................................ 66
Section 11.8 The Agent In Individual Capacity ....................................... 67
Section 11.9 Successor Managing Agent ............................................... 67
Section 11.10 Collateral Matters .................................................... 68
ARTICLE XII MISCELLANEOUS ............................................................. 68
Section 12.1 Amendments And Waivers.................................................. 69
Section 12.2 Notices ................................................................ 69
Section 12.3 No Waiver BY Agent Or The Lenders ...................................... 70
Section 12.4 Entire Agreement; Construction ......................................... 70
Section 12.5 Indemnification ........................................................ 70
Section 12.6 Costs And Expenses ..................................................... 71
Section 12.7 Reliance By The Lenders ................................................ 71
Section 12.8 Marshalling; Payments Set Aside ........................................ 71
Section 12.9 No Set-offs By The Borrower ............................................ 72
</TABLE>
vi.
<PAGE> 8
<TABLE>
<S> <C>
Section 12.10 Successors And Assigns ................................................ 72
Section 12.11 Assignments, Participations, Etc. ..................................... 72
Section 12.12 Headings .............................................................. 74
Section 12.13 Severability .......................................................... 74
Section 12.14 Notification Of Addresses, Lending Offices, Etc. ...................... 74
Section 12.15 No Third Parties Benefited ............................................ 74
Section 12.16 Relationship Of Parties ............................................... 75
Section 12.17 Time .................................................................. 75
Section 12.18 Counterparts .......................................................... 75
Section 12.19 Joinder to Subordination Agreement .................................... 75
Section 12.20 Equitable Relief ...................................................... 75
Section 12.21 Notice Of Claims; Claims Bar .......................................... 75
Section 12.22 Waiver Of Punitive Damages ............................................ 76
Section 12.23 Governing Law ......................................................... 76
Section 12.24 Service Of Process .................................................... 76
Section 12.25 Waiver Of Jury Trial .................................................. 76
Section 12.26 Submission To Jurisdiction ............................................ 76
</TABLE>
vii.
<PAGE> 9
BRIDGE LOAN AGREEMENT
THIS BRIDGE LOAN AGREEMENT is entered into as of April 27, 1998, by
and among STRATEGIC TIMBER TRUST, INC., a Georgia corporation which intends to
elect to be classified as a real estate investment trust under Section 856 of
the Internal Revenue Code of 1986, as amended (the "Borrower"), as the borrower,
the LENDERS (as defined below) and ABN AMRO BANK N.V., not in its individual
capacity, but solely in its capacity as the Agent.
RECITALS
A. The Borrower was formed under the laws of the State of Georgia for
the purpose of acquiring and owning a limited partnership interest in Strategic
Timber Partners, LP, a Delaware limited partnership (the "Partnership"). The
Partnership was formed for the purpose of acquiring and owning Timberlands,
including, initially, certain Timberlands situated in Allen, Beauregard,
Calcasieu, and Jefferson Davis Parishes, Louisiana and more particularly
described in Part A to SCHEDULE 2 (the "Bel/Quatre Timberlands").
B. Griffin and the J.A. Bel Sellers have entered into the J.A. Bel
Purchase Agreement pursuant to which the J.A. Bel Sellers have agreed to sell,
transfer and convey by Act of sale to Griffin and Griffin has agreed to purchase
from the J.A. Bel Sellers (the "J.A. Bel Acquisition") all of the J.A. Bel's
Sellers' undivided right, title and interest in that portion of the Bell/Quatre
Timberlands more particularly described in Part A.I to SCHEDULE 2 (the "J.A.
Bel Timberlands") and certain related assets (collectively, the "J.A. Bel
Timberlands Assets").
C. Griffin and Baal Land Corporation have entered into the Baal
Purchase Agreement pursuant to which Baal Land Corporation has agreed to sell,
transfer and convey by act of sale to Griffin and Griffin has agreed to purchase
from Baal Land Corporation (the "Baal Acquisition") all of Baal Land
Corporation's undivided right, title and interest in the J.A. Bel Timberlands
Assets.
D. Griffin and the Quatre Parish Sellers have entered into the
Quatre Parish Purchase Agreement pursuant to which the Quatre Parish Sellers
have agreed to sell, transfer and convey by act of sale to Griffin and Griffin
has agreed to purchase from the Quatre Parish Sellers (the "QUARTE PARISH
ACQUISITION") all of the Quatre Parish Sellers' undivided right, title and
interest in that portion of the Bel/Quatre Timberlands more particularly
described in Part A.2 to SCHEDULE 2 (the "Quatre Parish Timberlands") and
certain related assets (collectively, the "Quatre Parish Timberlands Assets";
the J.A. Bel Timberlands Assets and the Quatre Parish Timberlands Assets are
collectively referred to as the "Timberlands Assets").
E. Griffin and LTP have entered into the Griffin Contract of Sale
pursuant to which Griffin has agreed, in a related, substantially simultaneous
back-to-back transaction, to sell, transfer and convey by act of sale to LTP,
and LTP has agreed to purchase from Griffin (the "Griffin Acquisition") all of
Griffin's right, title and interest in and to the Timberlands Assets, and LTP in
turn has agreed to contribute and assign all of its right, title and interest
in, to and under the Griffin Contract of Sale and the other Griffin Acquisition
Documents to the Partnership pursuant to the LTP Assignment.
1.
<PAGE> 10
F. Concurrently herewith, the Partnership is entering into the Senior
Loan Agreement with the Senior Lenders and the Senior Agent pursuant to which
the Senior Lenders have agreed (in accordance with their respective commitments)
to advance to the Partnership (i) at Closing, Senior Loans in an amount equal to
a portion of the availability under the Senior Lenders' aggregate commitment for
the purpose of, among other things, funding a portion of the purchase price of
the Timberlands Assets and related transaction costs.
G. The Borrower has requested that the Lenders and the Agent enter into
this Agreement pursuant to which the Lenders severally agree (in accordance with
their respective Commitments) to advance the Borrower at Closing the Loan, the
entire proceeds of which, net of related transaction costs, will be immediately
contributed by the Borrower to the Partnership to fund a portion of the purchase
price of the Timberlands Assets.
H. The Lenders have agreed to make the Loans described in this
Agreement available to the Borrower, but only on the terms, subject to the
conditions and in reliance on the representations and warranties set forth
below.
AGREEMENT
Now, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants set forth below, and intending to be legally bound, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings:
"ABN AMRO" means ABN AMRO Bank N.V., a Dutch banking corporation.
"Acquisition" means any transaction, or any series of related
transactions, by which the Borrower or the Partnership directly or indirectly
(a) acquires any ongoing business or all or substantially all of the assets of
any firm, partnership, limited liability company, real estate investment trust,
business trust or other similar trust, joint venture, corporation or division
thereof, whether through purchase of assets, merger or otherwise, (b) acquires
(in one transaction or as the most recent transaction in a series of
transactions) control of at least a majority of the capital stock of a
corporation having ordinary voting power for the election of directors, (c)
acquires control of fifty percent (50.0%) or more of the ownership interest in
any partnership, limited liability company or joint venture or (d) in a single
or in a series of related transactions, from one or more Persons, acquires asset
including Timberlands and other related Properties and facilities, including
mills and other Timber conversion or processing facilities, having an aggregate,
all-in purchase price of at least $2,000,000.
"Acquisition Documents" means, collectively, the J.A. Bel Acquisition
Documents, the Baal Acquisition Documents, the Quatre Parish Acquisition
Documents, and the Griffin Acquisition Documents.
2.
<PAGE> 11
"Additional Pledgor" means each such Person as shall, after the
Closing Date, purchase or acquire partnership interests in the Partnership and
in connection therewith shall execute and deliver to the Agent, a pledge
agreement, substantially in the form of (i) if such Person shall acquire general
partnership interests, the STOC Pledge Agreement, and (ii) if such Person shall
acquire limited partnership interests, the LTP Pledge Agreement, granting and
pledging to the Agent, on behalf of the Lenders and the Agent, a first Priority
Lien on such partnership interests.
"Adjusted LIBOR" means, for each Interest Period in respect of LIBOR
Loans comprising part of the same Borrowing, an interest rate per annum (rounded
upward to the nearest 1/16th of one percent (0.0625%)) determined pursuant to
the following formula:
Adjusted LIBOR LIBOR
-------------------------------------
1.00 - Eurodollar Reserve Percentage
The Adjusted LIBOR shall be adjusted automatically as of the effective date of
any change in the Eurodollar Reserve Percentage.
"Affected Lender" has the meaning set forth in SECTION 3.8.
"Affiliate" means, with respect to any Person, each other Person
which, directly or indirectly, controls, is controlled by or is under common
control with such Person (excluding any trustee under, or any committee with
responsibility for administering, any Pension Plan or Employee Benefit Plan). A
Person shall be deemed to be "controlled by" another Person if such other Person
possesses, directly or indirectly, power (a) to vote five percent (5.0%) or more
of the securities (on a fully diluted basis) having ordinary voting power for
the election of directors, managing general partners or managing members or (b)
to direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.
"Agent" means ABN AMRO, not when acting in its individual capacity, but
solely when acting in its capacity as the Agent under this Agreement or any of
the other Loan Documents, and any successor Agent.
"Agent-Related Persons" means the Agent, and any successor Agent,
together with their respective Affiliates, and the officers, directors,
employees, agents and attorneys-in-fact of such Persons.
"Agent's Payment Office" means the address for payments set forth on
the signature page hereto in relation to the agent or such other address as the
Agent may from time to time specify in accordance with Section 12.2.
"Aggregate Commitment" means the combined Commitments of the Lenders in
the initial aggregate principal amount of Eighty-Five Million Dollars
($85,000,000).
"Agreement" means this Loan Agreement dated as of April 27, 1998,
including all amendments, modifications and supplements hereto and all
appendices, exhibits and schedules to any of the foregoing, and shall refer to
the Agreement as the same may be in effect from time to time.
3.
<PAGE> 12
"Applicable Margin" means with respect to any Base Rate Loan or any
LIBOR Loan, as applicable, the following margin, expressed as a percentage,
based on the number of months elapsed since the Closing Date:
<TABLE>
<CAPTION>
NUMBER OF MONTHS ELAPSED LOANS
SINCE THE CLOSING DATE
<S> <C> <C>
Applicable Applicable
Margin for Margin for
LIBOR Loans Base Rate
Loans
============================================================================
Less than six months 3.50% 1.75%
----------------------------------------------------------------------------
Less than twelve months but 4.0% 2.25%
greater than or equal to six
months
----------------------------------------------------------------------------
Greater than twelve months 5.00% 3.25%
============================================================================
</TABLE>
"Assignee" has the meaning set forth in SECTION 12.11(A).
"Assignment and Acceptance" has the meaning specified in SECTION
12.11(A).
"Attorney Costs" means and includes all reasonable fees and
disbursements of any law firm or other external counsel, the allocated cost of
internal legal services and all disbursements of internal counsel.
"Baal Acquisition" has the meaning set forth in RECITAL C.
"Baal Acquisition Documents" means the Baal Purchase Agreement,
together with all acts of sale, acts of assignment, bills of sale, possession
affidavits, affidavits regarding access, affidavits regarding timber deeds and
mineral leases, escrow instructions and all other agreements, documents and
instruments executed and delivered in connection with the consummation of the
Baal Acquisition.
"Baal Land Corporation" means Baal Land Corporation, a Louisiana
corporation.
"Bad Purchase Agreement" means the Agreement to Purchase and Sell
effective as of February 11, 1998, between BAAL Land Corporation and Griffin,
and all final schedules, exhibits and attachments thereto.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of 1978, as
codified under Title 11 of the United States Code, and the Bankruptcy Rules
promulgated thereunder, as amended.
"BASE RATE" means for any day, the higher of (a) the per annum
floating rate established by ABN AMRO at its branch office in Chicago, Illinois
as its "prime rate" for domestic (United States) commercial loans in effect on
such day, and (b) one-half of one percent (0.50%) in excess
4.
<PAGE> 13
of the Federal Funds Rate in effect on such day. ABN AMRO's prime rate is a rate
set by ABN AMRO based upon various factors, including ABN AMRO's costs and
desired return, general economic conditions and other factors, and is neither
directly tied to an external rate of interest or index or necessarily the lowest
nor best rate of interest actually charged by ABN AMRO at any given time to any
customer or particular class of customers for any particular credit extension.
ABN AMRO may make commercial or other loans at rates of interest at, above or
below its prime rate.
"Base Rate Loan" means a Loan that bears interest based on the Base
Rate.
"Bel/Quatre Timberlands" has the meaning set forth in RECITAL A.
"Borrower" has the meaning set forth in the PREAMBLE.
"Borrower Collateral" means all Property and interests in Property, and
all proceeds thereof including the Property covered by the Collateral Documents,
now existing or hereafter acquired, that may at any time be or become subject to
a Lien granted or created in favor of the Agent, for the benefit of itself and
the Lenders, to secure the full and complete payment and performance of the
Borrower's Obligations under this Agreement and under the Loan Documents.
"Borrower Collateral Documents" means collectively, (a) the Security
Agreement, the Pledge Agreement, the Financing Statements naming the Borrower as
debtor and such other agreements, assignments, documents and instruments from
time to time executed and delivered by the Borrower granting, assigning or
transferring or otherwise evidencing or relating to any Lien granted, assigned
or transferred to the Agent or any Lender pursuant to or in connection with the
transactions contemplated by this Agreement and (b) any amendments, supplements,
modifications, renewals, restatements, replacements, consolidations,
substitutions and extensions of any of the foregoing.
"Borrowing" means a single borrowing under this Agreement consisting of
Loans in the aggregate principal amount of Eighty-Five Million Dollars
($85,000,000) to be made to the Borrower on the Closing Date by the Lenders
pursuant to ARTICLE II.
"Business" means the acquisition, ownership, management and harvesting
of Timber and activities incidental thereto.
"Business Day" means any day other than a Saturday, Sunday or other day
on which banking institutions in the States of Illinois, New York or Louisiana
are authorized or required by law or other governmental action to close, except
that if any determination of a "Business Day" shall relate to a LIBOR Loan, the
term "Business Day" shall also mean a day on which dealings are carried on in
the London interbank market.
"Canal" means Canal Forest Resources, Inc.
"Capital Expenditures" means all expenditures for any fixed assets or
improvements or for replacements, substitutions or additions thereto, that have
a useful life of more than one (1) year and which are required to be capitalized
under GAAP.
5.
<PAGE> 14
"Capital Lease Obligation" means, with respect to any capital lease,
the amount of the obligation of the lessee thereunder that, in accordance with
GAAP, would appear on a balance sheet of such Person in respect of such Capital
Lease or otherwise be disclosed in a note to such balance sheet.
"Cash Equivalents" means:
(A) securities issued or unconditionally guaranteed or insured
by the United States Government or any agency or any State thereof and backed by
the full faith and credit of the United States or such State having maturities
of not more than one (1) year from the date of acquisition;
(B) certificates of deposit, time deposits, Eurodollar time
deposits, repurchase agreements, reverse repurchase agreements or bankers'
acceptances, having in each case a tenor of not more than one (1) year, issued
by any Lender, or by any nationally or state chartered commercial bank or any
branch or agency of a foreign bank licensed to conduct business in the United
States having combined capital and surplus of not less than $100,000,000 whose
short term securities are rated at least A-1 by Standard & Poor's Rating Group
and P-1 by Moody's Investors Service, Inc.; and
(C) commercial paper of an issuer rated at least A-1 by
Standard & Poor's Rating Group or P-1 by Moody's Investors Service, Inc. and in
either case having a tenor of not more than two hundred and seventy (270) days.
"Change in Key Investors" means any of (a) the Borrower shall cease to
own of record and beneficially at least a majority of the aggregate Partnership
Units (as defined in and determined pursuant to the Limited Partnership
Agreement) in the Partnership, (b) STOC shall cease to be the sole general
partner of the Partnership, (c) the Borrower shall cease to own of record and
beneficially at least one hundred percent of the outstanding shares of STOC or
(d) any of Edward C. Broom, Thomas P. Broom or Christopher Broom shall
collectively cease to comprise a majority of the Board of Directors of the
Borrower.
"Change in Key Management" means the Partnership shall have failed to
employ or engage within sixty (60) days following the Closing Date and shall
thereafter cease to employ or to have engaged as an independent contractor a
forestry management director or consultant (including A to silviculture issues)
reasonably acceptable to the Agent.
"Charges" means all federal, state, county, city, municipal, local,
foreign or other governmental taxes, levies, assessments, charges or claims, in
each case then due and payable, upon or relating to (a) the Collateral, (b) the
Loans, (c) the Borrower's employees, payroll, income or gross receipts, (d) the
Borrower's ownership or use of any of its Properties or assets or (e) any other
aspect of the Borrower's business.
"Closing" means the time at which each of the conditions precedent set
forth in Section 4.1 shall have been duly satisfied by the Borrower, as
determined by the Lenders, in their discretion.
"Closing Date" means the date on which the Closing occurs.
6.
<PAGE> 15
"Code" means the Internal Revenue Code of 1986, as amended, and the
Treasury Regulations adopted thereunder.
"Collateral" means, collectively, the Borrower Collateral and the
Partner Collateral.
"Collateral Documents" means, collectively, the Borrower Collateral
Documents and the Partner Collateral Documents.
"Commitment" means, as to each Lender, the amount set forth on SCHEDULE
1 next to such Lender's name.
"Commitment Percentage" means, as to any Lender, the percentage
equivalent of such Lender's Commitment divided by the Aggregate Commitment.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend, letter of credit or other obligation of another,
including any such obligation directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business),
co-made or discounted or sold with recourse by that Person, or in respect of
which that Person is otherwise directly or indirectly liable, including any such
obligation for which that Person is in effect liable through any agreement
(contingent or otherwise) (a) to purchase, repurchase or otherwise acquire such
primary obligations or any property constituting direct or indirect security
therefor, or (b) to advance or provide funds (i) for the payment or discharge
of any such primary obligation (whether in the form of loans, advances, capital
stock purchases, capital contributions or otherwise), or (ii) to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet item, level of income or
financial condition of the primary obligor, or (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (d) otherwise to assure or hold harmless the holder
of any such primary obligation against loss in respect thereof, or (e) to make
payment for any products, materials or supplies or for any transportation,
services or lease regardless of the non-delivery or non-furnishing thereof, in
any such case if the purpose or intent of such agreement is to provide assurance
that such obligation will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such obligation will be
protected (in whole or in part) against loss in respect thereof. The amount of
any Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guaranty or other support
arrangement.
"Continuation Date" means any date on which the Borrower elects to
continue a LIBOR Loan into another Interest Period.
"Control Agreement" means a control agreement entered between the
Borrower and a depository institution at which the Borrower maintains a deposit
account, a securities
7.
<PAGE> 16
intermediary at which the Borrower maintains a security account or a commodities
intermediary at which the Borrower maintains a commodity account (as such terms
are defined and used in Articles 8 and 9 of the UCC), and acknowledged by the
Agent, with respect to each such deposit account, security account or commodity
account, as the case may be.
"Cutting Rights Agreements" means all timber deeds, timber leases,
timber mortgages, cutting rights agreements and other agreements, contracts,
arrangements or other contractual obligations, whether now existing or hereafter
entered into, whereby the Partnership or its predecessors in interest have
granted, grant or will grant to third Persons the right to cut, harvest or
otherwise remove Timber from the Timberlands or any other real property owned or
leased by the Partnership.
"Default" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise remedied
during such time) constitute an Event of Default.
"Default Rate" has the meaning set forth in SECTION 2.4(c).
"Designated Deposit Account" means the deposit account designated by
the Borrower from time to time by written notice to the Agent, for the purpose
of receiving the disbursement of Loans which designation shall be subject to
the Agent's prior written approval.
"Designation of Responsible Persons" means a separate Designation of
Responsible Persons dated the date of this Agreement, executed by an authorized
officer of the Borrower, substantially in the form of EXHIBIT D, identifying the
officers of the Borrower as having authority to request, convert or continue
Loans hereunder.
"Disclosure Schedule" means SCHEDULE 3.
"Disposition" means the sale, lease, conveyance or other disposition
by the Borrower of any of its respective Property or other assets in a single
transaction or related series of transactions.
"Dollars," "dollars" and "$" each mean lawful money of the United
States of America.
"Domestic Lending Office" means, with respect to each Lender, the
office of that Lender designated as such in the signature pages hereto or such
other office of the Lender as it may from time to time specify to the Borrower
and the Agent.
"Due Inquiry" means any and all inquiry, investigation and analysis
which a prudent Person would undertake and complete with diligence with the
intent of coming to an understanding appropriate to the scope of importance of
the subject to which the inquiry relates.
"EBITDDA" means, as calculated for the Borrower, on a consolidated
basis for any period as of any date of determination, the sum of (a) Net Income,
plus (b) all amounts treated as expenses for depreciation and the amortization
of intangibles of any kind to the extent included in the determination of Net
Income, plus (c) all amounts treated as expenses for the depletion of
8.
<PAGE> 17
Timber from the Timberlands, plus (d) Net Interest Expense to the extent
included in the determination of Net Income, plus (e) net taxes on income to the
extent included in Net Income.
"Eligible Assignee" means (a) a commercial bank organized under the
laws of the United States, or any State thereof, and having combined capital and
surplus of at least $ 100,000,000; (b) a commercial bank organized under the
laws of any other country which is a member of the Organization for Economic
Cooperation and Development ("OECD"), or a political subdivision of any such
country, and having a combined capital and surplus of at least $100,000,000;
provided, however, that such bank is acting through a branch or agency located
in the country in which it is organized or another country which is also a
member of the OECD or the Cayman Islands; (c) the central bank of any country
which is a member of the OECD; (d) a finance company or other financial
institution or fund (whether a corporation, partnership, trust or other
entity) that is engaged in making, purchasing or otherwise investing in
commercial loans in the ordinary course of its business and having a combined
capital and surplus of at least $100,000,000; (e) an insurance company organized
under the laws of the United States, or any state thereof, and having a combined
capital and surplus of at least $ 100,000,000; (f) any Lender party to this
Agreement; (g) any Lender Affiliate and (h) any other Person approved by the
Agent and the Borrower, such approval not to be unreasonably withheld; provided,
however, that (1) the Borrower's approval shall not be required so long as an
Event of Default has occurred and is continuing and (ii) an Affiliate of the
Borrower shall not qualify as an Eligible Assignee.
"Employee Benefit Plan" means any Pension Plan and any employee
welfare benefit plan, as defined in Section 3(1) of ERISA, that is maintained
for the employees of any Person or any ERISA Affiliate of such Person.
"Environmental Indemnity" means the Environmental Indemnity dated as of
the date of this Agreement, executed and delivered by the Borrower and the
Partnership, jointly and severally and in solido, in favor of and to each of the
Lenders and the Agent.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.
"ERISA Affiliate" means, as applied to any Person, any trade or
business (whether or not incorporated) under common control with the Borrower
within the meaning of Section 414(b) or (c) of the Code (and Sections
414(m) and (o) of the Code for purposes of provisions relating to Section 412 of
the Code).
"ERISA Event" means (a) a Reportable Event with respect to a Pension
Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate from a Pension
Plan subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation
of operations which is treated as such a withdrawal under Section 4062(e) of
ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA
Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is
in reorganization; (d) the filing of a notice of intent to terminate, the
treatment of a Plan amendment as a termination under Section 4041 or 4041 A of
ERISA, or the commencement of proceedings by the PBGC to terminate a Pension
Plan or Multiemployer Plan; (e) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the
9.
<PAGE> 18
termination of, or the appointment of a trustee to administer, any Pension
Plan or Multiemployer Plan; or (f) the imposition of any liability under Title
IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007
of ERISA, upon the Borrower or any ERISA Affiliate.
"Eurodollar Reserve Percentage " means the reserve percentage
(expressed as a decimal, rounded upward to the nearest 1/100th of one percent
(0.01%)) in effect on the date LIBOR for such Interest Period is determined
(whether or not applicable to any Lender) under regulations issued from time to
time by the Federal Reserve Board for determining the maximum reserve
requirement (including any emergency, supplemental or other marginal reserve
requirement) with respect to Eurocurrency funding (currently referred to as
"Eurocurrency liabilities") having a term comparable to such Interest Period.
"Event of Default" means any of the events or circumstances set forth
in SECTION 8. 1.
"Event of Loss" means, with respect to any Property, any of the
following: (a) any material loss, destruction or damage of such Property,
including any destruction of Timber due to fire, disease or infestation, or (b)
any actual condemnation, seizure or taking, by exercise of the power of eminent
domain or otherwise, of such Property, or confiscation of such Property or the
requisition of the use of such Property to the extent compensation is paid for
such loss, whether under an insurance policy or otherwise.
"Federal Funds Rate" means, for any period, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Board (including any such
successor,"H.15(519)") for such day opposite the caption "Federal Funds
(Effective)". If on any relevant day such rate is not yet published in
H.15(519), the rate for such day will be the rate set forth in the daily
statistical release designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m.
Quotation") for such day under the caption "Federal Funds Effective Rate". If on
any relevant day the appropriate rate for such previous day is not yet published
in either H.15(519) or the Composite 3:30 p.m. Quotation, the rate for such day
will be the arithmetic mean of the rates for the last transaction in overnight
Federal funds arranged prior to 9:00 am., New York Time, on that day by each of
three leading brokers of Federal funds transactions in New York City selected by
the Agent.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or any successor thereto.
"Fee Letter" means the side letter relating to fees dated the date of
this Agreement, between the Borrower and ABN AMRO.
"Financing Statements" means the UCC-1 financing statements and the
UCC-1F farm product statements duly executed by the Borrower, STOC, or LTP, as
the case may be, as debtor, in favor of the Agent, as secured party, and caused
to be filed prior to the Closing in the jurisdictions set forth on Schedule 4.
10.
<PAGE> 19
"Fiscal Quarter" means each fiscal quarter of the Borrower ending on
each March 31, June 30, September 30 and December 31.
"Fiscal Year" means each fiscal year of the Borrower ending on each
December 31.
"Form 1001" has the meaning set forth in SECTION 3.1(g)(i)(A).
"Form 4224" has the meaning set forth in SECTION 3.1(g)(i)(A).
"Form W-8" has the meaning set forth in SECTION 3.1(g)(ii)(A).
"Funded Debt" means, as calculated for the Borrower on it consolidated
basis as of any date of determination, the total amount of all interest bearing
obligations (including all issued and undrawn letters of credit), which
obligations shall include the principal amount outstanding under all Loans
advanced by the Lenders hereunder, but shall specifically exclude Capital Lease
Obligations.
"Funding Date " means with respect to the proposed Borrowing hereunder,
the date funds are advanced to the Borrower for any Loan.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other Person as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"Governmental Authority" means (a) any federal, state, county, parish
or municipal government, or political subdivision thereof, (b) any governmental
or quasi-governmental agency, authority, board, bureau, commission, department,
instrumentality or public body, (c) any court or administrative tribunal or (d)
with respect to any Person, any arbitration tribunal or other non-governmental
authority to whose jurisdiction that Person has consented.
"Griffin" means Griffin Logging, Inc., an Arkansas corporation.
"Griffin Acquisition" has the meaning set forth in RECITAL E.
"Griffin Acquisition Documents" means the Griffin Contract of Sale and
the LTP Assignment, together with all acts of sale, acts of assignment, bills
of sale, possession affidavits, affidavits regarding access, affidavits
regarding timber deeds and mineral leases, escrow instructions and all other
agreements, documents and instruments executed and delivered in connection with
the consummation of the Griffin Acquisition.
"Griffin Contract of Sale" means the Contract for the Purchase and Sale
of Real Property dated April 15, 1999, between Griffin and LTP, and all final
schedules, exhibits and attachments thereto.
11.
<PAGE> 20
"Gross Interest Expense" means, as calculated for the Borrower on a
consolidated basis for any period as at any date of determination, interest
expense for such period (including all commissions, discounts, fees and other
charges under letters of credit and similar instruments and under any Rate
Contract) classified and accounted for in accordance with GAAP.
"Harvesting Contracts" means all agreements, contracts or other
contractual obligations, whether now existing or hereafter entered into, whereby
third Persons have granted or will grant to the Partnership the right to cut,
harvest or otherwise remove Timber from real property other than the Timberlands
and other real property owned or leased by the Partnership and all other rights
of the Partnership to cut, harvest or otherwise remove Timber from real property
other than the Timberlands and other real property owned or leased by the
Partnership.
"Harvest Plan" means the ten (10) year harvest plan of the Partnership
for the harvesting and sale of Timber and stumpage, as amended or modified from
time to time with the approval of the Agent.
"Indebtedness" means, as to any Person, (a) all indebtedness of such
Person for borrowed money, including, without limitation, all amounts
outstanding under this Agreement and any of the other Loan Documents, (b) all
capital leases of such Person (but excluding any operating leases), (c) to the
extent of the outstanding Indebtedness thereunder, all obligations of such
Person that are evidenced by a promissory note or other instrument representing
an extension of credit to such Person, whether or not for borrowed money, (d)
all obligations of such Person for the deferred purchase price of Property or
services (other than trade or other accounts payable in the ordinary course of
business in accordance with customary industry terms), (e) all obligations of
such Person of the nature described in clauses (a), (b), (c) or (d), above, and
not otherwise included therein that is secured by a Lien on assets of such
Person, whether or not that Person has assumed such obligation or whether or not
such obligation is nonrecourse to the credit of such Person, but only to the
extent of the fair market value of the assets so subject to the Lien, (f) all
obligations of such Person arising under acceptance facilities or under
facilities for the discount of accounts receivable of such Person, (g) all
obligations of such Person to reimburse the issuer of any letter of credit
issued for the account of such Person upon which a draw has been made, (h) all
obligations of such Person to a counterpart under any Rate Contract and (i) all
Contingent Obligations of such Person.
"Indemnified Matters" has the meaning set forth in SECTION 12.5.
"Indemnitees" has the meaning set forth in SECTION 12.5.
"Initial Budget" has the meaning set forth in SECTION 7.8(b).
"Initial Equity Investment" means $55,000,000, which is the aggregate
minimum amount of the initial equity capitalization of the Partnership made by
the Borrower and LTP (exclusive of the contribution by the Borrower of the
proceeds of the Loan) immediately prior to the consummation of the Timberlands
Acquisition.
"Insolvency Proceeding" means (a) any case, action or proceeding before
any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation,
12.
<PAGE> 21
receivership, dissolution, winding-up or relief of debtors, or (b) any general
assignment for the benefit of creditors, composition, marshalling of assets for
creditors or other, similar arrangement in respect of its creditors generally or
any substantial portion of its creditors, in each of case (a) and (b) undertaken
under federal, state or foreign law, including the Bankruptcy Code.
"Interest Differential" means, with respect to any prepayment of a
LIBOR Loan on a day other than an Interest Payment Date on which such LIBOR Loan
matures, the difference between (a) the per annum interest rate payable with
respect to such LIBOR Loan as of the date of the prepayment and (b) the Adjusted
LIBOR on, or as near as practicable to, the date of the prepayment for a LIBOR
Loan commencing on such date and ending on the last day of the applicable
Interest Period. The determination of the Interest Differential by the Agent
shall be conclusive in the absence of manifest error.
"Interest Payment Date" means, with respect to any LIBOR Loan, the last
day of each Interest Period applicable to such Loan and, with respect to Base
Rate Loans, the last Business Day of each Fiscal Quarter, and each date a Base
Rate Loan is converted into a LIBOR Loan; provided, however, that if any
Interest Period for a LIBOR Loan exceeds three (3) months, interest shall also
be paid on the date which falls three (3) months after the beginning of such
Interest Period.
"Interest Period" means, as to any LIBOR Loan, the period commencing on
the date of such LIBOR Loan and ending with respect to LIBOR Loans, on the
numerically corresponding day (or, if there is no numerically corresponding day,
on the last day) in the calendar month that is one (1), two (2), three (3) or
six (6) months thereafter, in each case as the Borrower may elect; provided,
however, that (a) no Interest Period with respect to any LIBOR Loan shall end
later than the Maturity Date, (b) if an Interest Period would end on a day that
is not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless such next succeeding Business Day would fall in
the next calendar month, in which case such Interest Period shall end on the
immediately preceding Business Day, and (c) interest shall accrue from and
including the first Business Day of an Interest Period to but excluding the last
Business Day of such Interest Period.
"Interest Rate Determination Date" means each date for calculating the
LIBOR for purposes of determining the interest rate in respect of an Interest
Period. The Interest Rate Determination Date shall be the second Business Day
prior to the first day of the related Interest Period for such LIBOR Loan.
"Investment" means, when used in connection with any Person, any investment by
or of that Person, whether by means of purchase or other acquisition of
securities of any other Person or by means of loan, advance, capital
contribution, guaranty or other debt or equity participation or interest, or
otherwise, in any other Person, including any partnership, joint venture or
limited liability company interests of such Person in any other Person. The
amount of any Investment shall be the original principal or capital amount
thereof less all returns of principal or equity thereon (and without adjustment
by reason of the financial condition of such other Person) and shall, if made by
the transfer or exchange of Property other than cash, be deemed to have been
made in an original principal or capital amount equal to the fair market value
of such Property.
13.
<PAGE> 22
"Investment Company Act" means the Investment Company Act of 1940, as
amended (15 U.S.C. ss. 80a-1 et seq.).
"IRS" means the Internal Revenue Service and any Governmental Authority
succeeding to any of its principal functions under the Code.
"J.A. Bel Acquisition" has the meaning set forth in RECITAL B.
"J.A. Bel Acquisition Documents" means the J.A. Bel Purchase
Agreement, together with all acts of sale, acts of assignment, bills of sale,
possession affidavits, affidavits regarding access, affidavits regarding timber
deeds and mineral leases and escrow instructions and all other agreements,
documents and instruments executed and delivered in connection with the
consummation of J.A. Bel Acquisition.
"J.A. Bel Purchase Agreement" means the Agreement to Purchase and Sell,
effective as of January 21, 1998, between the J.A. Bel Sellers and Griffin, and
all final schedules, exhibits and attachments thereto.
"J.A. Bel Sellers" means, collectively, (a) the Estate of Albert B.
Fay, represented by Albert B. Fay, Jr., its executor, and Marion Fay Monsen, its
executrix, (b) Belfay, Inc., a Texas corporation, (c) Bayou Breeze, Inc. of
Texas, a Texas corporation, (d) MFM Cloche, Inc., a Texas corporation, (e)
Ernest Bel Fay Louisiana Trust, represented by Carolyn Grant Fay, Marie Bel Fay,
Carolyn Fay Yocum and John Spencer Fay, its trustees, (f) Shadowfax Corporation
of Texas, a Texas corporation, (g) Marie Bel Fay Properties, Inc., a Texas
corporation, (h) Trust under the Will of James Ware Gardiner, represented by
Albert Krafcheck, Harris S. Jacobs and Elliot Lefkowitz, its trustees, (i) Bel
Bois Corporation, a Louisiana corporation, j) JBB Properties, Inc., a Louisiana
corporation, (k) Belwood, Inc., a Louisiana corporation, (l) Ernest F. Bel
Trust, represented by William D. Blake and Katherine K. Blake, its trustees, (m)
Della Krause Thielen Testamentary Trust A for John Chadick Thielen, represented
by John Chadick Thielen and Katherine Thielen Hoffman, trustees, (n) Della
Krause Thielen Testamentary Trust A for Katherine Thielen Hoffman, represented
by John Chadick Thielen and Katherine Thielen Hoffman, trustees, (o) John
Chadick Thielen Properties, Inc., a Louisiana corporation, (p) Katherine Thielen
Hoffman Properties, Inc., a Louisiana corporation, (q) Belarbor Corporation,
a Louisiana corporation, and (r) Piney Woods Corp., a Washington corporation.
"J.A. Bel Timberlands" has the meaning set forth in RECITAL B.
"J.A. Bel Timberlands Assets" has the meaning set forth in RECITAL B.
"L&M" means Larson & McGowin, Inc., forestry consultants to the
Borrower.
"Land" means the real property owned of record by the Partnership.
"Lender Affiliate" means a Person engaged primarily in the business of
commercial banking and that is an Affiliate of a Lender or of a Person of which
a Lender is an Affiliate.
14.
<PAGE> 23
"Lenders" means the banks, financial institutions or other
institutional lenders which have executed signature pages to this Agreement and
such other Assignees, banks, financial institutions or other institutional
lenders as shall hereafter execute and deliver an Assignment and Acceptance with
respect to all or any portion of the Commitments and the Loans advanced and
maintained pursuant to the Commitments, in each case pursuant to and in
accordance with SECTION 12.11.
"Lenders' Forestry Consultant" means such forest management consultant
as may be engaged by the Lenders for the purposes set forth in this Agreement,
which consultant may be the same independent forest management consultant as
engaged by the Partnership.
"Lending Office" means, with respect to any Lender, the office or
offices of the Lender specified as its "Domestic Lending Office" opposite its
name on the applicable signature page hereto, or such other office or offices of
the Lender as it may from time to time notify the Borrower and the Agent.
"LIBOR" means, with respect to any Loan to be made, continued as or
converted into a LIBOR Loan, the London Inter-Bank Offered Rate (determined by
the Agent), rounded upward to the nearest 1/16th of one percent (0.0625%), at
which Dollar deposits are offered to ABN AMRO by major banks in the London
interbank market at or about 11:00 am., London Time, on the Interest Rate
Determination Date with respect to such Loan in an aggregate amount
approximately equal to the amount of such Loan and for a period of time
comparable to the number of days in the applicable Interest Period. The
determination of LIBOR by the Agent shall be conclusive in the absence of
manifest error.
"LIBOR Loan" means a Loan that bears interest based on Adjusted LIBOR.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment for security, security interest, encumbrance, levy, lien or charge of
any kind, whether voluntarily incurred or arising by operation of law or
otherwise, against any Property, including any agreement to grant any of the
foregoing, any conditional sale or other title retention agreement, any lease in
the nature of a security interest.
"Limited Partnership Agreement" means the First Amended and Restated
Agreement of Limited Partnership of the Partnership dated April 23, 1998.
"Loan" means a Loan advanced to the Borrower pursuant to SECTION 2.1 by
the Lenders under their Commitments according to their respective Commitment
Percentages, which Loan may be in the form of either a Base Rate Loan or a LIBOR
Loan, depending upon the context.
"Loan Documents" means this Agreement, the Notes, the Collateral
Documents, the Partnership Guaranty, the Subordination Agreement, the
Environmental Indemnity, the Fee Letter, and any and all other agreements
(including any Rate Contract), documents and instruments executed and delivered
by or on behalf of or in support of the Borrower to any Lender or the Agent or
their respective authorized designee evidencing or otherwise relating to the
Loans as the same may from time to time be amended, modified, supplemented,
extended or renewed.
15.
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"LTP" means Louisiana Timber Partners, L.L.C., a Georgia limited
liability company and a limited partner of the Partnership.
"LTP Assignment" means the Partial Assignment and Assumption Agreement
dated April 23, 1998 between LTP and the Partnership and consented to by
Griffin, together with all acts of sale, acts of assignment, bills of sale and
all other agreements, documents and instruments executed and delivered in
connection with the consummation of the assignment of the Griffin Acquisition
Documents (and the transfer and conveyance of the Timberlands Assets) to the
Partnership.
"LTP Pledge Agreement" means the Non-Recourse Guaranty and Security
Agreement dated as of the date of this Agreement, executed by LTP in favor of
the Agent, for the benefit of the Lenders and the Agent.
"Mandatory Prepayment" means any mandatory prepayment of the principal
amount of Loans made or required to be made pursuant to SECTION 2.8.
"Margin Regulations" means, collectively, Regulations G, T, U and X
adopted by the Federal Reserve Board (12 C.F.R. Parts 207, 220, 221 and 224,
respectively).
"Material Adverse Change" means any set of circumstances or events
which (a) has or could reasonably be expected to have any material adverse
effect whatsoever upon the validity or enforceability of any Loan Document, (b)
is or could reasonably be expected to be material and adverse to the condition
(financial or otherwise), properties, business or operations of the Borrower or
the Partnership, (c) impairs materially or could reasonably be expected to
impair materially the ability of the Borrower to pay or perform its Obligations
or to avoid an Event of Default, (d) impairs materially or could reasonably be
expected to impair materially the value or priority of the Lien of the Agent,
for the benefit of the Lenders and the Agent, in the Collateral or (e) impairs
materially or could reasonably be expected to impair materially the ability of
the Agent or any Lender to enforce any of its legal remedies pursuant to the
Loan Documents.
"Maturity Date" means October 27, 1999.
"Merchantable Timber" means any tree which, by reference to the
applicable species code and product code, meets the standards for
merchantability listed on the Special Tally Instructions for Merchantable
Standards prepared by L&M set forth in SCHEDULE 5.
"Merchantable Timber Valuation Report" has the meaning set forth in
SECTION 6.1(d).
"Multiemployer Plan" shall mean a "multiemployer plan", within the
meaning of Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA
Affiliate makes, is making or is obligated to make contributions or, during the
preceding three (3) calendar years, has made, or been obligated to make,
contributions.
"Net Income" means, as calculated for the Borrower on a consolidated
basis for any period as at any date of determination, the net income (or loss)
of the Borrower for such period taken as a single accounting period.
16.
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"Net Interest Expense" means, as calculated on a consolidated basis
for the Borrower for any period as at any date of determination, (a) Gross
Interest Expense, less (b) interest income for that period and Rate Contract
payments received.
"Non-Bank Lender Tax Certificate" has the meaning set forth in SECTION
3.1(g)(ii)(A).
"Note" means a promissory note dated the date of issuance, executed by
the Borrower and payable to the order of a Lender in the stated principal amount
of such Lender's Commitment, substantially in the form of EXHIBIT A, and any and
all replacement, extensions, substitutions and renewals of any such promissory
note.
"Notice of Borrowing" means a notice given by the Borrower to the Agent
in accordance with SECTION 2.5, substantially in the form of EXHIBIT B, with
appropriate insertions.
"Notice of Continuation" means a notice given by the Borrower to the
Agent in accordance with SECTION 2.6, substantially in the form of EXHIBIT C,
with appropriate insertions.
"Obligations" means all loans, advances, debts, liabilities and
obligations, for monetary amounts owing, in each case on a joint and several
basis, by the Borrower to the Lenders or the Agent, whether due or to become
due, matured or unmatured, liquidated or unliquidated, contingent or
non-contingent, and all covenants and duties regarding such amounts, of any kind
or nature, present or future, whether or not evidenced by any note, agreement or
other instrument, arising under or in respect of any of the Loan Documents or
under or in respect of any Rate Contract. This term includes, without
limitation, all principal, interest (including interest that accrues after the
commencement against the Borrower of any action under the Bankruptcy Code),
fees, including, without limitation, any and all arrangement fees, loan fees,
commitment fees, agent fees and any and all other fees, expenses, costs or other
sums (including Attorney Costs) chargeable to the Borrower under any of the Loan
Documents.
"Opening Timber Valuation" means the Timber Estimate Report dated
February 17, 1998 prepared by L&M establishing an estimate of the volume of
Merchantable Timber on the Bel/Quatre Timberlands in combination with the Timber
Appraisals Review and Value Reconciliation dated April 24, 1998 prepared by
Canal.
"Operating Lease Obligations" means, with respect to any operating
lease, the amount of the obligations of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such Person in
respect of such operating lease or otherwise be disclosed in a note to such
balance sheet.
"Opinion of Borrower's Counsel (SAB)" means the favorable written
legal opinion of Sutherland, Asbill & Brennan LLP, special counsel to the
Borrower, the Partnership, STOC and LTP, addressed to the Lenders and the Agent.
"Opinion of Borrower's Counsel (LPRH)" means the favorable written
legal opinion of Locke Purnell Rain Harrell, special Louisiana counsel to the
Borrower, the Partnership, STOC and LTP addressed to the Lenders and the Agent.
17.
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"Ordinary Course of Business" means, in respect of any transaction
involving the Borrower or the Partnership, the ordinary course of the Borrower's
or the Partnership's business, as conducted by the Borrower or the Partnership
in accordance with past practice or, in the absence of past practice, consistent
with accepted prudent practices in the timber industry and, in each case,
undertaken by the Borrower or the Partnership in good faith and not for purposes
of evading any covenant or restriction in any Loan Document.
"Originating Lender" has the meaning set forth in SECTION 12.11(d).
"Other Taxes" has the meaning specified in SECTION 3.1(b).
"Over Advance" has the meaning set forth in SECTION 2.8.
"Participant" has the meaning set forth in SECTION 12.11 (d).
"Partner Collateral" means all Property and interests in Property, and
all proceeds thereof, including the Property covered by the Partner Collateral
Documents, now existing or hereafter acquired, that may at any time be or become
subject to a Lien granted or created in favor of the Agent, for the benefit of
itself and the Lenders, to secure the full and complete payment and performance
of STOC's, LTP's or any Additional Pledgor's obligations under its respective
Partner Collateral Documents.
"Partner Collateral Documents" means, collectively, (a) the STOC
Agreement, the LTP Pledge Agreement, each other pledge agreement as shall
hereafter be executed and delivered by any Additional Pledgor in favor of the
Agent, on behalf of the Lenders and the Agent, the Financing Statements naming
STOC, LTP or such Additional Pledgor as debtor and such other agreements,
assignments, documents and instruments from time to time executed and delivered
by STOC, LTP or such Additional Pledgor granting, assigning or transferring or
otherwise evidencing or relating to any Lien granted, assigned or transferred to
the Agent or any Lender pursuant to or in connection with the transactions
contemplated by this Agreement and (b) any amendments, supplements,
modifications, renewals, restatements, replacements, consolidations,
substitutions and extensions of any of the foregoing.
"Partnership Guaranty" means the Partnership Guaranty dated as of the
date of this Agreement, executed by the Partnership in favor of the Lenders and
the Agent.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal investors under ERISA.
"Pension Plan" means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA which the Borrower sponsors, maintains, or
to which it makes, is making or is obligated to make contributions, or in the
case of multiple employer plan (as described in Section 4064(a) of ERISA) has
made contributions at any time during the immediately preceding five (5) plan
years.
"Permitted Liens" has the meaning set forth in SECTION 8.1.
18.
<PAGE> 27
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, business or other trust,
unincorporated organization, association, corporation, institution, public
benefit corporation, firm, joint stock company, estate, entity or Governmental
Authority.
"Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which the Borrower sponsors or maintains or to which the Borrower makes,
is making, or is obligated to make contributions and includes any Pension Plan.
"Pledge Agreement" means the Pledge Agreement dated as of the date of
this Agreement, executed by the Borrower and the Agent, for the benefit of the
Lenders and the Agent.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, whether tangible or intangible.
"Public Utility Holding Company Act" means the Public Utility Holding
Company Act of 1935, as amended (15 U.S.C. ss. 79 et seq.).
"Quatre Parish Acquisition" has the meaning set forth in RECITAL D.
"Quatre Parish Acquisition Documents" means the Quatre Parish Purchase
Agreement, together with all acts of sale, acts of assignment, bills of sale,
possession affidavits, affidavits regarding access, affidavits regarding timber
deeds and mineral leases and escrow instructions and all other agreements,
documents and instruments executed and delivered in connection with the
consummation of the Quatre Parish Acquisition.
"Quatre Parish Purchase Agreement" means the Agreement to Purchase and
Sell dated February 11, 1998, between the Quatre Parish Sellers and Griffin, and
all final schedules, exhibits and attachments thereto.
"Quatre Parish Sellers" means, collectively, (a) the Estate of Albert
B. Fay, represented by Albert B. Fay, Jr., its executor, and Marion Fay Monsen,
its executrix, (b) Multi Parish, Inc., a Texas corporation, (c) Flanders Grove,
Inc., a Texas corporation, (d) MFM Quatre, Inc., a Texas corporation, (e) Ernest
Bel Fay Louisiana Trust, represented by Carolyn Grant Fay, Marie Bel Fay,
Carolyn Fay Yocum and John Spencer Fay, its trustees, (f) Spotted Horse
Corporation, a Texas Corporation, (G) MBF Properties, Inc., a Texas corporation,
(h) Four Parishes, Inc., a Louisiana Corporation, (i) Tejeanne, Inc., a
Louisiana corporation, (j) Ernest F. Bel Trust, represented herein by William D.
Blake and Katherine K. Blake, its trustees, (k) Della Krause Thielen
Testamentary Trust A for John Chadick Thielen, represented by John Chadick
Thielen and Katherine Thielen Hoffman, Trustees, (l) Della Krause Thielen
Testamentary Residuary Trust for John Chadick Thielen, represented by John
Chadick Thielen and Katherine Thielen Hoffman, Trustees, (m) Della Krause
Thielen Testamentary Residuary Trust for Katherine Thielen Hoffman, represented
by John Chadick Thielen and Katherine Thielen Hoffman Trustees, (n) Della Krause
Thielen Testamentary Trust for Morgan Elizabeth Thielen, represented by John
Chadick Thielen and Katherine Thielen Hoffman, Trustees, (o) Della Krause
Thielen Testamentary Trust for Carson Chadick Thielen, represented by John
Chadick
19.
<PAGE> 28
Thielen and Katherine Thielen Hoffman, trustees, (p) Della Krause Thielen
Testamentary Trust for John Colin Thielen, represented by John Chadick Thielen
and Katherine Thielen Hoffman, trustees, (q) Della Krause Thielen Testamentary
Trust for Katherine Anne Hoffman, represented by John Chadick Thielen and
Katherine Thielen Hoffman, trustees, (r) Della Krause Thielen Testamentary Trust
for Taylor Ann Hoffman, represented by John Chadick Thielen and Katherine
Thielen Hoffman, trustees, (s) Della Krause Thielen Testamentary Trust for
Robert Dean Hoffman, III, represented by John Chadick Thielen and Katherine
Thielen Hoffman, trustees, (t) Schonvervald, Inc., a Louisiana corporation, (u)
Idylease, Inc., a Louisiana corporation, (v) Vier Corporation, a Louisiana
corporation (w) Liberty Logs Corp., a Washington corporation.
"Quatre Parish Timberlands" has the meaning set forth in RECITAL D.
"Quatre Parish Timberlands Assets" has the meaning set forth in
RECITAL D.
"Rate Contract" means an interest rate or currency swap, cap or other
agreement or arrangement designed to provide protection against fluctuations in
interest or currency exchange rates.
"Replacement Lender" has the meaning set forth in SECTION 3.8.
"Reportable Event" means, any of the events set forth in Section
4043(c) of ERISA or the regulations thereunder, other than any such event for
which the 30-day notice requirement under ERISA has been waived in regulations
issued by the PBGC.
"Required Lenders" means (a) at such times as there are two (2) or
fewer Lenders, all Lenders, and (b) at all other times, Lenders then holding at
least fifty-one percent (51.0%) of the then aggregate unpaid principal amount of
all Loans then outstanding or, if no Loans are then outstanding, Lenders then
having at least fifty-one percent (51.0%) of the Aggregate Commitments.
"Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule, regulation, guideline or determination of an arbitrator
or of a Governmental Authority, in each case applicable to or binding upon the
Person or any of its Property or to which the Person or any of its Property is
subject.
"Responsible Person" means the Persons identified by the Borrower on a
Designation of Responsible Persons as having authority to request, convert or
continue Loans hereunder on behalf of the Borrower.
"SEC" means the Securities and Exchange Commission and any successor
thereto.
"Security Agreement" means the Security Agreement dated as of the date
of this Agreement, executed by the Borrower and the Agent, for the benefit of
the Lenders and the Agent.
"Senior Agent" means ABN AMRO solely when acting as the Agent under and
as defined in the Senior Loan Agreement, and any successor Agent thereto.
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<PAGE> 29
"Senior Lenders" means the banks, financial institutions and other
institutional lenders party from time to time to the Senior Loan Agreement in
their individual capacities as lenders.
"Senior Loan Agreement" means that Loan Agreement dated as of the same
date as this Agreement, among the Partnership, as the borrower, the Senior
Lenders and the Senior Agent.
"Senior Loan Documents" means the "Loan Documents," as such term is
defined in the Senior Loan Agreement.
"Senior Loan Obligations" means the "Obligations," as such term is
defined in the Senior Loan Agreement.
"Senior Loans" means the senior secured revolving credit loans in an
original stated available amount of up to $215,000,000 to be made by the Senior
Lenders to the Partnership pursuant to and in accordance with the terms of the
Senior Loan Agreement.
"Solvent" means, as to any Person at any time, that (a) the fair value
of the Property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities) as
such value is established and liabilities evaluated for purposes of Section
101(31) of the Bankruptcy Code; (b) the present fair saleable value of the
Property of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured; (c) such Person is able to pay its debts and other liabilities
(including disputed, contingent and unliquidated liabilities) as they mature in
the normal course of business; (d) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities mature; and (e) such Person is not engaged in
a business or a transaction for which such Person's property would constitute
unreasonably small capital.
"STOC" means Strategic Timber Operating Co., a Delaware corporation,
which is the sole general partner of the Partnership.
"STOC Pledge Agreement" means the Pledge Agreement dated as of the date
of this Agreement, executed by STOC and the Agent, for the benefit of the
Lenders and the Agent.
"Subordination Agreement" means the Subordination Agreement dated as
of the Closing Date, among the agent on behalf of itself and the Lenders, the
Senior Agent on behalf of itself and the Senior Lenders, the Partnership and the
Borrower.
"Subsidiary" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business entity
of which more than fifty percent (50.0%) of the voting stock or other equity
interests (in the case of Persons other than corporations), is owned or
controlled directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof.
"Taxes" has the meaning set forth in SECTION 3.1(a).
"Timber" means all trees, timber to be cut from the Land or otherwise,
timber, whether severed or unsevered and including standing and down timber,
stumps and cut timber remaining
21.
<PAGE> 30
on the Land or otherwise, and logs, wood chips and other forest products,
whether now located on or hereafter planted or growing in or on the Land or
otherwise or now or hereafter removed from the Land or otherwise for sale or
other disposition.
"Timberlands" means real property suitable and principally
used for timber production.
"Timberlands Assets" has the meaning set forth in RECITAL D.
"Timberlands Acquisition" means the acquisition by the Partnership of
the Timberlands Assets at Closing pursuant to the Griffin Acquisition Documents.
