SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report (date of earliest event reported): May 23, 1997
CHESAPEAKE CORPORATION
Commission file number: 1-3203
Incorporated under the I.R.S. Employer
laws of Virginia Identification
No. 54-0166880
1021 East Cary Street
P. O. Box 2350
Richmond, Virginia 23218-2350
Telephone Number (804) 697-1000
Item 2. Acquisition or Disposition of Assets.
On May 23, 1997, Chesapeake Corporation ("Chesapeake") completed
the sale to St. Laurent Paperboard (U.S.) Inc. ("St. Laurent (U.S.)"),
a wholly-owned subsidiary of St. Laurent Paperboard Inc. (Toronto and
Montreal: SPI), of : (i) the sole membership interest in Chesapeake
Paper Products Company LLC (successor to Chesapeake Paper Products
Company), a wholly-owned subsidiary of Chesapeake which, as of the
closing date, owned and operated Chesapeake's kraft products mill
located in West Point, VA (the "West Point Mill"); (ii) all of the
capital stock of Chesapeake Box Company which, as of the closing date,
owned and operated directly or through a subsidiary substantially all
of the assets of four of Chesapeake's corrugated box plants; and (iii)
all of the capital stock of Chesapeake Fiber Company which, as of the
closing date, owned and operated directly or through a subsidiary
certain assets related to the West Point Mill's wood procurement
operations.
The purchase price of approximately $500.0 million was paid in
cash at closing, subject to post-closing adjustment as described
below. The transaction is expected to result in an after-tax gain for
Chesapeake of approximately $60 million, or $2.55 a share, to be
recorded in the second quarter of 1997. Chesapeake plans to use the
net after tax proceeds of approximately $390 million from the
transaction to reduce debt, repurchase its common stock, and finance
growth opportunities internally and through acquisitions in the
packaging and recycled tissue businesses.
Chesapeake retained ownership of its 326,000 acres of timberlands
following the transaction, and entered into a 15-year agreement with
St. Laurent Forest Products Corp., a wholly-owned subsidiary of St.
Laurent (U.S.), to supply the West Point Mill with a substantial
portion of its virgin fiber requirements at market prices. St.
Laurent Paper Products Corp. and St. Laurent Packaging Corp., each
wholly-owned subsidiaries of St. Laurent (U.S.), entered into five-year
agreements with Chesapeake to supply paper and/or corrugated
sheets at market prices to certain of Chesapeake's remaining packaging
operations.
Chesapeake Corporation, headquartered in Richmond, VA, is a
diversified packaging and paper company whose primary businesses are
packaging and tissue products. St. Laurent, headquartered in
Montreal, Quebec, Canada, is a North American supplier and
manufacturer of paperboard products, with sales in Canada, the United
States, and selected international markets.
The West Point Mill manufactures white-top paperboard, kraft
paperboard, kraft paper, corrugating medium, and bleached hardwood
pulp. The annual manufacturing capacity of the West Point Mill is
about 920,000 tons. Approximately two-thirds of the raw material for
products manufactured by the West Point Mill is virgin wood fiber,
with the remainder being recycled fiber. The West Point Mill's
recycling system has the capacity to use 360,000 tons of recycled
fiber annually. In addition to three paper machines and a market pulp
drying machine, the West Point Mill includes wood storage, wood
pulping, paper recycling, and steam and power generation equipment.
Also included in the sale were certain assets related to the West
Point Mill's wood procurement operations, including marine assets,
several woodyards and chipmills, and a sawmill.
The four box plants involved in the transaction are located in
Richmond, VA; Roanoke, VA; Baltimore, MD; and North Tonawanda, NY.
These facilities manufacture corrugated boxes and specialty packaging.
The raw materials utilized by the box plants include paperboard and
corrugating medium that are converted using various equipment that
prints, cuts, slots and glues to make packaging to customer
specifications.
In total, the operations sold by Chesapeake employed
approximately 1,750 people as of the closing date and had sales in
1996, after intercompany eliminations, of approximately $412 million.
Chesapeake has agreed to indemnify St. Laurent and St. Laurent
(U.S.) against losses incurred by them which are attributable to any
breach of a representation or warranty or covenant made by Chesapeake
in the Purchase Agreement, provided notice is given to Chesapeake
within the applicable survival period specified therein.
Prior to the transaction, there were no material relationships
between Chesapeake or, to Chesapeake's knowledge, any of its
affiliates, directors, officers, or any associate of any such director
or officer, and St. Laurent (U.S.) or St. Laurent Paperboard Inc. The
purchase price was determined as a result of arm's length negotiations
between the parties. The final purchase price is subject to
adjustment to reflect changes in certain agreed-upon balance sheet
items from December 31, 1996, through the closing date. Chesapeake
expects that such adjustment will be completed during the third
quarter of 1997.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(a) Financial Statements of Business Acquired.
Not applicable.
(b) Pro Forma Financial Information.
The following unaudited pro forma condensed consolidated financial
statements are filed with this report:
Pro Forma Condensed Consolidated Balance Sheet as of
March 31, 1997
Pro Forma Condensed Consolidated Statements of Income:
Year Ended December 31, 1996
Quarter Ended March 31, 1997
Notes to Pro Forma Condensed Consolidated Financial Statements
The following pro forma condensed consolidated balance sheet as
of March 31, 1997 and pro forma condensed consolidated statements of
income for the year ended December 31, 1996 and quarter ended March
31, 1997 are adjusted to reflect the sale by Chesapeake to St. Laurent
(U.S.) of the sole membership interest in Chesapeake Paper Products
Co. LLC and all of the capital stock of Chesapeake Box Company and
Chesapeake Fiber Company as of the dates indicated (the
"Transaction"). The pro forma condensed consolidated financial
statements are unaudited, except for the historical statement of
income of Chesapeake for the year ended December 31, 1996, which is
derived from Chesapeake's audited statement of income for such period.
The pro forma balance sheet gives effect to the Transaction as
though it had occurred on March 31, 1997, and the pro forma condensed
consolidated statements of income give effect to the Transaction as
though it had occurred as of the beginning of the periods presented.
Chesapeake believes that, on the basis of the assumptions set forth
herein, the pro forma condensed consolidated financial statements
reflect a reasonable estimate of the effects of the Transaction.
Assumptions include the use of a portion of the net cash proceeds from
the Transaction to reduce outstanding credit lines and certain other
debt, with the remaining proceeds invested in cash equivalents until
utilized in accordance with Chesapeake's planned use of proceeds. In
accordance with Securities and Exchange Commission policy governing
pro forma financial statements, no pro forma interest income is
recognized in the pro forma condensed consolidated statements of
income for funds assumed invested in cash equivalents. If such
amounts had been included in the pro forma statements, after-tax
interest income on the assumed investment of such proceeds in cash
equivalents at an average interest rate of 5.5% would have been $9.3
million for the year ended December 31, 1996 and $2.3 million for the
quarter ended March 31, 1997. Reflecting such amounts in pro forma
net income would have resulted in net income of $93.7 million, or
$3.97 a share, for the year ended December 31, 1996, and $61.3
million, or $2.60 a share for the quarter ended March 31, 1997.