"Timber Sales Agreements" means all timber sales agreements, log sales
agreements, purchase orders, purchase and sale agreements and other contractual
obligations, whether now existing or hereafter entered into, whereby the
Partnership, as seller, is or may become obligated to cut, harvest or otherwise
remove Timber harvested from the Land or to otherwise obtain Timber and to sell,
exchange or deliver such Timber to third Persons.
"Title Company" means Commonwealth Land Title Insurance Company.
"Total Funded Debt" means, as calculated for the Borrower on a
consolidated basis as of any date of determination, the total Funded Debt of
the Borrower and its Subsidiaries.
"Transferee" has the meaning specified in SECTION 12.11(e).
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of Illinois; provided, however, in the event
that, by reason of mandatory provisions of law, any and all of the attachment,
perfection or priority of the Lien of the Agent, for the benefit of the Lenders
and the Agent, in and to the Collateral is governed by the Uniform Commercial
Code as in effect in a jurisdiction other than the State of Illinois, the term
"UCC" shall mean the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such
provision.
"Unfunded Pension Liability" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA over the current value of that
Plan's assets, determined in accordance with the assumptions used for funding
the Pension Plan pursuant to Section 412 of the Code for the applicable plan
Year.
22.
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Section 1.2 Other Interpretive Provisions.
(a) Accounting Terms. Any accounting term used in this Agreement shall
have, unless otherwise specifically provided herein, the meaning customarily
given such term in accordance with GAAP, and all financial data required to be
submitted by this Agreement shall be prepared and computed, unless otherwise
specifically provided herein, in accordance with GAAP. That certain terms or
computations are explicitly modified by the phrase "in accordance with GAAP"
shall in no way be construed to limit the foregoing.
(b) Other Terms. All other undefined terms contained in this Agreement
shall, unless the context indicates otherwise, have the meanings provided for by
the UCC to the extent the same are used or defined therein. The words "herein,"
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole, including the Exhibits and Schedules attached to this
Agreement, all of which are by this reference incorporated into this Agreement,
and not to any particular provision of this Agreement. The term "including" is
not limiting and means "including, without limitation," and "including but not
limited to." The term "documents" includes any and all instruments, documents,
agreements, certificates, indentures, notices and other writings, however
evidenced. The term "or" is disjunctive; the term "and" is conjunctive. The term
"shall" is mandatory; the term "may" is permissive. Wherever from the context it
appears appropriate, each term stated in either the singular or plural shall
include the singular and plural, and pronouns stated in the masculine, feminine
or neuter gender shall include the masculine, feminine and the neuter.
(c) Performance; Time. Whenever any performance obligation hereunder
(other than a payment obligation) shall be stated to be due or required to be
satisfied on a day other than a Business Day, such performance shall be made or
satisfied on the next succeeding Business Day unless otherwise indicated. In the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including"; the words "to" and "until" each mean
"to but excluding", and the word "through" means "to and including." If any
provision of this Agreement refers to any action taken or to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
interpreted to encompass any and all means, direct or indirect, of taking, or
not taking, such action.
(d) Laws. References to any statute or regulation are to be construed
as including all statutory and regulatory provisions consolidating, amending,
replacing, supplementing or interpreting the statute or regulation.
(e) Rounding. Any financial ratios required to be maintained by the
Borrower pursuant to this Agreement shall be calculated by dividing the
appropriate component by the other component, carrying the result to one place
more than the number of places by which such ratio is expressed in this
Agreement and rounding the result up or down to the nearest number (with a
round-up if there is no nearest number) to the number of places by which such
ratio is expressed in this Agreement.
(f) Schedules And Exhibits. Any reference to an "Article," "Section,"
"Subsection," "Schedule" or "Exhibit" shall refer to the relevant Article,
Section or Subsection of or Schedule or Exhibit to this Agreement, unless
specifically indicated to the contrary.
23.
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ARTICLE II
THE CREDITS
SECTION 2.1 AMOUNTS AND TERMS OF COMMITMENTS.
(A) THE LOAN FACILITY. Upon the terms, subject to the conditions and in
reliance upon the representations and warranties of the Borrower set forth in
this Agreement and in the other Loan Documents, each Lender having a Commitment
severally agrees to make a Loan of immediately available funds to the Borrower
upon the Closing Date in an aggregate principal amount outstanding equal to such
Lender's Commitment.
(B) FUNDING OF LOANS TO THE AGENT. Following the Agent's receipt of a
complying Notice of Borrowing and the Agent's determination that the conditions
precedent to the requested Borrowing set forth in Article IV have been duly
satisfied, the Agent shall promptly notify each Lender having a Commitment of
(i) the requested Borrowing and such Lender's Commitment Percentage thereof and
(ii) the requested Funding Date, which (A) if a LIBOR Loan is requested, shall
be no earlier than the third Business Day following the date on which the Agent
so notifies such Lender and, (B) if a Base Rate Loan is requested shall be no
earlier than the following Business Day. Except as specifically provided in the
escrow instructions referred to in SECTION 4.1(BB) and in the funds transfer
memorandum referred to in SECTION (CC), not later than 1:00 p.m., Chicago,
Illinois time, on the requested Funding Date, each Lender having a Commitment
shall have advanced its Loan to the Agent at the Agent's Payment Office in
immediately available funds. No Lender shall have any liability to the Borrower
for the failure of such Lender to advance funds for any Loan unless and until
each condition precedent to the applicable Borrowing has been duly satisfied or
has been waived in writing by Required Lenders. The Borrower shall have no right
to enforce any obligation of a Lender to fund any Loan unless and until each
condition precedent to the Borrowing has been duly satisfied or has been waived
in writing by Required Lenders. The Agent's determination that the conditions
precedent to the Borrowing have been duly satisfied shall be conclusive and
binding on all Lenders for purposes of determining when the Lenders shall be
obligated to advance funds to the Agent.
(C) DISBURSEMENT OF LOANS TO THE BORROWER. On the Closing Date, the
Agent shall disburse in immediately available funds to the Designated Deposit
Account specified in the Notice of Borrowing an amount equal to the Loans
advanced by the Lenders to the Agent's Payment Office with respect to such
Borrowing.
(D) GENERAL PROVISIONS RELATING TO THE LOANS. Each Loan made by a
Lender hereunder shall be either in the form of a LIBOR Loan or, (i) until the
earlier of (1) sixty (60) days following the Closing Date or (2) delivery to the
Borrower by ABN AMRO, in its sole discretion as the syndication agent in respect
of the Commitments of written notice that Borrowings of LIBOR Loans are
available based on the satisfactory completion of ABN AMRO's syndication of the
Commitments to the capital markets or (ii) if the continuing or maintaining of
LIBOR Loans is prohibited under this Agreement, Base Rate Loans. The Borrower
shall repay the principal amount of the Loans in the amounts and in the manner
set forth in SECTION 2.3 and pay interest accrued on the Loans at the rates and
in the manner set forth
24.
<PAGE> 33
in SECTION 2.4. Amounts borrowed by the Borrower under the Aggregate Commitments
and subsequently repaid or prepaid may not be reborrowed.
(E) PERMITTED USES OF LOAN PROCEEDS. The Borrower shall use the Loan
proceeds only for the purposes of financing (a) together with the Initial Equity
Investment, a portion of the purchase price of the Timberlands Acquisition (as
consummated through the Griffin Acquisition) paid on the Closing Date, and (b)
related transaction costs.
SECTION 2.2 NOTES.
(A) NOTES. The Loans made by each Lender shall be evidenced by separate
Notes executed by the Borrower and made payable to the order of such Lender in
the stated principal amount equal to its Commitment.
(B) NOTATIONS IN THE LENDERS' BOOKS AND RECORDS. Each Lender shall make
notations in its books and records regarding the date, amount and maturity of
each Loan made by it and the amount of each repayment or prepayment of principal
and payment of interest made by the Borrower with respect to such Loan. Each
Lender is irrevocably authorized by the Borrower to endorse its Note and each
Lender's record shall be conclusive absent manifest error; provided, however,
that the failure of a Lender to make, or an error in making, such a notation
with respect to any Loan shall not limit or otherwise affect the Obligations of
the Borrow hereunder or under any such Note to such Lender.
SECTION 2.3 REPAYMENT OF PRINCIPAL AMOUNT OF LOANS. Subject to the
terms of this Agreement relating to optional earlier repayments of Loans and the
acceleration of maturities, the Borrower shall repay the Lenders the entire
outstanding principal amount of the Loans and all other unpaid amounts
outstanding hereunder on the Maturity Date.
SECTION 2.4 PAYMENT OF INTEREST ON THE LOANS.
(A) LOANS. Subject to Section 2.4(c), each Loan shall bear interest on
the outstanding principal amount thereof from the date when made, continued or
converted until paid in full at a rate per annum equal to the Adjusted LIBOR,
or, if applicable, the Base Rate, plus the Applicable Margin.
(B) INTEREST PAYMENT DATES. Interest on each Loan shall be paid in
arrears on each Interest Payment Date. Interest shall also be paid on the date
of any prepayment of any Loans pursuant to this Agreement for the portion of the
Loans so prepaid and upon payment (including prepayment) in full thereof.
(E) INTEREST UPON EVENTS OF DEFAULT. Upon the occurrence of an Event of
Default and so long as such Event of Default shall continue, including after
acceleration (whether before or after entry of judgment), the Borrower shall, at
the option of Required Lenders, pay interest on the principal amount of each
Loan then outstanding at a rate per annum which is determined by adding two
percent (2.00%) to the Applicable Margin applicable to such Loan (the "Default
Rate").
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(D) LIMITATIONS ON INTEREST RATES. Notwithstanding any provision in
this Agreement, the Notes or any of the other Loan Documents, the total
liability for payments in the nature of interest shall not exceed the applicable
limits imposed by any applicable federal or state interest rate laws. If any
payments in the nature of interest, additional interest and other charges made
hereunder or under any of the Loan Documents are held to be in excess of the
applicable limits imposed by any applicable federal or state law, the amount
held to be in excess shall be considered payment of principal under the Notes
and the indebtedness evidenced thereby shall be reduced by such amount in the
inverse order of maturity so that the total liability for payments in the nature
of interest, additional interest and other charges shall not exceed the
applicable limits imposed by any applicable federal or state interest rate laws.
SECTION 2.5 PROCEDURE FOR THE BORROWING OF LOANS.
(A) The Borrowing of Loans on the Closing Date shall be made upon the
Borrower's irrevocable written notice delivered to the Agent in the form of a
Notice of Borrowing, executed by a Responsible Person of the Borrower, with
appropriate insertions, specifying:
(A) the requested Funding Date, which shall be a Business Day;
and
(B) the Designated Deposit Account to which proceeds, of the
Loans are to be transferred together with wiring instructions.
(B) Upon receipt of the Notice of Borrowing, the Agent will promptly
notify each Lender having a Commitment of the amount of such Lender's Commitment
Percentage of the requested Borrowing.
(C) Each Lender having a Commitment will make the amount of its
Commitment Percentage of the Borrowing available to the Agent for the account of
the Borrower at the Agent's Payment Office by 1:00 p.m., Chicago, Illinois time,
on the Funding Date requested by the Borrower in funds immediately available to
the Agent. The proceeds of all such Loans will then be made available to the
Borrower on the Funding Date by the Agent by wire transfer to the Designated
Deposit Account specified in the Notice of Borrowing. No Borrowing of Loans.
shall be deemed made to the Borrower, and no interest shall accrue on any such
Borrowing, until the related funds have been deposited in the Designated Deposit
Account.
SECTION 2.6 CONTINUATION ELECTIONS.
(A) The Borrower may upon irrevocable written notice to the Agent elect
to continue on any Interest Payment Date any LIBOR Loans maturing on such
Interest Payment Date (or any put thereof in an amount equal to Five Million
Dollars ($5,000,000) or any integral multiple of $1,000,000 in excess thereof);
provided, that if the aggregate amount of LIBOR Loans shall have been reduced,
by payment, prepayment, or conversion of part thereof, to be less than
$5,000,000, such LIBOR Loans shall automatically convert into Base Rate Loans,
and on and after such date the right of the Borrower to continue such Loans as
LIBOR Loans shall terminate.
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(B) The Borrower shall deliver a Notice of Continuation in accordance
with SECTION 12.2 to be received by the Agent prior to 12:00 noon, Chicago,
Illinois, time, at least three (3) Business Days in advance of the Continuation
Date, specifying:
(I) the proposed Continuation Date;
(II) the aggregate amount of Loans to be continued; and
(III) the duration of the requested Interest Period.
(C) If upon the expiration of any Interest Period applicable to any
LIBOR Loans, the Borrower shall have failed to select a new Interest Period to
be applicable to such LIBOR Loans, the Borrower shall be deemed to have elected
to convert such LIBOR Loans into LIBOR Loans having an Interest Period of one
(1) month.
(D) Upon receipt of a Notice of Continuation, the Agent will promptly
notify each Lender thereof, or, if no timely notice is provided by the Borrower,
the Agent will promptly notify each Lender of the details of any automatic
continuation. All continuations shall be made according to each Lender's
applicable Commitment Percentage of the outstanding principal amounts of the
Loans with respect to which the notice was given.
(E) Unless the Required Lenders shall otherwise consent, during the
existence of a Default or Event of Default, the Borrower may not elect to have a
Loan converted into or continued as a LIBOR Loan.
SECTION 2.7 OPTIONAL PREPAYMENTS. Subject to SECTION 3.5, the Borrower
may, at any time or from time to time, upon at least three (3) Business Days'
notice to the Agent, prepay Loans in whole or in part, in amounts of not less
than $1,000,000. Such notice shall be irrevocable and the Agent shall promptly
notify each Lender thereof and of such Lender's Commitment Percentage of such
prepayment. If such notice is given by the Borrower, the Borrower shall make
such prepayment and the payment amount specified in such notice shall be due and
payable on the specified prepayment date, together with accrued interest to such
date on the principal amount prepaid and any amounts required pursuant to
SECTION 3.5, but otherwise without premium or penalty. Any prepayments made
pursuant to this SECTION 2.7 shall be applied first to LIBOR Loans with the
shortest Interest Periods remaining.
SECTION 2.3 MANDATORY PREPAYMENTS.
(A) DISTRIBUTIONS OF NOT OPERATING CASH FLOW. To the full extent
permitted by the Senior Loan Agreement, including Section 8.10 thereof, and
subject to the terms of the Subordination Agreement, the Borrower shall cause
the Partnership to declare and make distributions in cash or other immediately
available funds of all Net Operating Cash Flow (as defined in the Limited
Partnership Agreement) to the Borrower no less frequently than once every Fiscal
Quarter. The Borrower shall prepay the Obligations in the amount of each such
distribution of Net Operating Cash Flow on the date received by the Borrower, or
within three (3) Business Days thereafter; provided however, that
notwithstanding the foregoing, the Borrower shall be permitted to exclude from
such prepayment the excess of any amount required to pay any outstanding
Obligations then payable, provided that the entire amount of such excess
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is immediately either (i) deposited into a deposit account or (ii) invested in a
security account, in each such case with a depository institution or a
securities intermediary, as applicable, which has entered into a Control
Agreement with the Agent, in form and substance satisfactory to the Agent, as to
such deposit account or investment account, as applicable, pursuant to which the
Agent has obtained and maintained a fully perfected Lien in such deposit account
or investment account and all cash, funds, investment property and other
Property on deposit or invested therein, subject to no other Liens except as
permitted by such Control Agreement.
(B) NET EQUITY ISSUANCE PROCEEDS. To the fullest extent permitted by
the Senior Loan Agreement, including Section 8.10 thereof, and subject to the
terms of the Subordination Agreement, the Borrower shall cause the Partnership
to declare and make a distribution in cash or other immediately available funds
in an amount equal to one hundred percent (100.0%) of the aggregate issuance
proceeds received by the Partnership from the issuance of any new equity net of
reasonable transaction expenses (including customary underwriting commissions
and fees). The Borrower shall prepay the Obligations in an amount equal to one
hundred percent (100.0%) of (i) the amount distributed by the Partnership to the
Borrower pursuant to the preceding sentence and (ii) the amount of the aggregate
issuance proceeds received from the issuance of any new equity (other than the
3,160 shares shown as reserved in Item 5.5 to the disclosure Schedule) by the
Borrower, including pursuant to an initial public offering, net of reasonable
transaction expenses (including customary underwriting commissions and fees), in
each case on the date received by the Borrower or within three (3) Business Days
thereafter.
SECTION 2.9 CALCULATION OF INTEREST AND FEES. Interest on the Loans and
all fees payable hereunder shall be computed on the basis of a 360-day year and
the actual number of days elapsed in the period during which such interest
accrues. In computing interest on any Loan, the date of the making of such Loan
shall be included and the date of payment shall be excluded; provided, however,
that if any Loan is repaid on the same day on which it is made, such day shall
be included in computing interest on such Loan. Each change in the interest rate
of the Base Rate Loans based on changes in the Base Rate and each change in the
interest rate of LIBOR Loans based on changes in the Eurodollar Reserve
Percentage shall be effective on the effective date of such change and to the
extent of such change. The Agent shall give the Borrower prompt notice of any
such change in the Base Rate or Eurodollar Reserve Percentage; provided,
however, that any failure by the Agent to provide the Borrower with notice
hereunder shall not affect the lenders' right to make changes in the interest
rate of the Base Rate Loans based on changes in the Base Rate or changes in the
interest rate of LIBOR Loans based on changes in the Eurodollar Reserve
Percentage.
SECTION 2.10 PAYMENTS. All repayments or prepayments of principal and
all payments of interest, fees, costs, expenses and other sums chargeable to the
Borrower under this Agreement, the Notes or any of the other Loan Documents
shall be in lawful money of the United States of America in immediately
available funds and delivered to the Agent, on behalf and for the benefit of the
Lenders, not later than 12:00 noon, Chicago, Illinois time, on the date due at
the Agent's Payment Office.
SECTION 2.11 PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be
made under this Agreement, the Notes or any of the other Loan Documents shall be
stated to be due on
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a day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall in such case be
included in the computation of the payment of interest thereon.
SECTION 2.12 APPLICATION OF PAYMENTS. Except as otherwise expressly
provided in this Agreement or in any other Loan Document, all payments shall be
applied in the following order: (a) then due and payable fees, costs and
expenses; (b) then due and payable interest payments; and (c) then due and
payable principal payments and optional prepayments. In addition, each Lender is
authorized to, and at its sole option may, for the benefit of the Lenders and
the Agent, make advances on behalf of the Borrower for payment of any and all
fees, expenses, charges, costs, principal and interest incurred hereunder or
under the other Loan Documents. To the extent permitted by law, all amounts
advanced by any Lender hereunder or under other provisions of the Loan Documents
shall accrue interest thereon at the Base Rate.
SECTION 2.13 DISTRIBUTION OF PAYMENTS. The Agent shall immediately
distribute to each Lender, at such address as each Lender shall designate, such
Lender's interest in all repayments and prepayments of principal and all
payments of interest, loan fees, commitment fees and other fees, expenses and
costs received by the Agent on the same day and in the same type of funds as
payment was received. In the event the Agent does not distribute such payments
on the same day received, such payment shall accrue interest at the Federal
Funds Rate, which shall be payable by the Agent. The Agent shall indemnify and
hold the Borrower harmless from any claim for overnight interest by any Lender
under this SECTION 2.13.
SECTION 2.14 THE AGENT'S RIGHT TO ASSUME FUNDS AVAILABLE FOR LOANS.
Unless the Agent shall have been notified by any Lender no later than the
Business Day prior to the Funding Date of any Loan that such Lender does not
intend to make available to the Agent immediately available funds equal to such
Lender's Commitment Percentage of the total principal amount of such Loan, the
Agent may assume that such Lender has advanced funds in the amount of such Loan
to the Agent on the Funding Date and the Agent may, in reliance upon such
assumption, make available to the Borrower corresponding funds. The Agent agrees
to give prompt notice to the Borrower in the event it advances funds on behalf
of a Lender under this SECTION 2.14; provided, that failure to give such notice
shall in no way limit, restrict or otherwise affect the Borrower's obligations
or the Agent's or any Lender's rights or remedies under this Agreement and the
other Loan Documents. If the Agent has made funds available to the Borrower
based on such assumption and such Loan is not in fact made available to the
Agent by such Lender, the Agent shall be entitled to recover the corresponding
amount of such Loan on demand from such Lender. If such Lender does not promptly
pay such corresponding amount upon the Agent's demand, the Agent shall notify
the Borrower and the Borrower shall repay such Loan to the Agent. The Agent also
shall be entitled to recover from such Lender interest on such Loan in respect
of each day from the date such Loan was made by the Agent to the Borrower to the
date such corresponding amount is recovered by the Agent at the Federal Funds
Rate, and the Agent shall indemnify and hold harmless the Borrower from any
claim for such interest.
SECTION 2.15 THE AGENT'S RIGHT TO ASSUME PAYMENTS WILL BE MADE BY THE
BORROWER. Unless the Agent shall have been notified by the Borrower prior to the
date on which any payment to be made by the Borrower hereunder is due that the
Borrower does not intend to remit such payment, the Agent may, in its
discretion, assume that the Borrower has remitted such
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payment when so due and the Agent may, in its discretion and in reliance upon
such assumption, make available to each Lender on such payment date an amount
equal to such Lender's Commitment Percentage of such assumed payment. If the
Borrower has not in fact remitted such payment to the Agent, each Lender shall
forthwith on demand repay to the Agent the amount of such assumed payment made
available to such Lender, together with interest thereon in respect of each date
from and including the date such amount was made available by the Agent to such
Lender to the date such amount is repaid to the Agent at the Federal Funds Rate.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
SECTION 3.1 TAXES.
(A) Subject to SECTION 3.1(H), any and all payments by the Borrower to
the Lenders or the Agent under this Agreement shall be made free and clear of,
and without deduction or withholding for, any and all present or future taxes,
fees, duties, levies, imports, deductions, charges or withholdings, whatsoever
imposed by any Governmental Authority, excluding, in the case of each Lender and
the Agent, such taxes as are imposed on or measured by the net income of any
Lender or the Agent by any jurisdiction under the laws of which such Lender, or
the Agent, as the case may be, is organized or maintains a Lending Office or any
political subdivision thereof (all such non-excluded taxes, levies, imports,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes").
(B) In addition, the Borrower shall pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or any
other Loan Documents (hereinafter referred to as "Other Taxes').
(C) Subject to SECTIONS 3.1(A) and 3.1(H), if any Taxes or Other Taxes
are directly asserted or imposed against any Lender or the Agent, the Borrower
shall indemnify and hold harmless such Lender or the Agent, as the case may be,
for the full amount of the Taxes or Other Taxes (including any Taxes or Other
taxes asserted or imposed by any jurisdiction on amounts payable under this
SECTION 3.1) paid by the Lender or the Agent and any liability (including
penalties interest, additions to tax and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted or imposed. Payment under this indemnification shall be made
within thirty (30) days from the date the Lender or the Agent makes written
demand therefor (provided that the Borrower shall have the right to contest in
good faith any such Taxes or Other Taxes through appropriate proceedings). The
Lender, or the Agent in its discretion also may, but shall not be obligated to,
pay such Taxes or Other Taxes and the Borrower will promptly pay such additional
amounts (including any penalties, interest or expenses, except for, in the event
the Lender or the Agent fails to deliver notice of such assertion of Taxes or
Other Taxes to the Borrower within ninety (90) days after it has received notice
of such assertion or imposition of Taxes or Other Taxes, any such penalties,
interest or expenses which would not have arisen but for the failure of the
Lender or the Agent to so notify the Borrower of such assertion or imposition of
Taxes or Other Taxes) as is necessary
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in order that the net amount received by the Lender or the Agent after the
payment of such Taxes or Other Taxes (including any Taxes on such additional
amount) shall equal the amount the Lender or the Agent would have received had
not such Taxes or Other Taxes been asserted or imposed.
(D) If the Borrower shall be required by law to deduct or withhold any
Taxes or Other Taxes from or in respect of any sum payable hereunder to any
Lender or the Agent, then, subject to SECTION 3.1(H):
(I) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this SECTION 3.1) such Lender or the Agent, as the
case may be, receives an amount equal to the sum it would have received had no
such deduction or withholding been made;
(II) the Borrower shall make such deduction or withholding;
and
(III) the Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law.
(E) Within thirty (30) days after the date of any payment by the
Borrower of Taxes or Other Taxes, the Borrower, upon the Agent's request, shall
furnish to the Agent the original or a certified copy of a receipt evidencing
payment thereof, or other evidence' of payment satisfactory to the Agent.
(F) If the Borrower fails to pay any Taxes or Other Taxes when due to
the appropriate taxing authority or fail to furnish to the Agent the required
receipts or other required documentary evidence, the Borrower shall indemnify
the Lenders and the Agent for any incremental Taxes or Other Taxes, interest or
penalties that may become payable by any of the Lenders and the Agent as a
result of any such failure.
(G) Each Lender which is a foreign person (i.e., a person other than a
United States person for United States federal income tax purposes) agrees that:
(I) in the case of any Lender which is a "bank" within the
meaning of Section 881(c)(3)(A) of the Code,
(A) it shall, no later than the Closing Date (or, in
the case of a lender which becomes a party hereto pursuant to SECTION 10.11
after the Closing Date, the date upon which the lender becomes a party hereto)
deliver to the Borrower through the Agent two (2) accurate and complete signed
originals of IRS Form 4224 or any successor thereto ("Form 4224"), or two
accurate and complete signed originals of IRS Form 1001 or any successor thereto
("Form 1001"), as appropriate, in each case indicating that the Lender is on the
date of delivery thereof entitled to receive payments of principal, interest and
fees under this Agreement free from withholding of United States federal income
tax;
(B) if at any time the Agent or such Lender makes any
changes necessitating a new Form 4224 or Form 1001, it shall within thirty (30)
days after such change becomes effective deliver to the Borrower through the
Agent in replacement for, or in addition
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to, the forms previously delivered by it hereunder, two accurate and complete
signed originals of Form 4224, or two accurate and complete signed originals of
Form 1001, as appropriate, in each case indicating that the Lender is on the
date of delivery thereof entitled to receive payments of principal, interest and
fees under this Agreement free from withholding of United States federal income
tax;
(II) in the case of any Lender other than a Lender described
in clause (i) above,
(A) it shall, no later than the Closing Date (or, in
the case of a Lender which becomes a party hereto pursuant to SECTION 10.11
after the Closing Date, the date upon which the Lender becomes a party hereto)
deliver to the Borrower through the Agent two (2) accurate and complete signed
originals of a certificate substantially in the form of EXHIBIT F hereto (any
such certificate, a "Non-Bank Lender Tax Certificate") and two accurate and
complete signed originals of IRS Form W-8 or any successor thereto ("Form W-8")
certifying to such Lender's legal entitlement (assuming compliance by the
Borrower with the terms of this Agreement) to an exemption whereby the Lender is
on the date of delivery thereof entitled to receive payments of principal,
interest and fees under this Agreement free from withholding of United States
Federal income tax;
(B) if at any time the Agent or such Lender makes any
changes necessitating a new Form W-8, it shall within thirty (30) days after
such change becomes effective deliver to the Borrower through the Agent in
replacement for, or in addition to, the forms previously delivered by it
hereunder, two accurate and complete signed originals of Form W-8 certifying to
such Lender's legal entitlement (assuming compliance by the Borrower with the
terms of this Agreement) to an exemption whereby the Lender is on the date of
delivery thereof entitled to receive payments of principal, interest and fees
under this Agreement free from withholding of United States federal income tax;
(III) it shall, before or within thirty (30) days after the
occurrence of any event (including the passing of time but excluding any event
mentioned in (i) or (ii), above) requiring a change in or renewal of the most
recent Form 4224, Form 100 1 or Form W-8 previously delivered by such Lender,
deliver to the Borrower through the Agent two accurate and complete original
signed copies of Form 4224, Form 1001 or Form W-9 in replacement for the forms
previously delivered by the Lender; and
(IV) it shall, promptly upon the Lender's or the Agent's
reasonable request to do effect, deliver to the Lender or the Agent (as the case
may be) such other forms or similar documentation as maybe required from time to
time by any applicable law, treaty, rule or regulation in order to establish
such Lender's tax status for withholding purposes.
(H) The Borrower will not be required to pay any additional amounts in
respect of United States federal income tax pursuant to SECTION 3.1(D) to the
Agent or any Lender for the account of any Lending Office of such Lender:
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(I) if the obligation to pay such additional amounts would not
have arisen but for a failure by such Lender to comply with its obligations
under SECTION 3.1(G) in respect of such Lending Office; or
(II) if such Lender shall have delivered to the Borrower a
Form 4224, Form 1001 or Form W-8 in respect of such Lending Office pursuant to
SECTION 3.1(G), and such Lender shall not at any time be entitled to exemption
from deduction or withholding of United States federal income tax in respect of
payments by the Borrower hereunder for the account of such Lending Office for
any reason other than a change in United States law or regulations or in the
official interpretation of such law or regulations by any Governmental Authority
charged with the interpretation or administration thereof (whether or not having
the force of law) after the date of delivery of such form.
(I) If, at any time, the Borrower requests any Lender to deliver any
forms or other documentation in addition to those required pursuant to SECTION
3.1(G)(IV), then the Borrower shall, on demand of such Lender through the Agent,
reimburse such Lender for any costs and expenses (including reasonable Attorney
Costs) reasonably incurred by such Lender in the preparation or delivery of such
forms or other documentation.
(J) If the Borrower is required to pay additional amounts to any Lender
or the Agent pursuant to SECTION 3.11(D), then such Lender shall use its
reasonable best efforts (consistent with legal and regulatory restrictions) to
change the jurisdiction of its Lending Office so as to eliminate any such
additional payment by the Lender which may thereafter accrue if such change in
the judgment of such Lender is not otherwise disadvantageous to such Lender.
SECTION 3.2 ILLEGALITY.
(A) If any Lender shall determine that the introduction of any
Requirement of Law, or any change in any Requirement of Law or in the
interpretation or administration thereof, has made it unlawful, or that any
central bank or other Governmental Authority has asserted that it is unlawful,
for any Lender or its Lending Office to make LIBOR Loans, then, on notice
thereof by the Lender to the Borrower through the Agent the obligation of that
Lender to make LIBOR Loans shall be suspended until the Lender shall have
notified the Agent and the Borrower that the circumstances giving rise to such
determination no longer exists.
(B) If a Lender shall determine that it is unlawful to maintain any
LIBOR Loan, the Borrower shall prepay in full all LIBOR Loans of that Lender
then outstanding, together interest accrued thereon, either on the last day of
the Interest Period thereof if the Lender may lawfully continue to maintain such
LIBOR Loans to such day, or immediately, if the Lender may not lawfully continue
to maintain such LIBOR Loans, together with any amounts required to be paid in
connection therewith pursuant to SECTION 3.5.
(C) If the lender is required to prepay any LIBOR loan immediately as
provided in SECTION 3.2(B), then concurrently with such prepayment, the Borrower
shall borrow from the affected Lender, in the amount of such repayment, a Base
Rate Loan.
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(D) Before giving any notice to the Agent pursuant to this SECTION 3.2,
the affected Lender shall designate a different Lending Office with respect to
its LIBOR Loans if such designation will avoid the need for giving such notice
or making such demand and will not, in the judgment of the Lender, be illegal or
otherwise disadvantageous to the Lender.
SECTION 3.3 INCREASED COSTS. If any Lender shall determine that, due to
either (a) the introduction of or any change (other than any change by way of
imposition of or increase in the Eurodollar Reserve Percentage included in the
calculation of the LIBOR) in or in the interpretation of any Requirement of Law
or (b) the compliance with any guideline or request from any central bank or
other Governmental Authority (whether or not having the force of law), there
shall be any increase in the cost to such Lender of agreeing to make or making,
funding or maintaining any LIBOR Loans, then the Borrower shall be liable for,
and shall from time to time, upon demand therefor by such Lender, pay to such
Lender such additional amounts as are sufficient to compensate such Lender for
such increased costs.
SECTION 3.4 INABILITY TO DETERMINE RATES. If the Agent shall have
determined that for any reason adequate and reasonable means do not exist for
ascertaining the LIBOR for any requested Interest Period with respect to a
proposed LIBOR Loan or that the LIBOR applicable for any requested Interest
Period with respect to a proposed LIBOR Loan does not adequately and fairly
reflect the cost to the Lenders of funding such Loan, the Agent will forthwith
give notice of such determination to the Borrower and each Lender. Thereafter,
the obligation of the Lenders to make or maintain LIBOR Loans, as the case may
be, hereunder shall be suspended until the Agent, upon the instruction of the
Required Lenders, revokes such notice in writing. Upon receipt of such notice,
the Borrower may revoke any Notice of Borrowing or Notice of
Conversion/Continuation then submitted by it. If the Borrower does not revoke
such notice, the Lenders shall make, convert or continue the Loans, as proposed
by the Borrower, in the amount specified in the applicable notice submitted by
the Borrower, but such Loans shall be made or continued as or converted to Base
Rate Loans instead of LIBOR Loans, as the case may be.
SECTION 3.5 PREPAYMENT OF LIBOR LOANS. In the event that the Borrower
prepays or is required to prepay any LIBOR Loan by acceleration or otherwise or
fails to draw down or convert to a LIBOR Loan after giving notice thereof, the
Borrower agrees to reimburse each Lender for its expenses and funding losses due
to such prepayment or failure to draw. The Borrower and the Lenders hereby agree
that such expenses and funding losses shall consist of the sum of the discounted
monthly differences for each month during the applicable or requested Interest
Period, calculated as follows for each such month:
(A) principal amount of such LIBOR Loan times (number of days between
the date of prepayment and the last day in the applicable Interest Period
divided by 360), times the applicable Interest Differential; plus
(B) all actual out-of-pocket expenses (other than those taken into
account in the calculation of the Interest Differential) incurred by the Lenders
and the Agent (excluding allocations of any expense internal to the Lenders and
the Agent) and reasonably attributable to such payment or prepayment; provided
that no prepayment fee shall be payable (and no credit or rebate shall be
required) if the product of the foregoing formula is not a positive number.
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SECTION 3.6 CAPITAL REQUIREMENTS. If any Lender shall determine that
any change after the date of this Agreement in any law, rule, regulation or
guideline adopted pursuant to or arising out of the July 1988 report of the
Basle Committee on Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards," or the
adoption after the date hereof of any other Requirement of Law regarding capital
adequacy, or any change after the date of this Agreement in any of the foregoing
or in the enforcement or interpretation or administration of any of the
foregoing by any Governmental Authority charged with the enforcement or
interpretation or administration thereof, or compliance by any Lender (or any
Lending Office of the Lender) or the Lender's holding company with any request
or directive regarding capital adequacy (whether or not having the force of law)
of any such Governmental Authority, has the effect of reducing the rate of
return on the Lender's capital or on the capital of the Lender's holding
company, if any, as a consequence of the maintaining of any of its Commitments
or the making or maintaining any Loan under this Agreement to a level below that
which the Lender or the Lender's holding company could have achieved but for
such adoption, change or compliance (taking into consideration the Lender's
policies and the policies of the Lender's holding company with respect to
capital adequacy) by an amount deemed by the Lender to be material, then, upon
written demand by the Lender, the Borrower shall pay to the Lender, from time to
time such additional amount or amounts as will compensate the Lender or the
Lender's holding company for any such reduction suffered. Without affecting its
rights under this SECTION 3.6 or any other provision of this Agreement, the
Lender agrees that if there is any increase in any cost to or reduction in any
amount receivable by the Lender with respect to which the Borrower would be
obligated to compensate the Lender pursuant to this SECTION 3.6, the Lender
shall use reasonable efforts to select an alternative Lending Office which would
not result in any such increase in any cost to or reduction in any amount
receivable by the Lender; provided, however, that the Lender shall not be
obligated to select an alternative Lending Office if the Lender determines that
(a) as a result of such selection the Lender would be in violation of any
Requirement of Law, or would incur additional costs or expenses, or (b) such
selection would be inadvisable for regulatory reasons.
SECTION 3.7 CERTIFICATES OF LENDERS. Any Lender claiming reimbursement
or compensation pursuant to this ARTICLE III shall deliver to the Borrower (with
a copy to the Agent) a certificate setting forth in reasonable detail the amount
payable and the basis therefor to the Lender hereunder. Such certificate shall
be conclusive and binding on the Borrower in the absence of manifest error.
SECTION 3.8 SUBSTITUTION OF LENDERS. Upon the receipt by the Borrower
from any Lender (an "Affected Lender") of a claim for compensation pursuant to
SECTIONS 3.1, 3.3 or 3.6, the Borrower may: (a) request the Affected Lender to
use its best efforts to obtain a replacement bank or financial institution
satisfactory to the Borrower to acquire and assume all or part of such Affected
Lenders Loans and Commitments (a "Replacement Lender), (b) request one more of
the other Lenders to acquire and assume all or part of such Affected Lender's
Loans and Commitments or (c) designate a Replacement Lender. Any such
designation of a Replacement Lender under clause (a) or (c) shall be subject to
the prior written consent of the Agent (which consent shall not be unreasonably
withheld or delayed).
SECTION 3.9 SURVIVAL. The agreements and obligations of the Borrower in
this ARTICLE III shall survive the payment of all other Obligations.
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ARTICLE IV
CONDITIONS PRECEDENT TO CLOSING AND THE MAKING OF LOANS
SECTION 4.1 CONDITIONS PRECEDENT TO THE CLOSING. The Closing shall
occur upon the prior satisfaction of each of the conditions precedent set forth
in this SECTION 4.1, as determined by the Lenders and the Agent (all Loan
Documents and other documents to be delivered to the Agent, or any Lender
pursuant to this SECTION 4.1 shall be subject to prior approval as to form and
substance (including as to results) by the Lenders and the Agent).
(A) CORPORATE DOCUMENTS. The Agent shall have received
originals of each of the following:
(I) CERTIFICATE OF THE SECRETARY (THE BORROWER).
Certificate executed by the secretary or assistant secretary of the Borrower,
dated the Closing Date, certifying (A) that the Borrower has the authority to
execute, deliver and perform its obligations under each of the Loan Documents to
which it is a party, (B) that attached behind EXHIBIT A to such certificate is a
true, correct and complete copy of (1) the bylaws of the Borrower then in full
force and effect, (2) the certificate of incorporation of the Borrower certified
by the Secretary of State of the State of Georgia as of a date not more than ten
(10) Business Days prior to the Closing Date, and (3) any other organizational
documents of the Borrower then in full force and effect, (C) that attached
behind EXHIBIT B to such certificate is a true, correct and complete copy of the
resolutions adopted by the Board of Directors of the Borrower then in full force
and effect authorizing the execution, delivery and performance by the Borrower
of each of the Loan Documents to which it is a party, (D) that attached behind
EXHIBIT C to such certificate is a certificate of the Secretary of State of the
State of Georgia and of the state in which is located Borrower's chief executive
office, in each case dated as of a date not more than ten (10) Business Days
prior to the Closing Date, stating that Borrower is in good standing in such
states, (E) the name(s) of the officers of the Borrower authorized to execute
the Loan Documents on behalf of Borrower, together with a sample of the true
signatures of such officers and (F) that the Lenders and the Agent may
conclusively rely on such certificate unless and until the Borrower shall have
delivered to the Agent a further certificate canceling or amending such prior
certificate.
(II) CERTIFICATE OF THE SECRETARY (THE PARTNERSHIP).
Certificate executed by the secretary or assistant secretary of the
Partnership, or of STOC, as the Partnership's sole general partner, on behalf of
the Partnership, dated the Closing Date, certifying (A) that the Partnership has
the authority to execute, deliver and perform its obligations under each of the
Loan Documents to which it is a party, (B) that attached behind EXHIBIT A to
such certificate is a true, correct and complete copy of (1) the Limited
Partnership Agreement then in full force and effect, (2) the certificate of
limited partnership of the Partnership certified by the Secretary of State of
the State of Delaware as of a date not more than ten (10) Business Days prior to
the Closing Date, and (3) any other organizational documents of the Partnership
then in full force and effect, (C) that attached behind EXHIBIT B to such
certificate is a true, correct and complete copy of the resolutions adopted by
the partners of the Partnership then in full force and effect authorizing the
execution, delivery and performance by the Partnership of each of the Loan
Documents to which it is a party, and (D) that attached behind EXHIBIT C to such
certificate is a certificate of the Secretary of State of the States of
Delaware,
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Louisiana and the state in which is located the Partnership's chief executive
office, in each case dated as of a date not more than ten (10) Business Days
prior to the Closing Date, stating that the Partnership is in good standing in
such states, (E) the name(s) of the officer(s) of the Partnership authorized to
execute Loan Documents on behalf of the Partnership, together with a sample of
the true signatures of such officer(s), and (F) that the Lenders and the Agent
may conclusively rely on such certificate unless and until the Partnership shall
have delivered to the Agent a further certificate canceling or amending such
prior certificate.
(III) CERTIFICATE OF THE SECRETARY (LTP). Certificate
executed by the secretary or assistant secretary of LTP, or of LTP's managing
member on behalf of LTP, dated the Closing Date, certifying (A) that LTP has the
authority to execute, deliver and perform its obligations under each of the Loan
Documents and the Acquisition Documents to which it is a party, (B) that
attached behind EXHIBIT A to such certificate is a true, correct and complete
copy of (1) the operating agreement of LTP then in full force and effect, (2)
the certificate of formation of LTP certified by the Secretary of State of the
State of Georgia as of a date not more than ten (10) Business Days prior to the
Closing Date, and (3) any other organizational documents of LTP then in full
force and effect, (C) that attached behind EXHIBIT B to such certificate is a
true, correct and complete copy of the resolutions adopted by the members of LTP
then in full force and effect authorizing the execution, delivery and
performance by LTP of each of the Loan Documents to which it is a party, (D)
that attached behind EXHIBIT C to such certificate is a certificate of the
Secretary of State of the State of Georgia and the state in which is located
LTP's chief executive office, in each case dated as of a date not more than ten
(10) Business Days prior to the Closing Date, stating that LTP is in good
standing in such states, (E) the name(s) of the officer(s) of LTP authorized to
execute Loan Documents on behalf of LTP, together with a sample of the true
signatures of such officer(s), and (F) that the Lenders and the Agent may
conclusively rely on such certificate unless and until LTP shall have delivered
to the Agent a further certificate canceling or amending such prior certificate.
(IV) CERTIFICATE OF THE SECRETARY (STOC). Certificate
executed by the secretary or assistant secretary of STOC, dated the Closing
Date, certifying (A) STOC has the authority to execute, deliver and perform its
obligations under each of the Loan Documents to which it is a party, (B) that
attached behind EXHIBIT A to such certificate is a true, correct and complete
copy of (1) the bylaws of STOC then in full force and effect, (2) the
certificate of incorporation of STOC certified by the Secretary of State of the
State of Delaware as of a date not more than ten (10) Business Days prior to the
Closing Date, and (3) any other organizational documents of STOC then in full
force and effect, (C) that attached behind EXHIBIT B to such certificate is a
true, correct and complete copy of the resolutions adopted by the directors of
STOC then in full force and effect authorizing the execution, delivery and
performance by STOC (in its individual capacity) of each of the Loan Documents
to which it is a party, and authorizing the execution, delivery and performance
by STOC (in its capacity as general partner of the Partnership) of each of the
Loan Documents to which the Partnership is a party, (D) that attached behind
EXHIBIT C to such certificate is a certificate of the Secretary of State of the
State of Delaware and the state in which is located STOC's chief executive
office, in each case dated as of a date not more than ten (10) Business Days
prior to the Closing Date, stating that STOC is in good standing in such states,
(E) the name(s) of the officer(s) of STOC authorized to execute Loan Documents,
Senior Loan Documents, and Acquisition Documents on behalf of STOC (in its
individual capacity or in its capacity as general partner of the Partnership, as
the case may be),
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together with a sample of the true signatures of such officer(s), and (F) that
the Lenders and the Agent may conclusively rely on such certificate unless and
until STOC shall have delivered to the Agent a further certificate canceling or
amending such prior certificate.
(B) LOAN DOCUMENTS. The Agent shall have received originals of
each of the following Loan Documents:
(I) THIS AGREEMENT. This Agreement, duly executed by the
Borrower, each of the Lenders and the Agent, together with all completed
SCHEDULES to this Agreement.
(II) NOTES. Separate Notes, duly executed by the Borrower
to each of the Lenders in the stated principal amount of such Lender's
Commitment.
(III) DESIGNATIONS OF RESPONSIBLE PERSONS. Separate
Designations of Responsible Persons, duly executed by an authorized officer of
the Borrower.
(IV) COLLATERAL DOCUMENTS. The Agent shall have received
originals of each of the following Collateral Documents:
(A) SECURITY AGREEMENT. The Security Agreement, duly
executed by the Borrower and the Agent, together with all completed schedules to
the Security Agreement.
(B) PLEDGE AGREEMENT. The Pledge Agreement, duly
executed by the Borrower and the Agent, together with all completed schedules
and exhibits to the Pledge Agreement, including the Notice of Pledge Agreement,
the Acknowledgment, and the Initial Transaction Statement.
(C) STOC PLEDGE AGREEMENT. The STOC Pledge Agreement,
duly executed by STOC and the Agent, together with all completed schedules and
exhibits to the STOC Pledge Agreement, including the Notice of Pledge Agreement,
the Acknowledgment, and the Initial Transaction Statement.
(D) LTP PLEDGE AGREEMENT. The LTP Pledge Agreement,
duly executed by LTP and the Agent, together with all completed schedules and
exhibits to the LTP Pledge Agreement, including the Notice of Pledge Agreement,
the Acknowledgment, and the Initial Transaction Statement.
(E) FINANCING STATEMENTS. The Financing Statements,
naming and duly executed by the Borrower, STOC, or LTP, as the case may be, as
debtor, and the Agent, as secured party, including a description of the personal
property Collateral granted or pledged by the Borrower, STOC or LTP, as the case
may be, to the Agent as security for the Obligations (and in the case of farm
product filings and fixture filings, a legal description of the real property
where the timber is located), which Financing Statements shall concurrent with
the Closing be caused to be filed with the Governmental Authorities indicated on
SCHEDULE 4.
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(F) CONTROL AGREEMENTS. Separate Control Agreements,
duly executed by the Borrower, the Agent and each depository institution,
securities intermediary or commodities intermediary at which the Borrower shall
maintain for its benefit or use a deposit account, securities account or
commodities account.
(V) ENVIRONMENTAL INDEMNITY. The Environmental
Indemnity, duly executed by the Borrower and the Partnership, jointly and
severally and in solido, in favor of the Lenders and the Agent, together with
all completed schedules to the Environmental Indemnity.
(VI) COLLATERAL INFORMATION CERTIFICATE. The Collateral
Information Certificate, fully completed, duly executed by the Borrower, the
Partnership and LTP.
(VII) SUBORDINATION AGREEMENT. The Subordination
Agreement, duly executed by the Agent on behalf of itself and the Lenders, the
Senior Agent on behalf of itself and the Senior Lenders, the Borrower, and the
Partnership.
(VIII) PARTNERSHIP GUARANTY. The Partnership Guaranty, duly
executed by the Partnership and the Agent.
(C) OPINION OF BORROWER'S COUNSEL. The Agent shall have
received each of the following originally executed Opinions of Borrower's
Counsel:
(I) Opinion of Borrower's counsel (SAB); and
(II) Opinion of Borrower's counsel (LPRH).
(D) J.A. BEL ACQUISITION DOCUMENTS. The Agent shall have
received copies, certified by the Borrower, of all of the duly and fully
executed J.A. Bel Acquisition Documents, including (i) the J.A. Bel Purchase
Agreement, complete with all final schedules, exhibits, attachments and
amendments thereto, (ii) all acts of sale, acts of assignments, bills of sale,
possession affidavits, affidavits regarding access, affidavits regarding timber
deeds and mineral lease and other transfer documents evidencing or relating to
the conveyance of title and interest in the Timberlands Assets and (iii) all
other documents relating to or affecting the J.A. Bel Acquisition, including all
bring-downs and all amendments and modifications to any of the foregoing.
(E) BAAL ACQUISITION DOCUMENTS. The Agent shall have received
copies, certified by the Borrower, of all of the duly and fully executed Baal
Acquisition Documents, including (i) The Baal Purchase Agreement, complete with
all final schedules, exhibits, attachments and thereto, (ii) all acts of sale,
acts of assignments, bills of sale, possession affidavits, affidavits regarding
access, affidavits regarding timber deeds and mineral lease and other transfer
documents evidencing or relating to the conveyance of title and interest in the
Timberlands Assets and (iii) all other documents relating to or affecting the
Baal Acquisition, including all bring-downs and all amendments and modifications
to any of the foregoing.
(F) QUATRE PARISH ACQUISITION DOCUMENTS. The Agent shall have
received copies, certified by the Borrower, of all of the duly and fully
executed Quatre Parish Acquisition
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Documents, including (i) the Quatre Parish Purchase Agreement, complete with all
final schedules, exhibits, attachments and amendments thereto, (ii) all acts of
sale, acts of assignments, bills of sale, possession affidavits, affidavits
regarding access, affidavits regarding timber deeds and mineral lease and other
transfer documents evidencing or relating to the conveyance of title and
interest in the Timberlands Assets and (iii) all other documents relating to or
affecting the Quatre Parish Acquisition, including all bring-downs and all
amendments and modifications to any of the foregoing.
(G) GRIFFIN DOCUMENTS. The Agent shall have received copies,
certified by the Borrower, of all of the duly and fully executed Griffin
Acquisition Documents, including (i) the Griffin Contract of Sale and the LTP
Assignment, complete with all final schedules, exhibits, attachments and
amendments thereto, (ii) all acts of sale, acts of assignments, bills of sale
and other transfer documents evidencing or relating to the conveyance of title
and interest in the Timberlands Assets and (iii) all other documents relating to
or affecting the Griffin Acquisition, including all bring-downs and all
amendments and modifications to any of the foregoing.
(H) GOVERNMENTAL CONSENTS. The Agent shall have received
written confirmation that all consents, approvals, orders and authorizations,
and all registrations, declarations and filings with, and expirations of waiting
periods imposed by, any Governmental Authority necessary for the consummation of
the Timberlands Acquisition contemplated by the Acquisition Documents have been
obtained.
(I) THIRD PARTY CONSENTS. The Agent shall have received written
confirmation that all consents, approvals and authorizations from third Persons
required under any material agreement, contract or other document necessary for
the consummation of the J.A. Bel Acquisition contemplated by the J.A. Bel
Acquisition Documents, the Baal Acquisition contemplated by the Baal Acquisition
Documents, the Quatre Parish Acquisition contemplated by the Quatre Parish
Acquisition Documents or the Griffin Acquisition contemplated by the Griffin
Acquisition Documents or the grant in the Loan Documents of any Lien in favor of
the Agent or any Lender have been obtained.
(J) CONSUMMATION OF THE TIMBERLANDS ACQUISITION. All conditions
precedent to the closing and consummation of the Timberlands Acquisition,
including all actions to have been taken prior to the closing set forth in the
Griffin Contract of Sale and the LTP Assignment (other than the payment of the
purchase price) shall have been fulfilled, and there shall not have been any
modification of a material term or waiver of a material condition precedent
without the prior consent of the Agent.
(K) OPENING TIMBER VALUATION. The Agent shall have received the
Opening Timber Valuation, which shall be acceptable to the Agent in its sole and
absolute discretion.
(L) OPENING PRO FORMA BALANCE SHEET. The Agent shall have
received an opening pro forma balance sheet, prepared by the Partnership,
consistently with an internal memorandum prepared by Arthur Andersen LLP
regarding the accounting for the proposed Timberlands Acquisition, including the
capitalization structure and the results stated in the opening pro forma balance
sheet.
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(M) INITIAL EQUITY INVESTMENT. The opening pro forma balance
sheet delivered to the Agent pursuant to SECTION 4.1(M) shall reflect, in the
partners' equity portion of the balance sheet, an initial equity capitalization
in an amount not less than the Initial Equity Investment, of which an amount
equal to not less than $5,000,000 shall have been contributed by the Borrower.
(N) FINANCIAL STATEMENTS. The Agent shall have received a
certificate of an authorized officer of the Borrower having responsibility for
financial matters, including the preparation of financial statements, attaching
copies of the pro-forma consolidated statements of income and cash flows for ten
(10) years of projected operations for the Borrower, assuming the consummation
of the Timberlands Acquisition.
(O) SENIOR LOAN DOCUMENTS. The conditions precedent to Closing
(as defined in the Senior Loan Agreement) set forth in Article IV of the Senior
Loan Agreement shall have been satisfied or duly waived by the Senior Lenders.
(P) HARVEST PLAN. The Agent shall have received the Harvest
Plan, which Harvest Plan shall have been reviewed and approved by the Agent.
(Q) CONFIRMATION REGARDING OPERATING PROJECTIONS. The Agent
shall have received a report prepared by Canal (i) confirming as reasonable the
proposed log and haul and other expenses estimated and Timber price and
management, fire suppression and other SG&A expense assumptions used by the
Partnership and incorporated into the operating projections prepared by the
Partnership, and (ii) verifying the feasibility of such operating projections,
which report shall have been reviewed and approved by the Lenders.
(R) ENVIRONMENTAL REVIEW. The Agent shall have received a
written environmental report prepared by Harding Lawson Associates, independent
environmental consultants retained by the Partnership, with respect to the Land
and endangered and threatened species, disease and infestation and other Timber
related matters and such additional site assessments, environmental surveys or
audits and other documents or information as to environmental matters as the
Agent shall reasonably require.
(S) MATERIAL AGREEMENTS. The Agent shall have received copies
of all material agreements, contracts, instruments and other documents of the
Borrower or the Partnership, or under which the Borrower or the Partnership has
rights, or by which any Property of the Borrower or the Partnership is bound,
including, all Cutting Rights Agreements, Timber Sales Contracts, supply
agreements, royalty contracts, real and personal property leases, easements,
rights-of-way, road use, trackage and other access agreements and arrangements,
mineral leases, hunting leases, management fee agreements, evidences of
indebtedness, processing, distribution or warehousing contracts, and permits.
(T) ACCESS RIGHTS AND SERVITUDES. The Agent shall have received
satisfactory evidence that all material access rights, rights-of-way and other
servitudes and rights appurtenant to the Land have been obtained, including such
access rights as are necessary for the uninterrupted and orderly operation of
the Business consistent with the Harvest Plan.
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(U) ENTITLEMENTS. The Agent shall have received copies of or
other satisfactory evidence that the Partnership has obtained all governmental
entitlements necessary or useful to enable the Partnership to operate the
Business consistent with the Harvest Plan, including all agreements,
authorization, licenses, permits and other entitlements (and applications for
the same) relating to mineral rights and access to and the use of minerals and
other natural resources (subject to the reservation of mineral rights set forth
in the Acquisition Documents in favor of the J.A. Bel Seller, Baal Land
Corporation and the Quatre Parish Sellers).
(V) SOLVENCY CERTIFICATE. The Agent shall have received a
certificate as to solvency, dated as of the Closing Date, prepared, executed and
delivered by the officer of the Borrower having responsibility for financial
matters, including the preparation of financial statements, covering the
Borrower on a pro forma basis, assuming the consummation of Timberlands
Acquisition and all of the transactions contemplated by the Loan Documents,
including the funding of the Loans at Closing and the contribution to the
Partnership by the Borrower of the proceeds of the Loans, which establishes
that, immediately upon the consummation of the Timberlands Acquisition, the then
current fair saleable value of the Borrower's assets will be greater than the
amount of the Borrower's liabilities, the Borrower shall be able to pay its
debts as they come due (although not earlier than the Maturity Date), and that
the Borrower shall not have unreasonably small capital.
(W) NO MATERIAL ADVERSE CHANGE. There shall have occurred no
Material Adverse Change in the Timberlands Assets or in the prospects for the
Business since the date of the Opening Timber Appraisal.
(X) UCC SEARCHES. The Agent shall have received certified
copies, dated as of a recent date, of form UCC-3 or UCC-11, as appropriate,
requests for copies or information as the Agent shall request, accompanied by
written evidence (including UCC termination statements) that the Liens indicated
in any such financing statements either constitute a Permitted Lien or have been
or in connection with the Closing will be terminated or released.
(Y) NO LITIGATION. There shall not have been instituted or
overtly threatened any litigation or proceeding in or before any Governmental
Authority to which the Borrower is, or is threatened with becoming, a party and
which, in the Agent's sole discretion, after consultation with counsel, is
determined to pose a risk of resulting in a Material Adverse Change.
(Z) THE BORROWER'S BRING-DOWN CERTIFICATE. The Agent shall have
received a certificate dated the Closing Date, executed by the president or a
vice president of the Borrower, on behalf of the Borrower, certifying that:
(I) no Default or Event of Default has occurred and is
continuing; and
(II) the representations and warranties of the Borrower
contained in ARTICLE V of this Agreement are true, accurate and complete in all
material respects (except for such representations and warranties made as of a
specified date which shall be true as of such date), taking into account the
consummation of the Timberlands Acquisition, as of the Closing Date.
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(AA) FEE LETTER. ABN AMRO shall have received the Fee Letter,
duly executed by the Borrower, together with the payment of such fees as are set
forth in the Fee Letter to be paid at Closing (the payment of which shall be
deemed a concurrent condition).
(BB) ESCROW INSTRUCTIONS. The Agent shall have received escrow
instructions, dated the Closing Date, executed among the Title Company, the
Partnership, the Borrower, STOC, LTP, the Senior Agent, and the Agent, setting
forth, among other things, the mechanics and instructions to convey and transfer
title to the Timberlands assets to the Partnership and to effect the due
recording in the recording office of the applicable Governmental Authorities of
all acts of sale, timber mortgage, financing statements and other affidavits,
notices requests for notices and other documents to be recorded of record.
(CC) FUNDS TRANSFER MEMORANDUM. The Agent shall have received a
funds transfer memorandum among the Partnership, the Borrower, STOC, LTP, the
Senior Agent and the Agent as to the sources and uses of funds to be funded and
disbursed as of the Closing Date in connection with the Closing.
(DD) FEES AND COSTS. The Agent shall have received an amount
equal to the aggregate of the Agent's good faith estimate of all Attorney Costs
and other disbursements incurred by ABN AMRO (including in its capacity as the
Agent) in connection with the Closing of the transactions contemplated
hereunder, including the negotiation and preparation of this Agreement and each
of the other Loan Documents (the payment of which shall be deemed a concurrent
condition), which payment shall be subject to post-Closing adjustment following
receipt by the Agent of all final invoices.
(EE) OTHER DOCUMENTS. The Agent or the Lenders shall have
received such other documents and information from the Borrower as the Lenders
may reasonably request.
ARTICLE V
THE BORROWER'S REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants to each Lender and the
Agent as follows, and agrees that each of said warranties and representations
shall be deemed to continue so long as any of the Commitments shall be
available hereunder or any Loan or other payment Obligation shall remain unpaid
or unsatisfied.
SECTION 5.1 ORGANIZATION, POWER AND AUTHORITY OF THE BORROWER. The
Borrower is a corporation which intends, upon the filing of its initial tax
return with the IRS, to elect to be classified as a real estate investment trust
under Section 856 of the Code. The Borrower is duly formed and validly existing
under the laws of the State of Georgia, is duly qualified to do business and is
in good standing in each jurisdiction where the nature of its business requires
such qualification and where the failure to so qualify would be materially
adverse to the Borrower or its Property, including each state listed in ITEM 5.1
to the DISCLOSURE SCHEDULE, and has full power and authority and holds all
material requisite governmental licenses, permits and other approvals and
entitlements to enter into and perform its respective obligations under this
Agreement, the Notes, each of the Borrower Collateral Documents, the
Environmental
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Indemnity, the Fee Letter and each of the other Loan Documents to which it is a
party, and to own and hold under lease its Property and to conduct its business
substantially as currently conducted by it and such business as contemplated to
be conducted by it upon and following the consummation of the transactions
contemplated by the Acquisition Documents and the Loan Documents.
SECTION 5.2 ORGANIZATION, POWER AND AUTHORITY OF THE BORROWER'S
SUBSIDIARIES. The Borrower has no Subsidiaries other than the Partnership or
STOC. Each of the Partnership and STOC is duly organized or incorporated, as
applicable, and validly existing under the laws of the jurisdiction of its
incorporation or formation, is duly qualified to do business and is in good
standing in each jurisdiction where the nature of its business requires such
qualification and where the failure to so qualify would be materially adverse to
the Partnership or STOC or its respective Property, including each state listed
in ITEM 5.2 to the DISCLOSURE SCHEDULE, and has full power and authority and
holds all requisite governmental licenses, permits and other approvals and
entitlements to enter into and perform its obligations under each of the Loan
Documents to which it is a party, and to own and hold under lease its Properties
and to conduct its business substantially as currently conducted by it and such
business as contemplated to be conducted by it.
SECTION 5.3 LOAN DOCUMENTS AUTHORIZED; BINDING OBLIGATIONS. The
execution, delivery and performance of this Agreement, each of the Borrower
Collateral Documents to which it is a party, the Environmental Indemnity, the
Fee Letter and each of the other Loan Documents, in each case to which it is a
party, have been duly authorized by all necessary and proper action on the part
of the Borrower. The execution, delivery and payment of the Notes have been duly
authorized by all necessary and proper action on the part of the Borrower. The
Loan Documents to which the Borrower is a party constitute legally valid and
binding obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms, except as enforcement thereof may be
limited by bankruptcy, insolvency or other laws affecting the enforcement of
creditors' rights generally and by general principles of equity, including
concepts of materiality, reasonableness, good faith and fair dealing (regardless
whether considered in a proceeding at law or in equity and the availability of
the remedy of specific performance).
SECTION 5.4 NO CONFLICT. The execution, delivery and performance of
this Agreement, the Borrower Collateral Documents, the Environmental Indemnity,
the Fee Letter and each of the other Loan Documents, in each case to which the
Borrower is a party, and the execution, delivery and payment of the Notes by the
Borrower will not contravene any provision of the Borrower's organizational
documents and will not (a) to the best of the Borrower's knowledge, after Due
Inquiry, contravene, conflict with or violate any material Requirement of Law,
(b) contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by
which the Borrower or any of its Property or assets may be bound or affected or
(c) violate or result in the breach of, or constitute a default under any loan
or credit agreement, indenture or other document (which documents are, in the
aggregate, material) to which the Borrower is a party or by which the Borrower
or any of its Property or assets may be bound or affected. The Borrower is not
in violation or breach of or default under any material Requirement of Law,
order, writ, judgment, injunction, decree, determination or award or any
contract, agreement, lease, license, indenture or other instrument
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to which it is a party, the non-compliance with which, the violation or breach
of which, or the default under which, could with reasonable likelihood result in
a Material Adverse Change.
SECTION 5.5 CAPITAL STRUCTURE. Item 5.5 of the DISCLOSURE SCHEDULE
sets forth each of the record and, to the best of the Borrower's knowledge,
after Due Inquiry, beneficial holders of shares in the Borrower (including
voting interests of each such Person), by class and number and including the
percentage of each class owned or to be owned by such Person as of the Closing
Date. Except as set forth in Item 5.5 of the DISCLOSURE SCHEDULE, there are no
options, warrants, rights to purchase or similar rights covering the shares in
the Borrower.
SECTION 5.6 FINANCIAL CONDITION. All balance sheets, all statements of
operations, of shareholders' or partners' equity and of changes in cash flow,
and other financial data (other than projections) furnished to the Agent for the
purposes of or in connection with this Agreement or any of the other Loan
Documents have been and will be prepared in accordance with GAAP consistently
applied throughout the periods involved and will present fairly the financial
condition of the entities involved as of the dates thereof and the result of
their operations for the periods covered thereby. All projections which have
been furnished to the Agent for purposes of or in connection with this Agreement
were prepared in good faith on the basis of the assumptions stated therein,
which assumptions were, in the opinion of the management of the Borrower, fair
in the light of conditions existing at the time of delivery of such forecasts;
and at the time of delivery, the management of the Borrower believed that the
forecasts of the Borrower's or the Partnership's, as the case may be, future
financial performance set forth in the projection's were reasonable and
attainable.
SECTION 5.7 NO MATERIAL ADVERSE CHANGE. Since each of (a) the date of
the Opening Timber Appraisal and (b) the date of the most recent financial
statements furnished to the Agent pursuant to SECTION 6.1(B) there has been no
Material Adverse Change.
SECTION 5.8 OWNERSHIP OF COLLATERAL. From and after the Closing Date,
the Borrower owns merchantable title to all of the Collateral covered by the
Security Agreement and the Pledge Agreement, free and clear of Liens except for
Permitted Liens.
SECTION 5.9 LITIGATION. Except as disclosed in ITEM 5.9 of the
DISCLOSURE SCHEDULE, there are no claims, actions, suits, proceedings or other
litigation pending or, to the best of the Borrower's knowledge, overtly
threatened against the Borrower or the Partnership or any of the Borrower's or
the Partnership's Property at law or in equity before any Governmental Authority
or, to the best of the Borrower's knowledge, any investigation by any
Governmental Authority of the Borrower's or the Partnership's affairs or
Properties which could, if adversely determined, with reasonable likelihood
result in a Material Adverse Change. Other than any liability incident to the
litigation or proceedings disclosed in ITEM 5.9 of the DISCLOSURE SCHEDULE and
other than any that arise in respect of the Partnership Guaranty or as otherwise
disclosed on ITEM 8.5 of the DISCLOSURE SCHEDULE, neither the Borrower nor the
Partnership has any contingent liabilities which are material and which are not
provided for or disclosed in the most recent financial statements delivered to
the Agent pursuant to SECTION 6.1(A) OR 6.1(B).
SECTION 5.10 MATERIAL DOCUMENTS; THIRD PARTY CONSENTS. ITEM 5.10 of the
DISCLOSURE SCHEDULE lists each of the material agreements, contracts, leases,
licenses (including
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licenses or sublicenses of intellectual property) and other documents, including
all Cutting Rights Agreements, Timber Sales Agreements and all rights-of-way,
road use, trackage and other access agreements or arrangements, of the Borrower
or the Partnership. Without limiting the generality of the foregoing, the
Partnership is not a party to, nor is all or any portion of the Land subject to,
any Timber Sales Agreement or Cutting Rights Agreement relating to the
Timberland, whether written or oral, except as disclosed in ITEM 5.10 of the
DISCLOSURE SCHEDULE. Except as further set forth on ITEM 5.10 of the DISCLOSURE
SCHEDULE, no approval, authorization or consent of any Person under any such
document is required to be obtained by the Borrower or the Partnership in order
to make or consummate the transactions contemplated by the Loan Documents,
except as has already been obtained.
SECTION 5.11 NO GOVERNMENT CONSENTS NEEDED. Except as set forth on ITEM
5.11 of the DISCLOSURE SCHEDULE and for the filing of the Financing Statements,
not yet due tax returns and reports or such of the foregoing as have already
been filed, recorded, registered, or otherwise obtained, no certificate,
authorization, permit, consent, approval, order, license, exemption from, or
filing or registration or qualification with, any Governmental Authority is or
will be required to authorize, or is otherwise required in connection with:
(A) the execution and delivery by the Borrower of, and the
payment and performance by the Borrower of its obligations under, the Loan
Documents; and
(B) the creation of the Liens described in and granted
pursuant to the Collateral Documents. Section 5.12 Solvency. The Borrower is
Solvent.
SECTION 5.12 SOLVENCY. The Borrower is Solvent.
SECTION 5.13 MANAGEMENT AND LABOR AGREEMENTS. Except as set forth on
ITEM 5.13 to the DISCLOSURE SCHEDULE, there are no agreements relating to the
payment of management fees to any direct or indirect holder of an equity
interest in the Borrower and there are no collective bargaining agreements or
other similar material labor agreements covering any employees of the Borrower.
A true and complete copy of each such agreement has been furnished to the Agent.
SECTION 5.14 ERISA COMPLIANCE. Except as specifically disclosed in ITEM
5.14 of the DISCLOSURE SCHEDULE:
(A) Each Plan is in compliance in all material respects with
the applicable provisions of ERISA, the Code and other federal or state law.
Each Plan which is intended to qualify under Section 401 (a) of the Code has
received a favorable determination letter from the IRS and to the best knowledge
of the Borrower, nothing has occurred which would cause the loss of such
qualification. The Borrower and each ERISA Affiliate have made all required
contributions to any Plan subject to Section 412 of the Code, and no application
for a funding waiver or an extension of any amortization period pursuant to
Section 412 of the Code has been made with respect to any Plan.
(B) There are no pending or, to the best knowledge of the
Borrower, threatened claims, actions or lawsuits, or actions by any Governmental
Authority, with respect to any Plan which has resulted or could reasonably be
expected to result in a Material Adverse
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Change. There has been no prohibited transaction or violation of the fiduciary
responsibility rules with respect to any Plan which has resulted or could
reasonably be expected to result in a Material Adverse Change.
(C) No ERISA Event has occurred or is reasonably expected to
occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither
the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to
incur, any liability under Title IV of ERISA with respect to any Pension Plan
(other than premiums due and not delinquent under Section 4007 of ERISA); (iv)
neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects
to incur, any liability (and no event has occurred which, with the giving of
notice under Section 4219 of ERISA, would result in such liability) under
Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; (v) neither
the Borrower nor any ERISA Affiliate has engaged in a transaction that could be
subject to Section 4069 or 4212(c) of ERISA; (vi) neither the Borrower nor any
ERISA Affiliate has any liability with respect to "expected post retirement
benefit obligations" within the meaning of Statement of Financial Accounting
Standards No. 106; and (vii) "no prohibited transaction" (as defined in Section
406 of ERISA and Section 4975 of the Code) that has resulted or could with
reasonable likelihood result in a Material Adverse Change has occurred with
respect to any Plan.
SECTION 5.15 CERTAIN REPRESENTATIONS AND WARRANTIES CONCERNING THE
TIMBERLANDS.
(A) CONDITION. The Land and the Timber standing on the Land are
in good condition and are free from all pests, blight, fungus or disease that
would materially impair the value thereof, except as disclosed in ITEM 5.15 of
the DISCLOSURE SCHEDULE.
(B) ACRES AND VOLUME. To the best of Borrower's knowledge, after
Due Inquiry, as of the Closing Date, (i) the Bel/Quatre Timberlands is comprised
of approximately 88,000 acres on which is located approximately 387,209,000
board feet of Merchantable Timber consisting of Loblolly Pine, Longleaf Pine,
Slash Pine, Cypress and Oak as well as other species and (ii) the Borrower has
no basis to form a belief that the value for the Bel/Quatre Timberlands set
forth in the Opening Timber Valuation is unreasonable.
SECTION 5.16 MARGIN REGULATIONS. The Borrower does not own any "margin
security" as that term is defined in the Margin Regulations, and the proceeds of
the Loans will be used only for the purposes contemplated in this Agreement
hereunder. None of the Loans will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security, for the purpose of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of the Margin
Regulations.
SECTION 5.17 TAXES. All material federal, state and local tax returns,
reports and statements required to be filed by the Borrower have been filed with
the appropriate Governmental Authorities and all Charges and other impositions
shown thereon to be due and payable by the Borrower have been paid prior to the
date on which any fine, penalty, interest or late charge may be added thereto
for nonpayment thereof, or any such fine, penalty, interest, late charge or loss
has been paid, or the Borrower is contesting its liability therefor in good
faith and
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has fully reserved all such amounts in the financial statements delivered to the
Agent and the Lenders pursuant to SECTIONS 6.1(A) and 6.1(B). Proper and
accurate amounts have been withheld by the Borrower from its employees for all
periods in full and complete compliance with the tax, social security and
unemployment withholding provisions of applicable federal, state, local and
foreign law and such withholdings have been timely paid to the respective
Governmental Authorities. The Borrower has not executed or filed with the IRS or
any other Governmental Authority any agreement or other document extending, or
having the effect of extending, the period for assessment or collection of any
Charges.
SECTION 5.18 INTELLECTUAL PROPERTY RIGHTS. The Borrower possesses and
owns all necessary intellectual property rights and all licenses or sublicenses
of intellectual property which are material to the conduct of its business as
contemplated by the Acquisition Documents and the Loan Documents. The Borrower
conducts its business without infringement or, to the best of the Borrower's
knowledge, after Due Inquiry, claim of infringement of any intellectual property
right of others, except where such infringement or claim of infringement could
not with reasonable likelihood result in a Material Adverse Change. There is no
infringement or, to the best of the Borrower's knowledge, after Due Inquiry,
claim of infringement by others of any intellectual property owned, licensed or
sublicensed by the Borrower.
SECTION 5.19 OTHER REGULATIONS. The Borrower is not: (a) a "public
utility company" or a "holding company," or an "affiliate" or a "subsidiary
company" of a "holding company," or an "affiliate" of such a "subsidiary
company," as such terms are defined in the Public Utility Holding Company Act
or (b) an "investment company," or an "affiliated person" of, or a "promoter"
or "principal underwriter" for, an "investment company," as such terms are
defined in the Investment Company Act.
SECTION 5.20 BROKERS' FEES. Except as specifically disclosed on ITEM
5.20 of the DISCLOSURE SCHEDULE, the Borrower has no obligation to any Person in
respect of any finder's, broker's or investment banker's fee in connection with
the transactions contemplated hereby or by the Acquisition Documents.
SECTION 5.21 NATURE OF REPRESENTATIONS AND WARRANTIES. The Borrower
certifies to each Lender and the Agent that all representations and warranties
made by it in this Agreement and all other Loan Documents are true and correct
in all material respects. The request by the Borrower for a Borrowing and each
continuation of a LIBOR Loan into another LIBOR Loan shall constitute an
affirmation that all such representations and warranties remain true and correct
in a material respects. Each representation and warranty made in this Agreement,
in any other loan document, and in any other document delivered to any Lender or
the Agent by the Borrower, shall be deemed to have been relied upon by the
Lenders and the Agent notwithstanding any investigation, inspection or inquiry
theretofore or thereafter made by or on behalf of any Lender or the Agent, or
any funding of Loans by the Lenders.
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ARTICLE VI
AFFIRMATIVE COVENANTS OF THE BORROWER
The Borrower hereby covenants and agrees that, so long as any
Commitment shall be available hereunder or any Loan or other payment Obligation
shall remain unpaid or unsatisfied, unless Required Lenders shall otherwise
waive compliance in writing:
SECTION 6.1 RECORDS AND REPORTS. The Borrower shall maintain a system
of accounting administered in accordance with sound business practices to permit
preparation of financial statements in conformity with GAAP, and deliver to the
Agent and each Lenders:
(A) QUARTERLY BORROWER-PREPARED FINANCIAL STATEMENTS. As soon
as practicable and in any event, commencing with the Fiscal Quarter ending (June
30, 1998], within forty-five (45) days after the end of each Fiscal Quarter, a
consolidated balance sheet of the Borrower, as at the end of such period and the
related consolidated (and, as to statements of income only, consolidating)
statements of income, shareholders' equity and cash flows of the Borrower
prepared for such Fiscal Quarter and for such Fiscal Year to date, setting forth
in each case, commencing with the Fiscal Quarter ending [June 30, 1999], in
comparative form the figures for the corresponding periods of the previous
Fiscal Year, all in reasonable detail and certified by the chief financial.
officer of the Borrower that they (i) are complete and fairly present the
financial condition of the Borrower and its Subsidiaries as at the dates
indicated and the results of its operations and changes in their cash flow for
the periods indicated, (ii) disclose all liabilities of the Borrower and its
Subsidiaries that are required to be reflected or reserved against under GAAP,
whether liquidated or unliquidated, fixed or contingent and (iii) have been
prepared in accordance with GAAP, subject to the absence of footnotes and
changes resulting from audit and normal year-end adjustments;
(B) ANNUAL AUDITED FINANCIAL STATEMENTS. As soon as
practicable and in any event within ninety (90) days after the end of each
Fiscal Year, a consolidated and consolidating as at the end of such year and the
related consolidated (and, as to statements of income only, consolidating)
statements of income, shareholders' equity and cash flows of the Borrower and
prepared for such Fiscal Year, setting forth in each case, in comparative form
the figures for the previous year, all in reasonable detail and (i) in the case
of such financial statements accompanied by a report thereon of Arthur Andersen
LLP or other independent public accountants of recognized national standing
selected by the Borrower and reasonably satisfactory to the agent, which report
shall not contain an adverse opinion, a disclaimer of opinion or be qualified or
limited because of a restricted or limited examination by such accountant of any
material portion of the Borrower's records and shall state that such financial
statements present fairly the financial position of the Borrower as at the dates
indicated and the results of its operations and changes in its financial
position for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years (except as otherwise stated therein) and that the
examination by such accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted auditing
standards and (ii) in the case of such consolidating financial statements,
certified by the chief financial officer of the Borrower;
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(C) QUARTERLY TIMBER REPORT. As soon as practicable and in any
event within forty-five (45) days after the end of each Fiscal Quarter, a
certificate duly executed by the chief financial officer of the Partnership, in
substantially the form of Exhibit G, certifying and setting forth a complete
report of all Timber harvesting operations and material Cutting Rights Agreement
from or relating to the Timberlands for such Fiscal Quarter, which report will
be in a form reasonably acceptable to the Agent and shall contain such
information as the Agent shall reasonably require, which information may include
the following:
(I) a summary of activity, including a breakdown of
harvesting under stumpage agreements and under other types of agreements, under
(A) all outstanding timber cutting contracts or log sale agreements or auctions
or sales of -logs conducted orally on the Timberlands whereby the Partnership as
seller, is or may become obligated to cut, harvest or otherwise remove Timber
from the Timberlands and to sell or deliver such Timber to third Persons, and
(B) all Cutting Rights Agreements and Timber Sales Agreements;
(II) the total amount of Timber cut since the Closing
Date and during the previous Fiscal Quarter classified (A) by Timberlands
parcel, (B) by species and (C) by total volumes removed and acreage disposed of,
(III) all sales, exchanges and other dispositions of
acreage or land during the previous Fiscal Quarter;
(IV) all proceeds received and revenues generated by each
Timberlands parcel by such cutting, harvesting, sale, exchange or disposition
during the previous Fiscal Quarter and any other receipts from operation of the
Timberlands such as wood use fees;
(V) a summary of operating costs incurred in each
Timberlands parcel by such cutting, harvesting or removal during the previous
Fiscal Quarter; and
(VI) a summary of the status of Timber harvesting and
similar permits applied for and received by the Partnership.
(D) MERCHANTABLE TIMBER VALUATION REPORTS.
(I) As soon as practicable, and in any event within thirty
(30) days after the end of each Fiscal Year, a written valuation ("Merchantable
Timber Valuation Report") prepared by independent timber appraiser of recognized
standing, acceptable to the Agent (which may be the lenders' Forestry
Consultant), as to the value of the Merchantable Timber standing an the Land
subject to a mortgage securing the Senior Loan Obligations, which Merchantable
Timber Valuation Report, if prepared by any Person other than Lenders' Forestry
Consultant, shall be subject to the review and approval of Lenders' Forestry
Consultant.
(II) As soon as practicable and in any event within
forty-five (45) days after the end of each Fiscal quarter, a written report
prepared by an independent timber appraiser of recognized standing, acceptable
to the Agent, updating the most recently delivered Merchantable Timber Appraisal
Report, which update report shall be subject to the review and approval of
Lenders' Forestry Consultant.
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(E) HARVEST PLANS. (i) No later than forty-five (45) days
prior to the end of any Fiscal Year, a one (1) year harvesting plan and a
harvesting plan through at least April 25, 2004 for the Timberlands owned by the
Partnership and promptly, and (ii) in any event within sixty (60) days of the
closing of any acquisition of Timberlands, each of which harvest plans shall be
in form and substance acceptable to the Agent in consultation with the Lenders'
Forestry Consultant;
(F) MANAGEMENT LETTER. No later than forty-five (45) days
after the end of each Fiscal quarter, a report prepared by the management of the
Borrower as to a discussion and analysis of the Partnership's operations,
including harvest activities, market conditions and near term prospects.
(G) FINANCIAL FORECASTS. No later than forty-five (45) days
prior to the end of any Fiscal Year, a one (1) year (prepared on a quarterly
basis) budget and business plan and a budget and business plan for the Fiscal
Years remaining through December 31, 2004, each including a pro forma balance
sheet and statements of income and cash flows and showing projected operating
revenues, expenses and debt service of the Partnership and the volume of
harvesting anticipated to be done under stumpage agreements and under other
types of agreements;
(H) OTHER REPORTS. Promptly upon receipt thereof, copies of
all reports submitted to the Borrower by independent public accountants in
connection with each annual, interim or special audit of the financial
statements of the Borrower made by such accountants, including any comment
letter submitted by such accountants to management in connection with their
annual audit;
(I) NOTICES. Promptly upon any officer of the Borrower
obtaining knowledge (i) of any condition or event which constitutes a Default or
an Event of Default under this Agreement, (ii) that any Person has given any
notice to the Borrower or taken any other action with respect to a claimed
default or event or condition of the type referred to in Section 8.1(c), (iii)
of the institution of any litigation or investigation (or overt threat to
institute) by any Person, including any Governmental Authority involving any
alleged (regardless of whether insured) liability of the Borrower or the
Partnership equal to or greater than $5,000,000 or any adverse determination in
any litigation involving a potential liability of the Borrower equal to or
greater than $5,000,000 or (iv) of any Material Adverse Change, a certificate of
a Responsible Person of the Borrower specifying the notice given or action taken
by such Person and the nature of such claimed Default, Event of Default, event
or condition and what action the Borrower has taken, is taking and proposes to
take with respect thereto;
(J) ERISA. With reasonable promptness, notice of the
occurrence of any of the following events affecting the Borrower or any ERISA
Affiliate (but in no event more than ten (10) days after such event), and a copy
of any notice with respect to such event that is filed with a Governmental
Authority and any notice delivered by a Governmental Authority to the Borrower
or any ERISA Affiliate with respect to such event:
(I) an ERISA Event;
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(II) a material increase in the Unfunded Pension
Liability of any Pension Plan;
(III) the adoption of, or the commencement of
contributions to, any Plan subject to Section 412 of the Code by the Borrower or
any ERISA Affiliate;
(IV) the adoption of any amendment to a Plan subject to
Section 412 of the Code, if such amendment results in a material increase in
contributions or Unfunded Pension Liability;
(V) a "prohibited transaction" (as defined in Section
406 of ERISA and Section 4975 of the Code) that would result in any material
liability to the Borrower or any ERISA Affiliate; or (vi) any challenge by the
IRS to the tax qualification of any Pension Plan under Section 401 or 501 of the
Code;
(K) SEC FILING. Within five (5) Business Days of the filing
thereof with the SEC, copies of any registration statements, prospectuses, I
10-Ks, 8-Ks, 8-Qs and all other documents or information filed by or on behalf
of the Borrower with the SEC;
(L) MATERIAL AGREEMENTS. With reasonable promptness, a copy
of all material agreements entered into by the Borrower, including any agreement
with an underwriter in respect of a potential initial public offering of shares
of the Borrower; and
(M) OTHER INFORMATION. With reasonable promptness, such
other reports, information and data, including lists of Property and accounts,
budgets, agreements with insurers, forecasts, federal, state and foreign tax
returns and reports, with respect to the Borrower as from time to time may be
reasonably requested by the Agent or any Lender.
All financial statements of the Borrower to be delivered by the
Borrower pursuant to this Section 6.1 will be complete and correct and present
fairly the financial condition of the Borrower as of the date thereof-, will
disclose all liabilities of the Borrower that are required to be reflected or
reserved against under GAAP, whether liquidated or unliquidated, fixed or
contingent; and will have been prepared in accordance with GAAP (subject, in the
case of interim financial statements, to year-end adjustments). The Borrower
hereby agrees that each time it submits a financial statement, the Borrower
shall be deemed to represent and warrant to the Lenders that such financial
statement complies with all of the preceding requirements set forth in this
paragraph.
SECTION 6.2 MAINTENANCE OF RIGHTS AND PROPERTIES. The Borrower shall:
(A) MAINTENANCE OF EXISTENCE AND RIGHTS. Maintain and preserve
in full force and effect its existence as a corporation and all rights,
licenses, leases, qualifications, privileges, franchises and other
authority adequate for the conduct of its business except where the
lapsing of any of the foregoing could not with reasonable likelihood
result in a Material Adverse Change; and
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(B) MAINTENANCE OF PROPERTIES. Maintain, preserve and
protect its properties, assets, equipment and facilities in good order and
working repair and condition (taking into consideration ordinary wear and tear)
and from time to time make, or cause to be made, all needful and proper repairs,
renewals and replacements thereto.
SECTION 6.3 TAXES AND OTHER LIABILITIES. The Borrower shall promptly
pay and discharge all Charges when due and payable, except (a) such as may be
paid thereafter without penalty or (b) such as may be contested in good faith by
appropriate proceedings and for which an adequate reserve has been established
and is maintained in accordance with GAAP. The Borrower shall promptly notify
the Agent of any material challenge, contest or proceeding pending by or against
the Borrower before any taxing authority.
SECTION 6.4 INSPECTION OF BOOKS AND RECORDS. The Borrower shall from
time to time during normal business hours and upon reasonable notice (except
that if an Event of Default shall have occurred and be continuing, no such
notice is required) permit the Agent or any Lender or any of their respective
representatives, to visit all of its offices, places of business and any
property owned or leased by it to discuss its financial matters with its
officers and independent public accountant (and the Borrower hereby authorizes
such independent public accountant to discuss the Borrower's financial matters
with the Agent or such Lender or its representatives whether or not any
representative of the Borrower is present) and to examine (and, at the expense
of the Borrower, photocopy extracts from) any of its books or other corporate
records or to inspect any of the Borrower's or the Partnership's places of
business or property. The Borrower shall pay any fees of such independent public
accountant incurred in connection with the Agent's or such Lender's exercise of
its rights pursuant to this Section 6.4.
SECTION 6.5 HARVESTING OF TIMBER. The Borrower shall use commercially
reasonable efforts to cause the Partnership to harvest and sell the Timber on
the Timberlands, subject to all of the requirements and conditions of this
Agreement and the other Loan Documents consistent with sound forestry
management.
SECTION 6.6 COMPLIANCE WITH LAWS. The Borrower shall exercise due
diligence in order to comply with the requirements of all applicable
Requirements of Laws, non-compliance with which could with reasonable likelihood
result in a Material Adverse Change; provided, however, that the Borrower may
appeal or contest any act, regulation, judgment, order, decree or direction in
any reasonable manner which shall not, in the opinion of Required Lenders,
adversely affect THE LENDERS' RIGHTS HEREUNDER or adversely affect the priority
of the Agent's or any LENDER'S LIEN IN, ON AND to any of the Collateral.
SECTION 6.7 AGREEMENTS. The Borrower shall perform, within all required
time periods (after giving effect to any applicable grace periods), all of its
obligations and enforce all of its rights under each agreement to which it is a
party, including any leases to which it is a party, where the failure to so
perform and enforce could with reasonable likelihood result in a Material
Adverse Change. The Borrower shall not terminate or modify any provision of any
agreement to which the Borrower is a party with respect to which such
termination or modification could with reasonable likelihood result in a
Material Adverse Change.
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SECTION 6.8 SUPPLEMENTAL DISCLOSURE. From time to time (in the event
that such information is not otherwise delivered by the Borrower to the Agent or
the Lenders pursuant to this Agreement), so long as there are Obligations
outstanding hereunder, the Borrower shall disclose to the Agent in writing any
material matter hereafter arising which, if existing or occurring at the date of
this Agreement, would have been required to be set forth or described by the
Borrower under the terms of this Agreement or any of the other Loan Documents or
which is necessary to correct any information set forth or described by the
Borrower hereunder or thereunder or in connection herewith which has been
rendered materially inaccurate thereby.
SECTION 6.9 FURTHER ASSURANCES. In addition to the obligations and
documents which this Agreement expressly requires the Borrower to execute,
acknowledge, deliver and perform, the Borrower shall execute and acknowledge (or
cause to be executed and acknowledged) and deliver to the Agent all documents,
and take all actions, that may be reasonably requested by the Agent or the
Lenders from time to time to confirm the rights created or now or hereafter
intended to be created under the Loan Documents, to protect and further the
validity, priority and enforceability of the Liens created under the Collateral
Documents, to subject to the Liens created under the Collateral Documents any
Property intended by the terms of any Loan Document to be covered by the
Collateral Documents, or otherwise to carry out the purposes of the Loan
Documents and the transactions contemplated hereunder and thereunder.
SECTION 6.10 YEAR 2000. The Borrower shall take all action necessary to
assure that the Borrower's computer based systems are able to effectively
process dates including dates on and after January 1, 2000. At the request of
the Agent or any Lender, the Borrower shall provide the Agent or such Lender,
with assurance acceptable to the Agent or such Lender, as the case may be, of
the Borrower's year 2000 capability.
ARTICLE VII
NEGATIVE COVENANTS OF THE BORROWER
The Borrower hereby agrees that, so long as any Lender shall have any
Commitment hereunder, or any Loan or other payment Obligation shall remain
unpaid or unsatisfied, unless the Required Lenders waive compliance in writing:
SECTION 7.1 LIMITATION ON LIENS. The Borrower shall not, nor shall it
permit the partnership to, directly or indirectly, make, create, incur, assume
or suffer to exist any Lien upon or with respect to any part of their Property,
whether now owned or hereafter acquired, other than the following (collectively,
the "Permitted Liens"):
(A) Liens created under any Loan Document in favor of the
Agent or any Lender,
(B) as to the Partnership only, Liens created in favor of
the Senior Agent securing the senior Loan Obligations;
(C) as to the Partnership only, the Permitted Title
Exceptions;
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(D) as to the Partnership only, other Liens existing as of
the Closing Date disclosed on ITEM 7.1 of the DISCLOSURE SCHEDULE;
(E) as to the Partnership only, Liens securing Indebtedness
permitted under SECTION 7.5(g).
(F) Liens for taxes, fees, assessments or other governmental
Charges which are not delinquent or remain payable without penalty, or to the
extent that non-payment thereof is permitted by SECTION 7.3; provided that no
notice of lien has been filed or recorded under the Code;
(G) Liens (other than any Lien imposed by ERISA and other
than on the Collateral) consisting of pledges or deposits required in the
Ordinary Course of Business in connection with workers' compensation,
unemployment insurance and other social security legislation;
(H) as to the Partnership only, Liens securing Capital Lease
Obligations on Property subject to such capital leases; provided that such
capital leases are permitted under SECTION 8.8(b);
(I) as to the Partnership only, carriers', warehousemen's,
mechanics, loggers', landlords', materialmen's, repairmen's or other similar
Liens (whether arising by operation of law, contract or otherwise) arising in
the Ordinary Course of Business which are not delinquent or remain payable
without penalty or which are being contested in good faith and by appropriate
proceedings, which proceedings have the effect of preventing the forfeiture or
sale of the Property subject thereto;
(J) as to the Partnership only, access easements, road use
rights, utility easements and other similar easements, licenses, servitudes and
permits relating to the Land granted to Governmental Authorities and other
Persons which do not materially impair the use or worth of the Land;
(K) as to the Partnership only, any interest or title of a
lessor,
(L) any money judgment, writ or warrant of attachment or
similar process entered or filed against the Borrower or the Partnership if the
judgment it secures shall, within thirty (30) days after the entry thereof, have
been discharged or execution thereof stayed pending appeal, or shall have been
discharged within thirty (30) days after the expiration of such stay;
(M) as to the Partnership only, Liens securing (i) the
non-delinquent performance of bids, trade contracts (other than for borrowed
money) or statutory obligations, (ii) Contingent Obligations in respect of
surety and appeal bonds, and (iii) other non-delinquent obligations of a like
native, in each case incurred in the Ordinary Course of Business; provided all
such Liens in the aggregate would not (even if enforced) with reasonable
likelihood result in a Material Adverse Change; and
(N) Liens arising solely by virtue of any contractual or
statutory or common law provision relating to banker's liens, rights of set-off
or similar rights and remedies as to
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deposit accounts or other funds maintained with a creditor depository
institution; provided that (i) such deposit account is not a dedicated cash
collateral account and is not subject to restrictions against access by the
Borrower or the Partnership in excess of those set forth by regulations
promulgated by the Federal Reserve Board, and (ii) such deposit account is not
intended by the Borrower or any of its Subsidiaries to provide collateral to the
depository institution.
SECTION 7.2 DISPOSITION OF ASSETS. The Borrower shall not, nor shall it
permit the Partnership to, directly or indirectly, sell, assign, lease, convey,
transfer or otherwise dispose of (whether in one or a series of transactions)
any Property or enter into any agreement to do any of the foregoing, except, in
each case as the Partnership only:
(A) Dispositions of Property which are made for not less
than fair market value;
(B) Disposition of used, worn-out or surplus equipment in
the Ordinary Course of Business;
(C) Disposition of equipment to the extent that such
equipment is exchanged for credit against the purchase price of such replacement
equipment; and
(D) as to the Partnership only, leases entered into in the
Ordinary Course of Business of houses and of other improvements not material to
the operation of the Partnership's Business, leases of portions of the Land that
are not suitable for Timber production or that are not being used for Timber
production as of the date of this Agreement, leases for hunting, fishing or
other recreational purposes, and leases for purposes of growing and harvesting
crops other than Timber.
SECTION 73 CONSOLIDATIONS AND MERGERS. The Borrower shall not, nor
shall it permit the Partnership to, merge or consolidate or enter into any
similar arrangement with or into, directly or indirectly, whether by operation
of law or otherwise, or convey, transfer, lease or otherwise dispose of (whether
in one transaction or in a series of transactions) all or substantially all of
its assets (whether now owned or hereafter acquired) to or in favor of any
Person, except (a) a merger of a wholly-owned Subsidiary of the Partnership into
the Partnership with the Partnership being the surviving entity or (b) a merger
of a wholly-owned Subsidiary of the Partnership another wholly-owned Subsidiary
of the Partnership.
SECTION 7.4 ACQUISITIONS; LOANS AND INVESTMENTS. Except as may be
permitted by SECTION 8.3 or 8.9, the Borrower shall not, nor shall it permit the
Partnership to, make any Acquisition or into any agreement to make any
Acquisition, or make, purchase or acquire any Investment in, any Person or make
any advance, loan, extension of credit or capital contribution to any Person,
including any Affiliate of the Borrower, or make any commitment with respect to
any of the foregoing, except for:
(A) the Timberlands Acquisition to be consummated at Closing;
(B) as to the Partnership only, Acquisitions of Timberlands
located within the United States of America;
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(C) investments in Cash Equivalents;
(D) as to the Partnership only, extensions of credit in the
form of Contingent Obligations to the extent expressly permitted by SECTION 8.5;
(E) as to the Partnership only, Investments of the net
issuance proceeds of new cash equity raised by the Partnership subsequent to the
Closing; provided that such net issuance proceeds are used to prepay the Loans
pursuant to SECTION 2.8;
(F) as to the Partnership only, Investments in the form of
any Rate Contract entered into with any counterparty pursuant to SECTION 7.7;
and
(G) Investments set forth on ITEM 7.4 of the DISCLOSURE
SCHEDULE.
Notwithstanding anything to the contrary contained in this Agreement,
Acquisitions other than the Acquisitions expressly permitted under CLAUSE (B),
above, must be approved by all Lenders (rather than Required Lenders); provided
that if, as part of an Acquisition of Timberlands that otherwise would be
permitted under CLAUSE (B), the Partnership is also acquiring other assets
related to and to be used in the Business as to which the portion of the
aggregate, all-in purchase price of such Acquisition allocated to such
non-Timberlands assets does not exceed both (i) $10,000,000 and (ii) twenty
percent (20.0%) of the aggregate, all-in purchase price for such Acquisition,
only the approval of Required Lenders shall be required. Without limiting the
generality of the foregoing, the exception for Acquisitions of Timberlands under
CLAUSE (B), above, is intended to include the acquisition of other ancillary
assets related to and to be used in the Business comprising a nonmaterial
portion of the aggregate, all-in purchase price for such Acquisition. For
purposes of the preceding sentence, "nonmaterial" shall mean having an allocated
purchase price of than both (1) $1,000,000 and (2) five percent (5.0%) of the
aggregate, all-in purchase price for such Acquisition.
SECTION 7.5 LIMITATION ON INDEBTEDNESS. The Borrower shall not, nor
shall it permit the Partnership to, create, incur, assume, suffer to exist, or
otherwise become or remain directly or indirectly liable with respect to, any
Indebtedness, including any Contingent Obligation, except:
(A) Indebtedness incurred pursuant to this Agreement, the
Notes and the other Loan Documents;
(B) The obligations guarantied by the Partnership under the
Partnership Guaranty;
(C) as to the Partnership only, Indebtedness incurred
pursuant to the Senior Loan Agreement and the other Senior Loan Documents;
(D) as to the Partnership only, Indebtedness incurred
pursuant to any Rate Contract entered into with any counterparty pursuant to
SECTION 7.7;
(E) accounts payable to trade creditors for goods and
services and current operating liabilities (not the result of the borrowing of
money) incurred in the Ordinary Course
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of Business in accordance with customary terms and paid within the specified
time, unless contested in good faith by appropriate proceedings and reserved for
in accordance with GAAP;
(F) as to the Partnership only, Indebtedness existing on the
Closing Date and set forth in Item 7.5 of the DISCLOSURE SCHEDULE;
(G) as to the Partnership only, Indebtedness incurred to the
seller in connection with the payment of the purchase price of any Acquisition
permitted under SECTION 7.4; provided that (i) in the event of any such
seller-financed Acquisition, the Borrower shall have delivered to the Agent
written projections, in form and substance acceptable to the Agent,
demonstrating that the pro forma EBITDDA projected by such seller-financed
Acquisition will be sufficient to enable the Partnership to be able to pay the
Indebtedness incurred in respect of such seller-financed Acquisitions as and
when it becomes due and payable; and (ii) the Borrower shall have delivered to
the Agent a certificate of the chief financial officer of the Borrower
certifying that as of the date of the closing of such seller-financed
Acquisition, on a pro forma basis, taking into account the consummation of such
Acquisition and the incurrence of such Indebtedness, that a Default or Event of
Default shall not have occurred and be continuing;
(H) endorsements for collection or deposit in the Ordinary
Course of Business;
(I) as to the Partnership only, Indebtedness incurred in
connection with capitalized leases and operating leases permitted pursuant to
SECTION 7.8; and
(J) as to the Partnership only, in addition to the other
Indebtedness permitted under this SECTION 7.5, unsecured Indebtedness in the
aggregate principal amount outstanding at any time not to exceed $500,000.
SECTION 7.6 TRANSACTIONS WITH AFFILIATES. The Borrower shall not, nor
shall it permit the Partnership to, enter, directly or indirectly, into or be a
party to any agreement or transaction (including the purchase, sale, lease or
exchange of any Property or the rendering of any services) with any Affiliate of
the Borrower, except (a) as set forth on ITEM 8.6 to the DISCLOSURE SCHEDULE;
(b) with respect to the raising of new equity, and (c) in the Ordinary Course of
Business and upon fair and reasonable terms that are approved by the Borrower's
board of directors, fully disclosed to the Agent and no less favorable to the
Borrower than would obtain in a comparable arm's length transaction with a
Person not an Affiliate of the Borrower.
SECTION 7.7 USE OF PROCEEDS. The Borrower shall use the Loan proceeds
only for the purposes described in SECTION 2.1 and in no event shall use any
portion of such proceeds, directly or indirectly, (a) to purchase or carry
Margin Stock, (b) to repay or otherwise refinance indebtedness of the Borrower
or others incurred to purchase or carry Margin Stock, (c) to extend credit for
the purpose of purchasing or carrying any Margin Stock or (d) to acquire any
security in any transaction that is subject to Section 13 or 14 of the
Securities Exchange Act of 1934, as amended.
SECTION 7.8 LEASE OBLIGATIONS. The Borrower shall not, nor shall it
permit the Partnership to, create or suffer to exist any obligations for the
payment of rent for any Property under lease or agreement to lease, except for:
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(A) as to the Partnership only, operating leases entered
into by the Borrower or any such Subsidiary after the Closing Date in the
Ordinary Course of Business; and
(B) as to the Partnership Only, capital leases entered into
by the Borrower or any such Subsidiary after the Closing Date to finance the
acquisition of equipment; provided that the aggregate annual rental payments for
all such Capital Lease Obligations shall not exceed $500,000 in any Fiscal Year.
Once a budget for the Fiscal Years through December 31, 2004 has been reviewed
and approved by the Agent, in its discretion (the "Initial Budget"), the annual
Maximum Cap on Capital Lease Obligation shall be adjusted to conform to the
budget.
SECTION 7.9 CAPITAL EXPENDITURES. The Borrower shall not make or commit
to make any Capital Expenditures. The Borrower shall not permit the Partnership
to, make or commit to make in the aggregate Capital Expenditures during any
Fiscal Year in excess of $500,000. The unutilized permitted Capital Expenditures
from any Fiscal Year may be carried forward into the next succeeding Fiscal
Year. Once the Initial Budget has been received and approved by the Agent, in
its discretion, the annual maximum cap on Capital Expenditures shall be adjusted
to conform to the budget.
SECTION 7.10 RESTRICTED DISTRIBUTIONS. The Borrower shall not declare
or make any distribution or payment or other distribution of assets, properties,
cash, rights, obligations or securities on account of any equity interest in the
Borrower or purchase, redeem or otherwise acquire for value any equity interest
in the Borrower or any warrants, rights or options to acquire such equity
interests, now or hereafter outstanding.
SECTION 7.11 MODIFICATION OF CERTAIN AGREEMENTS. The Borrower shall
not, without the prior written approval of Required Lenders, such approval to be
given in Required Lenders' sole and absolute discretion, amend, supplement,
modify or waive compliance with or consent to any amendment, supplement or other
modification of or waiver of compliance with any of the terms or provisions
contained in, or applicable to the Limited Partnership Agreement or any other
material organizational documents of the Partnership, except that Required
Lenders' prior approval shall not be required for any amendment, supplement,
modification or waiver which does not, either individually or in the aggregate
with other amendments, supplements, modifications or waivers, in any material
way adversely affect the Borrower's ability to pay and perform the Obligations
or the Agent's or any Lender's rights or remedies under any of the Loan
Documents, provided that the foregoing exception is subject to the condition
precedent that the borrower shall have provided the Agent with a written copy of
the proposed amendment, supplement, modification or waiver at least three (3)
Business Days prior to its execution by the Borrower or, if it is not to be
executed by the Borrower, its becoming effective.
SECTION 7.12 MAINTENANCE OF BUSINESS. The Borrower shall not engage in
any business other than the owning of, directly or indirectly, partnership
interests in the Partnership and shall not permit the Partnership to engage in
any business other than the Business and other activities normally associated
with the operation of the Business.
SECTION 7.13 ERISA. The Borrower shall not, and shall not suffer or
permit any of its ERISA Affiliates to: (a) engage in a "prohibited transaction"
(as defined in Section 406 of ERISA and Section 4975 of the Code) or violation
of the fiduciary responsibility rules with
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respect to any Plan which has resulted or could reasonably be expected to result
in a Material Adverse Change; liability of the Borrower; (b) engage in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA; or (c)
incur any obligation to contribute to a Pension Plan required by a collective
bargaining agreement or as a consequence of the acquisition of an ERISA
Affiliate, unless the Borrower shall notify the Agent in writing that it intends
to incur such obligation.
SECTION 7.14 NO USE OF ANY LENDER'S NAME. The Borrower shall not use or
authorize any other Person to use any Lender's name or marks in any press
releases, signage, publication or other publicity or medium, including any
prospectus (but excluding any necessary or appropriate filings or submissions to
Governmental Authorities, including the filing of this Agreement with the SEC
solely as an exhibit evidencing an existing material agreement of the Borrower),
without the Agent's or such Lender's advance written authorization.
SECTION 7.15 ACCOUNTING CHANGES. The Borrower shall not change its
Fiscal Year or make any significant change in accounting treatment or reporting
practices, except as required or permitted by GAAP.
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
SECTION 8.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following shall constitute an Event of Default:
(A) INSTALLMENTS OF PRINCIPAL. The Borrower shall fail to
pay any scheduled installment of principal under this Agreement or any of the
Notes on the date such installment shall become due and payable; or
(B) OTHER PAYMENTS. The Borrower shall fail to pay any
installment of interest on any Loan or fail to pay any of the other Obligations
of the Borrower to the Lenders or the Agent arising under this Agreement, the
Notes or any of the other Loan Documents on the date as the same shall become
due and payable, whether by acceleration or otherwise, and such failure shall
not have been cured within three (3) Business Days thereafter; or
(C) CROSS DEFAULTS. The Borrower or the Partnership (i) shall
fail to make any payment in respect of any Indebtedness (including the Senior
Loan) having an aggregate principal amount (including undrawn committed or
available amounts and including amounts owing to all creditors under any
combined or syndicated credit arrangement) of more than $3,000,000 when due
(whether by scheduled maturity, required prepayment, acceleration, demand, or
otherwise) and such failure continues after the applicable grace or notice
period, if any, specified in the document relating thereto on the date of such
failure; or (ii) shall fail to perform or observe any other material condition
or covenant, or any other event shall occur or condition exist, under any
agreement or instrument relating to any such Indebtedness, and such failure
continues after the applicable grace or notice period, if any, specified in the
document relating thereto on the date of such failure and (1) as to the
Borrower, the effect of such failure, event or condition is to cause, or to
permit the holder or holders of such Indebtedness or
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beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on
behalf of such holder or holders or beneficiary or beneficiaries) to cause such
Indebtedness to be declared to be due and payable prior to its stated maturity
(or any Contingent Obligation to become payable or cash collateral in respect
thereof to be demanded) or (2) as to the Partnership, as a result of such
failure, event or condition, the holder or holders of such Indebtedness or
beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on
behalf of such holder or holders or beneficiary or beneficiaries) have declared
and caused such Indebtedness to become due prior to its stated maturity (or such
Contingent Obligation to become payable or such cash collateral in respect
thereof to be demanded); or
(D) REPRESENTATIONS AND WARRANTIES OF THE BORROWER. Any
representation or warranty made by or on behalf of the Borrower in this
Agreement or in any other Loan Document or any statement or certificate at any
time given in writing pursuant hereto or thereto or in connection herewith or
therewith shall be false, misleading or incomplete in any material respect when
made; or
(E) SPECIFIC DEFAULTS. The Borrower shall fail or neglect to
perform, keep or observe any term, covenant or agreement contained in ARTICLE
VII; or
(F) OTHER DEFAULTS. Subject to SECTIONS 8.1(A), (B) and (E),
the Borrower shall fail or neglect to perform, keep or observe any other term,
covenant, provision or agreement contained in this Agreement or in any of the
other Loan Documents or any other document or agreement executed by the Borrower
in connection herewith or therewith and the same has not been cured to Required
Lenders' satisfaction within ten (10) calendar days after the Borrower shall
become aware thereof, whether by written notice from the Agent or any Lender or
otherwise, or should reasonably have been aware thereof; provided, that if such
Default is not reasonably susceptible to cure within ten (10) days, then the
Borrower shall have such additional time as it reasonably takes to effect such
cure, but in no event longer than thirty (30) days from the occurrence of such
Default, so long as the Borrower promptly commences and diligently pursues such
cure; or
(G) PARTNERS' AND THE PARTNERSHIP'S DEFAULTS. The Partnership,
STOC, LTP or any Additional Pledgor shall fail or neglect to perform, keep or
observe any other term, covenant, provision or agreement contained in the Loan
Documents or any other document or agreement executed by the Partnership, STOC,
LTP or any Additional Pledgor in connection herewith or therewith and the same
has not been cured to Required Lenders' satisfaction within ten (10) calendar
days after the Partnership, STOC, LTP or such Additional Pledgor shall become
aware thereof, whether by written notice from the Agent or any Lender or
otherwise, or should reasonably have been aware thereof; provided, that if such
Default is not reasonably susceptible to cure within ten (10) days, then the
Partnership, STOC, LTP or such Additional Pledgor shall have such additional
time as it reasonably takes to effect such cure, but in no event longer than
thirty (30) days from the occurrence of such Default, so long as the
Partnership, STOC, LTP or such Additional Pledgor promptly commences and
diligently pursues such cure; or
(H) INSOLVENCY; VOLUNTARY PROCEEDINGS. The Borrower, the
Partnership, STOC, LTP or any Additional Pledgor (i) ceases or fails to be
Solvent, or generally fails to pay,
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or admits in writing its inability to pay, its debts as they become due, subject
to applicable grace periods, if any, whether at stated maturity or otherwise;
(ii) except as permitted under SECTION 7.3, voluntarily liquidates, dissolves or
ceases to conduct its business in the ordinary course; (iii) commences any
Insolvency Proceeding with respect to itself; or (iv) takes any action to
effectuate or authorize any of the foregoing; or
(I) INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency
Proceeding is commenced or filed against the Borrower or Partnership, STOC, LTP
or any Additional Pledgor, or any writ, judgment, warrant of attachment,
execution or similar process, is issued or levied against a substantial part of
the Borrowers' the Partnership's, STOC's, LTP's or any Additional Pledgor's
Properties, and any such proceeding or petition shall not be dismissed, or such
writ, judgment, warrant of attachment, execution or similar process shall not be
released, vacated or fully bonded within sixty (60) days after commencement,
filing or levy; (ii) the Borrower, the Partnership, STOC, LTP or any Additional
Pledgor admits the material allegations of a petition against it in any
Insolvency Proceeding, or an order for relief (or similar order under non-U.S.
law) is ordered in any Insolvency Proceeding; or (iii) the Borrower, the
Partnership, STOC, LTP or any Additional Pledgor acquiesces in the appointment
of a receiver, trustee, custodian, conservator, liquidator, mortgagee in
possession (or agent therefor), or other similar Person for itself or a
substantial portion of its Property or business; or
(J) MATERIAL ADVERSE CHANGE. A Material Adverse Change shall
have occurred; or
(K) MONETARY JUDGMENTS. One or more final
(non-interlocutory) judgments, orders or decrees shall be entered against the
Borrower or the Partnership involving in the aggregate a liability (not covered
by independent third-party insurance) as to any single or related series of
transactions, incidents or conditions, in excess of $5,000,000 and the same
shall remain unsatisfied, unvacated and unstayed pending appeal for a period of
thirty (30) days after the entry thereof; or
(L) NON-MONETARY JUDGMENTS. Any non-monetary judgment, order
or decree shall be rendered against the Borrower or the Partnership which does
or would reasonably be expected to result in a Material Adverse Change, and
there shall be any period of thirty (30) consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
(M) COLLATERAL. Any of the Loan Documents shall for any reason
other than the satisfaction in full of the Obligations thereunder cease to be,
or be asserted by any of the Borrower, the Partnership, STOC or LTP or any
Additional Pledgor not to be, a legal, valid and binding obligation of the
Borrower, the Partnership, STOC or LTP or any Additional Pledgor to the extent
such Person is a party thereto, enforceable in accordance with its terms, or any
of the Liens purported to be created by any of the Collateral Documents with
respect to any of the Collateral shall for any reason, other than the
satisfaction in full of the Obligations thereunder, cease to be, or be asserted
by the grantor thereunder not to be, a first priority, validly perfected Lien;
or
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(N) ERISA. (i) An ERISA Event shall occur with respect to a
Pension Plan or Multiemployer Plan which has resulted or could reasonably be
expected to result in liability of the Borrower under Title IV of ERISA to the
Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of
$5,000,000; (ii) the aggregate amount of Unfunded Pension Liability among all
Pension Plans at any time exceeds $5,000,000; or (iii) the Borrower or any ERISA
Affiliate shall fail to pay when due, after the expiration of any applicable
grace period, any installment payment with respect to its withdrawal liability
under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in
excess of $5,000,000; or
(O) CHANGE IN KEY INVESTORS. Any Change in Key Investors
shall have occurred; or
(P) CHANGE IN MANAGEMENT. Any Change in Key Management shall
have occurred.