The pro forma statements are for illustrative purposes only and
are not necessarily indicative of the financial position or results of
operations that would actually have occurred if the Transaction had
taken place on the applicable dates or for the periods indicated or
that may occur in the future.
The pro forma condensed consolidated financial statements should
be read in conjunction with previously filed consolidated financial
statements and accompanying notes of Chesapeake contained in its
Annual Report on Form 10-K for the year ended December 31, 1996, and
its Quarterly Report on Form 10-Q for the quarter ended March 31,
1997. The notes to the pro forma condensed consolidated financial
statement are an integral part thereof.
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of March 31, 1997
(Unaudited)
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Divested Pro Forma
Historical Companies(a) Adjustments Pro Forma
(In millions)
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ASSETS
Current assets:
$ 500.0 (b)
(10.4)(b)
(93.5)(b)
Cash and cash equivalents $ 10.7 $ .7 (225.5)(c) $ 180.6
Accounts receivable 168.4 45.3 - 123.1
Inventories 133.4 35.5 - 97.9
Deferred income taxes 16.5 - (1.8)(h) 14.7
Other 12.3 0.7 - 11.6
Total current assets 341.3 82.2 168.8 427.9
Property, plant and equipment,
at cost:
Land, buildings, machinery
and equipment 1,593.0 810.1 - 782.9
Less accumulated
depreciation (783.0) (461.8) - (321.2)
810.0 348.3 - 461.7
Timber and timberlands 39.5 - - 39.5
Net property, plant and
equipment 849.5 348.3 - 501.2
Goodwill, net 58.4 5.0 - 53.4
Other assets 42.4 8.6 6.2 (e) 40.0
$1,291.6 $444.1 $175.0 $1,022.5
</TABLE>
<TABLE>
Divested Pro Forma
Historical Companies(a) Adjustments Pro Forma
(In millions)
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and $ 6.6 (f)
accrued expenses $ 148.9 $ 34.6 1.4 (g)$ 122.3
Current maturities of
long-term debt 3.9 - - 3.9
Dividends payable 4.7 - - 4.7
2.0 (d)
Income taxes payable (2.6) - 3.7 (h) 3.1
Total current liabilities 154.9 34.6 13.7 134.0
Long-term debt 518.7 - (225.5)(c) 293.2
Postretirement benefits other
than pensions 29.4 16.2 5.0 (i) 18.2
Deferred income taxes 127.4 - (62.8)(h) 64.6
Stockholders' equity:
Common stock, $1 par value 23.4 - - 23.4
Additional paid-in capital 98.0 - - 98.0
Foreign currency translation
adjustment (0.5) - - (0.5)
393.3 (j)
Retained earnings 340.3 393.3 51.3 (k) 391.6
461.2 393.3 444.6 512.5
$1,291.6 $444.1 $ 175.0 $1,022.5
</TABLE>
See accompanying notes.
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(Unaudited)
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Divested Pro Forma
Historical Companies(l) Adjustments Pro Forma
(In millions, except per share data)
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Net sales $1,158.6 $411.7 $ 87.8 (m) $834.7
Costs and expenses:
.2 (e)
.6 (g)
.2 (i)
Cost of products sold 843.0 335.1 88.9 (m) 597.8
Depreciation and cost of
timber harvested 87.1 42.1 - 45.0
.1 (e)
Selling, general and .4 (g)
administrative expenses 154.2 29.9 .1 (i) 124.9
Income from operations 74.3 4.6 (2.7) 67.0
Other income and expenses, net 6.7 0.4 - 6.3
Interest expense (33.9) - 13.3 (n) (20.6)
Gain on sale of subsidiaries - - 82.3 (d) 82.3
Income before taxes 47.1 5.0 92.9 135.0
31.5 (d)
Income taxes 17.0 - 2.1 (h) 50.6
Net income $ 30.1 $ 5.0 $ 59.3 $ 84.4
Earnings per share $ 1.27 $ 3.58
Weighted average number
of common shares and
equivalents outstanding 23.6 23.6
</TABLE>
See accompanying notes.
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE QUARTER ENDED MARCH 31, 1997
(Unaudited)
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Divested Pro Forma
Historical Companies(l) Adjustments Pro Forma
(In millions, except per share data)
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Net sales $294.5 $102.9 $ 20.6 (m) $212.2
Costs and expenses:
.3 (g)
.1 (i)
Cost of products sold 223.6 91.9 20.7 (m) 152.8
Depreciation and cost of
timber harvested 26.7 10.8 - 15.9
Selling, general and
administrative expenses 41.3 8.2 .2 (g) 33.3
Income from operations 2.9 (8.0) (.7) 10.2
Other income and expenses, net 1.0 0.1 - 0.9
Interest expense (9.5) - 3.3 (n) (6.2)
Gain on sale of subsidiaries - - 90.2 (d) 90.2
Income (loss) before taxes (5.6) (7.9) 92.8 95.1
34.5 (d)
Income taxes (2.1) - 3.7 (h) 36.1
Net income (loss) $ ( 3.5) $ (7.9) $ 54.6 $ 59.0
Earnings (loss) per share $ (0.15) $ 2.50
Weighted average number
of common shares and
equivalents outstanding 23.4 .2 (o) 23.6
</TABLE>
See accompanying notes.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(a) To eliminate the assets and liabilities of divested companies
included in Chesapeake's consolidated balance sheet as of March
31, 1997.
(b) To record the initial purchase price of approximately $500
million, estimated Transaction costs of $10.4 million and
estimated income taxes of $93.5 million. The purchase price is
subject to adjustment as described in Item 2 of this Form 8-K.
(c) To record use of a portion of net proceeds to reduce long-term
debt.
(d) To record pre-tax gain on sale of divested companies and related
tax effect.
(e) To reflect effect of adjustments to net pension asset primarily
resulting from curtailment gains and associated recurring
expense.
(f) To record accrual of additional Transaction costs.
(g) To reflect divested companies' medical benefits accrual and
associated expense retained by Chesapeake.
(h) To record tax effect of divested companies and pro forma
adjustments (other than gain on sale of divested companies) at
statutory federal and state income tax rates.
(i) To adjust liability for postretirement benefits other than
pensions and associated expense.
(j) To add back stockholders' equity of divested companies already
eliminated in historical consolidated results.
(k) To record net equity effect of pro forma adjustments.
(l) To eliminate the revenues and expenses of divested companies for
the applicable periods.
(m) To reflect additional sales to divested companies previously
recorded as intercompany.
(n) To record decrease in interest expense at an average interest
rate of 5.9% for the year ended December 31, 1996 and quarter
ended March 31, 1997 resulting from the application of a portion
of net proceeds to reduce debt.
(o) To adjust weighted average number of common shares for
equivalents outstanding, which were not included in historical
number because of the net loss.
(c) Exhibits.
2.1 Purchase Agreement, dated as of April 30, 1997, by and
between Chesapeake Corporation, St. Laurent Paperboard Inc.
and St. Laurent Paperboard (U.S.) Inc.
In accordance with Item 601(b)(2) of Regulation S-K,
the exhibits to the Purchase Agreement are not filed
herewith. Chesapeake agrees to furnish supplementally
a copy of any such exhibits to the Securities and
Exchange Commission upon request.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CHESAPEAKE CORPORATION
(Registrant)
Date: June 6, 1997 BY: /s/ William T. Tolley
William T. Tolley
Group Vice President
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit 2.1 Purchase Agreement, dated as of April 30, 1997, by and
between Chesapeake Corporation, St. Laurent Paperboard
Inc. and St. Laurent Paperboard (U.S.) Inc.
EXHIBIT 2.1
PURCHASE AGREEMENT
BY AND BETWEEN
CHESAPEAKE CORPORATION,
ST. LAURENT PAPERBOARD INC.
AND
ST. LAURENT PAPERBOARD (U.S.) INC.
April 30, 1997
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TABLE OF CONTENTS
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RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I
DEFINITIONS
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1.1 Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Affiliated Predecessors. . . . . . . . . . . . . . . . . . 2
1.3 Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Ancillary Agreements . . . . . . . . . . . . . . . . . . . 2
1.5 Asset Transfers. . . . . . . . . . . . . . . . . . . . . . 2
1.6 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . 3
1.7 Books and Records. . . . . . . . . . . . . . . . . . . . . 3
1.8 Box Plants . . . . . . . . . . . . . . . . . . . . . . . . 3
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1.9 Business . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.10 Business Day. . . . . . . . . . . . . . . . . . . . . 4
1.11 Business Employees. . . . . . . . . . . . . . . . . . 4
1.12 Buyer . . . . . . . . . . . . . . . . . . . . . . . . 4
1.13 Buyer's and Parent's Closing Certificates . . . . . . 4
1.14 Buyer Guaranty. . . . . . . . . . . . . . . . . . . . 4
1.15 C&L . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.16 Closing . . . . . . . . . . . . . . . . . . . . . . . 5
1.17 Closing Date. . . . . . . . . . . . . . . . . . . . . 5
1.18 COBRA . . . . . . . . . . . . . . . . . . . . . . . . 6
1.19 Code. . . . . . . . . . . . . . . . . . . . . . . . . 6
1.20 Combined Group. . . . . . . . . . . . . . . . . . . . 6
1.21 Common Share Price. . . . . . . . . . . . . . . . . . 6
1.22 Common Shares . . . . . . . . . . . . . . . . . . . . 6
1.23 Company . . . . . . . . . . . . . . . . . . . . . . . 6
1.24 Company Financial Statements. . . . . . . . . . . . . 7
1.25 Contracts . . . . . . . . . . . . . . . . . . . . . . 7
1.26 December Statement of Working Capital . . . . . . . . 7
1.27 December Working Capital. . . . . . . . . . . . . . . 8
1.28 Dollars; CDN Dollars. . . . . . . . . . . . . . . . . 8
1.29 Effective Time of Closing . . . . . . . . . . . . . . 8
1.30 Employee Benefit Plans. . . . . . . . . . . . . . . . 8
1.31 Equipment . . . . . . . . . . . . . . . . . . . . . . 8
1.32 ERISA . . . . . . . . . . . . . . . . . . . . . . . . 8
1.33 ERISA Affiliate . . . . . . . . . . . . . . . . . . . 8
1.34 ERISA Affiliate Plan. . . . . . . . . . . . . . . . . 9
1.35 Estimated Statement of Working Capital. . . . . . . . 9
1.36 Estimated Working Capital . . . . . . . . . . . . . . 9
1.37 Exchange Rate . . . . . . . . . . . . . . . . . . . . 9
1.38 Excluded Assets . . . . . . . . . . . . . . . . . . . 10
1.39 Excluded Intangibles. . . . . . . . . . . . . . . . . 10
1.40 Fiber Assets. . . . . . . . . . . . . . . . . . . . . 10
1.41 Filing Date . . . . . . . . . . . . . . . . . . . . . 10
1.42 Final Statement of Working Capital. . . . . . . . . . 10
1.43 Final Working Capital . . . . . . . . . . . . . . . . 10
1.44 Final Purchase Price. . . . . . . . . . . . . . . . . 11
1.45 GAAP. . . . . . . . . . . . . . . . . . . . . . . . . 11
1.46 Governing Instruments . . . . . . . . . . . . . . . . 11
1.47 Gross Proceeds. . . . . . . . . . . . . . . . . . . . 11
1.48 HSR Act . . . . . . . . . . . . . . . . . . . . . . . 11
1.49 Indebtedness for Borrowed Money . . . . . . . . . . . 12
1.50 Initial Purchase Price. . . . . . . . . . . . . . . . 12
1.51 Intangible Assets . . . . . . . . . . . . . . . . . . 12
1.52 IRS . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.53 Knowledge . . . . . . . . . . . . . . . . . . . . . . 13
1.54 Known Environmental Matters . . . . . . . . . . . . . 13
1.55 Law . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.56 Liens . . . . . . . . . . . . . . . . . . . . . . . . 14
1.57 Material Adverse Effect . . . . . . . . . . . . . . . 14
1.58 Membership Interest . . . . . . . . . . . . . . . . . 15
1.59 Noncompetition Agreement. . . . . . . . . . . . . . . 15
1.60 Opinion of Buyer's and Parent's Counsel . . . . . . . 15
1.61 Opinion of Seller's and Company's Counsel . . . . . . 15
1.62 Parent. . . . . . . . . . . . . . . . . . . . . . . . 15
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1.63 Parent's Equity Offering. . . . . . . . . . . . . . . 15
1.64 PBGC. . . . . . . . . . . . . . . . . . . . . . . . . 15
1.65 Pension Plans . . . . . . . . . . . . . . . . . . . . 16
1.66 Permits . . . . . . . . . . . . . . . . . . . . . . . 16
1.67 Permitted Liens . . . . . . . . . . . . . . . . . . . 16
1.68 Person. . . . . . . . . . . . . . . . . . . . . . . . 16
1.69 PW. . . . . . . . . . . . . . . . . . . . . . . . . . 16
1.70 Real Property . . . . . . . . . . . . . . . . . . . . 17
1.71 Seller. . . . . . . . . . . . . . . . . . . . . . . . 17