SECTION 8.2 WAIVER OF DEFAULT. Any Event of Default may be waived only
with the written consent of Required Lenders; except that an Event of Default
under any of SECTIONS 8.1(A), 8.1(B), 8.1(H) OR 8.1(I) may only be waived with
the written consent of all Lenders. Any Event of Default so waived shall be
deemed to have been cured and not to be continuing; but no such waiver shall be
deemed a continuing waiver or shall extend to or affect any subsequent like
default or impair any rights arising therefrom.
SECTION 8.3 REMEDIES. Upon the occurrence and during the continuance of
any Default or Event of Default, the Lenders or the Agent, on behalf and for the
ratable benefit of the Lenders, may, at the option of Required Lenders, do any
one or more of the following, all of which are hereby authorized by the
Borrower:
(A) Declare all or any of the Obligations of the Borrower
under this Agreement, the Notes, the other Loan Documents and any other
instrument executed by the Borrower pursuant to the Loan Documents to be
immediately due and payable, and upon such declaration such obligations so
declared due and payable shall immediately become due and payable; provided that
if such Event of Default is under SECTIONS 8.1(G) or (H), then all of the
Obligations shall become immediately due and payable forthwith without the
requirement of any notice or other action by the Lenders or the Agent; provided,
further, that the declaration to accelerate the Obligations may be rescinded
upon the written election of Required Lenders;
(B) Terminate this Agreement (and the Commitments of the
Lenders set forth herein) as to any future liability or obligation of the
Lenders, but without affecting the Lenders' rights in and to Liens in and on the
Collateral; and
(C) Exercise, in addition to all other rights and remedies
granted hereunder, any and all rights and remedies granted under the Collateral
Documents and other Loan Documents or otherwise available at law or in equity.
SECTION 8.4 SET-OFF.
(A) RIGHTS OF SET-OFF. Regardless of the adequacy of any
Collateral but subject to SECTION 8.4(B), during the continuance of an Event of
Default, any deposits or other
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sums credited by or due from any Lender to the Borrower may be set-off against
the Obligations and any and all other liabilities, direct or indirect, absolute
or contingent, due or to become due, now existing or hereafter arising, of the
Borrower to the Lenders.
(B) THE AGENT'S CONSENT TO SET-OFF REQUIRED. Each Lender
agrees that it shall not, and that it shall not attempt to, exercise any right
of set-off, banker's lien or similar remedy against any of the Property of the
Borrower without the prior written consent of the Agent.
SECTION 8.5 SHARING OF PAYMENTS. If, other than as expressly provided
elsewhere herein, any Lender shall receive from the Borrower or any other source
whatsoever on account of the Loans made by it any payment (whether voluntary,
involuntary, through the exercise of any right of set-off, bankers' lien,
counterclaim, cross-action, enforcement of any claim evidenced by this Agreement
or any of the other Loan Documents or by proof thereof in any case under the
Bankruptcy Code or similar proceeding or otherwise) which is in excess of its
respective Commitment Percentage of payments on account of the Loans obtained by
all the Lenders with respect to such Loans, such Lender shall forthwith (a)
notify the Agent of such fact and (b) make such dispositions and arrangements
with each other Lender with respect to such excess, either by way of
distribution until the amount of such excess has been exhausted, assignment of
claims, subrogation or otherwise, as shall result in each such Lender receiving
in respect of the amounts due such Lender, under this Agreement its ratable
share of such payments; provided, however, that if all or any part of such
excess payment is thereafter recovered from such Lender, such disposition and
arrangements shall be rescinded and the amount restored to the extent of such
recovery, but without interest.
SECTION 8.6 RIGHTS AND REMEDIES CUMULATIVE. The Lenders' and the
Agent's rights and remedies under this Agreement shall be cumulative. The
Lenders and the Agent shall have all other rights and remedies not inconsistent
herewith as provided by law or in equity. No exercise by any Lender or the Agent
of one right or remedy shall be deemed an election. No delay by any Lender or
the Agent shall constitute a waiver, election or acquiescence by such party.
ARTICLE IX
THE AGENT
SECTION 9.1 APPOINTMENT AND AUTHORIZATION. Each Lender hereby
irrevocably appoints, designates and authorizes ABN AMRO as and to be the Agent
of such Lender under this Agreement and under each of the other Loan Documents
and each Lender irrevocably authorizes ABN AMRO as the Agent for such Lender to
take such action on its behalf under and subject to the provisions of this
Agreement and each other Loan Document and to exercise such powers and perform
such duties as are expressly delegated to the Agent by the terms of this
Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement or in any other Loan Document, the Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, nor shall the Agent have or be deemed to have any fiduciary relationship
with any Lender, and no implied covenants, functions, responsibilities, duties,
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obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against the Agent in such respective capacities.
SECTION 9.2 DELEGATION OF DUTIES. The Agent may execute any of their
respective duties under this Agreement or any other Loan Document by or through
agents, or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agent or attorney-in-fact
that it selects with reasonable care.
SECTION 9.3 EXCULPATORY PROVISIONS. None of the Agent-Related Persons
shall (a) be liable for any action taken or omitted to be taken by any of them
under or in connection with this Agreement or any other Loan Document (except
for its or such Person's own gross negligence or willful misconduct), or (b) be
responsible in any manner to any of the Lenders for any recital, statement,
representation or warranty made by the Borrower or any Affiliate of the Borrower
or any of their respective Affiliates or any officer thereof, contained in this
Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with this Agreement or any other Loan Document, or
for the value of any Collateral or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement, the Notes or any other Loan
Document, or for any failure of the Borrower or any other party to any Loan
Document to perform its obligations hereunder or thereunder. No Agent-Related
Person shall be under any obligation to any Lender to ascertain or to inquire as
to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Loan Document, or to inspect the
properties, books or records of the Borrower or any of its Affiliates.
SECTION 9.4 RELIANCE BY THE AGENT.
(A) The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by any of them to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons, and upon advice and statements of legal counsel (including counsel
to the Borrower), independent accountants and other experts selected by the
Agent. The Agent may deem and treat the payee of any Note as the owner thereof
for all purposes unless a completed and fully executed Assignment and
Acceptance shall have been delivered to the Agent. The Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Loan Document unless it shall first receive such advice or concurrence of
the Required Lenders or all Lenders, as it deems appropriate and, if it so
requests, it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense (except those incurred solely as a
result of the Agent's, as the case may be, gross negligence or willful
misconduct) which may be incurred by it by reason of taking or continuing to
take any such action. The Agent shall in all cases be fully protected in acting,
or in refraining from acting, under this Agreement, the Notes or any of the
other Loan Document in accordance with a request or consent of the Required
Lenders or all Lenders, as may be required, and such request and any action
taken or failure to act pursuant thereto shall be binding upon all of the
Lenders and all future holders of the Notes.
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(B) For purposes of determining compliance with the conditions
precedent specified in ARTICLE IV, each Lender that has executed this Agreement
or shall hereafter execute and deliver an Assignment and Acceptance in
accordance with SECTION 10.11(A) shall be deemed to have consented to, approved
or accepted or to be satisfied with each document or other matter either sent by
the Agent to such Lender for consent, approval, acceptance or satisfaction, or
required thereunder to be consented to or approved by or acceptable or
satisfactory to the Lender.
SECTION 9.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default,
except, as to the Agent only, with respect to defaults in the payment of
principal, interest and fees required to be paid to the Agent on behalf and for
the benefit of the Lenders, unless the Agent shall have received written notice
from a Lender or the Borrower referring to this Agreement, describing such
Default or Event of Default and stating that such notice is a "notice of
default". In the event that the Agent receives such a notice, the Agent shall
give notice thereof to the Lenders. The Agent shall take such action with
respect to such Default or Event of Default as shall be requested by the
Required Lenders or all Lenders, as appropriate; provided, however, that unless
and until the Agent shall have received any such request, the Agent may (but
shall not be obligated to) take such action, or refrain from taking such action,
with respect to such Default or Event of Default as it shall deem in the best
interest of the Lenders or as the Agent shall believe necessary to protect the
Lenders' interests in the Collateral.
SECTION 9.6 CREDIT DECISION. Each Lender expressly acknowledges that
none of the Agent-Related Persons has made any representation or warranty to it
and that no act by the Agent hereinafter taken, including any review of the
affairs of the Borrower or any of their respective Affiliates, shall be deemed
to constitute any representation or warranty by the Agent to any Lender. Each
Lender represents to the Agent that it has, independently and without reliance
upon the Agent or any other Lender and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, prospects, operations, property, financial and other condition and
creditworthiness of the Borrower and its Affiliates, and all applicable bank
regulatory laws relating to the transactions contemplated thereby, and made its
own decision to enter into this Agreement and extend credit to the Borrower
under and pursuant to this Agreement. Each Lender also represents that it will,
independently and without reliance upon the Agent and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make such
investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of the Borrower and its Affiliates. Except for notices, reports
and other documents expressly herein required to be furnished to the Lenders by
the Agent hereunder, the Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of the Borrower or any of its Affiliates, which may come into
the possession of any Agent-Related Person.
SECTION 9.7 INDEMNIFICATION. Whether or not the transactions
contemplated hereby shall be consummated, the Lenders agree to and shall
indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by
or on behalf of the Borrower or any guarantor of the
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Obligations and without limiting the obligation of such Person to do so),
ratably from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs (including Attorneys Costs),
expenses and disbursements of any kind whatsoever which may at any time
(including at any time following the repayment of the Loans and the termination
or resignation of the related Agent) be imposed on, incurred by or asserted
against any such Person in such capacity, but not as Lenders, in any way
relating to or arising out of this Agreement, any of the other Loan Documents or
any document contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby or any action taken or omitted by
any such Person under or in connection with any of the foregoing; provided,
however, that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from such Person's gross negligence
or willful misconduct. Without limitation of the foregoing, each Lender shall
reimburse the Agent upon demand for its ratable share of any costs or other
out-of-pocket expenses (including Attorney Costs) incurred by the Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein to the extent that such Person is not
reimbursed for such expenses by or on behalf of the Borrower. Without limiting
the generality of the foregoing, if the IRS or any other Governmental Authority
of the United States or other jurisdiction asserts a claim that the Agent did
not properly withhold tax from amounts paid to or for the account of any Lender
(because the appropriate form was not delivered, was not properly executed, or
because such Lender failed to notify the Agent of a change in circumstances
which rendered the exemption from, or reduction of, withholding tax ineffective,
or for any other reason), such Lender shall indemnify the Agent fully for all
amounts paid, directly or indirectly, by the Agent as tax or otherwise,
including penalties and interest, and including any taxes imposed by any
jurisdiction on the amounts payable to the Agent under this SECTION 9.7,
together with all costs and expenses (including Attorney Costs). The obligation
of the Lenders in this SECTION 9.7 shall survive the payment of all Obligations.
SECTION 9.8 THE AGENT IN INDIVIDUAL CAPACITY. ABN AMRO and its
Affiliates and its successors as the Agent, may make loans to, issue letters of
credit for the account of, accept deposits from, acquire equity interests in and
generally engage in any kind of banking, trust, financial advisory or other
business with the Borrower and its Affiliates as though ABN AMRO (or such
successors) were not the Agent hereunder and under the other Loan Documents and
without notice to or consent of the Lenders. With respect to its Loans, ABN AMRO
shall have the same rights and powers under this Agreement as any other Lender
and may exercise the same as though it were not the Agent and the terms "Lender"
and "Lenders" shall include ABN AMRO in its individual capacity.
SECTION 9.9 SUCCESSOR AGENT. The Agent may resign as Agent upon thirty
(30) days' notice to the Lenders and Required Lenders may at any time remove the
Agent. The Agent shall be removed or shall resign as the Agent under this
Agreement and the other Loan Documents, the Required Lenders shall appoint from
among the Lenders a successor Agent for the Lenders, which successor agent shall
be approved by the Borrower (which consent shall not be unreasonably withheld or
delayed), whereupon such agent shall succeed to the rights, powers and duties of
the Agent, and the term "Agent" shall mean such successor agent, effective upon
its
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appointment, and the former Agent's rights, powers and duties as Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent or any of the parties to this Agreement or any holders of the Notes. After
any retiring Agent's removal or resignation as Agent, the provisions of this
SECTION 9.9 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was a Agent, as the case may be, under this Agreement and
the other Loan Documents. Further, if any Agent no longer has any Loans or
Commitments hereunder, such Agent shall immediately resign and shall be
replaced, and have the benefits, as set forth in this SECTION 9.9.
SECTION 9.10 COLLATERAL MATTERS.
(A) The Agent is authorized on behalf of all the Lenders,
without the necessity of any notice to or further consent from the Lenders, from
time to time to take any action with respect to any Collateral or the Collateral
Documents which may be necessary to perfect and maintain perfected the security
interest in and Liens upon the Collateral granted pursuant to the Collateral
Documents.
(B) The Lenders irrevocably authorize the Agent, at its option
and in its discretion, to release any Lien granted to or held by the Agent upon
any Collateral (i) upon termination of the Commitments and payment in full of
all Loans and all other Obligations payable under this Agreement and under any
other Loan Document; (ii) consisting of an instrument evidencing Indebtedness or
other debt instrument, if the indebtedness evidenced thereby has been paid in
full; or (iii) if approved, authorized or ratified in writing by the Required
Lenders or all the Lenders, as the case may be, as provided in SECTION 10.1(F).
Upon request by the Agent at any time, the Lenders will confirm in writing the
Agent's authority to release particular types or items of Collateral pursuant to
this SECTION 9.11(B). Required Lenders may also deliver written directions to
the Agent not to take any specific action permitted by this SECTION 9.11(B) and,
following receipt of such notice, but subject to the other terms of this ARTICLE
IX, the Agent shall cease from taking such action.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 AMENDMENTS AND WAIVERS. No amendment, modification or
waiver of any provision of this Agreement or any other Loan Document, and no
consent with respect to any departure by the Borrower therefrom, shall be
effective unless the same shall be in writing and signed by Required Lenders and
acknowledged by the Agent, and then such waiver shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that no such waiver, amendment, or consent shall, unless in writing and
signed by all the Lenders and acknowledged by the Agent, do any of the
following:
(A) increase or extend the Commitment of any Lender or subject
any Lender to any additional obligations;
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(B) postpone or delay any date fixed for any payment of
principal, interest, fees or other amounts due to the Lenders (or any of them)
hereunder or under any Loan Document (including in respect of any Mandatory
Prepayment);
(C) reduce the principal of, or the rate of interest specified
herein on any Loan, or of any fees or other amounts payable hereunder or under
any Loan Document;
(D) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which shall be required for the
Lenders or any of them to take any action hereunder;
(E) amend SECTION 7.4 or this SECTION 10.1;
(F) release all or any substantial part of the Collateral,
except as otherwise may be provided herein or in the Collateral Documents or
except where the consent of the Required Lenders only is specifically provided
for;
and, provided further that no amendment, modification, waiver or consent shall,
unless in writing and signed by the Agent in addition to the Required Lenders or
all the Lenders, as the case may be, affect the corresponding rights or duties
of the Agent under this Agreement or any other Loan Document.
SECTION 10.2 NOTICES.
(A) All notices, requests and other communications provided for
hereunder shall be in writing (including, unless the context expressly otherwise
provides, by facsimile transmission, provided that any matter transmitted by the
Borrower by facsimile (i) shall be immediately confirmed by a telephone call to
the recipient at the number specified on the applicable signature page hereof,
and (ii) shall be followed promptly by a hard copy original thereof) and mailed,
faxed or delivered, to the address or facsimile number specified for notices on
the applicable signature page hereof; or, as directed to the Borrower or the
Agent, to such other address as shall be designated by such party in a written
notice to the other parties, and as directed to each other party, at such other
address as shall be designated by such party in a written notice to the Borrower
and the Agent.
(B) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next day) delivery, or transmitted by facsimile machine,
respectively, or if delivered, upon delivery, except that notices pursuant to
ARTICLE II or ARTICLE IX shall not be effective until actually received by the
Agent.
(C) The Borrower and the Lenders acknowledge and agree that any
agreement of the parties to receive certain notices by telephone and facsimile
is for their mutual benefit and convenience. Any party shall be entitled to rely
on the authority of any Person purporting to be a Person authorized by any other
party to give such notice and the party relying on such authorization shall not
have any liability to any other Person on account of any action taken or not
taken by such party in reliance upon such telephonic or facsimile notice. The
obligation of the Borrower to repay the Loans shall not be affected in any way
or to any extent by any failure by the Agent to receive written confirmation of
any telephonic or facsimile notice or the receipt
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by the Agent of a confirmation which is at variance with the terms understood by
the Agent to be contained in the telephonic or facsimile notice.
SECTION 10.3 NO WAIVER BY AGENT OR THE LENDERS. No failure or delay on
the part of any Lender or the Agent, in the exercise of any power, right or
privilege under this Agreement, the Notes or any of the other Loan Documents
shall impair such power, right or privilege or be construed to be a waiver of
any default or acquiescence therein, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege.
SECTION 10.4 ENTIRE AGREEMENT; CONSTRUCTION.
(A) This Agreement, the Notes and each of the other Loan
Documents dated as of the date hereof, taken together, constitute and contain
the entire agreement among the Borrower, the Lenders and the Agent and supersede
any and all prior agreements, negotiations, correspondence, understandings and
communications, among the parties, whether written or oral, respecting the
subject matter hereof.
(B) This Agreement is the result of negotiations between and
has been reviewed by each of the Borrower and the Lenders executing this
Agreement as of the Closing Date, the Agent and their respective counsel;
accordingly, this Agreement shall be deemed to be the product of the parties
hereto, and no ambiguity shall be construed in favor of or against the
Borrower, the Lenders or the Agent. The Borrower, the Lenders and the Agent each
severally agrees that it intends the literal words of this Agreement and the
other Loan Documents and that no parole evidence shall be necessary or
appropriate to establish Borrower's, any Lender's or the Agent's actual
intentions.
SECTION 10.5 INDEMNIFICATION. To the fullest extent permitted by law,
the Borrower agrees to protect, indemnify, defend and hold harmless each Lender
and the Agent, and each of their respective directors, officers, employees and
agents and any Person who controls any of them within the meaning of the
federal, state and foreign securities laws (each an "Indemnitee") from and
against any liabilities, losses, obligations, damages, penalties, expenses or
costs of any kind or nature and from any suits, judgments, claims or demands
(including in respect of or for Attorney Costs and other reasonable fees and
other disbursements of counsel for and consultants of such indemnitees in
connection with any investigative, administrative or judicial proceeding,
whether or not such indemnitees shall be designated a party thereto) based on
any federal, state, local or foreign law OR other statutory regulation,
including securities, environmental and commercial law or other statutory
regulation, which arises under common law or at equitable cause or on contract
or otherwise on account of or in connection with any matter or thing or any
action or failure to act by or any of them, arising out of or relating to the
Loan Documents or any agreement or instrument executed pursuant to the Loan
Documents, except to the extent such liability arm from the willful misconduct
or gross negligence of any of the Indemnitees (collectively, the "Indemnified
Matters"). Upon receiving knowledge of any suit, claim or demand asserted by any
Person that any Lender or the Agent believes is covered by this indemnity, such
Lender or the Agent, as the case may be, shall give the Borrower notice of the
matter and an opportunity to defend it, at the Borrower's sole cost and expense,
with legal counsel of the Borrower's choice, which legal counsel shall be
reasonably satisfactory to the
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Agent and each affected Lender. The Agent and each affected Lender may also
require the Borrower to defend the matter. The obligations of the Borrower under
this SECTION 10.5 shall survive the payment and performance of the Obligations
and the termination of this Agreement. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this SECTION 10.5 may be
unenforceable because it is violative of any law or public policy, the Borrower
shall contribute the maximum portion which it is permitted to pay and satisfy
under applicable law to the payment and satisfaction of all Indemnified Matters
incurred by the Indemnitees.
SECTION 10.6 COSTS AND EXPENSES. The Borrower shall, whether or not the
transactions contemplated hereby shall be consummated:
(A) subject to SECTION 4.1(DD), pay or reimburse ABN AMRO
within thirty (30) days after demand for all reasonable costs and expenses
incurred by ABN AMRO (including in its capacity as the Agent) in connection with
the development, preparation, delivery, administration and execution of, and any
amendment, supplement, waiver or modification to (in each case, whether or not
consummated), this Agreement, any other Loan Document and any other documents
prepared in connection herewith (including any commitment letter and related
documents preceding this Agreement) or therewith, and the consummation of the
transactions contemplated hereby and thereby, including the reasonable Attorney
Costs incurred by ABN AMRO (including in its capacity as the Agent) with respect
hereto and thereto;
(B) pay or reimburse the Agent and, after the occurrence of
an Event of Default, each Lender within thirty (30) days after demand for all
costs and expenses incurred by them in connection with the enforcement,
attempted enforcement, or preservation of any rights or remedies (including in
connection with any "workout" or restructuring regarding the Loans, and
including in any Insolvency Proceeding or appellate proceeding) under this
Agreement, any other Loan Document, and any such other documents, including
Attorney Costs incurred by the Agent, and any Lender; and
(C) pay or reimburse ABN AMRO (including in its capacity as
the Agent) within thirty (30) days after demand for all reasonable audit,
appraisal, appraisal review, environmental inspection and review, search and
filing, registration and recording and other similar costs, fees and expenses,
including the fees and expertise of Lenders' Forestry Consultant, incurred or
sustained by ABN AMRO (including in its capacity as the Agent) in connection
with the matters referred to under clauses (A) and (B) of this SECTION 10.6.
SECTION 10.7 RELIANCE BY THE LENDERS. All covenants, agreements,
representations and warranties made herein by the Borrower shall,
notwithstanding any investigation by the Lenders or or the agent be deemed to be
material to and to have been relied upon by the Lenders and the Agent.
SECTION 10.8 MARSHALLING; PAYMENTS SET ASIDE. Neither the Lenders nor
the Agent, as the holder of any Lien as security for the Obligations, shall be
under any obligation to marshal any assets in favor of the Borrower or any other
Person or against or in payment of any or all of the Obligations. To the extent
that (a) the Borrower makes a payment or payments to the Lenders or the Agent,
or (b) the Lenders or the Agent, on behalf and for the benefit of itself and the
Lenders, enforces its or their Liens or exercises its or their rights of
set-off, and such payment
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or payments or the proceeds of such enforcement or set-off or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside or required to be repaid to a trustee, receiver or any other party under
the Bankruptcy Code or under any other similar federal or state law, common law
or equitable cause, then to the extent of such recovery the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or set-off had not occurred.
SECTION 10.9 NO SET-OFFS BY THE BORROWER. All sums payable by the
Borrower pursuant to this Agreement, the Notes or any of the other Loan
Documents shall be payable without notice or demand and shall be payable in
United States Dollars without set-off or reduction of any manner whatsoever.
SECTION 10.10 SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of the Agent and each Lender.
SECTION 10.11 ASSIGNMENTS, PARTICIPATIONS, ETC.
(A) Any Lender may, with the written consent of the Borrower
(at all times other than during the existence of an Event of Default in which
event the Borrower's consent shall not be required) and the Agent (and written
notice to each other Lender), which consents shall not be unreasonably withheld,
at any time assign and delegate to one or more Eligible Assignees (provided that
no written consent of the Borrower or the Agent shall be required in connection
with any assignment and delegation by any Lender to a Lender Affiliate of such
Lender) (each an "Assignee") all, or any ratable part of all, of the Loans, the
Commitments and the other rights and obligations of such Lender hereunder, in a
minimum amount of [$5,000,000]; provided, however, that (i) the Borrower and the
Agent may continue to deal solely and directly with such Lender in connection
with the interest so assigned to an Assignee until (A) written notice of such
assignment, together with payment instructions, addresses and related
information with respect to the Assignee, shall have been given to the Borrower
and the Agent by such Lender and the Assignee; (B) such Lender and its Assignee
shall have delivered to the Borrower and the Agent an Assignment and Acceptance
in the form of EXHIBIT E ("Assignment and Acceptance") together with any Note or
Notes subject to such assignment and (C) the assignor Lender or Assignee has
paid to the Agent a processing fee of $3,500; provided that no processing FEE
SHALL BE charged for any assignment to a Lender or a Lender Affiliate, and
further provided that the Borrower shall not pay any fees or costs in connection
with such assignment.
(B) From and after the date that the Agent notifies the
assigning Lender that it has received an executed Assignment and Acceptance and
payment of the above-referenced processing fee, (i) the Assignee thereunder
shall be a party ham and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such Assignment and Acceptance, shall have
the rights and obligations of a Lender under the Loan Documents, and (ii) the
assignor Lender shall, to the extent that rights and obligations hereunder and
under the other Loan Documents have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Loan Documents.
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(C) Within five (5) Business Days after its receipt of notice
from the Agent that the Agent has received an executed Assignment and Acceptance
and payment of the processing fee, the Borrower shall execute and deliver to the
Agent new Notes on the same terms and conditions as the original Notes
evidencing such Assignee's assigned Loans and Commitments and, if the assignor
Lender has retained a portion of its Loans and its Commitments, replacement
Notes in the principal amount of the Loans retained by the assignor Lender (such
Notes to be in exchange for, but not in payment of, the Notes held by such
Lender). Immediately upon each Assignee's making its processing fee payment
under the Assignment and Acceptance, this Agreement shall be deemed to be
amended to the extent, but only to the extent, necessary to reflect the addition
of the Assignee and the resulting adjustment of the Commitments arising
therefrom. The Commitments allocated to each Assignee shall reduce such
Commitments of the assigning Lender pro tanto.
(D) Any Lender may at any time sell to one or more commercial
banks or other Persons not Affiliates of the Borrower (a "Participant")
participating interests in any Loans, the Commitment of that Lender and the
other interests of that Lender (the "Originating Lender") hereunder and under
the other Loan Documents; provided, however, that (i) the Originating Lender's
obligations under this Agreement shall remain unchanged, (ii) the Originating
Lender shall remain solely responsible for the performance of such obligations,
(iii) the Borrower and the Agent shall continue to deal solely and directly with
the Originating Lender in connection with the Originating Lender's rights and
obligations under this Agreement and the other Loan Documents, and (iv) no
Lender shall transfer or grant any participating interest under which the
Participant shall have rights to approve any amendment to, or any consent or
waiver with respect to, this Agreement or any other Loan Documents, except to
the extent such amendment, consent or waiver would require unanimous consent of
the Lenders as described in clauses (A), (C) and (D) of the first proviso to
SECTION 10.1. In the case of any such participation, the Participant shall be
entitled to the benefit of SECTIONS 3.1, 3.3, 3.6, 10.1 (but solely with respect
to those matters set forth in clauses (A), (C) and (D) thereof requiring the
consent of all Lenders), and 10.5 as though it were also a Lender hereunder, and
if amounts outstanding under this Agreement are due and unpaid, or shall have
been declared or shall have become due and payable upon the occurrence of an
Event of Default, each Participant shall be deemed to have the right of set-off
in respect of its participating interest in amounts owing under this Agreement
to the some extent as if the amount of its participating interests were owing
directly to it as a Lender under this Agreement.
(E) Each Lender agrees to take normal and reasonable
precautions and exercise due care to maintain the confidentiality of all
information identified as "confidential" by the borrower and provided to it by
the Borrower, or by the Agent on the Borrower's behalf, in connection with this
Agreement or any other Loan Document, and neither it nor any of its Affiliates
shall use any such information for any purpose or in any manner other than
pursuant to the terms contemplated by this Agreement, except to the extent such
information (i) was or becomes generally available to the public other than as a
result of a disclosure by the Lender, or (ii) was or becomes available on a
non-confidential basis from a source other than the Borrower, provided that such
source is not bound by a confidentiality agreement with the Borrower known to
the Lender, provided, however, that any Lender may disclose such information (A)
at the request or pursuant to any requirement of any Governmental Authority to
which the Lender is subject or in connection with an examination of such LENDER
by any such Governmental
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Authority; (B) pursuant to subpoena or other court process; (C) when required to
do so in accordance with the provisions of any applicable Requirement of Law;
and (D) to such Lender's independent auditors and other professional advisors,
provided that such auditors and professional advisors shall be required to
similarly protect the confidentiality of such information. Notwithstanding the
foregoing, the Borrower authorizes each Lender to disclose to any Participant or
Assignee (each, a "Transferee") and to any prospective Transferee, such
financial and other information in such Lender's possession concerning the
Borrower which has been delivered to the Agent or the Lenders pursuant to this
Agreement or which has been delivered to the Agent or the Lenders by or on
behalf of the Borrower in connection with the Lenders' credit evaluation of the
Borrower prior to entering into this Agreement; provided that, unless otherwise
agreed by the Borrower, such Transferee agrees in writing to such Lender to keep
such information confidential to the same extent required of the Lenders
hereunder.
(F) Notwithstanding any other provision contained in this
Agreement or any other Loan Document to the contrary, any Lender may assign all
or any portion of the Loans or Notes held by it to any Federal Reserve Bank or
the United States Treasury as collateral security pursuant to Regulation A of
the Board of Governors of the Federal Reserve System and any Operating Circular
issued by such Federal Reserve Bank, provided that any payment in respect of
such assigned Loans or Notes made by the Borrower to or for the account of the
assigning or pledging Lender in accordance with the terms of this Agreement
shall satisfy the Borrower's obligations hereunder in respect to such assigned
Loans or Notes to the extent of such payment. No such assignment shall release
the assigning Lender from its obligations hereunder.
SECTION 10.12 HEADINGS. Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 10.13 SEVERABILITY. Whenever possible, each provision of this
Agreement, the Notes and each of the other Loan Documents shall be interpreted
in such a manner as to be valid, legal and enforceable under the applicable law
of any jurisdiction. Without limiting the generality of the foregoing sentence,
in case any provision of this Agreement, the Notes or any of the other Loan
Documents shall be invalid, illegal or unenforceable under the applicable law of
any jurisdiction, the validity, legality and enforceability of the remaining
provisions, or of such provision in any other jurisdiction, shall not in any way
be affected or impaired thereby.
SECTION 10.14 NOTIFICATION OF ADDRESSES, LENDING OFFICES, ETC. Each
Lender shall notify the agent in writing of any changes in the address to which
notices to the Lender should be directed, of addresses of its Domestic Lending
Office, of payment instructions in respect of all payments to be made to it
hereunder and of such other administrative information as the Agent shall
reasonably request.
SECTION 10.15 NO THIRD PARTIES BENEFITED. This Agreement is made and
entered into for the sole protection and legal benefit of the Borrower, the
Lenders, the Agent and their permitted successors and assigns, and except as
otherwise expressly provided in this Agreement, no other Person shall be a
direct or indirect legal beneficiary of, or have any direct or indirect cause of
action or claim in connection with, this Agreement or any of the other Loan
Documents.
74.
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Neither the Agent nor any Lender shall have any obligation to any Person not a
party to this Agreement or other Loan Documents.
SECTION 10.16 RELATIONSHIP OF PARTIES. The relationship between the
Borrower, on the one hand, and the Lenders and the Agent, on the other, is, and
at all times shall remain solely that of a borrower and lenders. Neither any
Lender nor the Agent shall under any circumstances be construed to be partners
or joint venturers of the Borrower or any of its Affiliates; nor shall any
Lenders nor the Agent under any circumstances be deemed to be in a relationship
of confidence or trust or a fiduciary relationship with the Borrower or any of
its Affiliates, or to owe any fiduciary duty to the Borrower or any of its
Affiliates. Neither the Lenders nor the Agent undertake or assume any
responsibility or duty to the Borrower or any of its Affiliates to select,
review, inspect, supervise, pass judgment upon or otherwise inform the Borrower
or any of its Affiliates of any matter in connection with its or their Property,
any Collateral held by the Agent or any Lender or the operations of the Borrower
or any of its Affiliates. The Borrower and each of its Affiliates shall rely
entirely on their own judgment with respect to such matters, and any review,
inspection, supervision, exercise of judgment or supply of information
undertaken or assumed by any Lender or the Agent in connection with such matters
is solely for the protection of the Lender and the Agent and neither the
Borrower nor any of its Affiliates is entitled to rely thereon.
SECTION 10.17 TIME. Time is of the essence as to each term or provision
of this Agreement and each of the other Loan Documents.
SECTION 10.18 COUNTERPARTS. This Agreement and any amendments, waivers,
consents or supplements hereto may be executed in any number of counterparts,
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.
SECTION 10.19 JOINDER TO SUBORDINATION AGREEMENT. Each Lender agrees
that in becoming a Lender hereunder it is joined as a party to and bound for all
purposes by the terms of the Subordination Agreement applicable to the Junior
Lenders (as defined therein).
Section 10.20 EQUITABLE RELIEF. The Borrower recognizes that, in the
event the Borrower fails to perform, observe or discharge any of its obligations
or liabilities under this Agreement, the Notes or any of the other Loan
Documents, any remedy at law may prove to be inadequate relief to the Lenders or
the Agent; therefore, the Borrower agrees that the Lenders or the Agent, if the
Lenders or the Agent so request, shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
SECTION 10.21 NOTICE OF CLAIMS; CLAIMS BAR. THE BORROWER HEREBY AGREES
THAT IT SHALL GIVE PROMPT NOTICE AFTER BECOMING AWARE OF ANY CLAIM OR CAUSE OF
ACTION IT BELIEVES IT HAS, OR MAY SEEK TO ASSERT OR ALLEGE AGAINST ANY LENDER OR
THE AGENT, WHETHER SUCH CLAIM IS BASED IN LAW OR EQUITY, ARISING UNDER OR
RELATED TO THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS OR TO
THE LOANS (OR THE COLLATERAL THEREFOR) CONTEMPLATED HEREBY OR THEREBY OR ANY ACT
OR OMISSION TO ACT BY ANY LENDER OR THE AGENT WITH RESPECT HERETO OR THERETO,
AND THAT IF IT SHALL FAIL TO GIVE SUCH NOTICE TO THE AGENT PRIOR TO THE FIRST
ANNIVERSARY OF HAVING BECOME
75.
<PAGE> 84
AWARE OF ANY SUCH CLAIM OR CAUSE OF ACTION, IT SHALL BE DEEMED TO HAVE WAIVED,
AND SHALL BE FOREVER BARRED FROM BRINGING OR ASSERTING SUCH CLAIM OR CAUSE OF
ACTION IN ANY SUIT, ACTION OR PROCEEDING IN ANY COURT OR BEFORE ANY
GOVERNMENTAL AUTHORITY.
SECTION 10.22 WAIVER OF PUNITIVE DAMAGES. NOTWITHSTANDING ANYTHING TO
THE CONTRARY CONTAINED IN THIS AGREEMENT, THE BORROWER HEREBY AGREES THAT IT
SHALL NOT SEEK FROM THE LENDERS OR THE AGENT, UNDER ANY THEORY OF LIABILITY,
INCLUDING, WITHOUT LIMITATION, ANY THEORY IN TORTS, ANY SPECIAL, INDIRECT,
CONSEQUENTIAL OR PUNITIVE DAMAGES.
SECTION 10.23 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS
ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING
CONFLICT OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
SECTION 10.24 SERVICE OF PROCESS. SERVICE OF PROCESS ON THE BORROWER OR
THE AGENT OR THE LENDERS IN ANY ACTION SUBJECT TO THIS SECTION 10.24 SHALL BE
EFFECTIVE IF MAILED TO SUCH PARTY AT THE ADDRESS LISTED ON THE SIGNATURE PAGES
HERETO UNLESS PRIOR WRITTEN NOTICE OF ANY CHANGES THEREOF HAS BEEN PREVIOUSLY
DELIVERED.
SECTION 10.25 WAIVER OF JURY TRIAL. THE BORROWER, EACH LENDER AND THE
AGENT, HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH
RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS,
ANY RIGHTS OR OBLIGATIONS HEREUNDER OF THEREUNDER, OR THE PERFORMANCE OF SUCH
RIGHTS AND OBLIGATIONS.
SECTION 10.26 SUBMISSION TO JURISDICTION.
(A) EXCEPT AS SET FORTH IN SECTION 10.26(B), THE BORROWER,
EACH LENDER AND THE AGENT, AGREE THAT ALL DISPUTES BETWEEN OR AMONG THEM ARISING
OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED BETWEEN OR AMONG THEM, INCLUDING COURSE OF DEALING, COURSE OF
CONDUCT, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE BORROWER, ANY
LENDER OR THE AGENT, IN CONNECTION WITH THE LOAN DOCUMENTS OR ANY DOCUMENTS
RELATED THERETO, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE,
SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF
ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
ILLINOIS. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE
JURISDICTION OF THE COURTS OF THE STATE Of ILLINOIS AND OF THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS. THE BORROWER, EACH OF THE
LENDERS AND THE AGENT HEREBY EXPRESSLY AND IRREVOCABLY WAIVE IN ALL DISPUTES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF
76.
<PAGE> 85
THE COURT CONSIDERING THE DISPUTE, INCLUDING ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS.
(B) THE BORROWER AGREES THAT THE AGENT AND EACH LENDER SHALL HAVE THE
RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE
BORROWER OR ANY COLLATERAL IN A COURT IN ANY LOCATION REASONABLY SELECTED IN
GOOD FAITH TO ENABLE THE AGENT OR ANY LENDER TO REALIZE ON ANY COLLATERAL OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE AGENT OR ANY
LENDER. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS
IN ANY PROCEEDING BROUGHT BY THE AGENT OR ANY LENDER TO REALIZE ON ANY
COLLATERAL OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE AGENT
OR ANY LENDER. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY
OBJECTION IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE AGENT OR ANY
LENDER HAS COMMENCED A PROCEEDING DESCRIBED IN THIS SECTION 10.26(B), INCLUDING
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS. To THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY
IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER
THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF
EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR THE COLLATERAL OR OTHER
PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS
OBLIGATIONS UNDER THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS.
(C) THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS OF ANY OF THE FOREGOING COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS FOR NOTICE DESIGNATED IN
ACCORDANCE WITH SECTION 10.2, SUCH SERVICE TO BECOME EFFECTIVE FOUR (4) DAYS
AFTER SUCH MAILING.
77.
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WITNESS the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.
BORROWER STRATEGIC TIMBER TRUST, INC., a Georgia
corporation which intends to elect to be
classified as a real estate investment trust
under Section 856 of the Internal Revenue
Code of 1986, as amended
By: /s/ Joseph E. Rendini
----------------------------------------
Printed Name: Joseph E. Rendini
Title: Vice President, Secretary and
General Counsel
Notices to be sent to:
Strategic Timber Trust, Inc.
5 North Pleasant Street
New London, New Hampshire 03257
Attention: Thomas B. Broom
Telephone: (603) 526-7800
Facsimile: (603) 526-7811
LENDERS ABN AMRO BANK N.V.
By: /s/ Leif H. Olson
----------------------------------------
Leif H. Olson
Senior Vice President
By: /s/ David McGinnis
----------------------------------------
David McGinnis
Senior Vice President
Domestic Lending Office
ABN AMRO BANK N.V.
One Union Square
600 University Street, Suite 2323
Seattle, WA 98101-2070
Attention: Operations
Telephone: 206/654-0368
Facsimile: 206/682-5641
78.
<PAGE> 87
Notices to be sent to:
ABN AMRO Bank N.V.
One Union Square
600 University Street, Suite 2323
Seattle, WA 98101-2070
Attention: David McGinnis, Vice President
Telephone: 206/587-0342
Facsimile: 206/682-5641
AGENT ABN AMRO BANK N.V.
By: /s/ Leif H. Olson
---------------------------------------
Leif H. Olson
Senior Vice President
By: /s/ David McGinnis
----------------------------------------
David McGinnis
Agent's Payment Office:
ABN AMR0 Bank N.Y.
Account No.: 650-001-1789-41
ABA No.: 026009580
F/O: ABN AMR0 Bank - Chicago CPU
Reference: Agency Services (Strategic
Timber Investments)
Notices to be sent to:
ABN AMRO Bank N.V.
Agency Services
1325 Avenue of the Americas, 9th Floor
New York, NY 10019
Attention: Linda Boardman
Telephone: 212/314-1724
Facsimile: 212/314-171
79.
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With a copy to:
ABN AMRO Bank N.V.
One Union Square
600 University Street, Suite 2323
Seattle, WA 98101-2070
Attention: David McGinnis, Vice President
Telephone: 206/587-0342
Facsimile: 206/682-5641
80.
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INDEX OF SCHEDULES
<TABLE>
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Schedule 1 - Loan Commitments
Schedule 2 - Timberlands (Real Property Description)
Schedule 3 - Disclosure Schedule
Schedule 4 - Financing Statements
Schedule 5 - Standards for Merchantable Timber
INDEX OF EXHIBITS
Exhibit A - Form of Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Notice of Continuation
Exhibit D - Designation of Responsible Persons
Exhibit E - Form of Assignment and Acceptance
Exhibit F - Non-Bank Lender Tax Certificate
Exhibit G - Form of Timber Report Certificate
</TABLE>
<PAGE> 1
EXHIBIT 10.8
===============================================================================
===============================================================================
BRIDGE LOAN AGREEMENT
BY AND AMONG
STRATEGIC TIMBER TRUST II, LLC
AS THE BORROWER,
THE LENDERS NAMED HEREIN
AND
ABN AMRO BANK N.V.
AS THE ADMINISTRATIVE AGENT
Dated as of October 9, 1998
================================================================================
================================================================================
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS.................................................................................3
Section 1.1 Defined Terms..........................................................................3
Section 1.2 Other Interpretive Provisions.........................................................22
(a) Accounting Terms......................................................................22
(b) Other Terms...........................................................................22
(c) Performance; Time.....................................................................22
(d) Laws..................................................................................23
(e) Rounding..............................................................................23
(f) Schedules And Exhibits................................................................23
ARTICLE II THE CREDITS................................................................................23
Section 2.1 Amounts And Terms Of Commitments......................................................23
(a) The Loan Facility.....................................................................23
(b) Funding Of Loans To The Administrative Agent..........................................23
(c) Disbursement Of Loans To The Borrower.................................................24
(d) General Provisions Relating To The Loans..............................................24
(e) Permitted Uses Of Loan Proceeds.......................................................24
Section 2.2 Notes.................................................................................24
(a) Notes.................................................................................24
(b) Notations In The Lenders' Books And Records...........................................24
Section 2.3 Repayment Of Principal Amount Of Loans................................................25
Section 2.4 Payment Of Interest On The Loans; Additional Compensation.............................25
(a) Loans.................................................................................25
(b) Interest Payment Dates................................................................25
(c) Interest Upon Events Of Default.......................................................25
(d) Limitations On Interest Rates.........................................................25
(e) Additional Compensation...............................................................25
Section 2.5 Conversion to Base Rate Loans.........................................................27
Section 2.6 Optional Prepayments..................................................................27
Section 2.7 Mandatory Prepayments.................................................................27
(a) Distributions of Net Operating Cash Flow..............................................27
(b) Net Equity Issuance Proceeds..........................................................28
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Section 2.8 Calculation Of Interest And Fees......................................................29
Section 2.9 Payments..............................................................................29
Section 2.10 Payment On Non-Business Days..........................................................29
Section 2.11 Application Of Payments...............................................................30
Section 2.12 Distribution Of Payments..............................................................30
Section 2.13 The Administrative Agent's Right To Assume Payments Will Be Made By
The Borrower..........................................................................30
ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY.....................................................31
Section 3.1 Taxes.................................................................................31
Section 3.2 Illegality............................................................................34
Section 3.3 Increased Costs.......................................................................34
Section 3.4 Inability To Determine Rates..........................................................35
Section 3.5 Prepayment Of LIBOR Loans or Fixed Rate Loans.........................................35
Section 3.6 Capital Requirements..................................................................35
Section 3.7 Certificates Of Lenders...............................................................36
Section 3.8 Substitution Of Lenders...............................................................36
Section 3.9 Survival..............................................................................36
ARTICLE IV CONDITIONS PRECEDENT TO CLOSING AND THE MAKING OF LOANS....................................36
Section 4.1 Conditions Precedent To The Closing...................................................36
(a) Corporate Documents...................................................................37
(b) Loan Documents........................................................................39
(c) Opinions..............................................................................41
(d) Acquisition Documents.................................................................41
(e) Governmental Consents.................................................................41
(f) Other Third Party Consents............................................................41
(g) Consummation of the Spin Out and the Pioneer Acquisition..............................41
(h) Opening Timber Appraisal..............................................................42
(i) Opening Pro Forma Balance Sheet.......................................................42
(j) Initial Equity Investment.............................................................42
(k) Financial Statements..................................................................42
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(l) Senior Loan Documents.................................................................42
(m) Harvest Plan..........................................................................43
(n) Confirmation Regarding Operating Projections..........................................43
(o) Environmental Review..................................................................43
(p) Management Plan.......................................................................43
(q) No Material Adverse Change............................................................43
(r) No Litigation.........................................................................43
(s) The Borrower's Bring-Down Certificate.................................................43
(t) Fee Letter............................................................................44
(u) Funds Transfer Memorandum.............................................................44
(v) Fees And Costs........................................................................44
(w) Other Documents.......................................................................44
ARTICLE V THE BORROWER'S REPRESENTATIONS AND WARRANTIES..............................................44
Section 5.1 Organization, Power And Authority Of The Borrower.....................................44
Section 5.2 Organization, Power And Authority Of The Borrower's Subsidiaries And
Certain Affiliates....................................................................45
Section 5.3 Loan Documents Authorized; Binding Obligations........................................45
Section 5.4 No Conflict...........................................................................45
Section 5.5 Capital Structure.....................................................................46
Section 5.6 Financial Condition...................................................................46
Section 5.7 No Material Adverse Change............................................................46
Section 5.8 Ownership Of Collateral...............................................................46
Section 5.9 Litigation............................................................................46
Section 5.10 Material Documents; Third Party Consents..............................................47
Section 5.11 No Government Consents Needed.........................................................47
Section 5.12 Solvency..............................................................................47
Section 5.13 Management............................................................................47
Section 5.14 ERISA Compliance......................................................................47
Section 5.15 Certain Representations And Warranties Concerning The Pioneer
Timberlands...........................................................................48
(a) Condition.............................................................................48
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(b) Acres And Volume......................................................................48
Section 5.16 Environment...........................................................................48
Section 5.17 Margin Regulations....................................................................49
Section 5.18 Taxes.................................................................................50
Section 5.19 Intellectual Property Rights..........................................................50
Section 5.20 Other Regulations.....................................................................50
Section 5.21 Brokers' Fees.........................................................................50
Section 5.22 Year 2000.............................................................................50
Section 5.23 Nature Of Representations And Warranties..............................................51
ARTICLE VI AFFIRMATIVE COVENANTS OF THE BORROWER......................................................51
Section 6.1 Records And Reports...................................................................51
(a) Quarterly Borrower-Prepared Financial Statements......................................51
(b) Annual Audited Financial Statements...................................................52
(c) Management Letter.....................................................................52
(d) Senior Lender Reports.................................................................52
(e) Other Reports.........................................................................52
(f) Notices...............................................................................52
(g) ERISA.................................................................................53
(h) SEC Filing............................................................................53
(i) Material Agreements...................................................................53
(j) Other Information.....................................................................53
Section 6.2 Maintenance Of Rights And Properties..................................................54
(a) Maintenance Of Existence And Rights...................................................54
(b) Maintenance Of Properties.............................................................54
Section 6.3 Taxes And Other Liabilities...........................................................54
Section 6.4 Inspection Of Books And Records.......................................................54
Section 6.5 Harvesting Of Timber..................................................................55
Section 6.6 Compliance With Laws..................................................................55
Section 6.7 Compliance With Environmental Laws....................................................55
Section 6.8 Agreements............................................................................55
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Section 6.9 Supplemental Disclosure...............................................................56
Section 6.10 Further Assurances....................................................................56
ARTICLE VII NEGATIVE COVENANTS OF THE BORROWER.........................................................56
Section 7.1 Limitation On Liens...................................................................56
Section 7.2 Disposition Of Assets.................................................................57
Section 7.3 Consolidations And Mergers............................................................58
Section 7.4 Acquisitions; Capital Expenditures; Loans And Investments.............................58
Section 7.5 Limitation On Indebtedness............................................................59
Section 7.6 Transactions With Affiliates..........................................................60
Section 7.7 Use Of Proceeds.......................................................................60
Section 7.8 Lease Obligations.....................................................................60
Section 7.9 Sale And Leaseback Transactions.......................................................60
Section 7.10 Restricted Distributions..............................................................60
Section 7.11 Modification Of Certain Agreements....................................................61
Section 7.12 Maintenance Of Business...............................................................61
Section 7.13 ERISA.................................................................................61
Section 7.14 No Use Of Any Lender's Name...........................................................61
Section 7.15 Accounting Changes....................................................................62
ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES.............................................................62
Section 8.1 Events Of Default.....................................................................62
(a) Installments Of Principal; Optional and Mandatory Prepayments.........................62
(b) Other Payments........................................................................62
(c) Cross Defaults........................................................................62
(d) Representations And Warranties Of The Borrower........................................63
(e) Specific Defaults.....................................................................63
(f) Other Defaults........................................................................63
(g) Other Party Defaults..................................................................63
(h) Insolvency; Voluntary Proceedings.....................................................63
(i) Involuntary Proceedings...............................................................64
(j) Material Adverse Change...............................................................64
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(k) Monetary Judgments....................................................................64
(l) Non-Monetary Judgments................................................................64
(m) Collateral............................................................................64
(n) ERISA.................................................................................65
(o) Change In Key Investors...............................................................65
Section 8.2 Waiver Of Default.....................................................................65
Section 8.3 Remedies..............................................................................65
Section 8.4 Set-Off...............................................................................65
(a) Rights Of Set-Off.....................................................................66
(b) The Administrative Agent's Consent To Set-Off Required................................66
Section 8.5 Sharing Of Payments...................................................................66
Section 8.6 Rights And Remedies Cumulative........................................................66
ARTICLE IX THE ADMINISTRATIVE AGENT...................................................................66
Section 9.1 Appointment And Authorization.........................................................66
Section 9.2 Delegation Of Duties..................................................................67
Section 9.3 Exculpatory Provisions................................................................67
Section 9.4 Reliance By The Administrative Agent..................................................67
Section 9.5 Notice Of Default.....................................................................68
Section 9.6 Credit Decision.......................................................................68
Section 9.7 Indemnification.......................................................................69
Section 9.8 The Administrative Agent In Individual Capacity.......................................70
Section 9.9 Successor Administrative Agent........................................................70
Section 9.10 Collateral Matters....................................................................70
ARTICLE X MISCELLANEOUS..............................................................................71
Section 10.1 Amendments And Waivers................................................................71
Section 10.2 Notices...............................................................................72
Section 10.3 No Waiver By Administrative Agent Or The Lenders......................................72
Section 10.4 Entire Agreement; Construction........................................................72
Section 10.5 Indemnification.......................................................................73
Section 10.6 Costs And Expenses....................................................................74
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Section 10.7 Reliance By The Lenders...............................................................74
Section 10.8 Marshalling; Payments Set Aside.......................................................74
Section 10.9 No Set-Offs By The Borrower...........................................................75
Section 10.10 Successors And Assigns................................................................75
Section 10.11 Assignments, Participations, Etc......................................................75
Section 10.12 Headings..............................................................................77
Section 10.13 Severability..........................................................................77
Section 10.14 Notification Of Addresses, Lending Offices, Etc.......................................78
Section 10.15 No Third Parties Benefited............................................................78
Section 10.16 Relationship Of Parties...............................................................78
Section 10.17 Time..................................................................................78
Section 10.18 Counterparts..........................................................................78
Section 10.19 Joinder to Subordination Agreement....................................................79
Section 10.20 Equitable Relief......................................................................79
Section 10.21 Notice Of Claims; Claims Bar..........................................................79
Section 10.22 Waiver Of Punitive Damages............................................................79
Section 10.23 Governing Law.........................................................................79
Section 10.24 Service Of Process....................................................................80
Section 10.25 Waiver Of Jury Trial..................................................................80
Section 10.26 Submission to Jurisdiction............................................................80
</TABLE>
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<PAGE> 9
BRIDGE LOAN AGREEMENT
THIS BRIDGE LOAN AGREEMENT is entered into as of October 9, 1998, by
and among STRATEGIC TIMBER TRUST II, LLC, a Georgia limited liability company
(the "Borrower"), as the borrower, the LENDERS (as defined below) and ABN AMRO
BANK N.V., not in its individual capacity, but solely in its capacity as the
Administrative Agent.