1.72 Seller's Closing Certificate. . . . . . . . . . . . . 17
1.73 Short Form Prospectus . . . . . . . . . . . . . . . . 17
1.74 Special Accounting Principles . . . . . . . . . . . . 17
1.75 Stand-Still Agreement . . . . . . . . . . . . . . . . 17
1.76 Subsidiaries. . . . . . . . . . . . . . . . . . . . . 18
1.77 Subsidiary Stock. . . . . . . . . . . . . . . . . . . 18
1.78 Supply Agreements . . . . . . . . . . . . . . . . . . 18
1.79 Taxes . . . . . . . . . . . . . . . . . . . . . . . . 19
1.80 Transition Agreement. . . . . . . . . . . . . . . . . 19
1.81 WARN. . . . . . . . . . . . . . . . . . . . . . . . . 19
1.82 Welfare Plans . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
<TABLE>
ARTICLE II
PRE-CLOSING ASSET TRANSFERS; PURCHASE AND SALE OF
MEMBERSHIP INTEREST
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2.1 Certain Actions to be Taken Prior to Closing . . . . . . . 19
2.2 Purchase and Sale; Payment of Initial Purchase Price . . . 20
2.3 Parent's Equity Offering; Composition of Initial Purchase Price 21
2.4 Final Statement of Working Capital; Settlement of Final Purchase Price 23
</TABLE>
<TABLE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
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3.1 Organization of Seller . . . . . . . . . . . . . . . . . . 26
3.2 Authorization; Enforceability. . . . . . . . . . . . . . . 26
3.3 No Violation or Conflict by Seller . . . . . . . . . . . . 27
3.4 Title to Membership Interest . . . . . . . . . . . . . . . 27
3.5 Organization and Authority of Company. . . . . . . . . . . 28
3.6 Capitalization of the Company. . . . . . . . . . . . . . . 28
3.7 Organization and Authority of the Subsidiaries; No Other Interests 29
3.8 Capitalization of the Subsidiaries . . . . . . . . . . . . 29
3.9 Consents and Approvals; No Violation or Conflict by Company 30
3.10 Title to and Sufficiency of Assets. . . . . . . . . . 31
3.11 Real Property . . . . . . . . . . . . . . . . . . . . 31
3.12 Bank Accounts . . . . . . . . . . . . . . . . . . . . 33
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3.13 Condition of Equipment. . . . . . . . . . . . . . . . 33
3.14 Customer List . . . . . . . . . . . . . . . . . . . . 34
3.15 Intangible Assets . . . . . . . . . . . . . . . . . . 34
3.16 Books and Records . . . . . . . . . . . . . . . . . . 35
3.17 Contracts . . . . . . . . . . . . . . . . . . . . . . 35
3.18 No Litigation . . . . . . . . . . . . . . . . . . . . 36
3.19 Financial Statements. . . . . . . . . . . . . . . . . 36
3.20 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.21 Employee Benefit Plans. . . . . . . . . . . . . . . . 40
3.22 Labor Matters . . . . . . . . . . . . . . . . . . . . 45
3.23 Compliance with Law . . . . . . . . . . . . . . . . . 46
3.24 Environmental Matters . . . . . . . . . . . . . . . . 47
3.25 Insurance . . . . . . . . . . . . . . . . . . . . . . 53
3.26 Related Party Transactions. . . . . . . . . . . . . . 53
3.27 No Adverse Change . . . . . . . . . . . . . . . . . . 54
3.28 Orders, Commitments and Returns . . . . . . . . . . . 55
3.29 No Broker . . . . . . . . . . . . . . . . . . . . . . 55
3.30 Short Form Prospectus . . . . . . . . . . . . . . . . 55
</TABLE>
<TABLE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
<CAPTION>
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4.1 Organization and Authority of Buyer and Parent . . . . . . 56
4.2 Authorization; Enforceability. . . . . . . . . . . . . . . 57
4.3 Consents and Approvals; No Violation or Conflict by Buyer and Parent 57
4.4 Title to Common Shares . . . . . . . . . . . . . . . . . . 58
4.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . 59
4.6 No Litigation. . . . . . . . . . . . . . . . . . . . . . . 59
4.7 Financial Statements . . . . . . . . . . . . . . . . . . . 60
4.8 No Adverse Change. . . . . . . . . . . . . . . . . . . . . 61
4.9 Compliance with Law. . . . . . . . . . . . . . . . . . . . 62
4.10 No Broker . . . . . . . . . . . . . . . . . . . . . . 62
4.11 Purchase for Investment . . . . . . . . . . . . . . . 62
4.12 Committed Debt Financing. . . . . . . . . . . . . . . 63
4.13 Short Form Prospectus . . . . . . . . . . . . . . . . 63
</TABLE>
<TABLE>
ARTICLE V
CERTAIN MATTERS PENDING THE CLOSING
<CAPTION>
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5.1 Carry on in Regular Course . . . . . . . . . . . . . . . . 64
5.2 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . 64
5.3 Issuance of Membership Interests or Subsidiary Stock; Fundamental Changes 65
5.4 Compensation . . . . . . . . . . . . . . . . . . . . . . . 65
5.5 Compliance with Law. . . . . . . . . . . . . . . . . . . . 66
5.6 Access . . . . . . . . . . . . . . . . . . . . . . . . . . 66
5.7 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . 67
5.8 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . 67
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5.9 Confidentiality. . . . . . . . . . . . . . . . . . . . . . 68
5.10 Exclusivity . . . . . . . . . . . . . . . . . . . . . 69
5.11 Phase II Investigation. . . . . . . . . . . . . . . . 69
</TABLE>
<TABLE>
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER AND PARENT
<CAPTION>
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6.1 Compliance with Agreement. . . . . . . . . . . . . . . . . 70
6.2 Proceedings and Instruments Satisfactory . . . . . . . . . 71
6.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . 71
6.4 Representations and Warranties . . . . . . . . . . . . . . 71
6.5 Material Damage to Assets. . . . . . . . . . . . . . . . . 72
6.6 Deliveries at Closing. . . . . . . . . . . . . . . . . . . 72
6.7 Antitrust Filings. . . . . . . . . . . . . . . . . . . . . 72
6.8 Parent's Equity Offering . . . . . . . . . . . . . . . . . 73
6.9 Consents . . . . . . . . . . . . . . . . . . . . . . . . . 73
6.10 Phase II Investigation. . . . . . . . . . . . . . . . 73
</TABLE>
<TABLE>
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
<CAPTION>
<S> <C> <C>
7.1 Compliance with Agreement. . . . . . . . . . . . . . . . . 74
7.2 Proceedings and Instruments Satisfactory . . . . . . . . . 74
7.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . 74
7.4 Representations and Warranties . . . . . . . . . . . . . . 75
7.5 Material Damage to Assets. . . . . . . . . . . . . . . . . 75
7.6 Deliveries at Closing. . . . . . . . . . . . . . . . . . . 75
7.7 Antitrust Filings. . . . . . . . . . . . . . . . . . . . . 76
7.8 Consents . . . . . . . . . . . . . . . . . . . . . . . . . 76
</TABLE>
<TABLE>
ARTICLE VIII
INDEMNIFICATION AND ADDITIONAL COVENANTS
<CAPTION>
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8.1 Seller's Indemnity . . . . . . . . . . . . . . . . . . . . 76
8.2 Buyer's and Parent's Indemnity . . . . . . . . . . . . . . 82
8.3 Other Environmental Indemnification. . . . . . . . . . . . 86
8.4 Employee Benefit Matters . . . . . . . . . . . . . . . . . 91
8.5 Income Tax Matters . . . . . . . . . . . . . . . . . . . .113
8.6 Records. . . . . . . . . . . . . . . . . . . . . . . . . .123
8.7 No Use of Name . . . . . . . . . . . . . . . . . . . . . .124
8.8 Cooperation in Third-Party Litigation. . . . . . . . . . .124
8.9 Further Assurances . . . . . . . . . . . . . . . . . . . .125
8.10 DEF Project . . . . . . . . . . . . . . . . . . . . .126
8.11 Certain Matters Related to Tax-Exempt Securities. . .126
</TABLE>
<TABLE>
ARTICLE IX
TERMINATION
<CAPTION>
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9.1 Termination. . . . . . . . . . . . . . . . . . . . . . . .126
9.2 Rights on Termination; Waiver. . . . . . . . . . . . . . .127
9.3 Nondisclosure. . . . . . . . . . . . . . . . . . . . . . .130
<\table|
</TABLE>
<TABLE>
ARTICLE X
MISCELLANEOUS
<CAPTION>
<S> <C> <C>
10.1 Transfer Taxes and Filing Fees. . . . . . . . . . . .130
10.2 Entire Agreement; Amendment; No Waiver. . . . . . . .130
10.3 Expenses. . . . . . . . . . . . . . . . . . . . . . .131
10.4 Governing Law . . . . . . . . . . . . . . . . . . . .131
10.5 Assignment; Accommodation of Like-Kind Exchanges. . .131
10.6 Notices . . . . . . . . . . . . . . . . . . . . . . .132
10.7 Counterparts; Headings. . . . . . . . . . . . . . . .133
10.8 Interpretation. . . . . . . . . . . . . . . . . . . .134
10.9 Severability. . . . . . . . . . . . . . . . . . . . .134
10.10 Specific Performance . . . . . . . . . . . . . . . . . .134
10.11 No Reliance. . . . . . . . . . . . . . . . . . . . . . .134
</TABLE>
<TABLE>
EXHIBITS
<CAPTION>
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Exhibit 1.6 Bank Accounts
Exhibit 1.13 Buyer's and Parent's Closing Certificate
Exhibit 1.14 Buyer Guaranty
Exhibit 1.24 Company Financial Statements
Exhibit 1.26 December Statement of Working Capital
Exhibit 1.31 Equipment
Exhibit 1.35 Estimated Statement of Working Capital
Exhibit 1.39 Excluded Intangibles
Exhibit 1.40 Fiber Assets
Exhibit 1.53(a) Knowledge of Buyer
Exhibit 1.53(b) Knowledge of Seller
Exhibit 1.59 Noncompetition Agreement
Exhibit 1.60A Opinion of Buyer's and Parent's Canadian
Counsel
Exhibit 1.60B Opinion of Buyer's and Parent's U.S. Counsel
Exhibit 1.61 Opinion of Seller's and Company's Counsel
Exhibit 1.66 Permits
Exhibit 1.67 Permitted Liens
Exhibit 1.70 Real Property
Exhibit 1.72 Seller's Closing Certificate
Exhibit 1.74 Special Accounting Principles
Exhibit 1.75 Stand-Still Agreement
Exhibit 1.78(a) Paper Products Supply Agreement
Exhibit 1.78(b) Sheets Supply Agreement
<S> <C> <C>
Exhibit 1.78(c) Wood Fiber Supply Agreement
Exhibit 1.78(d) Wood Chips Supply Agreement
Exhibit 1.80 Transition Agreement
Exhibit 2.1(a)-1 Assets to be Distributed by the Company
to Seller
Exhibit 2.1(a)-2 Assets to be Contributed by Seller to
the Company and/or the Subsidiaries
Exhibit 2.1(b)-1 Certain Obligations to be Assumed by
the Company
Exhibit 2.1(b)-2 Form of Assignment and Assumption Agreement
Exhibit 3.5 Company and Subsidiary Foreign Qualifications
Exhibit 3.9 Company and Subsidiary Required Consents
Exhibit 3.17 Contracts
Exhibit 3.18 Company and Subsidiary Litigation
Exhibit 3.20 Taxes
Exhibit 3.21 Employee Benefit Plans
Exhibit 3.22 Labor Matters
Exhibit 3.24 Known Environmental Matters
Exhibit 3.25 Insurance
Exhibit 3.26 Affiliated Transactions
Exhibit 3.27 Company Adverse Changes
Exhibit 3.28 Orders, Commitments, Returns
Exhibit 4.3 Buyer and Parent Required Consents
Exhibit 4.5 Options, Rights and Warrants for Parent
Capital Stock
Exhibit 4.6 Buyer and Parent Litigation
Exhibit 4.7 Parent Financial Statements
Exhibit 4.8 Parent Adverse Changes
Exhibit 5.11 Phase II Investigation
Exhibit 8.1 Additional Indemnification Matters
Exhibit 8.4(a) Accumulated Benefit Obligation - Actuarial
Assumptions and Methods
Exhibit 8.4(b) Projected Benefit Obligation - Actuarial
Assumptions and Methods
Exhibit 8.4(c) Spinoff Amount -- Actuarial Assumptions and
Methods
Exhibit 8.4(d) Post-Retirement Benefits Other than Pensions
-- Actuarial Assumptions and Methods
Exhibit 8.4(e) SERP Accrued Benefits
Exhibit 8.11 Tax-Exempt Financings Related to the Business
</TABLE>
PURCHASE AGREEMENT
PURCHASE AGREEMENT, made as of the 30th day of April, 1997, by
and between CHESAPEAKE CORPORATION, a Virginia corporation, ST.
LAURENT PAPERBOARD INC., a Canadian corporation, and ST. LAURENT
PAPERBOARD (U.S.) INC., a Delaware corporation and direct wholly-owned
subsidiary of St. Laurent Paperboard Inc.
RECITALS
WHEREAS, Seller owns the Membership Interest, which constitutes
the sole Membership Interest in the Company;
WHEREAS, the Company owns all of the Subsidiary Stock, which
constitutes all of the issued and outstanding capital stock of each of
the Subsidiaries that are corporations; and
WHEREAS, Seller desires to sell the Membership Interest to Buyer
and Buyer desires to purchase the Membership Interest from Seller.