RECITALS
A. The Borrower owns of record and beneficially one hundred percent
(100.0%) of the outstanding membership interests in Strategic Timber Two
Operating Co., LLC, a Georgia limited liability company ("STTOC"). STTOC, as the
sole general partner and as a limited partner, and Gregory M. Demers, an
individual ("Demers"), T. Yates Exley, an individual ("Exley"), King Investment
Group, Inc., an Oregon corporation ("King"), Old Pioneer, LLC, an Oregon limited
liability company ("Old Pioneer"), Darrick Salyers, an individual ("Salyers"),
and James A. Youel, an individual ("Youel"; and together with Demers, Exley,
King, Old Pioneer and Salyers collectively referred to as the "Demers Group")
and Mach One Partners, LLC, a Georgia limited liability company ("Mach One"), as
limited partners, will own, as of the Closing, one hundred percent (100.0%) of
the partnership interests in Strategic Timber Partners II, LP, a Georgia limited
partnership ("STPII"). STPII was formed for the purpose of acquiring and owning
one hundred percent (100.0%) of the outstanding membership interests in Pioneer
Resources, LLC, an Oregon limited liability company ("Pioneer"). Upon the
consummation of the Pioneer Acquisition, Pioneer will continue to own the
Timberlands it presently owns in northern California, eastern Oregon and western
Washington consisting of approximately 366,000 acres and containing
approximately 1,700,000,000 board feet of Merchantable Timber, as described in
the Valuation of Pioneer Resources LLC Timberlands dated as of August 31, 1998
(the "Opening Timber Appraisal") prepared by MBG and more particularly described
in Part A to SCHEDULE 2 (the "Pioneer Timberlands").
B. Immediately prior to the Closing, Pioneer will (i) convey and
transfer to Frontier Resources, LLC, an Oregon limited liability company
("Frontier"), substantially all of Pioneer's assets other than the Pioneer
Timberlands, including its interest in its subsidiaries, including Kinzua
Resources, LLC, which owns and operates conversion facilities at Pilot Rock and
Heppner, Oregon, Pioneer Aviation, LLC, which owns and operates certain
aircraft, and Lane Plywood, Inc., which owned, operated and subsequently shut
down a conversion facility at Eugene, Oregon, and its interest in certain other
tangible personal property, in certain contracts and other intangible assets and
in certain nonmaterial Timberlands, as more particularly described in Part B to
SCHEDULE 2 (such transferred assets being collectively referred to as the
"Excluded Assets"), and (ii) assign to and Frontier will assume all obligations
and liabilities arising out of or related to the Excluded Assets and all other
obligations and liabilities of Pioneer relating to any period ending prior to
the Closing Date other than those obligations and liabilities expressly retained
by Pioneer pursuant to Section 2.4 of the Acquisition Agreement (such assumed
obligations and liabilities being collectively referred to as the "Excluded
Liabilities"; such conveyance and transfer of the Excluded Assets to Frontier
and assumption by Frontier of the Excluded Liabilities is referred to as the
"Spin-Out").
1.
<PAGE> 10
C. At the Closing, following the consummation of the Spin Out, STPII
will acquire (the "Pioneer Acquisition"), for a purchase price not to exceed
$360,000,000 (subject to downward adjustment pursuant to the Acquisition
Agreement), and own one hundred percent (100.0%) of the outstanding membership
interests in Pioneer. The purchase price will consist of (i) cash in the amount
of $105,000,000 and (ii) a maximum of (x) $255,000,000 in assumed debt at
Closing comprised of Indebtedness outstanding under the Senior Credit Facilities
(the "Opening Debt Amount") and (y) $2,000,000 in aggregate costs associated
with the mark-to-market exposure in unwinding the Rate Contracts maintained by
Pioneer with Bank of Montreal and ABN AMRO, as counterparties, in respect of the
Existing Pioneer Credit Facility; provided, however, to the extent (1) such
mark-to-market exposure exceeds $2,000,000 as at Closing, the Opening Debt
Amount will be reduced dollar-for-dollar by the amount of such excess and (2)
the value of the Merchantable Timber on the Pioneer Timberlands (based on timber
values derived from the Opening Timber Appraisal) is less than $410,000,000 as
at the Closing, the Opening Debt Amount will be further reduced
dollar-for-dollar by such difference. The cash portion of the purchase price is
to be financed with (i) an amount equal to not less than at least $65,000,000
contributed by the Demers Group in the form of new equity (which the Demers
Group will be deemed to have funded by means of a rollover of at least
$65,000,000 of the purchase price payable to the Demers Group as the selling
members of Pioneer) and evidenced by the Demers Group's limited partnership
interests in STPII, (ii) an amount equal to $10,000,000 contributed by Mach One
in the form of new cash equity and evidenced by Mach One's limited partnership
interest in STPII and (iii) an amount equal to $30,000,000 contributed by the
Borrower out of the proceeds of the Loans and evidenced by the Borrower's
membership interest in STTOC and STTOC's general and limited partnership
interest in STPII. Following the Pioneer Acquisition, Pioneer will own good and
marketable title to the Pioneer Timberlands and the related assets and cash
flows.
D. Concurrently herewith, Pioneer is entering into the Senior Credit
Agreement with the Senior Lenders and the Senior Administrative Agent pursuant
to which the Senior Lenders have agreed (in accordance with their respective
commitments) to make available to Pioneer revolving and term credit up to an
aggregate principal amount of $270,000,000 (the "Senior Credit Facilities"). The
Senior Credit Facilities will be used to refinance and replace the Existing
Pioneer Credit Facility and to fund the ongoing working capital needs of
Pioneer.
E. The Borrower has requested that the Lenders and the Administrative
Agent enter into this Agreement pursuant to which the Lenders severally agree
(in accordance with their respective several but not joint Commitments) to
advance to the Borrower at Closing Loans in the amount of the Aggregate
Commitment, the entire proceeds of which, net of transaction costs related to
the funding of the Loans, including bank fees and Attorney Costs, will be
immediately contributed by the Borrower to STPII (through the Borrower's wholly
owned Subsidiary, STTOC) to fund a portion of the purchase price of the Pioneer
Acquisition and transaction costs related to the Senior Credit Facilities.
F. The Lenders have agreed to make the Loans described in this
Agreement available to the Borrower, but only on the terms, subject to the
conditions and in reliance on the representations and warranties set forth
below.
2.
<PAGE> 11
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants set forth below, and intending to be legally bound, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings:
"ABN AMRO" means ABN AMRO Bank N.V., a Dutch banking corporation.
"Acquisition" means any transaction, or any series of related
transactions, by which the Borrower, STTOC, STPII or Pioneer directly or
indirectly (a) acquires any ongoing business or all or substantially all of the
assets of any firm, partnership, limited liability company, real estate
investment trust, business trust or other similar trust, joint venture,
corporation or division thereof, whether through purchase of assets, merger or
otherwise, (b) acquires (in one transaction or as the most recent transaction in
a series of transactions) control of at least a majority of the capital stock of
a corporation having ordinary voting power for the election of directors, (c)
acquires control of fifty percent (50.0%) or more of the ownership interest in
any partnership, limited liability company or joint venture or (d) in a single
or in a series of related transactions, from one or more Persons, acquires
assets, including Timberlands and other related Properties and facilities,
including mills and other Timber conversion or processing facilities, having an
aggregate, all-in purchase price of at least $2,000,000.
"Acquisition Agreement" means that Acquisition and Contribution
Agreement dated October 9, 1998, by and among the Borrower, STTOC, STPII and the
Demers Group, as the sole members of Pioneer prior to the consummation of the
Pioneer Acquisition.
"Acquisition Documents" means the Acquisition Agreement, together with
all bills of sales, assignments, assignments and assumptions and other
agreements, documents and instruments executed and delivered in connection with
the consummation of the Pioneer Acquisition.
"Additional Compensation" has the meaning set forth in SECTION 2.4(E).
"Additional Pledgor" means each such Person as shall, after the Closing
Date, purchase or acquire partnership interests in STPII and in connection
therewith shall execute and deliver to the Administrative Agent a pledge
agreement substantially in the form of, (i) if such Person shall acquire a
general partnership interest, the STTOC Pledge Agreement, and (ii) if such
Person shall acquire a limited partnership interest, the Mach One Pledge
Agreement, granting and pledging to the Administrative Agent a first priority
Lien on such partnership interests.
"Adjusted LIBOR" means, in respect of LIBOR Loans, an interest rate per
annum (rounded upward to the nearest 1/16th of one percent (0.0625%)) determined
pursuant to the following formula:
3.
<PAGE> 12
LIBOR
Adjusted LIBOR = ---------------------------------------------
1.00 - Eurodollar Reserve Percentage
The Adjusted LIBOR shall be adjusted automatically as of the effective date of
any change in the Eurodollar Reserve Percentage.
"Administrative Agent" means ABN AMRO, not when acting in its
individual capacity, but solely when acting in its capacity as the
administrative and collateral agent on behalf of the Lenders under this
Agreement or any of the other Loan Documents, and any successor Administrative
Agent.
"Affected Lender" has the meaning set forth in SECTION 3.8.
"Affiliate" means, with respect to any Person, each other Person which,
directly or indirectly, controls, is controlled by or is under common control
with such Person (excluding any trustee under, or any committee with
responsibility for administering, any Pension Plan or Employee Benefit Plan). A
Person shall be deemed to be "controlled by" another Person if such other Person
possesses, directly or indirectly, power (a) to vote five percent (5.0%) or more
of the securities (on a fully diluted basis) having ordinary voting power for
the election of directors, managing general partners or managing members or (b)
to direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.
"Agent-Related Persons" means the Administrative Agent, and any
successor Administrative Agent, together with their respective Affiliates, and
the officers, directors, employees, Administrative Agents and attorneys-in-fact
of such Persons.
"Agent's Payment Office" means the address for payments set forth on
the signature page hereto in relation to the Administrative Agent or such other
address as the Administrative Agent may from time to time specify in accordance
with SECTION 10.2.
"Aggregate Commitment" means the combined Commitments of the Lenders in
the initial aggregate principal amount of Thirty-Five Million Dollars
($35,000,000).
"Agreement" means this Loan Agreement dated as of October 9, 1998,
including all amendments, modifications and supplements hereto and all
appendices, exhibits and schedules to any of the foregoing, and shall refer to
the Agreement as the same may be in effect from time to time.
4.
<PAGE> 13
"Applicable Margin" means with respect to any Base Rate Loan or any
LIBOR Loan, as applicable, the following margin, expressed as a percentage:
<TABLE>
<CAPTION>
LOANS
Applicable Margin Applicable
for LIBOR Loans Margin for Base
Rate Loans
<S> <C>
4.00% 2.75%
</TABLE>
"Assignee" has the meaning set forth in SECTION 10.11(A).
"Assignment and Acceptance" has the meaning specified in SECTION
10.11(A).
"Attorney Costs" means and includes all reasonable fees and
disbursements of any law firm or other external counsel, the allocated cost of
internal legal services and all disbursements of internal counsel.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978, as
codified under Title 11 of the United States Code, and the Bankruptcy Rules
promulgated thereunder, as amended.
"Base Rate" means for any day, the higher of (a) the per annum floating
rate established by ABN AMRO at its branch office in Chicago, Illinois as its
"prime rate" for domestic (United States) commercial loans in effect on such
day, and (b) one-half of one percent (0.50%) in excess of the Federal Funds Rate
in effect on such day. ABN AMRO's prime rate is a rate set by ABN AMRO based
upon various factors, including ABN AMRO's costs and desired return, general
economic conditions and other factors, and is neither directly tied to an
external rate of interest or index or necessarily the lowest nor best rate of
interest actually charged by ABN AMRO at any given time to any customer or
particular class of customers for any particular credit extension. ABN AMRO may
make commercial or other loans at rates of interest at, above or below its prime
rate.
"Base Rate Loan" means a Loan that bears interest based on the Base
Rate.
"Borrower" has the meaning set forth in the PREAMBLE.
"Borrower Collateral" means all Property and interests in Property, and
all proceeds thereof including the Property covered by the Borrower Collateral
Documents, now existing or hereafter acquired, that may at any time be or become
subject to a Lien granted or created in favor of the Administrative Agent, to
secure the full and complete payment and performance of the Obligations under
this Agreement and under the Loan Documents.
"Borrower Collateral Documents" means collectively, (a) the Security
Agreement, the Pledge Agreement, the Control Agreements, the Financing
Statements naming the Borrower as
5.
<PAGE> 14
debtor, and such other agreements, assignments, documents and instruments from
time to time executed and delivered by the Borrower granting, assigning or
transferring or otherwise evidencing or relating to any Lien granted, assigned
or transferred to the Administrative Agent or any Lender pursuant to or in
connection with the transactions contemplated by this Agreement and (b) any
amendments, supplements, modifications, renewals, restatements, replacements,
consolidations, substitutions and extensions of any of the foregoing.
"Borrower Operating Agreement" means the Operating Agreement of the
Borrower effective as of October 9, 1998.
"Borrowing" means a single borrowing of Loans under this Agreement in
the aggregate principal amount of Thirty-Five Million Dollars ($35,000,000) to
be made available to the Borrower on the Closing Date by the Lenders pursuant to
ARTICLE II.
"Bridge Facility" means the bridge term loan in the aggregate original
principal amount of $35,000,000 to be made to the Borrower by the Lenders
pursuant to this Agreement and the other Loan Documents.
"Business" means the acquisition, ownership, management and harvesting
of Timber and activities incidental thereto.
"Business Day" means any day other than a Saturday, Sunday or other day
on which banking institutions in the States of Illinois, New York or North
Carolina are authorized or required by law or other governmental action to
close, except that if any determination of a "Business Day" shall relate to a
LIBOR Loan, the term "Business Day" shall also mean a day on which dealings are
carried on in the London interbank market.
"Capital Expenditures" means all expenditures for any fixed assets or
improvements or for replacements, substitutions or additions thereto, that have
a useful life of more than one (1) year and which are required to be capitalized
under GAAP.
"Cash Equivalents" means:
(a) securities issued or unconditionally guaranteed or insured
by the United States Government or any agency or any State thereof and backed by
the full faith and credit of the United States or such State having maturities
of not more than one (1) year from the date of acquisition;
(b) certificates of deposit, time deposits, Eurodollar time
deposits, repurchase agreements, reverse repurchase agreements or bankers'
acceptances, having in each case a tenor of not more than one (1) year, issued
by any Lender, or by any nationally or state chartered commercial bank or any
branch or agency of a foreign bank licensed to conduct business in the United
States having combined capital and surplus of not less than $100,000,000 whose
short term securities are rated at least A-1 by Standard & Poor's Rating Group
and P-1 by Moody's Investors Service, Inc.; and
6.
<PAGE> 15
(c) commercial paper of an issuer rated at least A-1 by
Standard & Poor's Rating Group or P-1 by Moody's Investors Service, Inc. and in
either case having a tenor of not more than two hundred and seventy (270) days.
"Change in Key Investors" means any of (a) STTOC shall cease to own of
record and beneficially at least twenty-five percent (25.0%) of the aggregate
Partnership Units (as defined in and determined pursuant to the STPII
Partnership Agreement) in STPII, (b) the Demers (Immediate) Group shall
collectively cease to own of record and beneficially at least thirty-three
percent (33.0%) of the aggregate Partnership Units in STPII, (c) STTOC shall
cease to be the sole general partner of STPII, (d) the Borrower shall cease to
own of record and beneficially one hundred percent (100.0%) of the outstanding
membership interests in STTOC or (e) any of C. Edward Broom, Thomas P. Broom or
Christopher J. Broom shall collectively cease to comprise a majority of the
managers of the Borrower.
"Charges" means all federal, state, county, city, municipal, local,
foreign or other governmental taxes, levies, assessments, charges or claims, in
each case then due and payable, upon or relating to (a) the Collateral, (b) the
Loans, (c) the Borrower's employees, payroll, income or gross receipts, (d) the
Borrower's ownership or use of any of its Properties or assets or (e) any other
aspect of the Borrower's business.
"Closing" means the time at which each of the conditions precedent set
forth in SECTION 4.1 shall have been duly satisfied by the Borrower, as
determined by the Lenders, in their discretion.
"Closing Date" means the date on which the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended, and the
Treasury Regulations adopted thereunder.
"Collateral" means, collectively, the Borrower Collateral, the Partner
Collateral and the STPII Collateral.
"Collateral Documents" means, collectively, the Borrower Collateral
Documents, the Partner Collateral Documents and the STPII Collateral Documents.
"Commitment" means, as to each Lender, the amount set forth on SCHEDULE
1 next to such Lender's name.
"Commitment Percentage" means, as to any Lender, the percentage
equivalent of such Lender's Commitment divided by the Aggregate Commitment.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend, letter of credit or other obligation of another,
including any such obligation directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business),
co-made or discounted or sold with recourse by that Person, or in respect of
which that Person is otherwise directly or indirectly liable, including any such
obligation for which that Person is in effect liable through any agreement
(contingent or otherwise) (a) to purchase,
7.
<PAGE> 16
repurchase or otherwise acquire such primary obligations or any property
constituting direct or indirect security therefor, or (b) to advance or provide
funds (i) for the payment or discharge of any such primary obligation (whether
in the form of loans, advances, capital stock purchases, capital contributions
or otherwise), or (ii) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of the primary
obligor, or (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or (d) otherwise
to assure or hold harmless the holder of any such primary obligation against
loss in respect thereof, or (e) to make payment for any products, materials or
supplies or for any transportation, services or lease regardless of the
non-delivery or non-furnishing thereof, in any such case if the purpose or
intent of such agreement is to provide assurance that such obligation will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such obligation will be protected (in whole or in
part) against loss in respect thereof. The amount of any Contingent Obligation
shall be deemed to be an amount equal to the stated or determined amount of the
primary obligation in respect of which such Contingent Obligation is made or, if
not stated or determinable, the maximum reasonably anticipated liability in
respect thereof as determined by such Person in good faith; provided, however,
that such amount shall not in any event exceed the maximum amount of the
obligations under the guaranty or other support arrangement.
"Consultant's Report" means that report dated October 3, 1998 prepared
by MBG and addressed to ABN AMRO, NationsBank, N.A. and First Union National
Bank for the benefit of the Lenders and the Senior Lenders as to the Pioneer
Timberlands and related merchantability criteria, Timber volumes, Timber
pricing, and harvest and operating projections.
"Control Agreement" means a control agreement entered between the
Borrower and a depository institution at which the Borrower maintains a deposit
account, a securities intermediary at which the Borrower maintains a security
account or a commodities intermediary at which the Borrower maintains a
commodity account (as such terms are defined and used in Articles 8 and 9 of the
UCC), and acknowledged by the Administrative Agent, with respect to each such
deposit account, security account or commodity account, as the case may be.
"Cutting Rights Agreements" means all stumpage contracts, timber deeds,
timber leases, timber mortgages, cutting rights agreements and other agreements,
contracts, arrangements or other contractual obligations, whether now existing
or hereafter entered into, whereby Pioneer or its predecessors in interest have
granted, grant or will grant to third Persons the right to cut, harvest or
otherwise remove Timber from the Timberlands or any other real property owned or
leased by Pioneer.
"Default" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise remedied
during such time) constitute an Event of Default.
"Default Rate" has the meaning set forth in SECTION 2.4(C).
"Demers" has the meaning set forth in RECITAL A.
8.
<PAGE> 17
"Demers Group" has the meaning set forth in RECITAL A.
"Demers (Immediate) Group" means (a) Demers, his spouse and his lineal
descendants and any revocable trust established by Demers as settlor for the
benefit of any of the foregoing, provided that Demers, his spouse or any of his
lineal descendants is a trustee of such trust, and (b) any Person controlled by
Demers (for purposes of this definition only, "control" shall mean the power to
direct. either directly or indirectly through individuals appointed or
designated by Demers, the management and policies of such Person, including the
actions such Person takes or omits to take with respect to such Person's equity
interest in STPII).
"Demers Group Pledge Agreement" means the Non-Recourse Guaranty and
Pledge Agreement dated as of the date of this Agreement, executed by each Person
comprising the Demers Group in favor of the Administrative Agent.
"Designation of Responsible Persons" means a separate Designation of
Responsible Persons dated the date of this Agreement, executed by an authorized
officer of the Borrower, substantially in the form of EXHIBIT C, identifying the
officers of the Borrower as having authority to request or continue Loans
hereunder.
"Disclosure Schedule" means SCHEDULE 3.
"Disposition" means the sale, lease, conveyance or other disposition by
the Borrower of any of its respective Property or other assets in a single
transaction or related series of transactions.
"Dollars," "dollars" and "$" each mean lawful money of the United
States of America.
"Domestic Lending Office" means, with respect to each Lender, the
office of that Lender designated as such in the signature pages hereto or such
other office of the Lender as it may from time to time specify to the Borrower
and the Administrative Agent.
"Due Inquiry" means any and all inquiry, investigation and analysis
which a prudent Person would undertake and complete with diligence with the
intent of coming to an understanding appropriate to the scope of importance of
the subject to which the inquiry relates.
"Eligible Assignee" means (a) a commercial bank organized under the
laws of the United States, or any State thereof; (b) a commercial bank organized
under the laws of any other country which is a member of the Organization for
Economic Cooperation and Development ("OECD"), or a political subdivision of any
such country; provided, however, that such bank is acting through a branch or
agency located in the country in which it is organized or another country which
is also a member of the OECD or the Cayman Islands; (c) the central bank of any
country which is a member of the OECD; (d) an insurance company organized under
the laws of the United States; (e) a commercial finance company, mutual or other
investment fund, lease financing company or other institutional investor
(whether a corporation, partnership, trust or other entity) that is engaged in
making, purchasing or otherwise investing in commercial loans in the ordinary
course of its business, provided that such Person is an "accredited investor"
(as defined in Regulation D under the Securities Act of 1933, as amended); (f)
any Lender party to this Agreement; (g) any Lender Affiliate and (h) any other
Person approved by the
9.
<PAGE> 18
Administrative Agent and the Borrower, such approval not to be unreasonably
withheld; provided, however, that (i) the Borrower's approval shall not be
required so long as an Event of Default has occurred and is continuing and (ii)
an Affiliate of the Borrower shall not qualify as an Eligible Assignee.
"Employee Benefit Plan" means any Pension Plan and any employee welfare
benefit plan, as defined in Section 3(1) of ERISA, that is maintained for the
employees of any Person or any ERISA Affiliate of such Person.
"Environmental Action" means any action, suit, demand, demand letter,
claim, notice of non-compliance or violation, notice or liability or potential
liability, investigation, proceeding, consent order or consent agreement
relating in any way to any violation of an Environmental Law, violation of an
Environmental permit or Hazardous Materials or arising from alleged injury or
threat of injury to health, safety or the environment, including, without
limitation, (a) by any governmental or regulatory authority for enforcement,
cleanup, removal, response, remedial or other actions or damages and (b) by any
governmental or regulatory authority or any third party for damages,
contributions, indemnification, cost recovery, compensation or injunctive
relief.
"Environmental Law" means any Requirement of Law relating to pollution
or protection of the environment, health, safety or natural resources,
including, without limitation, those relating to the use, handling,
transportation, treatment, storage, disposal, release or discharge of Hazardous
Materials, and those relating to the threatened or endangered species.
Environmental Permit" means any permit, approval, identification
number, license or other authorization required under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.
"ERISA Affiliate" means, as applied to any Person, any trade or
business (whether or not incorporated) under common control with the Borrower
within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and
(o) of the Code for purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a Pension
Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate from a Pension
Plan subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation
of operations which is treated as such a withdrawal under Section 4062(e) of
ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA
Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is
in reorganization; (d) the filing of a notice of intent to terminate, the
treatment of a Plan amendment as a termination under Section 4041 or 4041A of
ERISA, or the commencement of proceedings by the PBGC to terminate a Pension
Plan or Multiemployer Plan; (e) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Pension Plan or
Multiemployer Plan; or (f) the imposition of any liability under Title IV of
ERISA, other than PBGC premiums
10.
<PAGE> 19
due but not delinquent under Section 4007 of ERISA, upon the Borrower or any
ERISA Affiliate.
"Eurodollar Reserve Percentage" means the reserve percentage (expressed
as a decimal, rounded upward to the nearest 1/100th of one percent (0.01%)) in
effect on the Interest Rate Determination Date (whether or not applicable to any
Lender) under regulations issued from time to time by the Federal Reserve Board
for determining the maximum reserve requirement (including any emergency,
supplemental or other marginal reserve requirement) with respect to Eurocurrency
funding (currently referred to as "Eurocurrency liabilities") having a term
comparable to an Interest Period of twelve (12) months.
"Event of Default" means any of the events or circumstances set forth
in SECTION 8.1.
"Excluded Assets" has the meaning set forth in RECITAL B.
"Excluded Liabilities" has the meaning set forth in RECITAL B.
"Existing Pioneer Credit Facility" means the senior revolving credit
facility made available to Pioneer pursuant to that Amended and Restated Credit
Agreement dated as of March 26, 1998 among Pioneer, as the borrower, Kinzua
Resources, L.L.C., Lane Plywood, Inc., Pioneer Aviation, LLC and Pioneer Merger,
Inc., as guarantors, the lenders party thereto and Bank of Montreal, as
administrative agent and letter of credit issuer.
"Exley" has the meaning set forth in RECITAL A.
"Federal Funds Rate" means, for any period, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Board (including any such
successor,"H.15(519)") for such day opposite the caption "Federal Funds
(Effective)". If on any relevant day such rate is not yet published in
H.15(519), the rate for such day will be the rate set forth in the daily
statistical release designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m.
Quotation") for such day under the caption "Federal Funds Effective Rate". If on
any relevant day the appropriate rate for such previous day is not yet published
in either H.15(519) or the Composite 3:30 p.m. Quotation, the rate for such day
will be the arithmetic mean of the rates for the last transaction in overnight
Federal funds arranged prior to 9:00 a.m., New York Time, on that day by each of
three leading brokers of Federal funds transactions in New York City selected by
the Administrative Agent.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or any successor thereto.
"Fee Letter" means the side letter relating to fees dated October 1,
1998 among the Borrower, ABN AMRO, NationsBank, N.A. and First Union Investors,
Inc.
"Financing Statements" means the UCC-1 financing statements duly
executed by the Borrower, STTOC, STPII, Mach One and each Person comprising the
Demers Group, as the case
11.
<PAGE> 20
may be, as debtor, in favor of the Administrative Agent, as secured party, and
caused to be filed in the jurisdictions set forth on SCHEDULE 4.
"Fiscal Quarter" means each fiscal quarter of the Borrower ending on
each March 31, June 30, September 30 and December 31.
"Fiscal Year" means each fiscal year of the Borrower ending on each
December 31.
"Fixed Rate" means the fixed rate of interest per annum of nine and
one-half percent (9.5%) (which is a per annum rate of interest equivalent to the
current Base Rate plus a margin of 1.25%).
"Fixed Rate Loan" means a Loan that bears interest at the Fixed Rate.
"Form 1001" has the meaning set forth in SECTION 3.1(G)(I)(A).
"Form 4224" has the meaning set forth in SECTION 3.1(G)(I)(A).
"Form W-8" has the meaning set forth in SECTION 3.1(G)(II)(A).
"Frontier" has the meaning set forth in RECITAL B.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other Person as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"Governmental Authority" means (a) any foreign, federal, state, county,
parish or municipal government, or political subdivision thereof, (b) any
governmental or quasi-governmental agency, authority, board, bureau, commission,
department, instrumentality or public body, (c) any court or administrative
tribunal or (d) with respect to any Person, any arbitration tribunal or other
non-governmental authority to whose jurisdiction that Person has consented.
"Harvesting Contracts" means all agreements, contracts or other
contractual obligations, whether now existing or hereafter entered into, whereby
third Persons have granted or will grant to Pioneer the right to cut, harvest or
otherwise remove Timber from real property other than the Pioneer Timberlands or
other Land owned by Pioneer and all other rights of Pioneer to cut, harvest or
otherwise remove Timber from real property other than the Pioneer Timberlands or
other Land owned by Pioneer.
"Harvest Plan" means the ten (10) year harvest plan of Pioneer for the
harvesting and sale of Timber and stumpage, as amended or modified from time to
time with the approval of the Administrative Agent.
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"Hazardous Materials" means (a) petroleum and petroleum products,
byproducts or breakdown products, radioactive materials, asbestos-containing
materials, polychlorinated biphenyls and radon gas and (b) any other chemicals,
materials or substances designated, classified or regulated as hazardous or
toxic or as a pollutant or contaminant under any Environmental Law.
"Indebtedness" means, as to any Person, (a) all indebtedness of such
Person for borrowed money, including, without limitation, all amounts
outstanding under this Agreement and any of the other Loan Documents, (b) all
capital leases of such Person (but excluding any operating leases), (c) to the
extent of the outstanding Indebtedness thereunder, all obligations of such
Person that are evidenced by a promissory note or other instrument representing
an extension of credit to such Person, whether or not for borrowed money, (d)
all obligations of such Person for the deferred purchase price of Property or
services (other than trade or other accounts payable in the ordinary course of
business in accordance with customary industry terms), (e) all obligations of
such Person of the nature described in clauses (a), (b), (c) or (d), above, and
not otherwise included therein that is secured by a Lien on assets of such
Person, whether or not that Person has assumed such obligation or whether or not
such obligation is non-recourse to the credit of such Person, but only to the
extent of the fair market value of the assets so subject to the Lien, (f) all
obligations of such Person arising under acceptance facilities or under
facilities for the discount of accounts receivable of such Person, (g) all
obligations of such Person to reimburse the issuer of any letter of credit
issued for the account of such Person upon which a draw has been made, (h) all
obligations of such Person to a counterpart under any Rate Contract and (i) all
Contingent Obligations of such Person.
"Indemnified Matters" has the meaning set forth in SECTION 10.5.
"Indemnitees" has the meaning set forth in SECTION 10.5.
"Initial Equity Investment" means $10,000,000, which is the aggregate
minimum amount of the initial equity capitalization in cash of STPII made by
Mach One (exclusive of the contribution of $30,000,000 by the Borrower and STTOC
using the proceeds of the Loans advanced at Closing and the rollover of
$65,000,000 in continuing equity by the Demers Group) immediately prior to the
consummation of the Pioneer Acquisition.
"Insolvency Proceeding" means (a) any case, action or proceeding before
any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution, winding-up
or relief of debtors, or (b) any general assignment for the benefit of
creditors, composition, marshalling of assets for creditors or other, similar
arrangement in respect of its creditors generally or any substantial portion of
its creditors, in each of case (a) and (b) undertaken under federal, state or
foreign law, including the Bankruptcy Code.
"Interest Differential" means, with respect to any prepayment of a
LIBOR Loan on a day other than October 27, 1999, the difference between (a) the
Adjusted LIBOR payable with respect to such LIBOR Loan as of the date of the
prepayment and (b) the Adjusted LIBOR on, or as near as practicable to, the date
of the prepayment for a hypothetical LIBOR Loan having an interest period
commencing on such date and ending on October 27, 1999. The determination of
13.
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the Interest Differential by the Administrative Agent shall be conclusive in the
absence of manifest error.
"Interest Payment Date" means (a) the date of commencement of the
Interest Period for each LIBOR Loan, (b) each three (3) month anniversary of the
commencement of the Interest Period for each LIBOR Loan and (c) the Maturity
Date.
"Interest Period" means, as to any LIBOR Loan, the period commencing on
the third Business Day following the Closing Date and ending on October 27,
1999.
"Interest Rate Determination Date" means the date for calculating the
LIBOR for purposes of determining the interest rate in respect of the Interest
Period. The Interest Rate Determination Date shall be the Business Day following
the Closing Date.
"Investment" means, when used in connection with any Person, any
investment by or of that Person, whether by means of purchase or other
acquisition of securities of any other Person or by means of loan, advance,
capital contribution, guaranty or other debt or equity participation or
interest, or otherwise, in any other Person, including any partnership, joint
venture or limited liability company interests of such Person in any other
Person. The amount of any Investment shall be the original principal or capital
amount thereof less all returns of principal or equity thereon (and without
adjustment by reason of the financial condition of such other Person) and shall,
if made by the transfer or exchange of Property other than cash, be deemed to
have been made in an original principal or capital amount equal to the fair
market value of such Property.
"Investment Company Act" means the Investment Company Act of 1940, as
amended (15 U.S.C. ss. 80a-1 et seq.).
"IRS" means the Internal Revenue Service and any Governmental Authority
succeeding to any of its principal functions under the Code.
"King" has the meaning set forth in RECITAL A.
"Land" means the real property owned of record by Pioneer.
"Lender Affiliate" means a Person engaged primarily in the business of
commercial banking and that is an Affiliate of a Lender or of a Person of which
a Lender is an Affiliate.
"Lenders" means the banks, financial institutions or other
institutional lenders which have executed signature pages to this Agreement and
such other Assignees, banks, financial institutions or other institutional
lenders as shall hereafter execute and deliver an Assignment and Acceptance with
respect to all or any portion of the Commitments and the Loans advanced and
maintained pursuant to the Commitments, in each case pursuant to and in
accordance with SECTION 10.11.
"Lending Office" means, with respect to any Lender, the office or
offices of the Lender specified as its "Domestic Lending Office" opposite its
name on the applicable signature page hereto, or such other office or offices of
the Lender as it may from time to time notify the Borrower and the
Administrative Agent.
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"LIBOR" means, with respect to any Loan to be made as a LIBOR Loan, the
London Inter-Bank Offered Rate (determined by the Administrative Agent), rounded
upward to the nearest 1/16th of one percent (0.0625%), at which Dollar deposits
are offered to ABN AMRO by major banks in the London interbank market at or
about 11:00 a.m., London Time, on the Interest Rate Determination Date with
respect to such Loan in an aggregate amount approximately equal to the amount of
such Loan and for a twelve (12) month period of time. The determination of LIBOR
by the Administrative Agent shall be conclusive in the absence of manifest
error.
"LIBOR Loan" means a Loan that bears interest based on Adjusted LIBOR.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment for security, security interest, encumbrance, levy, lien or charge of
any kind, whether voluntarily incurred or arising by operation of law or
otherwise, against any Property, including any agreement to grant any of the
foregoing, any conditional sale or other title retention agreement, any lease in
the nature of a security interest.
"Loan" means a Loan advanced to the Borrower pursuant to SECTION 2.1 by
a Lender under its Commitment according to its Commitment Percentage, which Loan
may be in the form of either a Base Rate Loan or a LIBOR Loan, depending upon
the context; provided that for the period from the Closing Date to the third
Business Day following the Closing Date all Loans shall be Fixed Rate Loans.
"Loan Documents" means this Agreement, the Notes, the Collateral
Documents, the Pioneer Guaranty, the Fee Letter and any and all other agreements
(including any Rate Contract), documents and instruments executed and delivered
by or on behalf of or in support of the Borrower to any Lender or the
Administrative Agent or their respective authorized designee evidencing or
otherwise relating to the Loans as the same may from time to time be amended,
modified, supplemented, extended or renewed.
"LP Interest Contribution Agreement" means the Class C Limited Partner
Contribution Agreement dated as of October 9, 1998 between STPII and Mach One.
"Mach One" has the meaning set forth in RECITAL A.
"Mach One Pledge Agreement" means the Non-Recourse Guaranty and Pledge
Agreement dated as of the date of this Agreement, executed by Mach One in favor
of the Administrative Agent.
"Mandatory Prepayment" means any mandatory prepayment of the principal
amount of Loans made or required to be made pursuant to SECTION 2.7.
"Margin Regulations" means, collectively, Regulations T, U and X
adopted by the Federal Reserve Board (12 C.F.R. Parts 220, 221 and 224,
respectively).
"Material Adverse Change" means any set of circumstances or events
which (a) has or could reasonably be expected to have any material adverse
effect whatsoever upon the validity or enforceability of any Loan Document, (b)
is or could reasonably be expected to be material and
15.
<PAGE> 24
adverse to the condition (financial or otherwise), properties, business or
operations of the Borrower, STPII or Pioneer, (c) impairs materially or could
reasonably be expected to impair materially the ability of the Borrower to pay
or perform its Obligations or to avoid an Event of Default, (d) impairs
materially or could reasonably be expected to impair materially the value or
priority of the Lien of the Administrative Agent in the Collateral or (e)
impairs materially or could reasonably be expected to impair materially the
ability of the Administrative Agent or any Lender to enforce any of its legal
remedies pursuant to the Loan Documents.
"Maturity Date" means October 27, 1999 or, if the maturity of the Loans
is accelerated pursuant to SECTION 8.3(A) upon or following the occurrence of an
Event of Death or otherwise, such earlier date of acceleration.
"MBG" means Mason, Bruce & Girard, Inc., forestry consultants to
Pioneer and the Borrower.
"Merchantable Timber" shall mean all standing trees consisting of
redwood, ponderosa pine, douglas fir, western larch, white fir, lodgepole pine
and other commercially exploitable species which is located upon Timberland
owned of record by the Borrower, is free of known disease and defect, is not in
a location where it is commercially unfeasible to harvest the same and, at the
time of determination, could be harvested in compliance with all applicable
Requirements of Law and is of a size and grade such that the harvesting and sale
of same could then be accomplished consistent with all applicable Requirements
of Law and sound silvicultural practices and which also meets all applicable
criteria for merchantability (based on geographical region and species) set
forth in the Consultant's Report.
"Multiemployer Plan" shall mean a "multiemployer plan", within the
meaning of Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA
Affiliate makes, is making or is obligated to make contributions or, during the
preceding three (3) calendar years, has made, or been obligated to make,
contributions.
"Net Issuance Proceeds" means, in respect of any issuance of equity,
cash proceeds or non-cash proceeds received or receivable in connection
therewith, net of reasonable out-of-pocket costs and expenses paid or incurred
in favor of any Person other than an Affiliate of the Borrower, such costs and
expenses to be consistent with standard investment banking practices for similar
issuance.
"Non-Bank Lender Tax Certificate" has the meaning set forth in SECTION
3.1(G)(II)(A).
"Note" means a promissory note dated the date of issuance, executed by
the Borrower and payable to the order of a Lender in the stated principal amount
of such Lender's Commitment, substantially in the form of EXHIBIT A, and any and
all replacement, extensions, substitutions and renewals of any such promissory
note.
"Notice of Borrowing" means a notice given by the Borrower to the
Administrative Agent in accordance with SECTION 2.1(B), substantially in the
form of EXHIBIT B, with appropriate insertions.
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<PAGE> 25
"Obligations" means all loans, advances, debts, liabilities and
obligations, for monetary amounts owing, in each case on a joint and several
basis, by the Borrower to the Lenders or the Administrative Agent, whether due
or to become due, matured or unmatured, liquidated or unliquidated, contingent
or non-contingent, and all covenants and duties regarding such amounts, of any
kind or nature, present or future, whether or not evidenced by any note,
agreement or other instrument, arising under or in respect of any of the Loan
Documents or under or in respect of any Rate Contract. This term includes,
without limitation, all principal, interest (including interest that accrues
after the commencement against the Borrower of any action under the Bankruptcy
Code), fees, including, without limitation, any and all arrangement fees, loan
fees, commitment fees, Administrative Agent fees and any and all other fees,
expenses, costs or other sums (including Attorney Costs) chargeable to the
Borrower under any of the Loan Documents.
"Old Pioneer" has the meaning set forth in RECITAL A.
"Opening Debt Amount" has the meaning set forth in RECITAL C.
"Opening Timber Appraisal" has the meaning set forth in RECITAL A.
"Ordinary Course of Business" means, in respect of any transaction
involving the Borrower, STPII or Pioneer, the ordinary course of the Borrower's,
STPII's or Pioneer's business, as conducted by the Borrower, STPII or Pioneer in
accordance with past practice or, in the absence of past practice, consistent
with accepted prudent practices in the timber industry and, in each case,
undertaken by the Borrower, STPII or Pioneer in good faith and not for purposes
of evading any covenant or restriction in any Loan Document.
"Originating Lender" has the meaning set forth in SECTION 10.11(D).
"Other Taxes" has the meaning specified in SECTION 3.1(B).
"Participant" has the meaning set forth in SECTION 10.11(D).
"Partner Collateral" means all Property and interests in Property, and
all proceeds thereof, including the Property covered by the Partner Collateral
Documents, now existing or hereafter acquired, that may at any time be or become
subject to a Lien granted or created in favor of the Administrative Agent to
secure the full and complete payment and performance of the Obligations and the
respective obligations of STTOC, each Person comprising the Demers Group, Mach
One or any Additional Pledgor under the Loan Documents to which it is a party.
"Partner Collateral Documents" means, collectively, (a) the STTOC
Pledge Agreement, the Demers Group Pledge Agreement, the Mach One Pledge
Agreement, each other pledge agreement as shall hereafter be executed and
delivered by any Additional Pledgor in favor of the Administrative Agent, the
Financing Statements naming STTOC, each Person comprising the Demers Group, Mach
One and each such Additional Pledgor as debtor and such other agreements,
assignments, documents and instruments from time to time executed and delivered
by STTOC, the Demers Group, Mach One or any such Additional Pledgor granting,
assigning or transferring or otherwise evidencing or relating to any Lien
granted, assigned or transferred to the Administrative Agent or any Lender
pursuant to or in connection with the transactions
17.
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contemplated by this Agreement and (b) any amendments, supplements,
modifications, renewals, restatements, replacements, consolidations,
substitutions and extensions of any of the foregoing.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal investors under ERISA.
"Pension Plan" means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA which the Borrower sponsors, maintains, or
to which it makes, is making or is obligated to make contributions, or in the
case of multiple employer plan (as described in Section 4064(a) of ERISA) has
made contributions at any time during the immediately preceding five (5) plan
years.
"Permitted Liens" has the meaning set forth in SECTION 7.1.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, business or other trust,
unincorporated organization, association, corporation, institution, public
benefit corporation, firm, joint stock company, estate, entity or Governmental
Authority.
"Pioneer" has the meaning set forth in RECITAL A.
"Pioneer Acquisition" has the meaning set forth in RECITAL C.
"Pioneer Guaranty" means the Guaranty dated as of the date of this
Agreement, executed by Pioneer in favor of the Lenders and the Administrative
Agent, the right to payment under which shall be subordinate to the Senior Loan
Obligations.
"Pioneer Operating Agreement" means the Fourth Amended and Restated
Operating Agreement of Pioneer effective as of October 9, 1998.
"Pioneer Timberlands" has the meaning set forth in RECITAL A.
"Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which the Borrower sponsors or maintains or to which the Borrower makes,
is making, or is obligated to make contributions and includes any Pension Plan.
"Pledge Agreement" means the Pledge Agreement dated as of the date of
this Agreement, executed by the Borrower and the Administrative Agent.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, whether tangible or intangible.
"Public Utility Holding Company Act" means the Public Utility Holding
Company Act of 1935, as amended (15 U.S.C. ss. 79 et seq.).
"Rate Contract" means an interest rate or currency swap, cap or other
agreement or arrangement designed to provide protection against fluctuations in
interest or currency exchange rates.
18.
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"Replacement Lender" has the meaning set forth in SECTION 3.8.
"Reportable Event" means any of the events set forth in Section 4043(c)
of ERISA or the regulations thereunder other than any such event for which the
30-day notice requirement under ERISA has been waived in regulations issued by
the PBGC.
"Required Lenders" means Lenders holding at least sixty-six and
two-thirds percent (66-2/3%) of the then aggregate unpaid principal amount of
all Loans then outstanding or, if no Loans are then outstanding, Lenders having
at least sixty-six and two-thirds percent (66-2/3%) of the Aggregate
Commitments.
"Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule, regulation, code, guidance, guideline, order, directive,
judgment, decree, interpretation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its Property or to which the Person or any of its Property is subject.
"Responsible Person" means the Persons identified by the Borrower on a
Designation of Responsible Persons as having authority to request or continue
Loans hereunder on behalf of the Borrower.
"SEC" means the Securities and Exchange Commission and any successor
thereto.
"Securities" means any stock, shares, partnership interests, limited
liability company membership interests, voting trust certificates, certificates
of interest or participations in any profit-sharing agreement or arrangement,
options, warrants, bonds, debentures or other similar evidences of indebtedness,
convertible or otherwise, or in general any instruments commonly known as
"securities".
"Security Agreement" means the Security Agreement dated as of the date
of this Agreement, executed by the Borrower and the Administrative Agent.
"Senior Administrative Agent" means First Union National Bank solely
when acting as the Administrative Agent under and as defined in the Senior
Credit Agreement, and any successor Administrative Agent thereto.
"Senior Credit Agreement" means that Replacement Credit Agreement dated
as of the same date as this Agreement, among Pioneer, as the borrower, the
Senior Lenders and the Senior Administrative Agent, ABN AMRO in its capacity as
syndication agent and NationsBank, N.A. in its capacity as documentation agent,
as the same may be amended, modified or restated from time to time.
"Senior Credit Facilities" has the meaning set forth in RECITAL D.
"Senior Lenders" means the banks, financial institutions and other
institutional lenders party from time to time to the Senior Credit Agreement in
their individual capacities as lenders.
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"Senior Loan Documents" means the "Loan Documents," as such term is
defined in the Senior Credit Agreement.
"Senior Loan Obligations" means the "Obligations," as such term is
defined in the Senior Credit Agreement.
"Solvent" means, as to any Person at any time, that (a) the fair value
of the Property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities) as
such value is established and liabilities evaluated for purposes of Section
101(31) of the Bankruptcy Code; (b) the present fair saleable value of the
Property of such Person is not less than the amount that will be required to pay
the probable liability of such Person on its debts as they become absolute and
matured; (c) such Person is able to pay its debts and other liabilities
(including disputed, contingent and unliquidated liabilities) as they mature in
the normal course of business; (d) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities mature; and (e) such Person is not engaged in
a business or a transaction for which such Person's property would constitute
unreasonably small capital.
"Spin Out" has the meaning set forth in RECITAL B.
"STP" means Strategic Timber Partners, LP, a Delaware limited
partnership.
"STPII" has the meaning set forth in RECITAL A.
"STPII Collateral" means all Property and interests in Property, and
all proceeds thereof including the Property covered by the STPII Collateral
Documents, now existing or hereafter acquired, that may at any time be or become
subject to a Lien granted or created in favor of the Administrative Agent to
secure the full and complete payment and performance of the Obligations and
STPII's obligations under the Loan Documents to which it is a party.
"STPII Collateral Documents" means collectively, (a) the STPII Pledge
Agreement, the Financing Statements naming STPII as debtor and such other
agreements, assignments, documents and instruments from time to time executed
and delivered by STPII granting, assigning or transferring or otherwise
evidencing or relating to any Lien granted, assigned or transferred to the
Administrative Agent or any Lender pursuant to or in connection with the
transactions contemplated by this Agreement and (b) any amendments, supplements,
modifications, renewals, restatements, replacements, consolidations,
substitutions and extensions of any of the foregoing.
"STPII Pledge Agreement" means the full recourse Guaranty and Pledge
Agreement dated as of the date of this Agreement, executed by STPII in favor of
the Administrative Agent.
"STPII Partnership Agreement" means the First Amended and Restated
Agreement of Limited Partnership of STPII effective as of October 9, 1998.
"STOC" means Strategic Timber Operating Co., a Delaware corporation.
"STT" means Strategic Timber Trust, Inc., a Georgia corporation.
20.
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"STT Bridge Agreement" means that Bridge Loan Agreement dated as of
April 27, 1998, as amended, among STT, as the borrower, the STT Bridge Lenders
and the STT Bridge Agent.
"STT Bridge Documents" means the "Loan Documents," as such term is
defined in the Senior Loan Agreement.
"STT Bridge Facility" means the bridge loan in the original principal
amount of $85,000,000 made by the STT Bridge Lenders to STT pursuant to the STT
Bridge Documents.
"STT Bridge Lenders" means the banks, financial institutions and other
institutional lenders party from time to time to the STT Bridge Agreement in
their individual capacities as lenders.
"STT Bridge Obligations" means the "Obligations," as such term is
defined in the STT Bridge Agreement.
"STTOC" has the meaning set forth in RECITAL A.
"STTOC Operating Agreement" means the Operating Agreement of STTOC
effective as of October 9, 1998.
"STTOC Pledge Agreement" means the full recourse Guaranty and Pledge
Agreement dated as of the date of this Agreement, executed by STTOC in favor of
the Administrative Agent.
"Subsidiary" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business entity
of which more than fifty percent (50.0%) of the voting stock or other equity
interests (in the case of Persons other than corporations), is owned or
controlled directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof.
"Taxes" has the meaning set forth in SECTION 3.1(A).
"Termination Event" has the meaning set forth in SECTION 2.4(E).
"Timber" means all trees, timber to be cut from the Land or otherwise,
timber, whether severed or unsevered and including standing and down timber,
stumps and cut timber remaining on the Land or otherwise, and logs, wood chips
and other forest products, whether now located on or hereafter planted or
growing in or on the Land or otherwise or now or hereafter removed from the Land
or otherwise for sale or other disposition.
"Timberlands" means real property suitable and principally used for
timber production.
"Timber Sales Agreements" means all timber sales agreements, log sales
agreements, purchase orders, purchase and sale agreements and other contractual
obligations, whether now existing or hereafter entered into, whereby Pioneer, as
seller, is or may become obligated to cut, harvest or otherwise remove Timber
harvested from the Land or to otherwise obtain Timber and to sell, exchange or
deliver such Timber to third Persons.
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"Transferee" has the meaning specified in SECTION 10.11(E).
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of Illinois; provided, however, in the event
that, by reason of mandatory provisions of law, any and all of the attachment,
perfection or priority of the Lien of the Administrative Agent, for the benefit
of the Lenders and the Administrative Agent, in and to the Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of Illinois, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provision.
"Unfunded Pension Liability" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Plan's assets, determined in accordance with the assumptions used for funding
the Pension Plan pursuant to Section 412 of the Code for the applicable plan
year.
"Youel" has the meaning set forth in RECITAL A.
SECTION 1.2 OTHER INTERPRETIVE PROVISIONS.
(A) ACCOUNTING TERMS. Any accounting term used in this
Agreement shall have, unless otherwise specifically provided herein, the meaning
customarily given such term in accordance with GAAP, and all financial data
required to be submitted by this Agreement shall be prepared and computed,
unless otherwise specifically provided herein, in accordance with GAAP. That
certain terms or computations are explicitly modified by the phrase "in
accordance with GAAP" shall in no way be construed to limit the foregoing.
(B) OTHER TERMS. All other undefined terms contained in this
Agreement shall, unless the context indicates otherwise, have the meanings
provided for by the UCC to the extent the same are used or defined therein. The
words "herein," "hereof" and "hereunder" and other words of similar import refer
to this Agreement as a whole, including the Exhibits and Schedules attached to
this Agreement, all of which are by this reference incorporated into this
Agreement, and not to any particular provision of this Agreement. The term
"including" is not limiting and means "including, without limitation," and
"including but not limited to." The term "documents" includes any and all
instruments, documents, agreements, certificates, indentures, notices and other
writings, however evidenced. The term "or" is disjunctive; the term "and" is
conjunctive. The term "shall" is mandatory; the term "may" is permissive.
Wherever from the context it appears appropriate, each term stated in either the
singular or plural shall include the singular and plural, and pronouns stated in
the masculine, feminine or neuter gender shall include the masculine, feminine
and the neuter.
(C) PERFORMANCE; TIME. Whenever any performance obligation
hereunder (other than a payment obligation) shall be stated to be due or
required to be satisfied on a day other than a Business Day, such performance
shall be made or satisfied on the next succeeding Business Day unless otherwise
indicated. In the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including"; the words "to"
and "until" each mean "to but excluding", and the word "through" means "to and
including." If any
22.
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provision of this Agreement refers to any action taken or to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
interpreted to encompass any and all means, direct or indirect, of taking, or
not taking, such action.
(D) LAWS. References to any statute or regulation are to be
construed as including all statutory and regulatory provisions consolidating,
amending, replacing, supplementing or interpreting the statute or regulation.
(E) ROUNDING. Any financial ratios required to be maintained
by the Borrower pursuant to this Agreement shall be calculated by dividing the
appropriate component by the other component, carrying the result to one place
more than the number of places by which such ratio is expressed in this
Agreement and rounding the result up or down to the nearest number (with a
round-up if there is no nearest number) to the number of places by which such
ratio is expressed in this Agreement.
(F) SCHEDULES AND EXHIBITS. Any reference to an "Article,"
"Section," "Subsection," "Schedule" or "Exhibit" shall refer to the relevant
Article, Section or Subsection of or Schedule or Exhibit to this Agreement,
unless specifically indicated to the contrary.
ARTICLE II
THE CREDITS
SECTION 2.1 AMOUNTS AND TERMS OF COMMITMENTS.
(A) THE LOAN FACILITY. Upon the terms, subject to the
conditions and in reliance upon the representations and warranties of the
Borrower set forth in this Agreement and in the other Loan Documents, each
Lender having a Commitment severally agrees to make a Loan of immediately
available funds to the Borrower upon the Closing Date in an aggregate principal
amount equal to such Lender's Commitment.