NOW, THEREFORE, in consideration of the Recitals and of the
mutual covenants, conditions and agreements set forth herein and for
other good and valuable consideration, the receipt and sufficiency of
which hereby are acknowledged, it is hereby agreed that:
ARTICLE I
DEFINITIONS
When used in this Agreement and the above Recitals, the following
terms shall have the meanings specified:
1.1 Affiliate. "Affiliate" shall mean, with respect to any
Person, any other Person directly, or indirectly through one or more
intermediaries, controlling, controlled by or under common control
with such Person. As used in this definition of the term "Affiliate"
and elsewhere herein with respect to any Affiliate of any Person,
"control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the
power to direct or cause the direction of the management policies of a
Person, whether through the ownership of voting securities, by voting
trust, contract or similar arrangement, as trustee or executor, or
otherwise.
1.2 Affiliated Predecessors. "Affiliated Predecessors" shall
mean (a) with respect to the Box Plants, Chesapeake Packaging Co., and
(b) with respect to the Fiber Assets, Chesapeake Forest Products
Company, each a Virginia corporation and wholly-owned subsidiary of
Seller.
1.3 Agreement. "Agreement" shall mean this Purchase Agreement,
together with the Exhibits attached hereto, as the same may be amended
from time to time in accordance with the terms hereof.
1.4 Ancillary Agreements. "Ancillary Agreements" shall mean the
Noncompetition Agreement, the Buyer Guaranty, the Supply Agreements,
the Transition Agreement and the Stand-Still Agreement.
1.5 Asset Transfers. "Asset Transfers" shall mean the
distribution of assets by the Company, and the transfer of assets to
the Company and the Subsidiaries, contemplated in Section 2.1 hereof.
1.6 Bank Accounts. "Bank Accounts" shall mean the checking
accounts, savings accounts, custodial accounts, certificates of
deposit, safe deposit boxes and other similar accounts maintained by
the Company and the Subsidiaries as of the Effective Time of Closing,
all of such Bank Accounts being listed on Exhibit 1.6 attached hereto.
1.7 Books and Records. "Books and Records" shall mean original
or true and complete copies of all of the books, records, archives,
files, data and information of the Company, the Subsidiaries and, to
the extent they relate in any material respect to the Business, the
Affiliated Predecessors (including, without limitation, customer
lists, financial, accounting and tax records, purchase orders and
invoices, sales orders and sales order log books, credit and
collection records, evidence of accounts payable and accounts
receivable, correspondence and miscellaneous records with respect to
customers and supply sources and other general correspondence and
records related to the Business), which are in the possession or under
the control of the Seller, the Company or the Subsidiaries as of the
Effective Time of Closing.
1.8 Box Plants. "Box Plants" shall mean the four (4) box plants
currently operated by Chesapeake Packaging Co., a wholly-owned
subsidiary of Seller, which box plants are located at (a) 725 Pittman
Road, Baltimore, Maryland, (b) 51 Robinson Street, North Tonawanda,
New York, (c) 5640 Lewis Road and 5100 Williamsburg Avenue, Richmond,
Virginia, and (d) 802 Kyle Avenue, Roanoke, Virginia.
1.9 Business. "Business" shall mean, collectively, (a) the
business of the Company, which consists of the manufacture and sale of
white-top linerboard, unbleached kraft linerboard, kraft paper,
corrugating medium and bleached hardwood pulp at its kraft products
mill located in West Point, Virginia, (b) the manufacture and sale of
corrugated containers and sheets at the Box Plants, and (c) the
operation of the Fiber Assets.
1.10 Business Day. "Business Day" shall mean any day except a
Saturday, Sunday or other day on which commercial banks in Richmond,
Virginia, or Montreal, Quebec, are generally authorized to close.
1.11 Business Employees. "Business Employees" shall have the
meaning given in Section 3.21 hereof.
1.12 Buyer. "Buyer" shall mean St. Laurent Paperboard (U.S.)
Inc., a Delaware corporation and direct wholly-owned subsidiary of
Parent.
1.13 Buyer's and Parent's Closing Certificates. "Buyer's and
Parent's Closing Certificates" shall mean the certificates of Buyer
and Parent in the form of Exhibit 1.13 attached hereto.
1.14 Buyer Guaranty. "Buyer Guaranty" shall mean the guaranty
agreement, dated as of the Closing Date, made by Buyer and certain of
its Affiliates to Seller and substantially in the form of Exhibit 1.14
attached hereto.
1.15 C&L. "C&L" shall mean Coopers & Lybrand L.L.P., independent
auditors for Seller and the Company, or such other nationally
recognized United States independent accounting firm as may be engaged
by Seller and/or the Company as its independent auditors from time to
time.
1.16 Closing. "Closing" shall mean the conference held at 10:00
a.m., local time, on the Closing Date, at the offices of Goodman
Phillips & Vineberg, 1501 McGill College Avenue, Montreal, Quebec,
Canada.
1.17 Closing Date. "Closing Date" shall mean May 27, 1997, or
such other date as the parties hereto may mutually agree in writing,
on which date the Closing shall occur; provided, however, that: (a)
if, notwithstanding the best commercially reasonable efforts of
Seller, on the one hand, and Parent and Buyer, on the other hand, the
conditions precedent to Closing set forth in Articles VI and VII
hereof have not been satisfied by such date, then the parties hereto
shall extend the Closing Date by up to five (5) Business Days to
permit satisfaction of such conditions precedent; (b) if, by such
date, Seller has satisfied the conditions precedent to Closing set
forth in Article VI hereof but, notwithstanding their best
commercially reasonable efforts, Parent and Buyer have been unable to
satisfy the conditions precedent to Closing set forth in Article VII
hereof, then Parent and Buyer may, by written notice to Seller, extend
the Closing Date by up to five (5) Business Days, in consideration of
which Parent and Buyer shall pay to Seller at Closing an amount equal
to $75,000 per calendar day of such extension; or (c) if, by such
date, Buyer and Parent have satisfied the conditions to Closing set
forth in Article VII hereof but, notwithstanding its best commercially
reasonable efforts, Seller has been unable to satisfy the conditions
precedent to Closing set forth in Article VI hereof, then Seller may,
by written notice to Parent and Buyer, extend the Closing Date by up
to five (5) Business Days, in consideration of which Seller shall pay
to Parent and Buyer at Closing an amount equal to $75,000 per calendar
day of such extension.
1.18 COBRA. "COBRA" shall mean Title X of the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended.
1.19 Code. "Code" shall mean the Internal Revenue Code of 1986,
as amended.
1.20 Combined Group. "Combined Group" shall mean the Company,
the Subsidiaries and their respective Affiliated Predecessors (to the
extent related to the Business).
1.21 Common Share Price. "Common Share Price" shall mean the
public offering price per Common Share for Parent's Equity Offering
(before deducting underwriting fees and any other fees or expenses
associated with such equity offering), expressed in Dollars (based
upon the Exchange Rate reported for the date of the underwriting
agreement for Parent's Equity Offering).
1.22 Common Shares. "Common Shares" shall mean the common shares
of Parent.
1.23 Company. "Company" shall mean (i) Chesapeake Paper
Products, L.L.C., a single member limited liability company organized
under the laws of the Commonwealth of Virginia and successor by merger
to Chesapeake Paper Products Company, a Virginia corporation, or (ii)
with respect to any time before the effective time of such merger,
Chesapeake Paper Products Company, a Virginia corporation.
1.24 Company Financial Statements. "Company Financial
Statements" shall mean (a) the audited combined balance sheets of the
Business as of December 31, 1995 and 1996, and the related audited
combined statements of earnings and divisional equity and cash flows
of the Business for the three years in the period ended December 31,
1996, including all notes thereto, together with the report of C&L
thereon, and (b) the unaudited combined balance sheet of the Business
as of March 31, 1997, and the unaudited combined statements of
earnings and divisional equity and cash flows of the Business for the
fiscal quarters ended March 31, 1996 and March 31, 1997, including all
notes thereto, all in the form of Exhibit 1.24 attached hereto.
1.25 Contracts. "Contracts" shall mean all contracts,
agreements, leases, license agreements, royalty agreements, vendor
agreements, purchase orders, commitments, sales orders, supply
agreements and other agreements, written or oral, to which the Company
or any of the Subsidiaries is a party or by which the Company or any
of the Subsidiaries is bound as of the Effective Time of Closing, but
excluding Employee Benefit Plans.
1.26 December Statement of Working Capital. "December Statement
of Working Capital" shall mean the unaudited special purpose statement
of combined working capital of the Business as of December 31, 1996,
in the form of Exhibit 1.26 attached hereto, which statement has been:
(i) derived from the Company Financial Statements; and (ii) prepared
in accordance with GAAP and in a manner consistent with the past
practice of the Business, except as otherwise required by the Special
Accounting Principles.
1.27 December Working Capital. "December Working Capital" shall
mean $49.202 million, being the amount equal to "current assets" minus
"current liabilities" as reflected on the December Statement of
Working Capital.
1.28 Dollars; CDN Dollars. "Dollars" and the symbol "$" shall
mean United States dollars, and "CDN Dollars" and the symbol "CDN$"
shall mean Canadian dollars.
1.29 Effective Time of Closing. "Effective Time of Closing"
shall mean 12:01 a.m., local time, on the Closing Date.
1.30 Employee Benefit Plans. "Employee Benefit Plans" shall have
the meaning given in Section 3.21 hereof.
1.31 Equipment. "Equipment" shall mean all machinery, vehicles,
equipment, furniture, fixtures, furnishings, parts, tools,
engineering, tugboats, fireboats and barges and other items of
tangible personal property owned or leased by the Company and the
Subsidiaries as of the Effective Time of Closing, including, without
limitation, the Equipment listed on Exhibit 1.31 attached hereto.
1.32 ERISA. "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
1.33 ERISA Affiliate. "ERISA Affiliate" shall mean Seller and
any trade or business (whether or not incorporated) which is or has
ever been under common control, or which is or has ever been treated
as a single employer, with Seller under Section 414(b), (c), (m) or
(o) of the Code.
1.34 ERISA Affiliate Plan. "ERISA Affiliate Plan" shall mean
all "employee pension plans," as defined in Section 3(2) of ERISA or
Section 412 of the Code, maintained by Seller or any ERISA Affiliate,
or to which Seller or any ERISA Affiliate has contributed or has ever
been obligated to contribute, other than any Qualified Plan (as
defined in Section 3.21 hereof).
1.35 Estimated Statement of Working Capital. "Estimated
Statement of Working Capital" shall mean the unaudited special purpose
statement of consolidated working capital of the Company as of the
Effective Time of Closing in the form of Exhibit 1.35 attached hereto,
which statement: (a) reflects Seller's best estimate of the
consolidated working capital of the Company as of the Effective Time
of Closing; and (b) has been prepared in accordance with GAAP and in a
manner consistent with the past practice of the Business and the
December Statement of Working Capital, except as otherwise required by
the Special Accounting Principles.
1.36 Estimated Working Capital. "Estimated Working Capital"
shall mean $48.318 million, being the amount equal to "current assets"
minus "current liabilities" as reflected on the Estimated Statement of
Working Capital.
1.37 Exchange Rate. "Exchange Rate" shall mean the published
rate of exchange for one CDN Dollar, expressed in Dollars, applicable
as of the close of the relevant Business Day and based on the Bank of
Canada closing spot rate of exchange for such day.
1.38 Excluded Assets. "Excluded Assets" shall mean, collectively
(a) the assets distributed by the Company to Seller before the
Effective Time of Closing pursuant to Section 2.1(a) hereof, and (b)
the Excluded Intangibles.
1.39 Excluded Intangibles. "Excluded Intangibles" shall mean
those intangible assets owned, leased, licensed or otherwise used by
the Business that are described on Exhibit 1.39 attached hereto.
1.40 Fiber Assets. "Fiber Assets" shall mean those fiber
operations related to the operations of the Company's kraft products
mill located in West Point, Virginia, that are currently operated by
Chesapeake Forest Products Company, a wholly-owned subsidiary of
Seller, which operations are described in Exhibit 1.40 attached
hereto.
1.41 Filing Date. "Filing Date" shall have the meaning given in
Section 2.3 hereof.
1.42 Final Statement of Working Capital. "Final Statement of
Working Capital" shall mean the special purpose statement of
consolidated working capital of the Company as of the Effective Time
of Closing, to be prepared and delivered in accordance with Section
2.4 hereof.
1.43 Final Working Capital. "Final Working Capital" shall mean
an amount equal to "current assets" minus "current liabilities" as
reflected on the Final Statement of Working Capital.
1.44 Final Purchase Price. "Final Purchase Price" shall mean the
Initial Purchase Price, as adjusted pursuant to Section 2.4 hereof
(exclusive of the interest on such adjustment as contemplated in
Section 2.4 hereof).
1.45 GAAP. "GAAP" shall mean generally accepted accounting
principles as in effect in the United States as of the date of the
subject financial statement.
1.46 Governing Instruments. "Governing Instruments" shall mean
(a) in the case of Seller, Seller's Articles of Incorporation and
Bylaws, (b) in the case of the Company, the Company's Articles of
Organization and Operating Agreement, (c) in the case of each
Subsidiary that is a corporation, the Articles of Incorporation and
Bylaws of such Subsidiary, (d) in the case of each Subsidiary that is
a limited liability company, the Articles of Organization and
Operating Agreement of such Subsidiary, (e) in the case of Parent, the
Articles of Incorporation and Bylaws of Parent and (f) in the case of
Buyer, the Certificate of Incorporation and Bylaws of Buyer, in each
case as amended and/or restated to and including the applicable date.