(B) FUNDING OF LOANS TO THE ADMINISTRATIVE AGENT. Following
the Administrative Agent's receipt from the Borrower of a complying Notice of
Borrowing and the Administrative Agent's determination that the conditions
precedent to the requested Borrowing set forth in ARTICLE IV have been duly
satisfied, the Administrative Agent shall promptly notify each Lender of the
requested Funding Date, which date shall be the contemplated Closing Date and
shall be no earlier than the Business Day following the date on which the
Administrative Agent so notifies such Lender. Except as specifically provided in
the funds transfer memorandum referred to in SECTION 4.1(U), not later than 1:00
p.m., Chicago, Illinois time, on the requested Funding Date, each Lender having
a Commitment shall have advanced its Loan to the Administrative Agent at the
Administrative Agent's Payment Office in immediately available funds. No Lender
shall have any liability to the Borrower for the failure of such Lender to
advance funds for any Loan unless and until each condition precedent to the
Borrowing set forth in SECTIONS 4.1 and 4.2 has been duly satisfied or has been
waived in writing by Required Lenders. The Borrower shall have no right to
enforce any obligation of a Lender to fund any Loan unless and until each
condition precedent to the Borrowing has been duly satisfied or has been waived
in writing by Required Lenders. The Administrative Agent's determination that
the
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conditions precedent to the Borrowing have been duly satisfied shall be
conclusive and binding on all Lenders for purposes of determining when the
Lenders shall be obligated to advance funds to the Administrative Agent.
(C) DISBURSEMENT OF LOANS TO THE BORROWER. On the Closing
Date, the Administrative Agent shall disburse in immediately available funds to
the designated deposit account(s) specified in the funds transfer memorandum
referred to in SECTION 4.1(U) an aggregate amount equal to the Loans advanced by
the Lenders to the Administrative Agent's Payment Office.
(D) GENERAL PROVISIONS RELATING TO THE LOANS. Each Loan made
by a Lender hereunder shall be either in the form of a LIBOR Loan or, if the
continuing or maintaining of LIBOR Loans is prohibited under this Agreement, a
Base Rate Loan; provided that for the period from the Closing Date to the third
Business Day following the Closing Date each Loan shall bear interest at the
Fixed Rate (the funding of the Loans on the Closing Date shall be deemed to be a
request by the Borrower to convert such Fixed Rate Loans to LIBOR Loans and such
Fixed Rate Loans shall, on the terms and subject to the conditions set forth in
this Agreement relating to LIBOR Loans, automatically convert to LIBOR Loans on
the third Business Day following the Closing Date). The Borrower shall repay the
principal amount of the Loans in the amounts and in the manner set forth in
SECTION 2.3 and pay interest accrued on the Loans at the rates and in the manner
set forth in SECTION 2.4. Amounts borrowed by the Borrower under the Aggregate
Commitments and subsequently repaid or prepaid may not be reborrowed.
(E) PERMITTED USES OF LOAN PROCEEDS. The Borrower shall use
the Loan proceeds only for the purposes of (i) making an equity contribution in
STTOC, the entire proceeds of which will be used to make an immediate equity
contribution in STPII for the purpose of financing (x), together with the
Initial Equity Investment and the rollover equity investment by the Demers
Group, a portion of the purchase price of the Pioneer Acquisition paid on the
Closing Date and (y) transaction costs related to the Senior Credit Facilities,
and (ii) financing transaction costs related to the Bridge Facility and payment
of interest accruing on the Loans through the initial Interest Payment Date.
SECTION 2.2 NOTES.
(A) NOTES. The Loans made by each Lender shall be evidenced by
separate Notes executed by the Borrower and made payable to the order of such
Lender in the stated principal amount equal to its Commitment.
(B) NOTATIONS IN THE LENDERS' BOOKS AND RECORDS. Each Lender
shall make notations in its books and records regarding the date, amount and
maturity of each Loan made by it and the amount of each repayment or prepayment
of principal and payment of interest made by the Borrower with respect to such
Loan. Each Lender is irrevocably authorized by the Borrower to endorse its Note
and each Lender's record shall be conclusive absent manifest error; provided,
however, that the failure of a Lender to make, or an error in making, such a
notation with respect to any Loan shall not limit or otherwise affect the
Obligations of the Borrower hereunder or under any such Note to such Lender.
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SECTION 2.3 REPAYMENT OF PRINCIPAL AMOUNT OF LOANS. Subject to the
terms of this Agreement relating to optional and mandatory earlier repayments of
Loans, the Borrower shall repay the Lenders the entire outstanding principal
amount of the Loans and all other unpaid amounts outstanding hereunder on the
Maturity Date.
SECTION 2.4 PAYMENT OF INTEREST ON THE LOANS; ADDITIONAL COMPENSATION.
(A) LOANS. Subject to SECTION 2.4(C), each Loan shall bear
interest on the outstanding principal amount thereof from the date when made or
converted until paid in full at a rate per annum equal to (i) for the period
from the Closing Date to the third Business Day following the Closing Date, the
Fixed Rate, and (ii) thereafter, the Adjusted LIBOR, or, if applicable, the Base
Rate, plus the Applicable Margin .
(B) INTEREST PAYMENT DATES. Interest on each Loan shall be
paid in arrears on each Interest Payment Date. Interest shall also be paid on
the date of any prepayment of any Loans pursuant to this Agreement for the
portion of the Loans so prepaid and upon payment (including prepayment) in full
thereof.
(C) INTEREST UPON EVENTS OF DEFAULT. Upon the occurrence of an
Event of Default and so long as such Event of Default shall continue, including
after acceleration (whether before or after entry of judgment), the Borrower
shall, at the option of Required Lenders, pay interest on the principal amount
of each Loan then outstanding at a rate per annum which is determined by adding
two percent (2.00%) to the Applicable Margin applicable to such Loan (the
"Default Rate").
(D) LIMITATIONS ON INTEREST RATES. Notwithstanding any
provision in this Agreement, the Notes or any of the other Loan Documents, the
total liability for payments in the nature of interest shall not exceed the
applicable limits imposed by any applicable federal or state interest rate laws.
If any payments in the nature of interest, additional interest and other charges
made hereunder or under any of the Loan Documents are held to be in excess of
the applicable limits imposed by any applicable federal or state law, the amount
held to be in excess shall be considered payment of principal under the Notes
and the indebtedness evidenced thereby shall be reduced by such amount in the
inverse order of maturity so that the total liability for payments in the nature
of interest, additional interest and other charges shall not exceed the
applicable limits imposed by any applicable federal or state interest rate laws.
(E) ADDITIONAL COMPENSATION. In consideration of the Lenders
underwriting and making the Loans hereunder enabling the Borrower to consummate
the Pioneer Acquisition, unless prior to such date the Loans and other
Obligations shall have been repaid in full and this Agreement shall have been
terminated (except for such indemnity and other similar provisions as shall
expressly survive termination), upon the earlier of (i) October 27, 1999, (ii)
the acceleration of all outstanding Obligations, whether following the
occurrence of an Event of Default, the commencement of an Insolvency Proceeding
or otherwise, or (iii) the prepayment in full of the outstanding principal
balance of the Loans, whether due to a voluntary prepayment pursuant to SECTION
2.6 or a Mandatory Prepayment pursuant to SECTION 2.7 (each of CLAUSES (I), (II)
and (III) being a "Termination Event"), the Borrower shall pay to each Lender,
in addition to any and all other Obligations owing to such Lender or any of the
other Lenders, additional compensation
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(the "Additional Compensation") in the following amounts, which Additional
Compensation shall be due and payable on the date that the Termination Event
occurs and shall be fully earned and nonrefundable:
(1) if the Termination Event occurs prior to January
1, 1999, there shall be no Additional Compensation;
(2) if the Termination Event occurs on or after
January 1, 1999 and prior to April 1, 1999, the Additional Compensation shall be
in an amount equal to one and one-half percent (1.5%) of such Lender's pro rata
share of the Aggregate Commitment (such pro rata share to reflect any
adjustments to the initial Commitments as of the Closing as a result of any
assignments made pursuant to SECTION 10.11(A));
(3) if the Termination Event occurs on or after April
1, 1999 and prior to July 1, 1999, the Additional Compensation shall be in an
amount equal to four and one-half percent (4.5%) of such Lender's pro rata share
of the Aggregate Commitment (such pro rata share to reflect any adjustments to
the initial Commitments as of the Closing as a result of any assignments made
pursuant to SECTION 10.11(A));
(4) if the Termination Event occurs on or after July
1, 1999 and prior to October 1, 1999, the Additional Compensation shall be in an
amount equal to ten and one-half percent (10.5%) of such Lender's pro rata share
of the Aggregate Commitment (such pro rata share to reflect any adjustments to
the initial Commitments as of the Closing as a result of any assignments made
pursuant to SECTION 10.11(A)); or
(5) if the Termination Event occurs on or after
October 1, 1999, the Additional Compensation shall be an amount equal to
nineteen and one-half percent (19.5%) of such Lender's pro rata share of the
Aggregate Commitment (such pro rata share to reflect any adjustments to the
initial Commitments as of the Closing as a result of any assignments made
pursuant to SECTION 10.11(A)).
The Additional Compensation shall be payable in cash; provided that if the
Termination Event is anticipated to occur under CLAUSE (III), above, as the
result of a Mandatory Prepayment pursuant to SECTION 2.7(B) upon the initial
offering of equity Securities to the public under a registration statement filed
with the SEC by the Borrower, STTOC, STPII, Pioneer or STT, STOC or STP or any
other Person which is the surviving entity of a merger or consolidation
involving any one or more of the Borrower, STT, STTOC, STOC, STPII, STP or
Pioneer, each Lender entitled to receive Additional Compensation pursuant to
this SECTION 2.4(E) shall, prior to such registration statement becoming
effective, elect in its sole discretion whether or not to receive its share of
the Additional Compensation in the form of (x) cash or (y) the equity Securities
or other consideration received by the Borrower or its members pursuant to the
transaction which gave rise to such Mandatory Prepayment having a fair market
value equal to such Additional Compensation; provided that, if the initial
public offering fails to close, each Lender shall be entitled to make a new
election under this SECTION 2.4(E) with respect to a Termination Event occurring
on or after the date the initial public offering fails to close.
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SECTION 2.5 CONVERSION TO BASE RATE LOANS. All LIBOR Loans shall, to
the extent they have not been repaid, on the Maturity Date automatically and
without further notice, convert to and thereafter be maintained as Base Rate
Loans. The LIBOR Loans are also subject to conversion pursuant to SECTION 3.2.
SECTION 2.6 OPTIONAL PREPAYMENTS. Subject to SECTION 3.5, the Borrower
may, at any time or from time to time, upon at least three (3) Business Days'
notice to the Administrative Agent, prepay Loans in whole or in part, in
aggregate amounts of not less than $1,000,000. Such notice shall be irrevocable
and the Administrative Agent shall promptly notify each Lender thereof and of
such Lender's Commitment Percentage of such prepayment. If such notice is given
by the Borrower, the Borrower shall make such prepayment and the payment amount
specified in such notice shall be due and payable on the specified prepayment
date, together with accrued interest to such date on the principal amount
prepaid and any amounts required pursuant to SECTION 3.5, but otherwise without
premium or penalty.
SECTION 2.7 MANDATORY PREPAYMENTS.
(A) DISTRIBUTIONS OF NET OPERATING CASH FLOW. To the fullest
extent permitted by the Senior Loan Agreement, including Section 8.9 thereof,
the Borrower shall (i) cause STTOC, as the sole general partner of STPII, to
cause STPII, as the sole member of Pioneer, to cause Pioneer to declare and make
distributions in cash or other immediately available funds to STPII pursuant to
clause (a) of Section 7.2 of the Pioneer Operating Agreement in such amounts and
at such times as is necessary to enable the Borrower to pay, on each Interest
Payment Date, all outstanding and unpaid interest accrued on the Loans pursuant
to SECTION 2.4, (ii) shall cause, and shall cause STTOC, as the sole general
partner of STPII to cause, STPII to declare and make distributions in cash or
other immediately available funds to STTOC, to the extent of distributions
received under CLAUSE (I) above, all such distributions immediately upon receipt
thereof, and to the extent of excess Net Operating Cash Flow (as defined in the
STPII Partnership Agreement), of such Net Operating Cash Flow no less frequently
than once every Fiscal Quarter, and (iii) shall cause STTOC to declare and make
distributions in cash or other immediately available funds of, to the extent of
distributions received under CLAUSE (II) above, all such distributions
immediately upon receipt thereof, and to the extent of any excess Net Operating
Cash Flow (as defined in the STTOC Operating Agreement), of such Net Operating
Cash Flow no less frequently than once every Fiscal Quarter. To the extent such
distributed funds are not used to pay outstanding interest accrued on the Loans
pursuant to SECTION 2.4, the Borrower shall prepay the Obligations in the amount
of each such distributions on the date received by the Borrower, or within three
(3) Business Days thereafter; provided however, that notwithstanding the
foregoing, the Borrower shall be permitted to exclude from such prepayment the
excess of any amount required to pay any outstanding Obligations then payable on
the express condition that the entire amount of such excess is immediately
either (i) deposited into a deposit account or (ii) invested in a security
account, in each such case with a depository institution or a securities
intermediary, as applicable, which has entered into a Control Agreement with the
Administrative Agent, in form and substance satisfactory to the Administrative
Agent, as to such deposit account or investment account, as applicable, pursuant
to which the Administrative Agent has obtained and maintained a fully perfected
Lien in such deposit account or investment account and all cash, funds,
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investment property and other Property on deposit or invested therein, subject
to no other Liens except as permitted by such Control Agreement.
(B) NET EQUITY ISSUANCE PROCEEDS. Subject to the second
paragraph of this SECTION 2.7(B), the Borrower shall immediately prepay the
Obligations in an amount equal to one hundred percent (100.0%) (or such lesser
amount as shall be required to pay the entire outstanding amount of the
Obligations in full) of the Net Issuance Proceeds, on the date of receipt
thereof, arising from the issuance after the Closing Date by (a) the Borrower,
(b) STTOC, (c) STPII, (d) Pioneer or (e) the surviving entity of a merger or
consolidation involving any one or more of the Borrower, STT, STTOC, STOC,
STPII, STP or Pioneer, of equity Securities, whether pursuant to an initial or
follow-on offering to the public under a registration statement filed with the
SEC, a private placement or otherwise (other than such Net Issuance Proceeds as
may result from the issuance of the 3,160 shares of authorized common stock of
STT reserved for employees and members of management prior to April 27, 1998).
To the extent such Net Issuance Proceeds are initially received by a Person
other than the Borrower, the Borrower shall take and cause to be taken such
actions as may be necessary, including causing its Subsidiaries and Affiliates
to declare and make or pay appropriate distributions or dividends, as
applicable, so that such Net Issuance Proceeds are immediately delivered and
paid over to the Borrower (and the Borrower shall obtain the requisite rights
and interest therein) for purposes of enabling the Borrower to make the
Mandatory Prepayment required by this SECTION 2.7(B).
Notwithstanding anything to the contrary contained in the first paragraph of
this SECTION 2.7(B), there shall be excluded from the Mandatory Prepayment
required by this SECTION 2.7(B) the Net Issuance Proceeds from any issuance of
equity Securities to the extent such Net Issuance Proceeds are used solely (i)
to purchase or redeem the limited partnership interest of Mach One in STPII;
provided that (v) the purchase or redemption price for such limited partnership
interest shall not exceed the Class C Consideration, as defined in Exhibit E to
the STPII Partnership Agreement, as calculated as of such proposed purchase
date, (w) such purchase and the resultant transfer of the limited partnership
interest in STPII shall be permitted under the terms of the STPII Partnership
Agreement, (x) no Default or Event of Default shall have occurred and be
continuing at the time of such proposed purchase or redemption or would result
from the consummation of such purchase or redemption, (y) the purchaser of such
limited partnership interest from Mach One shall become an Additional Pledgor
hereunder and such new membership interest in STPII, whether purchased from Mach
One or from STPII in connection and concurrent with the redemption of the
limited partnership interest of Mach One, shall be duly pledged to the
Administrative Agent as additional Partner Collateral, which Lien shall be
valid, fully perfected and of first priority, and (z), taking into account the
additional pledge contemplated by clause (y), above, one hundred percent
(100.0%) of the partnership interests in STPII shall at all times be subject to
a valid, fully perfected first priority Lien in favor of the Administrative
Agent, or (ii) to fund the Acquisition by any Affiliate of the Borrower of
additional Timberlands, provided that such Acquisition is otherwise permitted
under (subject to compliance with the terms and conditions of) SECTION 7.4(B).
SECTION 2.8 CALCULATION OF INTEREST AND FEES. Interest on the Loans and
all fees payable hereunder shall be computed on the basis of a 360-day year and
the actual number of days elapsed in the period during which such interest
accrues. In computing interest on any Loan, the date of the making of such Loan
shall be included and the date of payment shall be
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excluded; provided, however, that if any Loan is repaid on the same day on which
it is made, such day shall be included in computing interest on such Loan. Each
change in the interest rate of the Base Rate Loans based on changes in the Base
Rate and each change in the interest rate of LIBOR Loans based on changes in the
Eurodollar Reserve Percentage shall be effective on the effective date of such
change and to the extent of such change. The Administrative Agent shall give the
Borrower prompt notice of any such change in the Base Rate or Eurodollar Reserve
Percentage; provided, however, that any failure by the Administrative Agent to
provide the Borrower with notice hereunder shall not affect the Lenders' right
to make changes in the interest rate of the Base Rate Loans based on changes in
the Base Rate or changes in the interest rate of LIBOR Loans based on changes in
the Eurodollar Reserve Percentage.
SECTION 2.9 PAYMENTS. All repayments or prepayments of principal and
all payments of interest, fees, costs, expenses and other sums chargeable to the
Borrower under this Agreement, the Notes or any of the other Loan Documents
shall be in lawful money of the United States of America in immediately
available funds and delivered to the Administrative Agent, on behalf and for the
benefit of the Lenders, not later than 12:00 noon, Chicago, Illinois time, on
the date due at the Administrative Agent's Payment Office.
SECTION 2.10 PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be
made under this Agreement, the Notes or any of the other Loan Documents shall be
stated to be due on a day which is not a Business Day, such payment shall be
made on the next succeeding Business Day and such extension of time shall in
such case be included in the computation of the payment of interest thereon.
SECTION 2.11 APPLICATION OF PAYMENTS. Except as otherwise expressly
provided in this Agreement or in any other Loan Document, all payments shall be
applied in the following order: (a) then due and payable fees, costs and
expenses; (b) then due and payable interest payments; and (c) then due and
payable principal payments and optional prepayments. In addition, each Lender is
authorized to, and at its sole option may, for the benefit of the Lenders and
the Administrative Agent, make advances on behalf of the Borrower for payment of
any and all fees, expenses, charges, costs, principal and interest incurred
hereunder or under the other Loan Documents. To the extent permitted by law, all
amounts advanced by any Lender hereunder or under other provisions of the Loan
Documents shall accrue interest thereon at the Base Rate.
SECTION 2.12 DISTRIBUTION OF PAYMENTS. The Administrative Agent shall
immediately distribute to each Lender, at such address as each Lender shall
designate, such Lender's interest in all repayments and prepayments of principal
and all payments of interest, loan fees, commitment fees and other fees,
expenses and costs received by the Administrative Agent on the same day and in
the same type of funds as payment was received. In the event the Administrative
Agent does not distribute such payments on the same day received, such payment
shall accrue interest at the Federal Funds Rate, which shall be payable by the
Administrative Agent. The Administrative Agent shall indemnify and hold the
Borrower harmless from any claim for overnight interest by any Lender under this
SECTION 2.12.
SECTION 2.13 THE ADMINISTRATIVE AGENT'S RIGHT TO ASSUME PAYMENTS WILL
BE MADE BY THE BORROWER. Unless the Administrative Agent shall have been
notified by the
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Borrower prior to the date on which any payment to be made by the Borrower
hereunder is due that the Borrower does not intend to remit such payment, the
Administrative Agent may, in its discretion, assume that the Borrower has
remitted such payment when so due and the Administrative Agent may, in its
discretion and in reliance upon such assumption, make available to each Lender
on such payment date an amount equal to such Lender's Commitment Percentage of
such assumed payment. If the Borrower has not in fact remitted such payment to
the Administrative Agent, each Lender shall forthwith on demand repay to the
Administrative Agent the amount of such assumed payment made available to such
Lender, together with interest thereon in respect of each date from and
including the date such amount was made available by the Administrative Agent to
such Lender to the date such amount is repaid to the Administrative Agent at the
Federal Funds Rate.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
SECTION 3.1 TAXES.
(A) Subject to SECTION 3.1(H), any and all payments by the
Borrower to the Lenders or the Administrative Agent under this Agreement shall
be made free and clear of, and without deduction or withholding for, any and all
present or future taxes, fees, duties, levies, imposts, deductions, charges or
withholdings, whatsoever imposed by any Governmental Authority, excluding, in
the case of each Lender and the Administrative Agent, such taxes as are imposed
on or measured by the net income of any Lender or the Administrative Agent by
any jurisdiction under the laws of which such Lender, or the Administrative
Agent, as the case may be, is organized or maintains a Lending Office or any
political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes").
(B) In addition, the Borrower shall pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Documents (hereinafter referred to as "Other
Taxes").
(C) Subject to SECTIONS 3.1(A) and 3.1(H), if any Taxes or
Other Taxes are directly asserted or imposed against any Lender or the
Administrative Agent, the Borrower shall indemnify and hold harmless such Lender
or the Administrative Agent, as the case may be, for the full amount of the
Taxes or Other Taxes (including any Taxes or Other Taxes asserted or imposed by
any jurisdiction on amounts payable under this SECTION 3.1) paid by the Lender
or the Administrative Agent and any liability (including penalties, interest,
additions to tax and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted or
imposed. Payment under this indemnification shall be made within thirty (30)
days from the date the Lender or the Administrative Agent makes written demand
therefor (provided that the Borrower shall have the right to contest in good
faith any such Taxes or Other Taxes through appropriate proceedings). The
Lender, or the Administrative Agent in its discretion also may, but shall not be
obligated to, pay such Taxes or Other Taxes and
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the Borrower will promptly pay such additional amounts (including any penalties,
interest or expenses, except for, in the event the Lender or the Administrative
Agent fails to deliver notice of such assertion of Taxes or Other Taxes to the
Borrower within ninety (90) days after it has received notice of such assertion
or imposition of Taxes or Other Taxes, any such penalties, interest or expenses
which would not have arisen but for the failure of the Lender or the
Administrative Agent to so notify the Borrower of such assertion or imposition
of Taxes or Other Taxes) as is necessary in order that the net amount received
by the Lender or the Administrative Agent after the payment of such Taxes or
Other Taxes (including any Taxes on such additional amount) shall equal the
amount the Lender or the Administrative Agent would have received had not such
Taxes or Other Taxes been asserted or imposed.
(D) If the Borrower shall be required by law to deduct or
withhold any Taxes or Other Taxes from or in respect of any sum payable
hereunder to any Lender or the Administrative Agent, then, subject to SECTION
3.1(H):
(I) the sum payable shall be increased as necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this SECTION 3.1) such Lender or the
Administrative Agent, as the case may be, receives an amount equal to the sum it
would have received had no such deduction or withholding been made;
(II) the Borrower shall make such deduction or
withholding; and
(III) the Borrower shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with applicable
law.
(E) Within thirty (30) days after the date of any payment by
the Borrower of Taxes or Other Taxes, the Borrower, upon the Administrative
Agent's request, shall furnish to the Administrative Agent the original or a
certified copy of a receipt evidencing payment thereof, or other evidence of
payment satisfactory to the Administrative Agent.
(F) If the Borrower fails to pay any Taxes or Other Taxes when
due to the appropriate taxing authority or fails to furnish to the
Administrative Agent the required receipts or other required documentary
evidence, the Borrower shall indemnify the Lenders and the Administrative Agent
for any incremental Taxes or Other Taxes, interest or penalties that may become
payable by any of the Lenders and the Administrative Agent as a result of any
such failure.
(G) Each Lender which is a foreign person (i.e., a person
other than a United States person for United States federal income tax purposes)
agrees that:
(I) in the case of any Lender which is a "bank" within
the meaning of Section 881(c)(3)(A) of the Code,
(A) it shall, no later than the Closing Date (or, in
the case of a Lender which becomes a party hereto pursuant to SECTION 10.11
after the Closing Date, the date upon which the Lender becomes a party hereto)
deliver to the Borrower through the Administrative Agent two (2) accurate and
complete signed originals of IRS Form 4224 or any
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successor thereto ("Form 4224"), or two accurate and complete signed originals
of IRS Form 1001 or any successor thereto ("Form 1001"), as appropriate, in each
case indicating that the Lender is on the date of delivery thereof entitled to
receive payments of principal, interest and fees under this Agreement free from
withholding of United States federal income tax;
(B) if at any time the Administrative Agent or such
Lender makes any changes necessitating a new Form 4224 or Form 1001, it shall
within thirty (30) days after such change becomes effective deliver to the
Borrower through the Administrative Agent in replacement for, or in addition to,
the forms previously delivered by it hereunder, two accurate and complete signed
originals of Form 4224, or two accurate and complete signed originals of Form
1001, as appropriate, in each case indicating that the Lender is on the date of
delivery thereof entitled to receive payments of principal, interest and fees
under this Agreement free from withholding of United States federal income tax;
(II) in the case of any Lender other than a Lender
described in clause (i) above,
(A) it shall, no later than the Closing Date (or, in
the case of a Lender which becomes a party hereto pursuant to SECTION 10.11
after the Closing Date, the date upon which the Lender becomes a party hereto)
deliver to the Borrower through the Administrative Agent two (2) accurate and
complete signed originals of a certificate substantially in the form of EXHIBIT
E hereto (any such certificate, a "Non-Bank Lender Tax Certificate") and two
accurate and complete signed originals of IRS Form W-8 or any successor thereto
("Form W-8") certifying to such Lender's legal entitlement (assuming compliance
by the Borrower with the terms of this Agreement) to an exemption whereby the
Lender is on the date of delivery thereof entitled to receive payments of
principal, interest and fees under this Agreement free from withholding of
United States Federal income tax;
(B) if at any time the Administrative Agent or such
Lender makes any changes necessitating a new Form W-8, it shall within thirty
(30) days after such change becomes effective deliver to the Borrower through
the Administrative Agent in replacement for, or in addition to, the forms
previously delivered by it hereunder, two accurate and complete signed originals
of Form W-8 certifying to such Lender's legal entitlement (assuming compliance
by the Borrower with the terms of this Agreement) to an exemption whereby the
Lender is on the date of delivery thereof entitled to receive payments of
principal, interest and fees under this Agreement free from withholding of
United States federal income tax;
(III) it shall, before or within thirty (30) days after
the occurrence of any event (including the passing of time but excluding any
event mentioned in (i) or (ii), above) requiring a change in or renewal of the
most recent Form 4224, Form 1001 or Form W-8 previously delivered by such
Lender, deliver to the Borrower through the Administrative Agent two accurate
and complete original signed copies of Form 4224, Form 1001 or Form W-8 in
replacement for the forms previously delivered by the Lender; and
(IV) it shall, promptly upon the Lender's or the
Administrative Agent's reasonable request to that effect, deliver to the Lender
or the Administrative Agent (as the case
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may be) such other forms or similar documentation as may be required from time
to time by any applicable law, treaty, rule or regulation in order to establish
such Lender's tax status for withholding purposes.
(H) The Borrower will not be required to pay any additional
amounts in respect of United States federal income tax pursuant to SECTION
3.1(D) to the Administrative Agent or any Lender for the account of any Lending
Office of such Lender:
(I) if the obligation to pay such additional
amounts would not have arisen but for a failure by such Lender to comply with
its obligations under SECTION 3.1(G) in respect of such Lending Office; or
(II) if such Lender shall have delivered to the
Borrower a Form 4224, Form 1001 or Form W-8 in respect of such Lending Office
pursuant to SECTION 3.1(G), and such Lender shall not at any time be entitled to
exemption from deduction or withholding of United States federal income tax in
respect of payments by the Borrower hereunder for the account of such Lending
Office for any reason other than a change in United States law or regulations or
in the official interpretation of such law or regulations by any Governmental
Authority charged with the interpretation or administration thereof (whether or
not having the force of law) after the date of delivery of such form.
(I) If, at any time, the Borrower requests any Lender to deliver any
forms or other documentation in addition to those required pursuant to SECTION
3.1(G)(IV), then the Borrower shall, on demand of such Lender through the
Administrative Agent, reimburse such Lender for any costs and expenses
(including reasonable Attorney Costs) reasonably incurred by such Lender in the
preparation or delivery of such forms or other documentation.
(J) If the Borrower is required to pay additional amounts to any Lender
or the Administrative Agent pursuant to SECTION 3.1(D), then such Lender shall
use its reasonable best efforts (consistent with legal and regulatory
restrictions) to change the jurisdiction of its Lending Office so as to
eliminate any such additional payment by the Lender which may thereafter accrue
if such change in the judgment of such Lender is not otherwise disadvantageous
to such Lender.
SECTION 3.2 ILLEGALITY.
(A) If any Lender shall determine that the introduction of any
Requirement of Law, or any change in any Requirement of Law or in the
interpretation or administration thereof, has made it unlawful, or that any
central bank or other Governmental Authority has asserted that it is unlawful,
for any Lender or its Lending Office to make or maintain LIBOR Loans, then, on
notice thereof by the Lender to the Borrower through the Administrative Agent,
the Borrower shall immediately prepay in full all LIBOR Loans of that Lender
then outstanding, together with interest accrued thereon, together with any
amounts required to be paid in connection therewith pursuant to SECTION 3.5.
(B) If the Lender is required to prepay any LIBOR Loan
immediately as provided in SECTION 3.2(A), then concurrently with such
prepayment, the Borrower shall borrow from the affected Lender, in the amount of
such repayment, a Base Rate Loan.
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(C) Before giving any notice to the Administrative Agent
pursuant to this SECTION 3.2, the affected Lender shall designate a different
Lending Office with respect to its LIBOR Loans if such designation will avoid
the need for giving such notice or making such demand and will not, in the
judgment of the Lender, be illegal or otherwise disadvantageous to the Lender.
SECTION 3.3 INCREASED COSTS. If any Lender shall determine that, due to
either (a) the introduction of or any change (other than any change by way of
imposition of or increase in the Eurodollar Reserve Percentage included in the
calculation of the LIBOR) in or in the interpretation of any Requirement of Law
or (b) the compliance with any guideline or request from any central bank or
other Governmental Authority (whether or not having the force of law), there
shall be any increase in the cost to such Lender of agreeing to make or making,
funding or maintaining any LIBOR Loans, then the Borrower shall be liable for,
and shall from time to time, upon demand therefor by such Lender, pay to such
Lender such additional amounts as are sufficient to compensate such Lender for
such increased costs.
SECTION 3.4 INABILITY TO DETERMINE RATES. If the Administrative Agent
shall have determined that for any reason adequate and reasonable means do not
exist for ascertaining the LIBOR for the Interest Period with respect to a
proposed LIBOR Loan, the Administrative Agent will forthwith give notice of such
determination to the Borrower and each Lender. Thereafter, the obligation of the
Lenders to make LIBOR Loans hereunder shall be suspended until the
Administrative Agent, upon the instruction of the Required Lenders, revokes such
notice in writing. Upon receipt of such notice, the Lenders shall make the
Loans, as proposed by the Borrower as Base Rate Loans instead of LIBOR Loans.
SECTION 3.5 PREPAYMENT OF LIBOR LOANS OR FIXED RATE LOANS. In the event
that the Borrower prepays or is required to prepay any LIBOR Loan or Fixed Rate
Loan by acceleration or otherwise, the Borrower agrees to reimburse each Lender
for its expenses and funding losses due to such prepayment or failure to draw.
The Borrower and the Lenders hereby agree that such expenses and funding losses
shall be calculated as follows:
(A) principal amount of such LIBOR Loan or Fixed Rate times
(number of days between the date of prepayment and the last day in the Interest
Period divided by 360), times the applicable Interest Differential; plus
(B) all actual out-of-pocket expenses (other than those taken
into account in the calculation of the Interest Differential) incurred by the
Lenders and the Administrative Agent (excluding allocations of any expense
internal to the Lenders and the Administrative Agent) and reasonably
attributable to such payment or prepayment; provided that no prepayment fee
shall be payable (and no credit or rebate shall be required) if the product of
the foregoing formula is not a positive number.
SECTION 3.6 CAPITAL REQUIREMENTS. If any Lender shall determine that
any change after the date of this Agreement in any law, rule, regulation or
guideline adopted pursuant to or arising out of the July 1988 report of the
Basle Committee on Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards," or the
adoption after the date hereof of any other Requirement of Law regarding
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capital adequacy, or any change after the date of this Agreement in any of the
foregoing or in the enforcement or interpretation or administration of any of
the foregoing by any Governmental Authority charged with the enforcement or
interpretation or administration thereof, or compliance by any Lender (or any
Lending Office of the Lender) or the Lender's holding company with any request
or directive regarding capital adequacy (whether or not having the force of law)
of any such Governmental Authority, has the effect of reducing the rate of
return on the Lender's capital or on the capital of the Lender's holding
company, if any, as a consequence of the maintaining of any of its Commitments
or the making or maintaining any Loan under this Agreement to a level below that
which the Lender or the Lender's holding company could have achieved but for
such adoption, change or compliance (taking into consideration the Lender's
policies and the policies of the Lender's holding company with respect to
capital adequacy) by an amount deemed by the Lender to be material, then, upon
written demand by the Lender, the Borrower shall pay to the Lender, from time to
time such additional amount or amounts as will compensate the Lender or the
Lender's holding company for any such reduction suffered. Without affecting its
rights under this SECTION 3.6 or any other provision of this Agreement, the
Lender agrees that if there is any increase in any cost to or reduction in any
amount receivable by the Lender with respect to which the Borrower would be
obligated to compensate the Lender pursuant to this SECTION 3.6, the Lender
shall use reasonable efforts to select an alternative Lending Office which would
not result in any such increase in any cost to or reduction in any amount
receivable by the Lender; provided, however, that the Lender shall not be
obligated to select an alternative Lending Office if the Lender determines that
(a) as a result of such selection the Lender would be in violation of any
Requirement of Law, or would incur additional costs or expenses, or (b) such
selection would be inadvisable for regulatory reasons.
SECTION 3.7 CERTIFICATES OF LENDERS. Any Lender claiming reimbursement
or compensation pursuant to this ARTICLE III shall deliver to the Borrower (with
a copy to the Administrative Agent) a certificate setting forth in reasonable
detail the amount payable and the basis therefor to the Lender hereunder. Such
certificate shall be conclusive and binding on the Borrower in the absence of
manifest error.
SECTION 3.8 SUBSTITUTION OF LENDERS. Upon the receipt by the Borrower
from any Lender (an "Affected Lender") of a claim for compensation pursuant to
SECTIONS 3.1, 3.3 or 3.6, the Borrower may: (a) request the Affected Lender to
use its best efforts to obtain a replacement bank or financial institution
satisfactory to the Borrower to acquire and assume all or part of such Affected
Lender's Loans and Commitments (a "Replacement Lender"), (b) request one more of
the other Lenders to acquire and assume all or part of such Affected Lender's
Loans and Commitments or (c) designate a Replacement Lender. Any such
designation of a Replacement Lender under clause (a) or (c) shall be subject to
the prior written consent of the Administrative Agent (which consent shall not
be unreasonably withheld or delayed).
SECTION 3.9 SURVIVAL. The agreements and obligations of the Borrower
in this ARTICLE III shall survive the payment of all other Obligations.
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ARTICLE IV
CONDITIONS PRECEDENT TO CLOSING AND THE MAKING OF LOANS
SECTION 4.1 CONDITIONS PRECEDENT TO THE CLOSING. The Closing shall
occur upon the prior satisfaction of each of the conditions precedent set forth
in this SECTION 4.1, as determined by the Lenders and the Administrative Agent
(all Loan Documents and other documents to be delivered to the Administrative
Agent or any Lender pursuant to this SECTION 4.1 shall be subject to prior
approval as to form and substance (including as to results) by the Lenders and
the Administrative Agent).
(A) CORPORATE DOCUMENTS. The Administrative Agent shall have
received originals of each of the following:
(I) CERTIFICATE OF THE SECRETARY (THE BORROWER).
Certificate executed by the secretary or assistant secretary of the Borrower,
dated the Closing Date, certifying (A) that the Borrower has the authority to
execute, deliver and perform its obligations under each of the Loan Documents to
which it is a party, (B) that attached behind EXHIBIT A to such certificate is a
true, correct and complete copy of (1) the Borrower Operating Agreement then in
full force and effect, (2) the certificate of formation of the Borrower
certified by the Secretary of State of the State of Georgia as of a date not
more than ten (10) Business Days prior to the Closing Date and (3) any other
organizational documents of the Borrower then in full force and effect, (C) that
attached behind EXHIBIT B to such certificate is a true, correct and complete
copy of the resolutions adopted by the managers of the Borrower then in full
force and effect authorizing the execution, delivery and performance by the
Borrower of each of the Loan Documents to which it is a party, (D) that attached
behind EXHIBIT C to such certificate is a certificate of the Secretary of State
of the State of Georgia and of the state in which is located Borrower's chief
executive office, in each case dated as of a date not more than ten (10)
Business Days prior to the Closing Date, stating that Borrower is in good
standing in such states, (E) the name(s) of the officers of the Borrower
authorized to execute the Loan Documents on behalf of Borrower, together with a
sample of the true signatures of such officers and (F) that the Lenders and the
Administrative Agent may conclusively rely on such certificate unless and until
the Borrower shall have delivered to the Administrative Agent a further
certificate canceling or amending such prior certificate.
(II) CERTIFICATE OF THE SECRETARY (STPII).
Certificate executed by the secretary or assistant secretary of STPII, or of
STTOC, as STPII's sole general partner, on behalf of STPII, dated the Closing
Date, certifying (A) that STPII has the authority to execute, deliver and
perform its obligations under each of the Loan Documents and Acquisition
Documents to which it is a party, (B) that attached behind EXHIBIT A to such
certificate is a true, correct and complete copy of (1) the STPII Partnership
Agreement then in full force and effect, (2) the certificate of limited
partnership of STPII certified by the Secretary of State of the State of Georgia
as of a date not more than ten (10) Business Days prior to the Closing Date and
(3) the LP Contribution Agreement and any other organizational documents of
STPII then in full force and effect, (C) that attached behind EXHIBIT B to such
certificate is a true, correct and complete copy of the resolutions adopted by
each of the general and limited partners of STPII then in full force and effect
authorizing the execution, delivery and performance by STPII of
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each of the Loan Documents and Acquisition Documents to which it is a party and
authorizing the execution, delivery and performance by STPII, in its capacity as
the manager of Pioneer, of each of the Loan Documents and Acquisition Documents
to which Pioneer is a party, (D) that attached behind EXHIBIT C to such
certificate is a certificate of the Secretary of State of the State of Georgia
and the state in which is located STPII's chief executive office, in each case
dated as of a date not more than ten (10) Business Days prior to the Closing
Date, stating that STPII is in good standing in such states, (E) the name(s) of
the officer(s) of STPII authorized to execute Loan Documents and Acquisition
Documents on behalf of STPII, together with a sample of the true signatures of
such officer(s), and (F) that the Lenders and the Administrative Agent may
conclusively rely on such certificate unless and until STPII shall have
delivered to the Administrative Agent a further certificate canceling or
amending such prior certificate.
(III) CERTIFICATE OF THE SECRETARY (PIONEER).
Certificate executed by the secretary or assistant secretary of Pioneer, or of
STTOC, as STPII's sole general partner, on behalf of STPII, as Pioneer's
manager, dated the Closing Date, certifying (A) that Pioneer has the authority
to execute, deliver and perform its obligations under each of the Loan Documents
to which it is a party, (B) that attached behind EXHIBIT A to such certificate
is a true, correct and complete copy of (1) the Pioneer Operating Agreement then
in full force and effect, (2) the certificate of formation of Pioneer certified
by the Secretary of State of the State of Oregon as of a date not more than
thirty (30) Business Days prior to the Closing Date and (3) any other
organizational documents of Pioneer then in full force and effect, (C) that
attached behind EXHIBIT B to such certificate is a true, correct and complete
copy of the resolutions adopted by STPII, in its capacity as manager of Pioneer,
then in full force and effect authorizing the execution, delivery and
performance by Pioneer of each of the Loan Documents and Acquisition Documents
to which it is a party, (D) that attached behind EXHIBIT C to such certificate
is a certificate of the Secretary of State of the States of California, Oregon
and Washington, in each case dated as of a date not more than ten (10) Business
Days prior to the Closing Date, stating that Pioneer is in good standing in such
states, (E) the name(s) of the officer(s) of Pioneer authorized to execute Loan
Documents on behalf of Pioneer, together with a sample of the true signatures of
such officer(s), and (F) that the Lenders and the Administrative Agent may
conclusively rely on such certificate unless and until Pioneer shall have
delivered to the Administrative Agent a further certificate canceling or
amending such prior certificate.
(IV) SEPARATE CERTIFICATES OF THE SECRETARY (KING, MACH
ONE AND OLD PIONEER). Separate certificates executed by the secretary or
assistant secretary of each of King, Mach One and Old Pioneer, dated the Closing
Date, certifying (A) that such Person has the authority to execute, deliver and
perform its obligations under each of the Loan Documents and the Acquisition
Documents to which it is a party, (B) that attached behind EXHIBIT A to such
certificate is a true, correct and complete copy of (1) such Person's operating
agreement or bylaws, as applicable, then in full force and effect, (2) the
certificate of formation or incorporation, as applicable, certified by the
secretary of state of such Person's state of organization as of a date not more
than thirty (30) Business Days prior to the Closing Date and (3) any other
organizational documents of such Person then in full force and effect, (C) that
attached behind EXHIBIT B to such certificate is a true, correct and complete
copy of the resolutions adopted by the such Person then in full force and effect
authorizing the execution, delivery and performance by such Persons of each of
the Loan Documents and Acquisition Documents to which it is a party, (D) the
name(s) of the officer(s) of such Person authorized to
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execute Loan Documents and Acquisition Documents on behalf of such Person,
together with a sample of the true signatures of such officer(s), and (E) that
the Lenders and the Administrative Agent may conclusively rely on such
certificate unless and until such Person shall have delivered to the
Administrative Agent a further certificate canceling or amending such prior
certificate.
(V) CERTIFICATE OF THE SECRETARY (STTOC). Certificate
executed by the secretary or assistant secretary of STTOC, dated the Closing
Date, certifying (A) STTOC has the authority to execute, deliver and perform its
obligations under each of the Loan Documents to which it is a party, (B) that
attached behind EXHIBIT A to such certificate is a true, correct and complete
copy of (1) the STTOC Operating Agreement in full force and effect, (2) the
certificate of formation of STTOC certified by the Secretary of State of the
State of Georgia as of a date not more than ten (10) Business Days prior to the
Closing Date and (3) any other organizational documents of STTOC then in full
force and effect, (C) that attached behind EXHIBIT B to such certificate is a
true, correct and complete copy of the resolutions adopted by the managers of
STTOC then in full force and effect authorizing the execution, delivery and
performance by STTOC (in its individual capacity) of each of the Loan Documents
to which it is a party, authorizing the execution, delivery and performance by
STTOC (in its capacity as general partner of STPII (in STPII's individual
capacity)) of each of the Loan Documents and Acquisition Documents to which
STPII is a party, and authorizing the execution, delivery and performance by
STTOC (in its capacity as general partner of STPII (in STPII's capacity as the
sole member of Pioneer)), (D) that attached behind EXHIBIT C to such certificate
is a certificate of the Secretary of State of the State of Georgia and the state
in which is located STTOC's chief executive office, in each case dated as of a
date not more than ten (10) Business Days prior to the Closing Date, stating
that STTOC is in good standing in such states, (E) the name(s) of the officer(s)
of STTOC authorized to execute Loan Documents and Acquisition Documents on
behalf of STTOC (in its individual capacity or in its capacity as general
partner of STPII (in STPII's individual capacity or in STPII's capacity as
manager of Pioneer), as the case may be), together with a sample of the true
signatures of such officer(s), and (F) that the Lenders and the Administrative
Agent may conclusively rely on such certificate unless and until STTOC shall
have delivered to the Administrative Agent a further certificate canceling or
amending such prior certificate.
(B) LOAN DOCUMENTS. The Administrative Agent shall have received
originals of each of the following Loan Documents:
(I) THIS AGREEMENT. This Agreement, duly executed by the
Borrower, each of the Lenders and the Administrative Agent, together with all
completed SCHEDULES to this Agreement.
(II) NOTES. Separate Notes, duly executed by the Borrower to each
of the Lenders in the stated principal amount of such Lender's Commitment.
(III) DESIGNATIONS OF RESPONSIBLE PERSONS. Separate Designations of
Responsible Persons, duly executed by an authorized officer of the Borrower.
(IV) COLLATERAL DOCUMENTS. The Administrative Agent shall have
received originals of each of the following Collateral Documents:
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(A) SECURITY AGREEMENT. The Security Agreement, duly executed
by the Borrower and the Administrative Agent, together with all completed
schedules to the Security Agreement.
(B) PLEDGE AGREEMENT. The Pledge Agreement, duly executed by
the Borrower and the Administrative Agent, together with all completed schedules
and exhibits to the Pledge Agreement, including the notice of pledge agreement,
the acknowledgement and the initial transaction statement, and the original
certificate(s) of limited partnership interest evidencing all of the Borrower's
membership interest in STTOC, together with a membership interest power executed
in blank for each certificate.
(C) STPII PLEDGE AGREEMENT. The STPII Pledge Agreement, duly
executed by STPII and the Administrative Agent, together with all completed
schedules and exhibits to the STPII Pledge Agreement, including the notice of
pledge agreement, the acknowledgment and the initial transaction statement, and
the original certificate(s) of membership interest evidencing all of STPII's
membership interest in Pioneer, together with a membership interest power
executed in blank for each certificate.
(D) STTOC PLEDGE AGREEMENT. The STTOC Pledge Agreement, duly
executed by STTOC and the Administrative Agent, together with all completed
schedules and exhibits to the STTOC Pledge Agreement, including the notice of
pledge agreement, the acknowledgment and the initial transaction statement, and
the original certificate(s) of general and limited partnership interest
evidencing all of STTOC's general and limited partnership interests in STPII,
together with a general and limited partnership interest powers (as applicable)
executed in blank for each certificate.
(E) DEMERS GROUP PLEDGE AGREEMENT. The Demers Group Pledge
Agreement, duly executed by each Person comprising the Demers Group and the
Administrative Agent, together with all completed schedules and exhibits to the
Demers Group Pledge Agreement, including the notices of pledge agreement, the
acknowledgments and the initial transaction statements, and the original
certificates of limited partnership interest evidencing all of Demers Group's
limited partnership interests in STPII, together with limited partnership
interest powers executed in blank for each certificate.
(F) MACH ONE PLEDGE AGREEMENT. The Mach One Pledge Agreement,
duly executed by Mach One and the Administrative Agent together with all
completed schedules and exhibits to the Mach One Guaranty and Pledge Agreement,
including the notice of pledge agreement, the acknowledgment, and the initial
transaction statement, and the original certificate(s) of limited partnership
interest evidencing all of Mach One's limited partnership interest in STPII,
together with a limited partnership interest power executed in blank for each
certificate.
(G) FINANCING STATEMENTS. The Financing Statements, naming and
duly executed by the Borrower, STPII, STTOC, Mach One and each Person comprising
the Demers Group, as the case may be, as debtor, and the Administrative Agent,
as secured party, including a description of the personal property Collateral
granted or pledged by the Borrower, STPII, STTOC, Mach One and each Person
comprising the Demers Group, as the case may be,
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to the Administrative Agent as security for the Obligations and its respective
obligations under the Loan Documents to which it is a party, which Financing
Statements shall concurrent with the Closing be caused to be filed with the
Governmental Authorities indicated on SCHEDULE 4.
(V) PIONEER GUARANTY. The Pioneer Guaranty, duly executed by
Pioneer.
(C) OPINIONS. The Administrative Agent shall have received each of
the following originally executed opinions:
(I) the favorable written legal opinion of Sutherland, Asbill
& Brennan LLP, special counsel to the Borrower, STPII, STTOC, Pioneer and Mach
One, addressed to the Lenders and the Administrative Agent; and
(II) the favorable written legal opinion of Schwabe,
Williamson & Wyatt P.C., special counsel to the Demers Group, addressed to the
Lenders and the Administrative Agent.
(D) ACQUISITION DOCUMENTS. The Administrative Agent shall have
received copies, certified by the Borrower, of all of the duly and fully
executed Acquisition Documents, including (i) the Acquisition Agreement,
complete with all final schedules, exhibits, attachments and amendments thereto,
(ii) all bills of sale, assignments and assignments and assumptions and other
transfer documents evidencing or relating to the conveyance of title and
interest in the Excluded Assets from Pioneer to Frontier and the assumption by
Frontier of the Excluded Liabilities, (iii) all assignments and other transfer
documents evidencing or relating to the conveyance of title and interest in one
hundred percent (100.0%) of the record and beneficial membership interests in
Pioneer from the Demers Group to STPII and (iv) all other documents relating to
or affecting the Spin Out and the Pioneer Acquisition, including all bring-downs
and all amendments and modifications to any of the foregoing.
(E) GOVERNMENTAL CONSENTS. The Administrative Agent shall have
received written confirmation that all consents, approvals, orders and
authorizations, and all registrations, declarations and filings with, and
expirations or early terminations of waiting periods (including the
Hart-Scott-Rodino anti-merger notice waiting period, if applicable) imposed by,
any Governmental Authority necessary for the consummation of the Spin Out and
the Pioneer Acquisition have been obtained.
(F) OTHER THIRD PARTY CONSENTS. The Administrative Agent shall
have received written confirmation that all consents, approvals and
authorizations from third Persons required under any material agreement,
contract or other document necessary for the consummation of the Spin Out and
the Pioneer Acquisition and the funding of the Loans contemplated by the
Acquisition Documents or the Loan Documents (including the grant in the Loan
Documents of any Lien in favor of the Administrative Agent or any Lender) have
been obtained.
(G) CONSUMMATION OF THE SPIN OUT AND THE PIONEER ACQUISITION. All
conditions precedent to the closing and consummation of the Spin Out and the
Pioneer
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Acquisition, including all actions to have been taken prior to the closing set
forth in the Acquisition Documents (other than the payment of the purchase
price) shall have been fulfilled, and there shall not have been any modification
of a material term or waiver of a material condition precedent without the prior
consent of Requisite Lenders.
(H) OPENING TIMBER APPRAISAL. The Administrative Agent shall have
received (i) the Opening Timber Appraisal, which shall be acceptable to Required
Lenders in their sole and absolute discretion, and (ii) a report, certified by
the chief financial officer of Pioneer as being true and correct, stating the
harvest of Timber from the Pioneer Timberlands from the effective date of the
Opening Timber Appraisal though both (x) September 30, 1998 and (y) the Closing
Date, specifying the volume of Merchantable Timber harvested during the period
by species, parcel and acreage. The Opening Timber Appraisal, as so adjusted by
harvest through September 30, 1998 (with the applicable value of such harvest
being derived from the average price per block determined by MBG in the Opening
Timber Appraisal), shall demonstrate a minimum initial "Merchantable Timber
Value" of at least $410,000,000 and "Total Appraised Value" of at least
$470,000,000.
(I) OPENING PRO FORMA BALANCE SHEET. The Administrative Agent
shall have received (i) an opening pro forma balance sheet of Pioneer, prepared
by Pioneer, consistent with an internal memorandum of Arthur Andersen LLP or
other national recognized independent accounting firm reasonably acceptable to
Required Lenders regarding the accounting for the proposed Pioneer Acquisition,
including the capitalization structure and the results stated in the opening pro
forma balance sheet, (ii) an opening pro forma balance sheet of STPII, prepared
by STPII, (iii) an opening pro forma balance sheet of STTOC, prepared by STTOC,
and (iv) an opening pro forma balance sheet of the Borrower, prepared by the
Borrower.
(J) INITIAL EQUITY INVESTMENT. The Administrative Agent shall have
received written confirmation that STPII has received the Initial Equity
Investment.
(K) FINANCIAL STATEMENTS. The Administrative Agent shall have
received a certificate of an authorized officer of the Borrower having
responsibility for financial matters, including the preparation of financial
statements, attaching copies of the pro-forma consolidated statements of income
and cash flows for ten (10) years of projected operations for Pioneer, assuming
the consummation of the Spin Out and the Pioneer Acquisition.
(L) SENIOR LOAN DOCUMENTS. The Administrative Agent shall have
received copies of all of the duly and fully executed Senior Loan Documents,
which documents shall (i) evidence the agreement of the Senior Lenders to make
available to Pioneer the Senior Credit Facilities in an aggregate committed
amount not to exceed $270,000,000 and which shall replace in its entirety the
Existing Pioneer Credit Facility, (ii) permit Pioneer to make distributions to
STPII in order for STPII to make distributions in order to enable the Borrower
to make timely payments of interest on the Loans hereunder and prepayments as
contemplated by SECTION 2.7(B) and (iii) permit consummation of the Spin Out and
the Pioneer Acquisition. The conditions precedent to Closing (as defined in the
Senior Loan Agreement) set forth in SECTION 7 of the Senior Loan Agreement shall
have been satisfied or duly waived by the Senior Lenders and (x) no more than
the Opening Debt Amount shall be outstanding under the Existing Pioneer Credit
Facility and (y) there shall be no more than $2,000,000 in aggregate costs
associated with the
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mark-to-market exposure in unwinding the Rate Contracts maintained by Bank of
Montreal and ABN AMRO, as counterparties, in respect of the Existing Pioneer
Credit Facility; provided that to the extent (1) such mark-to-market exposure
exceeds $2,000,000 as at Closing, the Opening Debt Amount will be reduced
dollar-for-dollar by the amount of such excess, and (2) the value of the
Merchantable Timber on the Pioneer Timberlands (with the applicable value of all
harvests since the date of the Opening Timber Appraisal being derived from the
average block price determined by MBG in the Opening Timber Appraisal) is less
than $410,000,000 as at the Closing, the Opening Debt Amount will be further
reduced dollar-for-dollar by such difference.
(M) HARVEST PLAN. The Administrative Agent shall have received the
Harvest Plan (including the ten (10) year harvest plan of Pioneer with respect
to Coastal Forestlands, Ltd. under "Option A"), which Harvest Plan shall have
been reviewed and approved by the Administrative Agent.
(N) CONFIRMATION REGARDING OPERATING PROJECTIONS. The
Administrative Agent shall have received the Consultant's Report confirming as
reasonable the assumptions used by Pioneer and incorporated into the operating
projections prepared by Pioneer (including the operating projections prepared by
Pioneer with respect to Coastal Forestlands, Ltd.), and (ii) verifying the
feasibility of such operating projections, which Consultant's Report shall have
been reviewed and approved by the Lenders.
(O) ENVIRONMENTAL REVIEW. The Administrative Agent shall have
received site assessments, environmental surveys or audits and other documents
or information as to environmental matters as the Administrative Agent shall
reasonably require.
(P) MANAGEMENT PLAN. The Administrative Agent shall have received
a copy of Pioneer's management plan with respect to the harvesting and
management of the Pioneer Timberlands, which plan shall be in form and substance
satisfactory to the Lenders.
(Q) NO MATERIAL ADVERSE CHANGE. There shall have occurred no
Material Adverse Change in the Pioneer Timberlands or in the prospects for the
Business since the date of the Opening Timber Appraisal.
(R) NO LITIGATION. There shall not have been instituted or overtly
threatened any litigation or proceeding in or before any Governmental Authority
to which the Borrower is, or is threatened with becoming, a party and which, in
the Administrative Agent's sole discretion, after consultation with counsel, is
determined to pose a risk of resulting in a Material Adverse Change.
(S) THE BORROWER'S BRING-DOWN CERTIFICATE. The Administrative
Agent shall have received a certificate dated the Closing Date, executed by the
president or a vice president of the Borrower, on behalf of the Borrower,
certifying that:
(I) no Default or Event of Default has occurred and is
continuing; and
(II) the representations and warranties of the Borrower
contained in ARTICLE V of this Agreement are true, accurate and complete in all
material respects (except for such representations and warranties made as of a
specified date which shall be true as of such
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date), taking into account the consummation of the Spin Out and the Pioneer
Acquisition, as of the Closing Date.
(T) FEE LETTER. ABN AMRO, NationsBank, N.A. and First Union
Investors, Inc. shall have received the Fee Letter, duly executed by the
Borrower, together with the payment of such fees as are set forth in the Fee
Letter to be paid at Closing (the payment of which shall be deemed a concurrent
condition).
(U) FUNDS TRANSFER MEMORANDUM. The Administrative Agent shall have
received a funds transfer memorandum among the Borrower, Pioneer, STPII, STTOC,
the Demers Group, Mach One, the Senior Administrative Agent and the
Administrative Agent as to the sources and uses of funds to be funded and
disbursed as of the Closing Date in connection with the Closing.
(V) FEES AND COSTS. The Administrative Agent shall have received
an amount equal to the aggregate of the Administrative Agent's good faith
estimate of all Attorney Costs and other disbursements incurred by ABN AMRO
(including in its capacity as the Administrative Agent), NationsBank, N.A., and
First Union Investors, Inc. in connection with the Closing of the transactions
contemplated hereunder, including the negotiation and preparation of this
Agreement and each of the other Loan Documents (the payment of which shall be
deemed a concurrent condition), which payment shall be subject to post-Closing
adjustment following receipt by the Administrative Agent of all final invoices.
(W) OTHER DOCUMENTS. The Administrative Agent or the Lenders shall
have received such other documents and information from the Borrower as the
Lenders may reasonably request.
ARTICLE V
THE BORROWER'S REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants to each Lender and the
Administrative Agent as follows, and agrees that each of said warranties and
representations shall be deemed to continue so long as any of the Commitments
shall be available hereunder or any Loan or other payment Obligation shall
remain unpaid or unsatisfied.
SECTION 5.1 ORGANIZATION, POWER AND AUTHORITY OF THE BORROWER. The
Borrower is duly formed and validly existing under the laws of the State of
Georgia, is duly qualified to do business and is in good standing in each
jurisdiction where the nature of its business requires such qualification and
where the failure to so qualify would be materially adverse to the Borrower or
its Property, including each state listed in ITEM 5.1 to the DISCLOSURE
SCHEDULE, and has full power and authority and holds all material requisite
governmental licenses, permits and other approvals and entitlements to enter
into and perform its respective obligations under this Agreement, the Notes and
each of the other Loan Documents to which it is a party, and to own and hold
under lease its Property and to conduct its business substantially as currently
conducted by it and such business as contemplated to be conducted by it upon and
following the
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consummation of the transactions contemplated by the Acquisition Documents and
the Loan Documents.
SECTION 5.2 ORGANIZATION, POWER AND AUTHORITY OF THE BORROWER'S
SUBSIDIARIES AND CERTAIN AFFILIATES. The Borrower has no Subsidiaries other than
STTOC. Each of STTOC, STPII and Pioneer is duly organized or incorporated, as
applicable, and validly existing under the laws of the jurisdiction of its
incorporation or formation, is duly qualified to do business and is in good
standing in each jurisdiction where the nature of its business requires such
qualification and where the failure to so qualify would be materially adverse to
STTOC, STPII or Pioneer or its respective Property, including each state listed
in ITEM 5.2 to the DISCLOSURE SCHEDULE, and has full power and authority and
holds all requisite governmental licenses, permits and other approvals and
entitlements to enter into and perform its obligations under each of the Loan
Documents and Acquisition Documents to which it is a party, and to own and hold
under lease its Properties and to conduct its business substantially as
currently conducted by it and such business as contemplated to be conducted by
it.
SECTION 5.3 LOAN DOCUMENTS AUTHORIZED; BINDING OBLIGATIONS. The
execution, delivery and performance of this Agreement and each of the other Loan
Documents, in each case to which it is a party, have been duly authorized by all
necessary and proper action on the part of the Borrower. The execution, delivery
and payment of the Notes have been duly authorized by all necessary and proper
action on the part of the Borrower. The Loan Documents to which the Borrower is
a party constitute legally valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms,
except as enforcement thereof may be limited by bankruptcy, insolvency or other
laws affecting the enforcement of creditors' rights generally and by general
principles of equity, including concepts of materiality, reasonableness, good
faith and fair dealing (regardless whether considered in a proceeding at law or
in equity and the availability of the remedy of specific performance).
SECTION 5.4 NO CONFLICT. The execution, delivery and performance of
this Agreement and each of the other Loan Documents, in each case to which the
Borrower is a party, and the execution, delivery and payment of the Notes by the
Borrower will not contravene any provision of the Borrower's organizational
documents and will not (a) to the best of the Borrower's knowledge, after Due
Inquiry, contravene, conflict with or violate any material Requirement of Law,
(b) contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by
which the Borrower or any of its Property or assets may be bound or affected or
(c) violate or result in the breach of, or constitute a default under any loan
or credit agreement, indenture or other document (which documents are, in the
aggregate, material) to which the Borrower is a party or by which the Borrower
or any of its Property or assets may be bound or affected. The Borrower is not
in violation or breach of or default under any material Requirement of Law,
order, writ, judgment, injunction, decree, determination or award or any
contract, agreement, lease, license, indenture or other instrument to which it
is a party, the non-compliance with which, the violation or breach of which, or
the default under which, could with reasonable likelihood result in a Material
Adverse Change.
SECTION 5.5 CAPITAL STRUCTURE. ITEM 5.5 of the DISCLOSURE SCHEDULE sets
forth each of the record and, to the best of the Borrower's knowledge, after Due
Inquiry, beneficial holders of the membership interest in the Borrower
(including voting interests of each such Person), by
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class and number and including the percentage of each class owned or to be owned
by such Person as of the Closing Date. Except as set forth in ITEM 5.5 of the
DISCLOSURE SCHEDULE, there are no options, warrants, rights to purchase or
similar rights covering the membership interest in the Borrower.
SECTION 5.6 FINANCIAL CONDITION. All balance sheets, all statements of
operations, of members' or partners' equity and of changes in cash flow, and
other financial data (other than projections) furnished to the Administrative
Agent for the purposes of or in connection with this Agreement or any of the
other Loan Documents have been and will be prepared in accordance with GAAP
consistently applied throughout the periods involved and will present fairly the
financial condition of the entities involved as of the dates thereof and the
result of their operations for the periods covered thereby. All projections
which have been furnished to the Administrative Agent for purposes of or in
connection with this Agreement were prepared in good faith on the basis of the
assumptions stated therein, which assumptions were, in the opinion of the
management of the Borrower, fair in the light of conditions existing at the time
of delivery of such forecasts; and at the time of delivery, the management of
the Borrower believed that the forecasts of the Borrower's, STTOC's, STPII's or
Pioneer's, as the case may be, future financial performance set forth in the
projections were reasonable and attainable.
SECTION 5.7 NO MATERIAL ADVERSE CHANGE. Since each of (a) the date of
the Opening Timber Appraisal and (b) the date of the most recent financial
statements furnished to the Administrative Agent pursuant to SECTION 6.1(B)
there has been no Material Adverse Change.
SECTION 5.8 OWNERSHIP OF COLLATERAL. From and after the Closing Date,
the Borrower owns merchantable title to all of the Collateral covered by the
Security Agreement and the Pledge Agreement, free and clear of Liens except for
Permitted Liens.
SECTION 5.9 LITIGATION. Except as disclosed in ITEM 5.9 of the
DISCLOSURE SCHEDULE, there are no claims, actions, suits, proceedings or other
litigation pending or, to the best of the Borrower's knowledge, overtly
threatened against the Borrower, STTOC, STPII or Pioneer or any of the
Borrower's, STTOC's, STPII's or Pioneer's Property at law or in equity before
any Governmental Authority or, to the best of the Borrower's knowledge, any
investigation by any Governmental Authority of the Borrower's, STTOC's, STPII's
or Pioneer's affairs or Properties which could, if adversely determined, with
reasonable likelihood result in a Material Adverse Change. Other than any
liability incident to the litigation or proceedings disclosed in ITEM 5.9 of the
DISCLOSURE SCHEDULE and other than any that arise in respect of the STTOC Pledge
Agreement, the STPII Pledge Agreement or the Pioneer Guaranty or as otherwise
disclosed on ITEM 7.5 of the DISCLOSURE SCHEDULE, neither the Borrower, STTOC,
STPII nor Pioneer has any contingent liabilities which are material and which
are not provided for or disclosed in the most recent financial statements
delivered to the Administrative Agent pursuant to SECTION 6.1(A) or 6.1(B).
SECTION 5.10 MATERIAL DOCUMENTS; THIRD PARTY CONSENTS. Except as set
forth on ITEM 5.10 of the DISCLOSURE SCHEDULE, no approval, authorization or
consent of any Person under any material agreement, contract, lease, license
(including any license or sublicense of intellectual property) or other
document, including any Harvest Contract, Cutting Rights Agreement, Timber Sales
Agreement or right-of-way, road use, trackage and other access
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agreement or arrangement, of the Borrower, STTOC, STPII or Pioneer is required
to be obtained by the Borrower, STTOC, STPII, or Pioneer in order to make or
consummate the transactions contemplated by the Loan Documents and the
Acquisition Documents, except as has already been obtained.
SECTION 5.11 NO GOVERNMENT CONSENTS NEEDED. Except as set forth on ITEM
5.11 of the DISCLOSURE SCHEDULE and for the filing of the Financing Statements,
not yet due tax returns and reports or such of the foregoing as have already
been filed, recorded, registered, or otherwise obtained, no certificate,
authorization, permit, consent, approval, order, license, exemption from, or
filing or registration or qualification with any Governmental Authority is or
will be required to authorize, or is otherwise required in connection with the
execution and delivery by the Borrower, STTOC, STPII or Pioneer of, and the
payment and performance by the Borrower, STTOC, STPII or Pioneer of its
obligations under, the Loan Documents or the creation of the Liens described in
and granted pursuant to the Collateral Documents.
SECTION 5.12 SOLVENCY. Each of the Borrower, STTOC, STPII and Pioneer
is Solvent.
SECTION 5.13 MANAGEMENT. Except as set forth on ITEM 5.13 to the
DISCLOSURE SCHEDULE, there are no agreements relating to the payment of
management fees to any direct or indirect holder of an equity interest in the
Borrower. A true and complete copy of each such agreement has been furnished to
the Administrative Agent.
SECTION 5.14 ERISA COMPLIANCE. Except as specifically disclosed in ITEM
5.14 of the DISCLOSURE SCHEDULE:
(A) Each Plan is in compliance in all material respects with
the applicable provisions of ERISA, the Code and other federal or state law.
Each Plan which is intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the IRS and to the best knowledge
of the Borrower, nothing has occurred which would cause the loss of such
qualification. The Borrower and each ERISA Affiliate have made all required
contributions to any Plan subject to Section 412 of the Code, and no application
for a funding waiver or an extension of any amortization period pursuant to
Section 412 of the Code has been made with respect to any Plan.
(B) There are no pending or, to the best knowledge of the
Borrower, threatened claims, actions or lawsuits, or actions by any Governmental
Authority, with respect to any Plan which has resulted or could reasonably be
expected to result in a Material Adverse Change. There has been no prohibited
transaction or violation of the fiduciary responsibility rules with respect to
any Plan which has resulted or could reasonably be expected to result in a
Material Adverse Change.
(C) No ERISA Event has occurred or is reasonably expected to
occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither
the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to
incur, any liability under Title IV of ERISA with respect to any Pension Plan
(other than premiums due and not delinquent under Section 4007 of ERISA); (iv)
neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects
to incur, any liability (and no event has occurred which, with the giving of
notice under Section
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4219 of ERISA, would result in such liability) under Section 4201 or 4243 of
ERISA with respect to a Multiemployer Plan; (v) neither the Borrower nor any
ERISA Affiliate has engaged in a transaction that could be subject to Section
4069 or 4212(c) of ERISA; (vi) neither the Borrower nor any ERISA Affiliate has
any liability with respect to "expected post retirement benefit obligations"
within the meaning of Statement of Financial Accounting Standards No. 106; and
(vii) "no prohibited transaction" (as defined in Section 406 of ERISA and
Section 4975 of the Code) that has resulted or could with reasonable likelihood
result in a Material Adverse Change has occurred with respect to any Plan.
SECTION 5.15 CERTAIN REPRESENTATIONS AND WARRANTIES CONCERNING THE
PIONEER TIMBERLANDS.
(A) CONDITION. The Land and the Timber standing on the Land,
including the Pioneer Timberlands, are in good condition and are free from all
pests, blight, fungus or disease that would materially impair the value thereof,
except as disclosed in ITEM 5.15 of the DISCLOSURE SCHEDULE.
(B) ACRES AND VOLUME. To the best of Borrower's knowledge,
after Due Inquiry, as of the Closing Date, (i) the Pioneer Timberlands is
comprised of approximately 366,000 acres on which is located approximately
1,700,000,000 board feet of Merchantable Timber consisting of redwood, ponderosa
pine, douglas fir, western larch, white fir and lodgepole pine as well as other
species and (ii) the Borrower has no basis to form a belief that the value for
the Pioneer Timberlands set forth in the Opening Timber Appraisal is
unreasonable.
SECTION 5.16 ENVIRONMENT.
(A) Except where it could not with reasonable likelihood
result in a Material Adverse Change, the Properties owned, leased or operated by
the Borrower, STTOC, STPII and Pioneer comply in all material respects with all
applicable Environmental Laws and Environmental Permits, all past non-compliance
with such Environmental Laws and Environmental Permits has been resolved without
ongoing obligations or costs and no circumstances exist that could be reasonably
likely to (i) form the basis of an Environmental Action against the Borrower,
STTOC, STPII or Pioneer or any such Properties that could with reasonable
likelihood result in a Material Adverse Change or (ii) cause any such Property
to be subject to any restrictions on ownership, occupancy, use or
transferability under any Environmental Law that could have a Material Adverse
Change.
(B) None of the Properties currently or, to the Borrower's
knowledge, after Due Inquiry, formerly owned, leased or operated by the
Borrower, STTOC, STPII or Pioneer is listed or proposed for listing on the
National Priorities List under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("NPL") or on the Comprehensive
Environmental Response, Compensation and Liability Information System maintained
by the U.S. Environmental Protection Agency ("CERCLIS") or any analogous
foreign, state or local list or, to the knowledge of Borrower, after Due
Inquiry, is adjacent to any such Property. There are no and never have been any
underground or aboveground storage tanks or any surface impoundments, septic
tanks, pits, sumps or lagoons in which Hazardous Materials are being or have
been treated, stored or disposed of on any property currently owned, leased or
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operated by the Borrower or any of STTOC, STPII or Pioneer or, to the Borrower's
knowledge, after Due Inquiry, any property formerly owned, leased or operated by
the Borrower, or any of STTOC, STPII or Pioneer that could with reasonable
likelihood result in a Material Adverse Change. There is no asbestos or
asbestos-containing material on any property currently owned, leased or operated
by the Borrower, or any of STTOC, STPII or Pioneer that could with reasonable
likelihood result in a Material Adverse Change and Hazardous Materials have not
been released, discharged or disposed of on any Property currently or, to the
Borrower's knowledge, after Due Inquiry, formerly owned, leased or operated by
the Borrower, or any of STTOC, STPII or Pioneer or, to the Borrower's knowledge,
after Due Inquiry, any adjoining Property that could with reasonable likelihood
result in a Material Adverse Change.
(C) Neither the Borrower nor any of STTOC, STPII nor Pioneer
is undertaking, and has not completed, either individually or together with
other potential responsible parties, any investigation or assessment or remedial
or response action relating to any actual or threatened release, discharge or
disposal of Hazardous Materials at any site, location or operation, either
voluntarily or pursuant to the order of any Governmental Authority or the
requirements of any Environmental Law that could be reasonably likely to result
in a Material Adverse Change. All Hazardous Materials generated, used, treated,
handled or stored at or transported to or from any Property currently or, to the
Borrower's knowledge, after Due Inquiry, formerly owned, leased or operated by
the Borrower or any of STTOC, STPII or Pioneer have been disposed of in a manner
that could not with reasonable likelihood result in a Material Adverse Change.
SECTION 5.17 MARGIN REGULATIONS. The Borrower does not own any "margin
security" as that term is defined in the Margin Regulations, and the proceeds of
the Loans will be used only for the purposes contemplated in this Agreement.
None of the Loans will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security, for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry any
margin security or for any other purpose which might cause any of the Loans to
be considered a "purpose credit" within the meaning of the Margin Regulations.
SECTION 5.18 TAXES. All material federal, state and local tax returns,
reports and statements required to be filed by the Borrower have been filed with
the appropriate Governmental Authorities and all Charges and other impositions
shown thereon to be due and payable by the Borrower have been paid prior to the
date on which any fine, penalty, interest or late charge may be added thereto
for nonpayment thereof, or any such fine, penalty, interest, late charge or loss
has been paid, or the Borrower is contesting its liability therefor in good
faith and has fully reserved all such amounts in the financial statements
delivered to the Administrative Agent and the Lenders pursuant to SECTIONS
6.1(A) and 6.1(B). Proper and accurate amounts have been withheld by the
Borrower from its employees for all periods in full and complete compliance with
the tax, social security and unemployment withholding provisions of applicable
federal, state, local and foreign law and such withholdings have been timely
paid to the respective Governmental Authorities. The Borrower has not executed
or filed with the IRS or any other Governmental Authority any agreement or other
document extending, or having the effect of extending, the period for assessment
or collection of any Charges.
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SECTION 5.19 INTELLECTUAL PROPERTY RIGHTS. The Borrower possesses and
owns all necessary intellectual property rights and all licenses or sublicenses
of intellectual property which are material to the conduct of its business as
contemplated by the Acquisition Documents and the Loan Documents. The Borrower
conducts its business without infringement or, to the best of the Borrower's
knowledge, after Due Inquiry, claim of infringement of any intellectual property
right of others, except where such infringement or claim of infringement could
not with reasonable likelihood result in a Material Adverse Change. There is no
infringement or, to the best of the Borrower's knowledge, after Due Inquiry,
claim of infringement by others of any intellectual property owned, licensed or
sublicensed by the Borrower.
SECTION 5.20 OTHER REGULATIONS. The Borrower is not: (a) a "public
utility company" or a "holding company," or an "affiliate" or a "subsidiary
company" of a "holding company," or an "affiliate" of such a "subsidiary
company," as such terms are defined in the Public Utility Holding Company Act or
(b) an "investment company," or an "affiliated person" of, or a "promoter" or
"principal underwriter" for, an "investment company," as such terms are defined
in the Investment Company Act.
SECTION 5.21 BROKERS' FEES. Except as specifically disclosed on ITEM
5.21 of the DISCLOSURE SCHEDULE, the Borrower has no obligation to any Person in
respect of any finder's, broker's or investment banker's fee in connection with
the transactions contemplated hereby or by the Acquisition Documents.
SECTION 5.22 YEAR 2000. The Borrower, STTOC, STPII and Pioneer have
reviewed the areas within their business and operations which could be adversely
affected by, and have developed or are developing a program to address on a
timely basis, the "Year 2000 Problem" (that is, the risk that computer
applications used by the Borrower and its Subsidiaries, STPII and Pioneer may be
unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date on or after December 31, 1999), and have
made related appropriate inquiry of material suppliers, vendors and customers.
Based on such review and program, the Borrower believes that the "Year 2000
Problem" will not result in a Material Adverse Change.
SECTION 5.23 NATURE OF REPRESENTATIONS AND WARRANTIES. The Borrower
certifies to each Lender and the Administrative Agent that all representations
and warranties made by it in this Agreement and all other Loan Documents are
true and correct in all material respects. The request by the Borrower for a
Borrowing and each continuation of a LIBOR Loan into another LIBOR Loan shall
constitute an affirmation that all such representations and warranties remain
true and correct in all material respects. Each representation and warranty made
in this Agreement, in any other Loan Document, and in any other document
delivered to any Lender or the Administrative Agent by the Borrower, shall be
deemed to have been relied upon by the Lenders and the Administrative Agent
notwithstanding any investigation, inspection or inquiry theretofore or
thereafter made by or on behalf of any Lender or the Administrative Agent, or
any funding of Loans by the Lenders.
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ARTICLE VI
AFFIRMATIVE COVENANTS OF THE BORROWER
The Borrower hereby covenants and agrees that, so long as any
Commitment shall be available hereunder or any Loan or other payment Obligation
shall remain unpaid or unsatisfied, unless Required Lenders shall otherwise
waive compliance in writing:
SECTION 6.1 RECORDS AND REPORTS. The Borrower shall maintain a system
of accounting administered in accordance with sound business practices to permit
preparation of financial statements in conformity with GAAP, and deliver to the
Administrative Agent and each Lenders:
(A) QUARTERLY BORROWER-PREPARED FINANCIAL STATEMENTS. As soon
as practicable and in any event, commencing with the Fiscal Quarter ending
December 31, 1998, within forty-five (45) days after the end of each Fiscal
Quarter, a consolidated balance sheet of the Borrower, as at the end of such
period and the related consolidated (and, as to statements of income only,
consolidating) statements of income, members' equity and cash flows of the
Borrower prepared for such Fiscal Quarter and for such Fiscal Year to date,
setting forth in each case, commencing with the Fiscal Quarter ending December
31, 1999, in comparative form the figures for the corresponding periods of the
previous Fiscal Year, all in reasonable detail and certified by the chief
financial officer of the Borrower that they (i) are complete and fairly present
the financial condition of the Borrower and its Subsidiaries as at the dates
indicated and the results of its operations and changes in their cash flow for
the periods indicated, (ii) disclose all liabilities of the Borrower and its
Subsidiaries that are required to be reflected or reserved against under GAAP,
whether liquidated or unliquidated, fixed or contingent and (iii) have been
prepared in accordance with GAAP, subject to the absence of footnotes and
changes resulting from audit and normal year-end adjustments;
(B) ANNUAL AUDITED FINANCIAL STATEMENTS. As soon as practicable
and in any event within ninety (90) days after the end of each Fiscal Year, a
consolidated balance sheet as at the end of such year and the related
consolidated statements of income, members' equity and cash flows of the
Borrower and prepared for such Fiscal Year, setting forth in each case, in
comparative form the figures for the previous year, all in reasonable detail and
(i) in the case of such financial statements, accompanied by a report thereon of
Arthur Andersen LLP or other independent public accountants of recognized
national standing selected by the Borrower and reasonably satisfactory to the
Administrative Agent, which report shall not contain an adverse opinion, a
disclaimer of opinion or be qualified or limited because of a restricted or
limited examination by such accountant of any material portion of the Borrower's
records and shall state that such financial statements present fairly the
financial position of the Borrower as at the dates indicated and the results of
its operations and changes in its financial position for the periods indicated
in conformity with GAAP applied on a basis consistent with prior years (except
as otherwise stated therein) and that the examination by such accountants in
connection with such consolidated financial statements has been made in
accordance with generally accepted auditing standards and (ii) in the case of
such consolidating financial statements, certified by the chief financial
officer of the Borrower;
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(C) MANAGEMENT LETTER. No later than forty-five (45) days after
the end of each Fiscal Quarter, a report prepared by the management of the
Borrower as to a discussion and analysis of Pioneer's operations, including
harvest activities, market conditions and near term prospects.
(D) SENIOR LENDER REPORTS. To the extent not otherwise required
to be delivered pursuant to this SECTION 6.1, concurrently with the delivery
thereof to the Senior Lenders, a copy of all reports and other information
required to be delivered by Pioneer to the Senior Lenders pursuant to Section
8.4 of the Senior Loan Agreement as in effect on the Closing Date.
(E) OTHER REPORTS. Promptly upon receipt thereof, copies of all
reports submitted to the Borrower by independent public accountants in
connection with each annual, interim or special audit of the financial
statements of the Borrower made by such accountants, including any comment
letter submitted by such accountants to management in connection with their
annual audit;
(F) NOTICES. Promptly upon any officer of the Borrower
obtaining knowledge (i) of any condition or event which constitutes a Default or
an Event of Default under this Agreement, (ii) that any Person has given any
notice to the Borrower or taken any other action with respect to a claimed
default or event or condition of the type referred to in SECTION 8.1(C), (iii)
of the institution of any litigation or investigation (or overt threat to
institute) by any Person, including any Governmental Authority involving any
alleged (regardless of whether insured) liability of the Borrower, STTOC, STPII
or Pioneer equal to or greater than $5,000,000 or any adverse determination in
any litigation involving a potential liability of the Borrower, STTOC, STPII or
Pioneer equal to or greater than $5,000,000 or (iv) of any Material Adverse
Change, a certificate of a Responsible Person of the Borrower specifying the
notice given or action taken by such Person and the nature of such claimed
Default, Event of Default, event or condition and what action the Borrower has
taken, is taking and proposes to take with respect thereto;
(G) ERISA. With reasonable promptness, notice of the occurrence
of any of the following events affecting the Borrower or any ERISA Affiliate
(but in no event more than ten (10) days after such event), and a copy of any
notice with respect to such event that is filed with a Governmental Authority
and any notice delivered by a Governmental Authority to the Borrower or any
ERISA Affiliate with respect to such event:
(I) an ERISA Event;
(II) a material increase in the Unfunded Pension
Liability of any Pension Plan;
(III) the adoption of, or the commencement of contributions
to, any Plan subject to Section 412 of the Code by the Borrower or any ERISA
Affiliate;
(IV) the adoption of any amendment to a Plan subject to
Section 412 of the Code, if such amendment results in a material increase in
contributions or Unfunded Pension Liability;
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(V) a "prohibited transaction" (as defined in Section 406
of ERISA and Section 4975 of the Code) that would result in any material
liability to the Borrower or any ERISA Affiliate; or
(VI) any challenge by the IRS to the tax qualification of
any Pension Plan under Section 401 or 501 of the Code;
(H) SEC FILING. Within five (5) Business Days of the filing
thereof with the SEC, copies of any registration statements, prospectuses,
10-Ks, 8-Ks, 8-Qs and all other documents or information filed with the SEC by
or on behalf of the Borrower, STTOC, STPII, Pioneer, STT, STOC or STP or any
third Person into who anyone or more of the foregoing Persons have been merged
or consolidated if such third Person is the surviving entity;
(I) MATERIAL AGREEMENTS. With reasonable promptness, a copy of
all material agreements entered into by the Borrower, including any agreement
with an underwriter in respect of a potential initial public offering of shares
of the Borrower; and
(J) OTHER INFORMATION. With reasonable promptness, such other
reports, information and data, including lists of Property and accounts,
budgets, agreements with insurers, forecasts, federal, state and foreign tax
returns and reports, with respect to the Borrower as from time to time may be
reasonably requested by the Administrative Agent or any Lender.
All financial statements of the Borrower to be delivered by the
Borrower pursuant to this SECTION 6.1 will be complete and correct and present
fairly the financial condition of the Borrower as of the date thereof; will
disclose all liabilities of the Borrower that are required to be reflected or
reserved against under GAAP, whether liquidated or unliquidated, fixed or
contingent; and will have been prepared in accordance with GAAP (subject, in the
case of interim financial statements, to year-end adjustments). The Borrower
hereby agrees that each time it submits a financial statement, the Borrower
shall be deemed to represent and warrant to the Lenders that such financial
statement complies with all of the preceding requirements set forth in this
paragraph.
Statements of financial performance required to be provided by the
Borrower to the Administrative Agent pursuant to this SECTION 6.1 shall (i)
include a statement that the Year 2000 remediation efforts of the Borrower,
STTOC, STPII and Pioneer are proceeding as scheduled and no Material Adverse
Change is expected to result from the "Year 2000 Problem" (within the meaning of
such term set forth in SECTION 5.22) or such remediation efforts and (ii)
indicate whether an auditor, regulator or third party consultant has issued a
management letter or other communication regarding the Year 2000 exposure,
program or progress of the Borrower, STTOC, STPII and Pioneer.
SECTION 6.2 MAINTENANCE OF RIGHTS AND PROPERTIES. The Borrower shall:
(A) MAINTENANCE OF EXISTENCE AND RIGHTS. Maintain and preserve
in full force and effect its existence as a corporation and all rights,
licenses, leases, qualifications, privileges, franchises and other authority
adequate for the conduct of its business except where
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the lapsing of any of the foregoing could not with reasonable likelihood result
in a Material Adverse Change; and
(B) MAINTENANCE OF PROPERTIES. Maintain, preserve and protect
its properties, assets, equipment and facilities in good order and working
repair and condition (taking into consideration ordinary wear and tear) and from
time to time make, or cause to be made, all needful and proper repairs, renewals
and replacements thereto.
SECTION 6.3 TAXES AND OTHER LIABILITIES. The Borrower shall promptly
pay and discharge all Charges when due and payable, except (a) such as may be
paid thereafter without penalty or (b) such as may be contested in good faith by
appropriate proceedings and for which an adequate reserve has been established
and is maintained in accordance with GAAP. The Borrower shall promptly notify
the Administrative Agent of any material challenge, contest or proceeding
pending by or against the Borrower before any taxing authority.
SECTION 6.4 INSPECTION OF BOOKS AND RECORDS. The Borrower shall from
time to time during normal business hours and upon reasonable notice (except
that if an Event of Default shall have occurred and be continuing, no such
notice is required) permit the Administrative Agent or any Lender or any of
their respective representatives, to visit all of its offices, places of
business and any property owned or leased by it to discuss its financial matters
with its officers and independent public accountant (and the Borrower hereby
authorizes such independent public accountant to discuss the Borrower's
financial matters with the Administrative Agent or such Lender or its
representatives whether or not any representative of the Borrower is present)
and to examine (and, at the expense of the Borrower, photocopy extracts from)
any of its books or other corporate records or to inspect any of the Borrower's,
STTOC's, STPII's or Pioneer's places of business or property. The Borrower shall
pay any fees of such independent public accountant incurred in connection with
the Administrative Agent's or such Lender's exercise of its rights pursuant to
this SECTION 6.4.
SECTION 6.5 HARVESTING OF TIMBER. The Borrower shall use commercially
reasonable efforts to cause Pioneer to harvest and sell the Timber on the
Timberlands owned by Pioneer or as may be subject to Harvesting Contracts,
subject to all of the requirements and conditions of this Agreement and the
other Loan Documents, consistent with sound forestry management.
SECTION 6.6 COMPLIANCE WITH LAWS. The Borrower shall exercise due
diligence in order to comply with the requirements of all applicable
Requirements of Laws, non-compliance with which could with reasonable likelihood
result in a Material Adverse Change; provided, however, that the Borrower may
appeal or contest any act, regulation, judgment, order, decree or direction in
any reasonable manner which shall not, in the opinion of Required Lenders,
adversely affect the Lenders' rights hereunder or adversely affect the priority
of the Administrative Agent's or any Lender's Lien in, on and to any of the
Collateral.
SECTION 6.7 COMPLIANCE WITH ENVIRONMENTAL LAWS. The Borrower shall
comply, and cause each of its Subsidiaries and Pioneer to (a) comply, in all
material respects, with all applicable Environmental Laws and Environmental
Permits, (b) obtain and renew all material Environmental Permits necessary for
its operations and properties and (c) conduct any investigation, study, sampling
and testing, and undertake any cleanup, removal, remedial or other
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action necessary to remove and clean up all Hazardous Materials from any of its
properties, in accordance with the requirements of all Environmental Laws, that
could with reasonable likelihood result in a Material Adverse Change; provided,
however, that neither the Borrower nor any of its Subsidiaries or Pioneer shall
be required to undertake any such cleanup, removal, remedial or other action to
the extent that its obligation to do so is being contested in good faith and by
proper proceedings and appropriate reserves are being maintained with respect to
such circumstances.
SECTION 6.8 AGREEMENTS. The Borrower shall perform, within all
required time periods (after giving effect to any applicable grace periods), all
of its obligations and enforce all of its rights under each agreement to which
it is a party, including any leases to which it is a party, where the failure to
so perform and enforce could with reasonable likelihood result in a Material
Adverse Change. The Borrower shall not terminate or modify any provision of any
agreement to which the Borrower is a party with respect to which such
termination or modification could with reasonable likelihood result in a
Material Adverse Change.
SECTION 6.9 SUPPLEMENTAL DISCLOSURE. From time to time (in the event
that such information is not otherwise delivered by the Borrower to the
Administrative Agent or the Lenders pursuant to this Agreement), so long as
there are Obligations outstanding hereunder, the Borrower shall disclose to the
Administrative Agent in writing any material matter hereafter arising which, if
existing or occurring at the date of this Agreement, would have been required to
be set forth or described by the Borrower under the terms of this Agreement or
any of the other Loan Documents or which is necessary to correct any information
set forth or described by the Borrower hereunder or thereunder or in connection
herewith which has been rendered materially inaccurate thereby.
SECTION 6.10 FURTHER ASSURANCES. In addition to the obligations and
documents which this Agreement expressly requires the Borrower to execute,
acknowledge, deliver and perform, the Borrower shall execute and acknowledge (or
cause to be executed and acknowledged) and deliver to the Administrative Agent
all documents, and take all actions, that may be reasonably requested by the
Administrative Agent or the Lenders from time to time to confirm the rights
created or now or hereafter intended to be created under the Loan Documents, to
protect and further the validity, priority and enforceability of the Liens
created under the Collateral Documents, to subject to the Liens created under
the Collateral Documents any Property intended by the terms of any Loan Document
to be covered by the Collateral Documents, or otherwise to carry out the
purposes of the Loan Documents and the Acquisition Documents and the
transactions contemplated hereunder and thereunder.
ARTICLE VII
NEGATIVE COVENANTS OF THE BORROWER
The Borrower hereby agrees that, so long as any Lender shall have any
Commitment hereunder, or any Loan or other payment Obligation shall remain
unpaid or unsatisfied, unless the Required Lenders waive compliance in writing:
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SECTION 7.1 LIMITATION ON LIENS. The Borrower shall not, nor shall it
permit STTOC, STPII or Pioneer to, directly or indirectly, make, create, incur,
assume or suffer to exist any Lien upon or with respect to any part of their
Property, whether now owned or hereafter acquired, other than the following
(collectively, the "Permitted Liens"):
(A) Liens created under any Loan Document in favor of the
Administrative Agent or any Lender;
(B) as to Pioneer only, Liens created in favor of the Senior
Administrative Agent securing the Senior Loan Obligations;
(C) as to STPII only, Liens created in favor of the Senior
Administrative Agent in STPII's membership interest in Pioneer, provided that
such Lien is expressly subordinate in right of payment, enforcement and priority
to the Liens of the Administrative Agent under the STPII Pledge Agreement on
terms acceptable to Required Lenders in their sole discretion;
(D) as to STTOC only, Liens created in favor of the Senior
Administrative Agent in STTOC's partnership interests in STPII, provided that
such Liens may expressly subordinate in right of payment, enforcement and
priority to the Liens of the Administrative Agent under the STTOC Pledge
Agreement on terms acceptable to Required Lenders in their sole discretion.
(E) as to Pioneer only, such other Liens as are expressly
permitted under Section 8.10 of the Senior Loan Agreement;
(F) Liens for taxes, fees, assessments or other governmental
Charges which are not delinquent or remain payable without penalty, or to the
extent that non-payment thereof is permitted by SECTION 6.3; provided that no
notice of lien has been filed or recorded under the Code;
(G) Liens (other than any Lien imposed by ERISA and other than
on the Collateral) consisting of pledges or deposits required in the Ordinary
Course of Business in connection with workers' compensation, unemployment
insurance and other social security legislation;
(H) any money judgment, writ or warrant of attachment or
similar process entered or filed against the Borrower, STTOC or STPII if the
judgment it secures shall, within thirty (30) days after the entry thereof, have
been discharged or execution thereof stayed pending appeal; and
(I) Liens arising solely by virtue of any contractual or
statutory or common law provision relating to banker's liens, rights of set-off
or similar rights and remedies as to deposit accounts or other funds maintained
with a creditor depository institution; provided that (i) such deposit account
is not a dedicated cash collateral account and is not subject to restrictions
against access by the Borrower, STTOC or STPII in excess of those set forth by
regulations promulgated by the Federal Reserve Board, and (ii) such deposit
account is not intended by the Borrower STTOC or STPII to provide collateral to
the depository institution.
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SECTION 7.2 DISPOSITION OF ASSETS. The Borrower shall not, nor shall it
permit STTOC, STPII or Pioneer to, directly or indirectly, sell, assign, lease,
convey, transfer or otherwise dispose of (whether in one or a series of
transactions) any Property or enter into any agreement to do any of the
foregoing, except, in each case as to Pioneer only:
(A) the Spin Out of the Excluded Assets pursuant to the
Acquisition Documents;
(B) Dispositions of Property, including Timber pursuant to
Cutting Rights Agreements, which are made for not less than fair market value;
and
(C) Dispositions of used, worn-out or surplus machinery and
equipment in the Ordinary Course of Business.
SECTION 7.3 CONSOLIDATIONS AND MERGERS. The Borrower shall not, nor
shall it permit, STTOC, STPII or Pioneer to, merge or consolidate or enter into
any similar arrangement with or into, directly or indirectly, whether by
operation of law or otherwise, or convey, transfer, lease or otherwise dispose
of (whether in one transaction or in a series of transactions) all or
substantially all of its assets (whether now owned or hereafter acquired) to or
in favor of any Person, except for an agreement to merge or consolidate with any
one or more of themselves, STT, STOC or STP in connection with an anticipated
initial offering of equity Securities to the public under a registration
statement filed with the SEC; provided that (a) the Net Issuance Proceeds of
such initial public offering will be in excess of the sum of (i) the
Obligations, including any Additional Compensation and any amounts owing under
the Fee Letter, and (ii) the STT Bridge Obligations, in each case as are
anticipated to be outstanding as of the closing of such initial public offering,
(b) such merger or consolidation is expressly conditioned upon, and will only
close concurrent with, the closing of the initial public offering and the
payment in full of the Obligations and the STT Bridge Obligations and (c) such
agreement to merge or consolidate is substantially in the form of the Plan of
Agreement and Merger among STT, STTII, STOC, STTOC, STP and STPII attached to
the STPII Partnership Agreement as Exhibit H.
SECTION 7.4 ACQUISITIONS; CAPITAL EXPENDITURES; LOANS AND INVESTMENTS.
Except as may be permitted by SECTION 7.3, the Borrower shall not, nor shall it
permit STTOC, STPII or Pioneer to, make any Acquisition or enter into any
agreement to make any Acquisition, make or commit to make any Capital
Expenditure or make, purchase or acquire any Investment in, any Person or make
any advance, loan, extension of credit or capital contribution to any Person,
including any Affiliate of the Borrower, or make any commitment with respect to
any of the foregoing, except for:
(A) the Pioneer Acquisition to be consummated at Closing;
(B) Acquisitions of Timberlands; provided that (i) the purchase
price for any such Acquisition shall not be financed, in whole or in part, with
(x) any additional or assumed Indebtedness or (y) the direct or indirect
proceeds of any distribution by Pioneer to STPII; (ii) the Borrower is not a
party to or bound by any agreement or arrangement evidencing or relating to such
Acquisition and there is no recourse to the Borrower for the purchase price or
any other obligation or liability relating to such Acquisition, including any
indemnity obligation; (iii) prior
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to the consummation of such Acquisition, the sole recourse of the seller shall
be to a deposit of earnest money, if any, established pursuant to the definitive
agreement to enter into such Acquisition; (iv) no Default or Event of Default
has occurred and is continuing or would result from the consummation of such
Acquisition; (v) all new equity Securities issued to finance such Acquisition
shall be duly pledged to the Administrative Agent as additional Collateral
(pursuant to a pledge agreement and other appropriate documentation satisfactory
in form and substance to the Administrative Agent), which Lien shall be valid,
fully perfected and of first priority; and (vi), taking into account the
additional pledge contemplated by CLAUSE (V), above, one hundred percent
(100.0%) of each of the membership interests in Pioneer, the partnership
interests in STPII and the membership interests in STTOC shall at all times be
subject to a valid, fully perfected first priority Lien in favor of the
Administrative Agent;
(C) Investments in Cash Equivalents
(D) as to Pioneer only, Investments in the form of any Rate
Contract entered into with any counterparty pursuant to Section 8.12 of the
Senior Loan Agreement as in effect on the Closing Date;
(E) Investments set forth on ITEM 7.4 of the DISCLOSURE
SCHEDULE;
(F) as to Pioneer only, Capital Expenditures (other than
Acquisitions) not to exceed $3,000,000 during any Fiscal Year; and
(G) as to Pioneer only, loans or Investments expressly
permitted by Section 8.12 (c) through (k) of the Senior Loan Agreement as in
effect of the Closing Date.
SECTION 7.5 LIMITATION ON INDEBTEDNESS. The Borrower shall not, nor
shall it permit STTOC, STPII or Pioneer to, create, incur, assume, suffer to
exist, or otherwise become or remain directly or indirectly liable with respect
to, any Indebtedness, including any Contingent Obligation, except:
(A) Indebtedness incurred pursuant to this Agreement, the Notes
and the other Loan Documents;
(B) The Contingent Obligations incurred by Pioneer under the
Pioneer Guaranty;
(C) The Contingent Obligations incurred by STTOC under the
STTOC Pledge Agreement;
(D) The Contingent Obligations incurred by STPII under the
STPII Pledge Agreement;
(E) as to Pioneer only, Indebtedness incurred pursuant to the
Senior Loan Agreement and the other Senior Loan Documents not to exceed
$280,000,000 in the aggregate principal amount outstanding at any time;
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(F) as to the Borrower, STTOC and STPII only, the Contingent
Obligations incurred by the Borrower, STTOC and STPII under their respective
nonrecourse guaranty and pledge agreements in favor of the Senior Administrative
Agent under the Senior Loan Documents, provided that the right of payment
thereunder and right of enforcement thereof shall be subordinated to the
Obligations and the enforcement Liens of the Agent under the Collateral
Documents on terms acceptable to Required Lenders in their sole discretion;
(G) as to Pioneer only, Indebtedness incurred or existing
pursuant to any Rate Contract entered into with any counterparty pursuant to
Section 8.21 of the Senior Loan Agreement;
(H) accounts payable to trade creditors for goods and services
and current operating liabilities (not the result of the borrowing of money)
incurred in the Ordinary Course of Business in accordance with customary terms
and paid within the specified time, unless contested in good faith by
appropriate proceedings and reserved for in accordance with GAAP;
(I) as to Pioneer only, Indebtedness permitted pursuant to
Section 8.11 of the Senior Loan Agreement as is effect of the Closing Date; and
(J) endorsements for collection or deposit in the Ordinary
Course of Business.
SECTION 7.6 TRANSACTIONS WITH AFFILIATES. The Borrower shall not, nor
shall it permit STTOC, STPII or Pioneer to, enter, directly or indirectly, into
or be a party to any agreement or transaction (including the purchase, sale,
lease or exchange of any Property or the rendering of any services) with any
Affiliate of the Borrower, except as set forth on ITEM 7.6 to the DISCLOSURE
SCHEDULE or except pursuant to the reasonable requirements of the Borrower's,
STTOC's, STPII's or Pioneer's, as the case may be, business and upon fair and
reasonable terms no less favorable to the Borrower, STTOC, STPII or Pioneer, as
the case may be, than would obtain in a comparable arm's length transaction with
a Person not an Affiliate of the Borrower.
SECTION 7.7 USE OF PROCEEDS. The Borrower shall use the Loan proceeds
only for the purposes described in SECTION 2.1 and in no event shall use any
portion of such proceeds, directly or indirectly, (a) to purchase or carry
Margin Stock, (b) to repay or otherwise refinance indebtedness of the Borrower
or others incurred to purchase or carry Margin Stock, (c) to extend credit for
the purpose of purchasing or carrying any Margin Stock or (d) to acquire any
security in any transaction that is subject to Section 13 or 14 of the
Securities Exchange Act of 1934, as amended.
SECTION 7.8 LEASE OBLIGATIONS. The Borrower shall not, nor shall it
permit STPII or Pioneer to, create or suffer to exist any obligations for the
payment of rent for any Property under lease or agreement to lease, except for:
(A) as to Pioneer only, operating leases entered into by
Pioneer after the Closing Date in the Ordinary Course of Business; and
(B) as to Pioneer only, capital leases entered into by Pioneer
after the Closing Date to finance the acquisition of equipment to the extent
such acquisitions would be Capital Expenditures permitted under SECTION 7.4(F).
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SECTION 7.9 SALE AND LEASEBACK TRANSACTIONS. Borrower shall not, and
shall not permit STTOC, STPII or Pioneer to, directly or indirectly, enter into
any arrangement with any Person providing for the Borrower, STTOC, STPII or
Pioneer to lease or rent Property that the Borrower or STTOC, STPII or Pioneer
has or will sell or otherwise transfer to such Person.
SECTION 7.10 RESTRICTED DISTRIBUTIONS. The Borrower shall not declare
or make any distribution or payment or other distribution of assets, properties,
cash, rights, obligations or securities on account of any equity interest in the
Borrower or purchase, redeem or otherwise acquire for value any equity interest
in the Borrower or any warrants, rights or options to acquire such equity
interests, now or hereafter outstanding.
SECTION 7.11 MODIFICATION OF CERTAIN AGREEMENTS. The Borrower shall
not, without the prior written approval of Required Lenders, such approval to be
given in Required Lenders' sole and absolute discretion, amend, supplement,
modify or waive compliance with or consent to any amendment, supplement or other
modification of or waiver of compliance with any of the terms or provisions
contained in, or applicable to (i) the Borrower Operating Agreement or any other
material organizational documents of the Borrower, (ii) the STTOC Operating
Agreement or any other material organizational documents of STTOC, (iii) the
STPII Partnership Agreement, the LP Interest Contribution Agreement or any other
material organizational documents of STPII or (iv) the Pioneer Operating
Agreement or any other material organizational documents of Pioneer, except that
Required Lenders' prior approval shall not be required for any amendment,
supplement, modification or waiver which does not, either individually or in the
aggregate with other amendments, supplements, modifications or waivers, in any
material way adversely affect the Borrower's ability to pay and perform the
Obligations or the Administrative Agent's or any Lender's rights or remedies
under any of the Loan Documents, provided that the foregoing exception is
subject to the condition precedent that the Borrower shall have provided the
Administrative Agent with a written copy of the proposed amendment, supplement,
modification or waiver at least three (3) Business Days prior to its execution
by the Borrower or, if it is not to be executed by the Borrower, its becoming
effective.
SECTION 7.12 MAINTENANCE OF BUSINESS. The Borrower shall not engage in
any business other than the owning of, directly or indirectly, partnership
interests in STPII. The Borrower shall not permit STPII to engage in any
business other than the holding of a one hundred percent (100.0%) of the
membership interest in Pioneer, and shall not permit Pioneer to engage in any
business other than the Business and other activities normally associated with
the operation of the Business.
SECTION 7.13 ERISA. The Borrower shall not, and shall not suffer or
permit any of its ERISA Affiliates to: (a) engage in a "prohibited transaction"
(as defined in Section 406 of ERISA and Section 4975 of the Code) or violation
of the fiduciary responsibility rules with respect to any Plan which has
resulted or could reasonably be expected to result in a Material Adverse Change
or liability of the Borrower; (b) engage in a transaction that could be subject
to Section 4069 or 4212(c) of ERISA; or (c) incur any obligation to contribute
to a Pension Plan required by a collective bargaining agreement or as a
consequence of the acquisition of an ERISA Affiliate, unless the Borrower shall
notify the Administrative Agent in writing that it intends to incur such
obligation.
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SECTION 7.14 NO USE OF ANY LENDER'S NAME. The Borrower shall not use or
authorize any other Person to use any Lender's name or marks in any press
releases, signage, publication or other publicity or medium, including any
prospectus (but excluding any necessary or appropriate filings or submissions to
Governmental Authorities, including the filing of this Agreement with the SEC
solely as an exhibit evidencing an existing material agreement of the Borrower),
without the Administrative Agent's or such Lender's advance written
authorization.
SECTION 7.15 ACCOUNTING CHANGES. The Borrower shall not change its
Fiscal Year or make any significant change in accounting treatment or reporting
practices, except as required or permitted by GAAP.
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
SECTION 8.1 EVENTS OF DEFAULT. The occurrence of any one or more of
the following shall constitute an Event of Default:
(A) INSTALLMENTS OF PRINCIPAL; OPTIONAL AND MANDATORY
PREPAYMENTS. The Borrower shall fail to pay any scheduled installment of
principal under this Agreement or any of the Notes on the date such installment
shall become due and payable or shall fail to make any optional prepayment of
the principal amount of the Loans on the prepayment date specified pursuant to
SECTION 2.6 or shall fail to make any mandatory prepayment on the date such
Mandatory Prepayment shall become due and payable pursuant to SECTION 2.7; or
(B) OTHER PAYMENTS. The Borrower shall fail to pay any interest
on any Loan or fail to pay any of the other Obligations of the Borrower to the
Lenders or the Administrative Agent arising under this Agreement, the Notes or
any of the other Loan Documents on the date as the same shall become due and
payable, whether by acceleration or otherwise, and such failure shall not have
been cured within three (3) Business Days thereafter; or
(C) CROSS DEFAULTS. The Borrower or Pioneer (i) shall fail to
make any payment in respect of any Indebtedness (including in respect of the
Senior Credit Facility) having an aggregate principal amount (including undrawn
committed or available amounts and including amounts owing to all creditors
under any combined or syndicated credit arrangement) of more than $3,000,000
when due (whether by scheduled maturity, required prepayment, acceleration,
demand, or otherwise) and such failure continues after the applicable grace or
notice period, if any, specified in the document relating thereto on the date of
such failure; or (ii) shall fail to perform or observe any other material
condition or covenant, or any other event shall occur or condition exist, under
any agreement or instrument relating to any such Indebtedness, and such failure
continues after the applicable grace or notice period, if any, specified in the
document relating thereto on the date of such failure and (1) as to the
Borrower, the effect of such failure, event or condition is to cause, or to
permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Indebtedness (or a trustee or Administrative Agent on
behalf of such holder or holders or beneficiary or beneficiaries) to cause such
Indebtedness to be declared to be due and payable prior to its stated maturity
(or any Contingent Obligation to become payable or cash collateral in respect
thereof to be demanded) or (2) as to
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Pioneer, as a result of such failure, event or condition, the holder or holders
of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a
trustee or Administrative Agent on behalf of such holder or holders or
beneficiary or beneficiaries) have declared and caused such Indebtedness to
become due prior to its stated maturity (or such Contingent Obligation to become
payable or such cash collateral in respect thereof to be demanded); or
(D) REPRESENTATIONS AND WARRANTIES OF THE BORROWER. Any
representation or warranty made by or on behalf of the Borrower in this
Agreement or in any other Loan Document or in any statement or certificate at
any time given in writing pursuant hereto or thereto or in connection herewith
or therewith shall be false, misleading or incomplete in any material respect
when made; or
(E) SPECIFIC DEFAULTS. The Borrower shall fail or neglect to
perform, keep or observe any term, covenant or agreement contained in ARTICLE
VII; or
(F) OTHER DEFAULTS. Subject to SECTIONS 8.1(A), (B) and (E),
the Borrower shall fail or neglect to perform, keep or observe any other term,
covenant, provision or agreement contained in this Agreement or in any of the
other Loan Documents or any other document or agreement executed by the Borrower
in connection herewith or therewith and the same has not been cured to Required
Lenders' satisfaction within ten (10) calendar days after the Borrower shall
become aware thereof, whether by written notice from the Administrative Agent or
any Lender or otherwise, or should reasonably have been aware thereof; provided,
that if such Default is not reasonably susceptible to cure within ten (10) days,
then the Borrower shall have such additional time as it reasonably takes to
effect such cure, but in no event longer than thirty (30) days from the
occurrence of such Default, so long as the Borrower promptly commences and
diligently pursues such cure; or
(G) OTHER PARTY DEFAULTS. Subject to SECTION 8.1(C) (in the
case of Pioneer), Pioneer, STPII, STTOC, Mach One or any Additional Pledgor
shall fail or neglect to perform, keep or observe any term, covenant, provision
or agreement contained in the Loan Documents or any other document or agreement
executed by such Person in connection herewith or therewith and the same has not
been cured to Required Lenders' satisfaction within ten (10) calendar days after
such Person shall become aware thereof, whether by written notice from the
Administrative Agent or any Lender or otherwise, or should reasonably have been
aware thereof; provided, that if such Default is not reasonably susceptible to
cure within ten (10) days, then such Person shall have such additional time as
it reasonably takes to effect such cure, but in no event longer than thirty (30)
days from the occurrence of such Default, so long as such Person promptly
commences and diligently pursues such cure; or
(H) INSOLVENCY; VOLUNTARY PROCEEDINGS. The Borrower, Pioneer,
STPII, STTOC, Mach One or any Additional Pledgor (i) ceases or fails to be
Solvent, or generally fails to pay, or admits in writing its inability to pay,
its debts as they become due, subject to applicable grace periods, if any,
whether at stated maturity or otherwise; (ii) except as permitted under SECTION
7.3, voluntarily liquidates, dissolves or ceases to conduct its business in the
ordinary course; (iii) commences any Insolvency Proceeding with respect to
itself; or (iv) takes any action to effectuate or authorize any of the
foregoing; or
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(I) INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency
Proceeding is commenced or filed against the Borrower, Pioneer, STPII, STTOC,
Mach One or any Additional Pledgor, or any writ, judgment, warrant of
attachment, execution or similar process, is issued or levied against a
substantial part of the Borrower's or such of the Person's Properties, and any
such proceeding or petition shall not be dismissed, or such writ, judgment,
warrant of attachment, execution or similar process shall not be released,
vacated or fully bonded within sixty (60) days after commencement, filing or
levy; (ii) the Borrower, Pioneer, STPII, STTOC, Mach One or any Additional
Pledgor admits the material allegations of a petition against it in any
Insolvency Proceeding, or an order for relief (or similar order under non-U.S.
law) is ordered in any Insolvency Proceeding; or (iii) the Borrower, Pioneer,
STPII, STTOC, Mach One or any Additional Pledgor acquiesces in the appointment
of a receiver, trustee, custodian, conservator, liquidator, mortgagee in
possession (or Administrative Agent therefor), or other similar Person for
itself or a substantial portion of its Property or business; or
(J) MATERIAL ADVERSE CHANGE. A Material Adverse Change shall
have occurred; or
(K) MONETARY JUDGMENTS. One or more final (non-interlocutory)
judgments, orders or decrees shall be entered against the Borrower, STTOC,
STPII, or Pioneer involving in the aggregate a liability (not covered by
independent third-party insurance) as to any single or related series of
transactions, incidents or conditions, in excess of $5,000,000 and the same
shall remain unsatisfied, unvacated and unstayed pending appeal for a period of
thirty (30) days after the entry thereof; or
(L) NON-MONETARY JUDGMENTS. Any non-monetary judgment, order or
decree shall be rendered against the Borrower, STTOC, STPII, or Pioneer which
does or could with reasonable likelihood result in a Material Adverse Change,
and there shall be any period of thirty (30) consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
(M) COLLATERAL. Any of the Loan Documents shall for any reason
other than the satisfaction in full of the Obligations thereunder cease to be,
or be asserted by any of the Borrower, STTOC, STPII, any Person comprising the
Demers Group, Mach One or any Additional Pledgor not to be, a legal, valid and
binding obligation of such Person to the extent such Person is a party thereto,
enforceable in accordance with its terms, or any of the Liens purported to be
created by any of the Collateral Documents with respect to any of the Collateral
shall for any reason, other than the satisfaction in full of the Obligations
thereunder, cease to be, or be asserted by the grantor thereunder not to be, a
first priority, validly perfected Lien, subject only to the Permitted Liens; or
(N) ERISA. (i) An ERISA Event shall occur with respect to a
Pension Plan or Multiemployer Plan which has resulted or could reasonably be
expected to result in liability of the Borrower under Title IV of ERISA to the
Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of
$5,000,000; (ii) the aggregate amount of Unfunded Pension Liability among all
Pension Plans at any time exceeds $5,000,000; or (iii) the Borrower or any ERISA
Affiliate shall fail to pay when due, after the expiration of any applicable
grace period,
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any installment payment with respect to its withdrawal liability under Section
4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of
$5,000,000; or
(O) CHANGE IN KEY INVESTORS. Any Change in Key Investors shall
have occurred.
SECTION 8.2 WAIVER OF DEFAULT. Any Event of Default may be waived only
with the written consent of Required Lenders; except that an Event of Default
under any of SECTIONS 8.1(A), 8.1(B), 8.1(H) or 8.1(I) may only be waived with
the written consent of all Lenders. Any Event of Default so waived shall be
deemed to have been cured and not to be continuing; but no such waiver shall be
deemed a continuing waiver or shall extend to or affect any subsequent like
default or impair any rights arising therefrom.
SECTION 8.3 REMEDIES. Upon the occurrence and during the continuance of
any Default or Event of Default, the Lenders or the Administrative Agent, on
behalf and for the ratable benefit of the Lenders, may, at the option of
Required Lenders, and shall upon the request of the Required lenders, do any one
or more of the following, all of which are hereby authorized by the Borrower:
(A) Declare all or any of the Obligations of the Borrower under
this Agreement, the Notes, the other Loan Documents and any other instrument
executed by the Borrower pursuant to the Loan Documents to be immediately due
and payable, and upon such declaration such obligations so declared due and
payable shall immediately become due and payable; provided that if such Event of
Default is under Sections 8.1(h) or (I), then all of the Obligations shall
become immediately due and payable forthwith without the requirement of any
notice or other action by the Lenders or the Administrative Agent; provided,
further, that the declaration to accelerate the Obligations may be rescinded
upon the written election of Required Lenders;
(B) Terminate this Agreement (and the Commitments of the
Lenders set forth herein) as to any future liability or obligation of the
Lenders, but without affecting the Lenders' rights in and to Liens in and on the
Collateral; and
(C) Exercise, in addition to all other rights and remedies
granted hereunder, any and all rights and remedies granted under the Collateral
Documents and the other Loan Documents or otherwise available at law or in
equity.
SECTION 8.4 SET-OFF.
(A) RIGHTS OF SET-OFF. Regardless of the adequacy of any
Collateral but subject to SECTION 8.4(B), during the continuance of an Event of
Default, any deposits or other sums credited by or due from any Lender to the
Borrower may be set-off against the Obligations and any and all other
liabilities, direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, of the Borrower to the Lenders.
(B) THE ADMINISTRATIVE AGENT'S CONSENT TO SET-OFF REQUIRED.
Each Lender agrees that it shall not, and that it shall not attempt to, exercise
any right of set-off,
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banker's lien or similar remedy against any of the Property of the Borrower
without the prior written consent of the Administrative Agent.
SECTION 8.5 SHARING OF PAYMENTS. If, other than as expressly provided
elsewhere herein, any Lender shall receive from the Borrower or any other source
whatsoever on account of the Loans made by it any payment (whether voluntary,
involuntary, through the exercise of any right of set-off, bankers' lien,
counterclaim, cross-action, enforcement of any claim evidenced by this Agreement
or any of the other Loan Documents or by proof thereof in any case under the
Bankruptcy Code or similar proceeding or otherwise) which is in excess of its
respective Commitment Percentage of payments on account of the Loans obtained by
all the Lenders with respect to such Loans, such Lender shall forthwith (a)
notify the Administrative Agent of such fact and (b) make such dispositions and
arrangements with each other Lender with respect to such excess, either by way
of distribution until the amount of such excess has been exhausted, assignment
of claims, subrogation or otherwise, as shall result in each such Lender
receiving in respect of the amounts due such Lender, under this Agreement its
ratable share of such payments; provided, however, that if all or any part of
such excess payment is thereafter recovered from such Lender, such disposition
and arrangements shall be rescinded and the amount restored to the extent of
such recovery, but without interest.
SECTION 8.6 RIGHTS AND REMEDIES CUMULATIVE. The Lenders' and the
Administrative Agent's rights and remedies under this Agreement shall be
cumulative. The Lenders and the Administrative Agent shall have all other rights
and remedies not inconsistent herewith as provided by law or in equity. No
exercise by any Lender or the Administrative Agent of one right or remedy shall
be deemed an election. No delay by any Lender or the Administrative Agent shall
constitute a waiver, election or acquiescence by such party.
ARTICLE IX
THE ADMINISTRATIVE AGENT
SECTION 9.1 APPOINTMENT AND AUTHORIZATION. Each Lender hereby
irrevocably appoints, designates and authorizes ABN AMRO as and to be the
Administrative Agent of such Lender under this Agreement and under each of the
other Loan Documents and each Lender irrevocably authorizes ABN AMRO as the
Administrative Agent for such Lender to take such action on its behalf under and
subject to the provisions of this Agreement and each other Loan Document and to
exercise such powers and perform such duties as are expressly delegated to the
Administrative Agent by the terms of this Agreement or any other Loan Document,
together with such powers as are reasonably incidental thereto. Notwithstanding
any provision to the contrary contained elsewhere in this Agreement or in any
other Loan Document, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall the
Administrative Agent have or be deemed to have any fiduciary relationship with
any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against the Administrative Agent in such respective
capacities.
SECTION 9.2 DELEGATION OF DUTIES. The Administrative Agent may execute
any of its duties under this Agreement or any other Loan Document by or through
Administrative Agents
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or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Administrative Agent shall not be
responsible for the negligence or misconduct of any Administrative Agent or
attorney-in-fact that it selects with reasonable care.
SECTION 9.3 EXCULPATORY PROVISIONS. None of the Administrative
Agent-Related Persons shall (a) be liable for any action taken or omitted to be
taken by any of them under or in connection with this Agreement or any other
Loan Document (except for its or such Person's own gross negligence or willful
misconduct), or (b) be responsible in any manner to any of the Lenders for any
recital, statement, representation or warranty made by the Borrower or any
Affiliate of the Borrower or any of their respective Affiliates or any officer
thereof contained in this Agreement or in any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Administrative Agent under or in connection with, this
Agreement or any other Loan Document, or for the value of any Collateral or the
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement, the Notes or any other Loan Document, or for any failure of the
Borrower or any other party to any Loan Document to perform its obligations
hereunder or thereunder. No Administrative Agent-Related Person shall be under
any obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the properties, books or
records of the Borrower or any of its Affiliates.
SECTION 9.4 RELIANCE BY THE ADMINISTRATIVE AGENT.
(A) The Administrative Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons, and upon advice and statements of legal counsel (including counsel
to the Borrower), independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent may deem and treat the payee of
any Note as the owner thereof for all purposes unless a completed and fully
executed Assignment and Acceptance shall have been delivered to the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Required Lenders or all Lenders as it deems appropriate and, if it so requests,
it shall first be indemnified to its satisfaction by the Lenders against any and
all liability and expense (except those incurred solely as a result of the
Administrative Agent's gross negligence or willful misconduct) which may be
incurred by it by reason of taking or continuing to take any such action. The
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement, the Notes or any of the other Loan
Documents in accordance with a request or consent of the Required Lenders or all
Lenders, as may be required, and such request and any action taken or failure to
act pursuant thereto shall be binding upon all of the Lenders and all future
holders of the Notes.
(B) For purposes of determining compliance with the conditions
precedent specified in ARTICLE IV, each Lender that has executed this Agreement
or shall hereafter execute and deliver an Assignment and Acceptance in
accordance with SECTION 10.11(A) shall be deemed to have consented to, approved
or accepted or to be satisfied with each document or other matter
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either sent by the Administrative Agent to such Lender for consent, approval,
acceptance or satisfaction, or required thereunder to be consented to or
approved by or acceptable or satisfactory to the Lender.
SECTION 9.5 NOTICE OF DEFAULT. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default, except, as to the Administrative Agent only, with respect to defaults
in the payment of principal, interest and fees required to be paid to the
Administrative Agent on behalf and for the benefit of the Lenders, unless the
Administrative Agent shall have received written notice from a Lender or the
Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event that
the Administrative Agent receives such a notice, the Administrative Agent shall
give notice thereof to the Lenders. The Administrative Agent shall take such
action with respect to such Default or Event of Default as shall be requested by
the Required Lenders or all Lenders, as appropriate; provided, however, that
unless and until the Administrative Agent shall have received any such request,
the Administrative Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Default or Event of
Default as it shall deem in the best interest of the Lenders or as the
Administrative Agent shall believe necessary to protect the Lenders' interests
in the Collateral.
SECTION 9.6 CREDIT DECISION. Each Lender expressly acknowledges that
none of the Administrative Agent-Related Persons have made any representation or
warranty to it and that no act by the Administrative Agent hereinafter taken,
including any review of the affairs of the Borrower or any of their respective
Affiliates, shall be deemed to constitute any representation or warranty by the
Administrative Agent to any Lender. Each Lender represents to the Administrative
Agent that it has, independently and without reliance upon the Administrative
Agent or any other Lender and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
creditworthiness of the Borrower and its Affiliates, and all applicable bank
regulatory laws relating to the transactions contemplated thereby, and made its
own decision to enter into this Agreement and extend credit to the Borrower
under and pursuant to this Agreement. Each Lender also represents that it will,
independently and without reliance upon the Administrative Agent and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to make
such investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of the Borrower and its Affiliates. Except for notices, reports
and other documents expressly herein required to be furnished to the Lenders by
the Administrative Agent hereunder, the Administrative Agent shall not have any
duty or responsibility to provide any Lender with any credit or other
information concerning the business, prospects, operations, property, financial
and other condition or creditworthiness of the Borrower or any of its
Affiliates, which may come into the possession of any Administrative
Agent-Related Person.
SECTION 9.7 INDEMNIFICATION. Whether or not the transactions
contemplated hereby shall be consummated, the Lenders agree to and shall
indemnify upon demand the Administrative Agent-Related Persons (to the extent
not reimbursed by or on behalf of the
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Borrower or any guarantor of the Obligations and without limiting the obligation
of such Person to do so), ratably from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs
(including Attorneys Costs), expenses and disbursements of any kind whatsoever
which may at any time (including at any time following the repayment of the
Loans and the termination or resignation of the Administrative Agent) be imposed
on, incurred by or asserted against any such Person in such capacity, but not as
Lender, in any way relating to or arising out of this Agreement, any of the
other Loan Documents or any document contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby or any action taken
or omitted by any such Person under or in connection with any of the foregoing;
provided, however, that no Lender shall be liable for the payment of any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from such Person's
gross negligence or willful misconduct. Without limitation of the foregoing,
each Lender shall reimburse the Administrative Agent upon demand for its ratable
share of any costs or other out-of-pocket expenses (including Attorney Costs)
incurred by the Administrative Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement, any other
Loan Document, or any document contemplated by or referred to herein to the
extent that such Person is not reimbursed for such expenses by or on behalf of
the Borrower. Without limiting the generality of the foregoing, if the IRS or
any other Governmental Authority of the United States or other jurisdiction
asserts a claim that the Administrative Agent did not properly withhold tax from
amounts paid to or for the account of any Lender (because the appropriate form
was not delivered, was not properly executed, or because such Lender failed to
notify the Administrative Agent of a change in circumstances which rendered the
exemption from, or reduction of, withholding tax ineffective, or for any other
reason), such Lender shall indemnify the Administrative Agent fully for all
amounts paid, directly or indirectly, by the Administrative Agent as tax or
otherwise, including penalties and interest, and including any taxes imposed by
any jurisdiction on the amounts payable to the Administrative Agent under this
SECTION 9.7, together with all costs and expenses (including Attorney Costs).
The obligation of the Lenders in this SECTION 9.7 shall survive the payment of
all Obligations and the termination of this Agreement.
SECTION 9.8 THE ADMINISTRATIVE AGENT IN INDIVIDUAL CAPACITY. ABN AMRO
and its Affiliates and its successors as the Administrative Agent, may make
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in, and generally engage in any kind of banking, trust,
financial advisory or other business with the Borrower and its Affiliates as
though ABN AMRO (or such successors) were not the Administrative Agent hereunder
and under the other Loan Documents and without notice to or consent of the
Lenders. With respect to its Loans, ABN AMRO shall have the same rights and
powers under this Agreement as any other Lender and may exercise the same as
though it were not the Administrative Agent and the terms "Lender" and "Lenders"
shall include ABN AMRO in its individual capacity.
SECTION 9.9 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent
may resign as Administrative Agent upon thirty (30) days' notice to the Lenders
and Required Lenders may at any time remove the Administrative Agent. If the
Administrative Agent shall be removed or shall resign as the Administrative
Agent under this Agreement and the other Loan Documents,
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the Required Lenders shall appoint from among the Lenders a successor
Administrative Agent for the Lenders, which successor Administrative Agent shall
be approved by the Borrower (which consent shall not be unreasonably withheld or
delayed), whereupon such Administrative Agent shall succeed to the rights,
powers and duties of the Administrative Agent, and the term "Administrative
Agent" shall mean such successor Administrative Agent, effective upon its
appointment, and the former Administrative Agent's rights, powers and duties as
Administrative Agent shall be terminated, without any other or further act or
deed on the part of such former Administrative Agent or any of the parties to
this Agreement or any holders of the Notes. After any retiring Administrative
Agent's removal or resignation as Administrative Agent, the provisions of this
ARTICLE IX shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was an Administrative Agent under this Agreement and the
other Loan Documents. Further, if any Administrative Agent no longer has any
Loans or Commitments hereunder, such Administrative Agent shall immediately
resign and shall be replaced, and have the benefits, as set forth in this
SECTION 9.9.
SECTION 9.10 COLLATERAL MATTERS.
(A) The Administrative Agent is authorized on behalf of all
the Lenders, without the necessity of any notice to or further consent from the
Lenders, from time to time to take any action with respect to any Collateral or
the Collateral Documents which may be necessary to perfect and maintain
perfected the security interest in and Liens upon the Collateral granted
pursuant to the Collateral Documents.
(B) The Lenders irrevocably authorize the Administrative
Agent, at its option and in its discretion, to release any Lien granted to or
held by the Administrative Agent upon any Collateral (i) upon termination of the
Commitments and payment in full of all Loans and all other Obligations payable
under this Agreement and under any other Loan Document; (ii) consisting of an
instrument evidencing Indebtedness or other debt instrument, if the indebtedness
evidenced thereby has been paid in full; or (iii) if approved, authorized or
ratified in writing by the Required Lenders or all the Lenders, as the case may
be, as provided in SECTION 10.1(F). Upon request by the Administrative Agent at
any time, the Lenders will confirm in writing the Administrative Agent's
authority to release particular types or items of Collateral pursuant to this
SECTION 9.10(B). Required Lenders may also deliver written directions to the
Administrative Agent not to take any specific action permitted by this SECTION
9.10(B) and, following receipt of such notice, but subject to the other terms of
this ARTICLE IX, the Administrative Agent shall cease from taking such action.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 AMENDMENTS AND WAIVERS. No amendment, modification or
waiver of any provision of this Agreement or any other Loan Document, and no
consent with respect to any departure by the Borrower therefrom, shall be
effective unless the same shall be in writing and signed by Required Lenders,
and then such waiver shall be effective only in the specific instance and for
the specific purpose for which given; provided, however, that no such waiver,
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amendment, or consent shall, unless in writing and signed by all the Lenders, do
any of the following:
(A) increase or extend the Commitment of any Lender or subject
any Lender to any additional obligations;
(B) postpone or delay any date fixed for any payment of
principal, interest, fees or other amounts due to the Lenders (or any of them)
hereunder or under any Loan Document (including in respect of any Mandatory
Prepayment);
(C) reduce the principal of, or the rate of interest specified
herein on, any Loan, or of any fees or other amounts payable hereunder or under
any Loan Document;
(D) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which shall be required for the
Lenders or any of them to take any action hereunder;
(E) amend this SECTION 10.1;
(F) release all or any substantial part of the Collateral,
except as otherwise may be provided herein or in the Collateral Documents or
except where the consent of the Required Lenders only is specifically provided
for; or
(G) release Pioneer from its obligations under the Guaranty;
and, provided further that no amendment, modification, waiver or consent shall,
unless in writing and signed by the Administrative Agent in addition to the
Required Lenders or all the Lenders, as the case may be, affect the
corresponding rights or duties of the Administrative Agent under this Agreement
or any other Loan Document.
SECTION 10.2 NOTICES.
(A) All notices, requests and other communications provided
for hereunder shall be in writing (including, unless the context expressly
otherwise provides, by facsimile transmission, provided that any matter
transmitted by the Borrower by facsimile (i) shall be immediately confirmed by a
telephone call to the recipient at the number specified on the applicable
signature page hereof, and (ii) shall be followed promptly by a hard copy
original thereof) and mailed, faxed or delivered to the address or facsimile
number specified for notices on the applicable signature page hereof; or, as
directed to the Borrower or the Administrative Agent, to such other address as
shall be designated by such party in a written notice to the other parties, and
as directed to each other party, at such other address as shall be designated by
such party in a written notice to the Borrower and the Administrative Agent.
(B) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next day) delivery, or transmitted by facsimile machine,
respectively, or if delivered, upon delivery, except that notices pursuant to
ARTICLE II or ARTICLE IX shall not be effective until actually received by the
Administrative Agent.
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(C) The Borrower and the Lenders acknowledge and agree that
any agreement of the parties to receive certain notices by telephone and
facsimile is for their mutual benefit and convenience. Any party shall be
entitled to rely on the authority of any Person purporting to be a Person
authorized by any other party to give such notice and the party relying on such
authorization shall not have any liability to any other Person on account of any
action taken or not taken by such party in reliance upon such telephonic or
facsimile notice. The obligation of the Borrower to repay the Loans shall not be
affected in any way or to any extent by any failure by the Administrative Agent
to receive written confirmation of any telephonic or facsimile notice or the
receipt by the Administrative Agent of a confirmation which is at variance with
the terms understood by the Administrative Agent to be contained in the
telephonic or facsimile notice.
SECTION 10.3 NO WAIVER BY ADMINISTRATIVE AGENT OR THE LENDERS. No
failure or delay on the part of any Lender or the Administrative Agent, in the
exercise of any power, right or privilege under this Agreement, the Notes or any
of the other Loan Documents shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege.
SECTION 10.4 ENTIRE AGREEMENT; CONSTRUCTION.
(A) This Agreement, the Notes and each of the other Loan
Documents dated as of the date hereof, taken together, constitute and contain
the entire agreement among the Borrower, the Lenders and the Administrative
Agent and supersede any and all prior agreements, negotiations, correspondence,
understandings and communications among the parties, whether written or oral,
respecting the subject matter hereof.
(B) This Agreement is the result of negotiations between and
has been reviewed by each of the Borrower and the Lenders executing this
Agreement as of the Closing Date, the Administrative Agent and their respective
counsel; accordingly, this Agreement shall be deemed to be the product of the
parties hereto, and no ambiguity shall be construed in favor of or against the
Borrower, the Lenders or the Administrative Agent. The Borrower, the Lenders and
the Administrative Agent each severally agrees that it intends the literal words
of this Agreement and the other Loan Documents and that no parole evidence shall
be necessary or appropriate to establish Borrower's, any Lender's or the
Administrative Agent's actual intentions.
SECTION 10.5 INDEMNIFICATION. To the fullest extent permitted by law,
the Borrower agrees to protect, indemnify, defend and hold harmless each Lender
and the Administrative Agent, and each of their respective directors, officers,
employees and Administrative Agents and any Person who controls any of them
within the meaning of the federal, state and foreign securities laws (each an
"Indemnitee") from and against any liabilities, losses, obligations, damages,
penalties, expenses or costs of any kind or nature and from any suits,
judgments, claims or demands (including in respect of or for Attorney Costs and
other reasonable fees and other disbursements of counsel for and consultants of
such Indemnitees in connection with any investigative, administrative or
judicial proceeding, whether or not such Indemnitees shall be designated a party
thereto) based on any federal, state, local or foreign law or other statutory
regulation, including securities, environmental and commercial law or other
statutory regulation,
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which arises under common law or at equitable cause or on contract or otherwise
on account of or in connection with any matter or thing or any action or failure
to act by Indemnitees, or any of them, arising out of or relating to (a) the
Loan Documents or any agreement or instrument executed pursuant to the Loan
Documents, including any use or proposed use of the proceeds of the Loans, or
(b) the actual or illegal presence of Hazardous Materials on any Property owned,
leased or operated or used by the Borrower, STTOC, STPII or Pioneer or any
Environmental Action relating in any way to the Borrower, STTOC, STPII or
Pioneer, including, in each case, any action taken or omitted by any such Person
under or in connection with any of the foregoing, including in respect of any
investigation, litigation or proceeding, including Insolvency
Proceeding/appellate proceeding, whether or not such Indemnitee is named or
identified as a potentially responsible person or a party in or to any such
investigation, litigation or proceeding, except to the extent such liability
arises from the willful misconduct or gross negligence of any of the Indemnitees
(collectively, the "Indemnified Matters"). Upon receiving knowledge of any suit,
claim or demand asserted by any Person that any Lender or the Administrative
Agent believes is covered by this indemnity, such Lender or the Administrative
Agent, as the case may be, shall give the Borrower notice of the matter and an
opportunity to defend it, at the Borrower's sole cost and expense, with legal
counsel of the Borrower's choice, which legal counsel shall be reasonably
satisfactory to the Administrative Agent and each affected Lender. The
Administrative Agent and each affected Lender may also require the Borrower to
defend the matter. The obligations of the Borrower under this SECTION 10.5 shall
survive the payment and performance of the Obligations and the termination of
this Agreement. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in this SECTION 10.5 may be unenforceable because it is
violative of any law or public policy, the Borrower shall contribute the maximum
portion which it is permitted to pay and satisfy under applicable law to the
payment and satisfaction of all Indemnified Matters incurred by the Indemnitees.
SECTION 10.6 COSTS AND EXPENSES. The Borrower shall, whether or not the
transactions contemplated hereby shall be consummated:
(A) subject to SECTION 4.1(BB), pay or reimburse the
Administrative Agent, ABN AMRO, NationsBank, N.A. and First Union Investors,
Inc. within thirty (30) days after demand for all reasonable costs and expenses
incurred by the Administrative Agent, ABN AMRO, NationsBank, N.A. and First
Union Investors, Inc. in connection with the development, preparation, delivery,
administration and execution of, and any amendment, supplement, waiver or
modification to (in each case, whether or not consummated), this Agreement, any
other Loan Document and any other documents prepared in connection herewith
(including any commitment letter and related documents preceding this Agreement)
or therewith, the syndication of the Bridge Facility to the Lenders and
potential Lenders, and the consummation of the transactions contemplated hereby
and thereby, including the reasonable Attorney Costs incurred by the
Administrative Agent, ABN AMRO, NationsBank, N.A. and First Union Investors,
Inc. with respect hereto and thereto;
(B) pay or reimburse the Administrative Agent and, after the
occurrence of an Event of Default, each Lender within thirty (30) days after
demand for all costs and expenses incurred by it in connection with the
enforcement, attempted enforcement, or preservation of any rights or remedies
(including in connection with any "workout" or restructuring regarding the
Loans, and including in any Insolvency Proceeding or appellate proceeding) under
this
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Agreement or any other Loan Document, including Attorney Costs incurred by the
Administrative Agent and any Lender; and
(C) pay or reimburse the Administrative Agent, ABN AMRO,
NationsBank, N.A. and First Union Investors, Inc., and, after the occurrence of
an Event of Default, each other Lender, within thirty (30) days after demand for
all reasonable audit, appraisal, appraisal review, environmental inspection and
review, search and filing, registration and recording and other similar costs,
fees and expenses, including the fees and expertise of Lenders' Forestry
Consultant, incurred or sustained by ABN AMRO (including in its capacity as the
Administrative Agent), NationsBank, N.A. or First Union Investors, Inc. or any
other Lender in connection with the matters referred to under clauses (A) and
(B) of this SECTION 10.6.
SECTION 10.7 RELIANCE BY THE LENDERS. All covenants, agreements,
representations and warranties made herein by the Borrower shall,
notwithstanding any investigation by the Lenders or the Administrative Agent be
deemed to be material to and to have been relied upon by the Lenders and the
Administrative Agent.
SECTION 10.8 MARSHALLING; PAYMENTS SET ASIDE. Neither the Lenders nor
the Administrative Agent, as the holder of any Lien as security for the
Obligations, shall be under any obligation to marshal any assets in favor of the
Borrower or any other Person against or in payment of any or all of the
Obligations. To the extent that (a) the Borrower makes a payment or payments to
the Lenders or the Administrative Agent, or (b) the Lenders or the
Administrative Agent, on behalf and for the benefit of itself and the Lenders,
enforces its or their Liens or exercises its or their rights of set-off, and
such payment or payments or the proceeds of such enforcement or set-off or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, receiver or any
other party under the Bankruptcy Code or under any other similar federal or
state law, common law or equitable cause, then to the extent of such recovery
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or set-off had not occurred.
SECTION 10.9 NO SET-OFFS BY THE BORROWER. All sums payable by the
Borrower pursuant to this Agreement, the Notes or any of the other Loan
Documents shall be payable without notice or demand and shall be payable in
United States Dollars without set-off or reduction of any manner whatsoever.
SECTION 10.10 SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of the Administrative Agent and each Lender.
SECTION 10.11 ASSIGNMENTS, PARTICIPATIONS, ETC.
(A) Any Lender may, with the written consent of the Borrower
(at all times other than during the existence of an Event of Default in which
event the Borrower's consent shall not be required) and the Administrative Agent
(and written notice to each other Lender), which consents shall not be
unreasonably withheld, at any time assign and delegate to one or
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more Eligible Assignees (provided that no written consent of the Borrower or the
Administrative Agent shall be required in connection with any assignment and
delegation by any Lender to a Lender Affiliate of such Lender) (each an
"Assignee") all, or any ratable part of all, of the Loans, the Commitments and
the other rights and obligations of such Lender hereunder, in a minimum amount
of $1,000,000; provided, however, that (i) the Borrower and the Administrative
Agent may continue to deal solely and directly with such Lender in connection
with the interest so assigned to an Assignee until (A) written notice of such
assignment, together with payment instructions, addresses and related
information with respect to the Assignee, shall have been given to the Borrower
and the Administrative Agent by such Lender and the Assignee; (B) such Lender
and its Assignee shall have delivered to the Borrower and the Administrative
Agent an Assignment and Acceptance substantially in the form of EXHIBIT D
("Assignment and Acceptance") together with any Note or Notes subject to such
assignment and (C) the assignor Lender or Assignee has paid to the
Administrative Agent a processing fee of $3,500; provided that no processing fee
shall be charged for any assignment to a Lender or a Lender Affiliate, and
further provided that the Borrower shall not pay any fees or costs in connection
with such assignment.
(B) From and after the date that the Administrative Agent
notifies the assigning Lender that it has received an executed Assignment and
Acceptance and payment of the above-referenced processing fee, (i) the Assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, shall have the rights and obligations of a Lender under the Loan
Documents, and (ii) the assignor Lender shall, to the extent that rights and
obligations hereunder and under the other Loan Documents have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Loan Documents; provided, however, that
any assignment by the assignor Lender of rights to indemnification under and
pursuant to the Loan Documents, including under and pursuant to SECTION 10.5 of
this Agreement, shall be undivided and nonexclusive, with each of the assignor
Lender and the Assignee being severally deemed to be beneficiaries of such
indemnity rights.
(C) Within five (5) Business Days after its receipt of notice
from the Administrative Agent that the Administrative Agent has received an
executed Assignment and Acceptance and payment of the processing fee, the
Borrower shall execute and deliver to the Administrative Agent new Notes on the
same terms and conditions as the original Notes evidencing such Assignee's
assigned Loans and Commitments and, if the assignor Lender has retained a
portion of its Loans and its Commitments, replacement Notes in the principal
amount of the Loans retained by the assignor Lender (such Notes to be in
exchange for, but not in payment of, the Notes held by such Lender). Immediately
upon each Assignee's making its processing fee payment under the Assignment and
Acceptance, this Agreement shall be deemed to be amended to the extent, but only
to the extent, necessary to reflect the addition of the Assignee and the
resulting adjustment of the Commitments arising therefrom. The Commitments
allocated to each Assignee shall reduce such Commitments of the assigning Lender
pro tanto.
(D) Any Lender may at any time sell to one or more commercial
banks or other Persons not Affiliates of the Borrower (a "Participant")
participating interests in any Loans, the Commitment of that Lender and the
other interests of that Lender (the "Originating
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Lender") hereunder and under the other Loan Documents; provided, however, that
(i) the Originating Lender's obligations under this Agreement shall remain
unchanged, (ii) the Originating Lender shall remain solely responsible for the
performance of such obligations, (iii) the Borrower and the Administrative Agent
shall continue to deal solely and directly with the Originating Lender in
connection with the Originating Lender's rights and obligations under this
Agreement and the other Loan Documents, and (iv) no Lender shall transfer or
grant any participating interest under which the Participant shall have rights
to approve any amendment to, or any consent or waiver with respect to, this
Agreement or any other Loan Document, except to the extent such amendment,
consent or waiver would require unanimous consent of the Lenders as described in
clauses (A), (C) and (D) of the first proviso to SECTION 10.1. In the case of
any such participation, the Participant shall be entitled to the benefit of
SECTIONS 3.1, 3.3, 3.6, 10.1 (but solely with respect to those matters set forth
in clauses (A), (C) and (D) thereof requiring the consent of all Lenders), and
10.5 as though it were also a Lender hereunder, and if amounts outstanding under
this Agreement are due and unpaid, or shall have been declared or shall have
become due and payable upon the occurrence of an Event of Default, each
Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interests were owing directly to it as a
Lender under this Agreement.
(E) Each Lender agrees to take normal and reasonable
precautions and exercise due care to maintain the confidentiality of all
information identified as "confidential" by the Borrower and provided to it by
the Borrower, or by the Administrative Agent on the Borrower's behalf, in
connection with this Agreement or any other Loan Document, and neither it nor
any of its Affiliates shall use any such information for any purpose or in any
manner other than pursuant to the terms contemplated by this Agreement, except
to the extent such information (i) was or becomes generally available to the
public other than as a result of a disclosure by the Lender, or (ii) was or
becomes available on a non-confidential basis from a source other than the
Borrower, provided that such source is not bound by a confidentiality agreement
with the Borrower known to the Lender; provided, however, that any Lender may
disclose such information (A) at the request or pursuant to any requirement of
any Governmental Authority to which the Lender is subject or in connection with
an examination of such Lender by any such Governmental Authority; (B) pursuant
to subpoena or other court process; (C) when required to do so in accordance
with the provisions of any applicable Requirement of Law; and (D) to such
Lender's independent auditors and other professional advisors, provided that
such auditors and professional advisors shall be required to similarly protect
the confidentiality of such information. Notwithstanding the foregoing, the
Borrower authorizes each Lender to disclose to any Participant or Assignee
(each, a "Transferee") and to any prospective Transferee, such financial and
other information in such Lender's possession concerning the Borrower which has
been delivered to the Administrative Agent or the Lenders pursuant to this
Agreement or which has been delivered to the Administrative Agent or the Lenders
by or on behalf of the Borrower in connection with the Lenders' credit
evaluation of the Borrower prior to entering into this Agreement; provided that,
unless otherwise agreed by the Borrower, such Transferee agrees in writing to
such Lender to keep such information confidential to the same extent required of
the Lenders hereunder.
(F) Notwithstanding any other provision contained in this
Agreement or any other Loan Document to the contrary, any Lender may assign all
or any portion of the Loans or
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Notes held by it to any Federal Reserve Bank or the United States Treasury as
collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any Operating Circular issued by such Federal Reserve
Bank, provided that any payment in respect of such assigned Loans or Notes made
by the Borrower to or for the account of the assigning or pledging Lender in
accordance with the terms of this Agreement shall satisfy the Borrower's
obligations hereunder in respect to such assigned Loans or Notes to the extent
of such payment. No such assignment shall release the assigning Lender from its
obligations hereunder.
SECTION 10.12 HEADINGS. Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 10.13 SEVERABILITY. Whenever possible, each provision of this
Agreement, the Notes and each of the other Loan Documents shall be interpreted
in such a manner as to be valid, legal and enforceable under the applicable law
of any jurisdiction. Without limiting the generality of the foregoing sentence,
in case any provision of this Agreement, the Notes or any of the other Loan
Documents shall be invalid, illegal or unenforceable under the applicable law of
any jurisdiction, the validity, legality and enforceability of the remaining
provisions, or of such provision in any other jurisdiction, shall not in any way
be affected or impaired thereby.
SECTION 10.14 NOTIFICATION OF ADDRESSES, LENDING OFFICES, ETC. Each
Lender shall notify the Administrative Agent in writing of any changes in the
address to which notices to the Lender should be directed, of addresses of its
Domestic Lending Office, of payment instructions in respect of all payments to
be made to it hereunder, and of such other administrative information as the
Administrative Agent shall reasonably request.
SECTION 10.15 NO THIRD PARTIES BENEFITED. This Agreement is made and
entered into for the sole protection and legal benefit of the Borrower, the
Lenders, the Administrative Agent and their permitted successors and assigns,
and except as otherwise expressly provided in this Agreement, no other Person
shall be a direct or indirect legal beneficiary of, or have any direct or
indirect cause of action or claim in connection with, this Agreement or any of
the other Loan Documents. Neither the Administrative Agent nor any Lender shall
have any obligation to any Person not a party to this Agreement or other Loan
Documents.
SECTION 10.16 RELATIONSHIP OF PARTIES. The relationship between the
Borrower, on the one hand, and the Lenders and the Administrative Agent, on the
other, is, and at all times shall remain solely that of a borrower and lenders.
Neither any Lender nor the Administrative Agent shall under any circumstances be
construed to be partners or joint venturers of the Borrower or any of its
Affiliates; nor shall any Lenders or the Administrative Agent under any
circumstances be deemed to be in a relationship of confidence or trust or a
fiduciary relationship with the Borrower or any of its Affiliates, or to owe any
fiduciary duty to the Borrower or any of its Affiliates. Neither the Lenders nor
the Administrative Agent undertake or assume any responsibility or duty to the
Borrower or any of its Affiliates to select, review, inspect, supervise, pass
judgment upon or otherwise inform the Borrower or any of its Affiliates of any
matter in connection with its or their Property, any Collateral held by the
Administrative Agent or any Lender, or the operations of the Borrower or any of
its Affiliates. The Borrower and each of its Affiliates shall rely entirely on
their own judgment with respect to such matters, and any review,
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inspection, supervision, exercise of judgment or supply of information
undertaken or assumed by any Lender or the Administrative Agent in connection
with such matters is solely for the protection of the Lender and the
Administrative Agent, and neither the Borrower nor any of its Affiliates is
entitled to rely thereon.
SECTION 10.17 TIME. Time is of the essence as to each term or provision
of this Agreement and each of the other Loan Documents.
SECTION 10.18 COUNTERPARTS. This Agreement and any amendments, waivers,
consents or supplements hereto may be executed in any number of counterparts,
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.
SECTION 10.19 JOINDER TO SUBORDINATION AGREEMENT. Each Lender agrees
that in becoming a Lender hereunder it is joined as a party to and bound for all
purposes by the terms of the Subordination Agreement applicable to the Junior
Lenders (as defined therein).
SECTION 10.20 EQUITABLE RELIEF. The Borrower recognizes that, in the
event the Borrower fails to perform, observe or discharge any of its obligations
or liabilities under this Agreement, the Notes or any of the other Loan
Documents, any remedy at law may prove to be inadequate relief to the Lenders or
the Administrative Agent; therefore, the Borrower agrees that the Lenders or the
Administrative Agent, if the Lenders or the Administrative Agent so request,
shall be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
SECTION 10.21 NOTICE OF CLAIMS; CLAIMS BAR. THE BORROWER HEREBY AGREES
THAT IT SHALL GIVE PROMPT NOTICE AFTER BECOMING AWARE OF ANY CLAIM OR CAUSE OF
ACTION IT BELIEVES IT HAS, OR MAY SEEK TO ASSERT OR ALLEGE AGAINST ANY LENDER OR
THE ADMINISTRATIVE AGENT, WHETHER SUCH CLAIM IS BASED IN LAW OR EQUITY, ARISING
UNDER OR RELATED TO THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS
OR TO THE LOANS (OR THE COLLATERAL THEREFOR) CONTEMPLATED HEREBY OR THEREBY OR
ANY ACT OR OMISSION TO ACT BY ANY LENDER OR THE ADMINISTRATIVE AGENT WITH
RESPECT HERETO OR THERETO, AND THAT IF IT SHALL FAIL TO GIVE SUCH NOTICE TO THE
ADMINISTRATIVE AGENT PRIOR TO THE FIRST ANNIVERSARY OF HAVING BECOME AWARE OF
ANY SUCH CLAIM OR CAUSE OF ACTION, IT SHALL BE DEEMED TO HAVE WAIVED, AND SHALL
BE FOREVER BARRED FROM BRINGING OR ASSERTING SUCH CLAIM OR CAUSE OF ACTION IN
ANY SUIT, ACTION OR PROCEEDING IN ANY COURT OR BEFORE ANY GOVERNMENTAL
AUTHORITY.
SECTION 10.22 WAIVER OF PUNITIVE DAMAGES. NOTWITHSTANDING ANYTHING TO
THE CONTRARY CONTAINED IN THIS AGREEMENT, THE BORROWER HEREBY AGREES THAT IT
SHALL NOT SEEK FROM THE LENDERS OR THE ADMINISTRATIVE AGENT, UNDER ANY THEORY OF
LIABILITY, INCLUDING, WITHOUT LIMITATION, ANY THEORY IN TORTS, ANY SPECIAL,
INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES.
SECTION 10.23 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS
ARISING HEREUNDER SHALL BE
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GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE,
WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, AND ANY
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
SECTION 10.24 SERVICE OF PROCESS. SERVICE OF PROCESS ON THE BORROWER OR
THE ADMINISTRATIVE AGENT OR THE LENDERS IN ANY ACTION SUBJECT TO THIS SECTION
10.24 SHALL BE EFFECTIVE IF MAILED TO SUCH PARTY AT THE ADDRESS LISTED ON THE
SIGNATURE PAGES HERETO UNLESS PRIOR WRITTEN NOTICE OF ANY CHANGES THEREOF HAS
BEEN PREVIOUSLY DELIVERED.
SECTION 10.25 WAIVER OF JURY TRIAL. THE BORROWER, EACH LENDER AND THE
ADMINISTRATIVE AGENT, HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY
DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN
DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OF THEREUNDER, OR THE PERFORMANCE
OF SUCH RIGHTS AND OBLIGATIONS.
SECTION 10.26 SUBMISSION TO JURISDICTION.
(A) EXCEPT AS SET FORTH IN SECTION 10.26(B), THE BORROWER,
EACH LENDER AND THE ADMINISTRATIVE AGENT, AGREE THAT ALL DISPUTES BETWEEN OR
AMONG THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN OR AMONG THEM, INCLUDING COURSE OF DEALING,
COURSE OF CONDUCT, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE
BORROWER, ANY LENDER OR THE ADMINISTRATIVE AGENT, IN CONNECTION WITH THE LOAN
DOCUMENTS OR ANY DOCUMENTS RELATED THERETO, AND WHETHER ARISING IN CONTRACT,
TORT, EQUITY OR OTHERWISE, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE
COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY
SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS. THE
BORROWER, EACH OF THE LENDERS AND THE ADMINISTRATIVE AGENT HEREBY EXPRESSLY AND
IRREVOCABLY WAIVE IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION
OF THE COURT CONSIDERING THE DISPUTE, INCLUDING ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS.
(B) THE BORROWER AGREES THAT THE ADMINISTRATIVE AGENT AND
EACH LENDER SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO
PROCEED AGAINST THE BORROWER OR ANY COLLATERAL IN A COURT IN ANY LOCATION
REASONABLY SELECTED IN GOOD FAITH TO ENABLE THE ADMINISTRATIVE AGENT OR ANY
LENDER TO REALIZE ON ANY COLLATERAL OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER ENTERED IN FAVOR OF THE ADMINISTRATIVE AGENT OR ANY LENDER. THE BORROWER
AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING
BROUGHT BY THE ADMINISTRATIVE AGENT OR ANY LENDER TO REALIZE ON ANY COLLATERAL
OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE ADMINISTRATIVE
AGENT OR ANY LENDER. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY
OBJECTION IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE ADMINISTRATIVE
AGENT OR ANY LENDER HAS
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COMMENCED A PROCEEDING DESCRIBED IN THIS SECTION 10.26(B), INCLUDING ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY
IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER
THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF
EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR THE COLLATERAL OR OTHER
PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS
OBLIGATIONS UNDER THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS.
(C) THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY CONSENTS TO
THE SERVICE OF PROCESS OF ANY OF THE FOREGOING COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS FOR NOTICE DESIGNATED IN
ACCORDANCE WITH SECTION 10.2, SUCH SERVICE TO BECOME EFFECTIVE FOUR (4) DAYS
AFTER SUCH MAILING.
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WITNESS the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.
BORROWER STRATEGIC TIMBER TRUST II, LLC, a Georgia limited
liability company
By: /s/ Joseph E. Rendini
-----------------------------------------------
Joseph E. Rendini
Vice President and Secretary
Notices to be sent to:
Strategic Timber Trust II, LLC
5 North Pleasant Street
New London, New Hampshire 03257
Attention: Thomas B. Broom
Telephone: (603) 526-7800
Facsimile: (603) 526-7811
<PAGE> 88
LENDERS ABN AMRO BANK N.V.
By: /s/ Wayne Rancourt
-----------------------------------------------
Wayne Rancourt
Vice President
By: /s/ David McGinnis
-----------------------------------------------
David McGinnis,
Vice President
Domestic Lending Office
ABN AMRO Bank N.V.
135 South LaSalle Street
Suite 625
Chicago, Illinois 60674
Attention: Loan Administration
Telephone: (302) 904-8855
Facsimile: (302) 904-6893
Notices to be sent to:
ABN AMRO Bank N.V.
One Union Square
600 University Street, Suite 2323
Seattle, WA 98101-2070
Attention: David McGinnis, Vice President
Telephone: 206/587-0342
Facsimile: 206/682-5641
<PAGE> 89
NATIONSBANK, N.A.
By: /s/ Joseph L. Corah
-----------------------------------------------
Joseph L. Corah
Vice President
Domestic Lending Office
NationsBank, N.A.
100 North Tryon Street, 8th Floor
NC1-007-08-05
Charlotte, NC 28255
Attention: Joseph L. Corah
Telephone: (704) 386-5976
Facsimile: (704) 386-9835
Notices to be sent to:
NationsBank, N.A.
100 North Tryon Street, 8th Floor
NC1-007-08-05
Charlotte, NC 28255
Attention: Joseph L. Corah
Telephone: (704) 386-5976
Facsimile: (704) 386-9835
<PAGE> 90
FIRST UNION INVESTORS, INC.
By: /s/ Steven J. Taylor
-----------------------------------------------
Printed Name: Steven J. Taylor
Title: Senior Director
Domestic Lending Office
First Union Investors, Inc.
One First Union Center
301 South College Street
Charlotte, NC 28288-0735
Attention:
Telephone:
Facsimile:
Notices to be sent to:
First Union Investors, Inc.
One First Union Center
301 South College Street
Charlotte, NC 28288-0735
Attention:
Telephone:
Facsimile:
<PAGE> 91
PARIBAS
By: /s/ Judith A. Dowling
----------------------------------------
Printed Name: Judith A. Dowling
Title: Vice President
By: /s/ Lee S. Buckner
----------------------------------------
Printed Name: Lee S. Buckner
Title: Managing Director
Domestic Lending Office
Paribas
2029 Century Park East, Suite 3900
Los Angeles, CA 90067
Attention: Shirley Williams
Telephone: (310) 551-7360
Facsimile: (310) 553-1504
Notices to be sent to:
Paribas
101 California Street, Suite 3150
San Francisco, CA 94111
Attention:
Telephone: (415) 398-6811
Facsimile: (415) 398-4240
<PAGE> 92
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Henry G. Montgomery
-------------------------------------------
Henry G. Montgomery
Vice President
Domestic Lending Office
Union Bank of California, N.A.
1980 Saturn Street
Monterey Park, CA 91755
Attention: Ruby Gonzalez
Telephone: (213) 720-2676
Facsimile: (213) 724-6198
Notices to be sent to:
Union Bank of California, N.A.
350 California Street, 6th Floor
San Francisco, CA 94104
Attention: Buddy Montgomery
Telephone: (415) 705-5011
Facsimile: (415) 705-5093
<PAGE> 93
ADMINISTRATIVE AGENT ABN AMRO BANK N.V.
By: /s/ Wayne Rancourt
----------------------------------------
Wayne Rancourt
Vice President
By: /s/ David McGinnis
----------------------------------------
David McGinnis,
Vice President
Administrative Agent's Payment Office:
ABN AMRO Bank N.Y.
Account No.: 650-001-1789-41
ABA No.: 026009580
F/O: ABN AMRO Bank - Chicago CPU
Reference: Agency Services (STTI)
Notices to be sent to:
ABN AMRO Bank N.V.
Agency Services
1325 Avenue of the Americas, 9th Floor
New York, NY 10019
Attention: Linda Boardman
Telephone: 212/314-1724
Facsimile: 212/314-1711
With a copy to:
ABN AMRO Bank N.V.
One Union Square
600 University Street, Suite 2323
Seattle, WA 98101-2070
Attention: David McGinnis, Vice President
Telephone: 206/587-0342
Facsimile: 206/682-5641
<PAGE> 94
INDEX OF SCHEDULES [OMITTED]
Schedule 1 - Loan Commitments
Schedule 2 - Description of Pioneer Timberlands and Excluded Assets
Schedule 3 - Disclosure Schedule
Schedule 4 - Financing Statements
INDEX OF EXHIBITS [OMITTED]
Exhibit A - Form of Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Designation of Responsible Persons
Exhibit D - Form of Assignment and Acceptance
Exhibit E - Non-Bank Lender Tax Certificate
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Upon consummation of the initial public offering of securities by Strategic
Timber Trust, Inc. (the "Registrant"), the following subsidiaries of the
Registrant will remain as such:
Strategic Timber Operating Co., a Delaware corporation
Strategic Timber Partners, LP, a Delaware limited partnership
Pioneer Resources, LLC, an Oregon limited liability company
Upon consummation of the Registrant's initial public offering of securities,
the following entities will be merged with and into
Strategic Timber Partners, LP, and will thereafter cease to exist:
Strategic Timber Two Operating Co., LLC, a Georgia limited liability company
Strategic Timber Partners II, LP, a Georgia limited partnership
Strategic Timber Trust II, LLC, a Georgia limited liability company
<PAGE> 1
ARTHUR ANDERSEN LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
January 25, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP
Pursuant to Rule 436 promulgated under the Securities Act of 1933, as
amended, the undersigned hereby consents to the reference to our firm under the
heading "Experts" in the prospectus constituting part of this Registration
Statement on Form S-11 and to the filing of this consent as an exhibit to such
Registration Statement.
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ William H. Bradley
-----------------------------
William H. Bradley, Partner
Atlanta, Georgia
January 27, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT FORESTERS
We consent to the reference to our firm under the heading "Experts" in the
prospectus constituting part of this Registration Statement on Form S-11.
MASON, BRUCE & GIRARD, INC.
/s/ KEN VROMAN
Portland, Oregon
January 27, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT FORESTERS
We consent to the reference to our firm under the heading "Experts" in the
prospectus constituting part of this Registration Statement on Form S-11.
CANAL FOREST RESOURCES, INC.
/s/ TIMOTHY M. COONEY
Vice President
Charlotte, North Carolina
January 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-21-1998
<PERIOD-END> OCT-09-1998
<CASH> 1,376,761
<SECURITIES> 0
<RECEIVABLES> 41,222
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,717,983
<PP&E> 7,389
<DEPRECIATION> 125
<TOTAL-ASSETS> 261,722,218
<CURRENT-LIABILITIES> 223,398,684
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 9,513,845
<TOTAL-LIABILITY-AND-EQUITY> 261,722,218
<SALES> 111,107
<TOTAL-REVENUES> 152,299
<CGS> 179,400
<TOTAL-COSTS> 179,400
<OTHER-EXPENSES> 2,408,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,024,331
<INCOME-PRETAX> 9,513,845
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,513,845
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,513,845
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
CONSENT OF PROSPECTIVE DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, the undersigned hereby consents to being named as a prospective
director of Strategic Timber Trust, Inc., a Georgia corporation (the
"Company"), in the Registration Statement on Form S-11 to be filed by the
Company with the Securities and Exchange Commission, and to the filing of this
consent as an exhibit to such Registration Statement.
Dated: January 20, 1999
/s/ Starling W. Childs, II
--------------------------------------
STARLING W. CHILDS, II
Starling W. Childs, II
--------------------------------------
Print Name
<PAGE> 1
EXHIBIT 99.2
CONSENT OF PROSPECTIVE DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, the undersigned hereby consents to being named as a prospective
director of Strategic Timber Trust, Inc., a Georgia corporation (the
"Company"), in the Registration Statement on Form S-11 to be filed by the
Company with the Securities and Exchange Commission, and to the filing of this
consent as an exhibit to such Registration Statement.
Dated: January 21, 1999
/s/ Jay S. Lucas
--------------------------------------
JAY S. LUCAS
Jay S. Lucas
--------------------------------------
Print Name
<PAGE> 1
EXHIBIT 99.3
CONSENT OF PROSPECTIVE DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, the undersigned hereby consents to being named as a prospective
director of Strategic Timber Trust, Inc., a Georgia corporation (the
"Company"), in the Registration Statement on Form S-11 to be filed by the
Company with the Securities and Exchange Commission, and to the filing of this
consent as an exhibit to such Registration Statement.
Dated: January 20, 1999
/s/ Hanns A. Pielenz
--------------------------------------
HANNS A. PIELENZ
Hanns A. Pielenz
--------------------------------------
Print Name
<PAGE> 1
EXHIBIT 99.4
CONSENT OF PROSPECTIVE DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, the undersigned hereby consents to being named as a prospective
director of Strategic Timber Trust, Inc., a Georgia corporation (the
"Company"), in the Registration Statement on Form S-11 to be filed by the
Company with the Securities and Exchange Commission, and to the filing of this
consent as an exhibit to such Registration Statement.
Dated: January 22, 1999
/s/ Richard P. Urfer
--------------------------------------
RICHARD P. URFER
Richard P. Urfer
--------------------------------------
Print Name