1.47 Gross Proceeds. "Gross Proceeds" shall mean the gross
proceeds received from Parent's Equity Offering (before deducting
underwriting fees and any other fees or expenses associated with such
equity offering).
1.48 HSR Act. "HSR Act" shall mean the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (15 U.S.C.18a), as amended.
1.49 Indebtedness for Borrowed Money. "Indebtedness for Borrowed
Money" of any Person shall mean and include all obligations of such
Person which in accordance with GAAP shall be classified upon a
balance sheet of such Person as debt of such Person, and in any event
shall include (a) obligations of such Person for borrowed money or
indebtedness which has been incurred in connection with the
acquisition of property or assets, (b) obligations for indebtedness
secured by any Lien upon property or assets owned by such Person, even
though such Person has not assumed or become liable for the payment of
such indebtedness, (c) obligations created or arising under any
conditional sale or other title retention agreement with respect to
property acquired by such Person, notwithstanding the fact that the
rights and remedies of the seller, lender or lessor under such
agreement in the event of default are limited to repossession or sale
of property and (d) guaranties of obligations of other Persons of the
character referred to in this definition, but shall exclude
capitalized leases.
1.50 Initial Purchase Price. "Initial Purchase Price" shall be
$499.116 million, consisting of (a) $500.0 million, minus (b)
$884,000, representing the difference between Estimated Working
Capital and December Working Capital.
1.51 Intangible Assets. "Intangible Assets" shall mean the
following categories of intangible assets owned, leased, licensed or
otherwise used by the Company and the Subsidiaries as of the Effective
Time of Closing: (a) all inventions, prototypes, processes, patents
and patent applications; (b) all copyrights, trademarks, tradenames,
service marks, logos and slogans and all of the goodwill associated
therewith, and all registrations, applications and other rights, if
any, associated therewith, including the right to sue for past
infringement thereof; (c) all trade secrets and confidential business
information (including, without limitation, all ideas, research and
development, know-how, technology, compositions, designs, plans,
drawings, specifications, data, studies, customer and supplier lists,
financial information (including, without limitation, pricing and cost
information, and business and market plans and proposals, and other
information contained in the Books and Records); (d) all computer
software and source code (including, without limitation, hard copy and
soft copy as well as all data and related documentation), (e) all
financial models and (f) all accounting systems; provided, however,
that the term Intangible Assets shall exclude the Excluded
Intangibles.
1.52 IRS. "IRS" shall mean the Internal Revenue Service of the
United States.
1.53 Knowledge. "Knowledge" shall mean: (a) with respect to
Buyer or Parent, as the case may be, the actual knowledge of any of
the individuals listed on Exhibit 1.53(a) attached hereto, after due
inquiry of each other; and (b) with respect to Seller and the Company,
the actual knowledge of any of the individuals listed on Exhibit
1.53(b) attached hereto, after due inquiry of each other.
1.54 Known Environmental Matters. "Known Environmental Matters"
shall have the meaning given in Section 3.24 hereof.
1.55 Law. "Law" shall mean any federal, state, provincial,
local, domestic, foreign or other laws, rules, regulations and
ordinances, and all binding orders, writs, judgments, requirements,
policies and decrees of any governmental or political subdivision or
agency thereof, or of any court or similar Person established by any
such governmental or political subdivision or agency thereof.
1.56 Liens. "Liens" shall mean any and all mortgages, liens,
encumbrances, easements, rights-of-way, encroachments, charges,
adverse claims, boundary disputes, restrictions, pledges, security
interests, impositions and rights of first refusal together with, in
the case of securities, limitations on voting rights, rights of
redemption, equities and any other restrictions of any kind or nature
whatsoever.
1.57 Material Adverse Effect. "Material Adverse Effect" shall
mean: (a) in respect of Seller, the Company and the Subsidiaries, an
adverse effect on the Business, financial position or results of
operations of the Company and the Subsidiaries, taken as a whole,
which exceeds (i) $100,000 in the case of the representations and
warranties set forth in Article III hereof, and (ii) $5.0 million in
all other contexts; and (b) in respect of Parent and Buyer, an adverse
effect on the business, financial position or results of operations of
Parent and Buyer, taken as a whole, which exceeds (i) $100,000 in the
case of the representations and warranties set forth in Article IV
hereof, and (ii) either $5.0 million (if Common Shares are included in
the Initial Purchase Price) or $20.0 million (if no Common Shares are
included in the Initial Purchase Price) in all other contexts.
1.58 Membership Interest. "Membership Interest" shall mean the
membership interest held by Seller in the Company, which constitutes
the sole membership interest in the Company.
1.59 Noncompetition Agreement. "Noncompetition Agreement" shall
mean the agreement, dated as of the Closing Date, between Parent and
Seller, in substantially the form of Exhibit 1.59 attached hereto.
1.60 Opinion of Buyer's and Parent's Counsel. "Opinion of
Buyer's and Parent's Counsel" shall mean the opinions of Goodman
Phillips & Vineberg, a general partnership, and Robinson & Cole LLP,
Canadian and U.S. counsel, respectively, to Buyer and Parent in
substantially the forms of Exhibits 1.60A and 1.60B attached hereto.
1.61 Opinion of Seller's and Company's Counsel. "Opinion of
Seller's and Company's Counsel" shall mean the opinion of Hunton &
Williams, counsel to Seller and the Company, in substantially the form
of Exhibit 1.61 attached hereto.
1.62 Parent. "Parent" shall mean St. Laurent Paperboard Inc., a
Canadian corporation.
1.63 Parent's Equity Offering. "Parent's Equity Offering" shall
mean Parent's planned public offering of Common Shares, as defined in
Section 2.3(a) hereof.
1.64 PBGC. "PBGC" shall mean the Pension Benefit Guaranty
Corporation, or any entity succeeding to any or all of its functions.
1.65 Pension Plans. "Pension Plans" shall have the meaning given
in Section 3.21 hereof.
1.66 Permits. "Permits" shall mean all permits, licenses,
franchises and governmental authorizations, certifications,
registrations and approvals required in the conduct of the Business as
of the Effective Time of Closing including, without limitation, those
Permits listed on Exhibit 1.66 attached hereto.
1.67 Permitted Liens. "Permitted Liens" shall mean those liens,
encumbrances, mortgages, charges, claims, restrictions, pledges,
security interests, impositions and other matters affecting the
Company, the Subsidiaries or the assets of the Business that are
listed on Exhibit 1.67 attached hereto.
1.68 Person. "Person" means any individual, sole proprietorship,
trust, estate, executor, legal representative, unincorporated
association, association, institution, corporation, company,
partnership, limited liability company, limited liability partnership,
joint venture, government (whether national, federal, state,
provincial, county, city, municipal or otherwise, including, without
limitation, any authority, instrumentality, division, agency, body or
department thereof), and any regulatory or self-regulatory authority
or agency or other entity.
1.69 PW. "PW" shall mean Price Waterhouse, chartered
accountants, independent auditors for Buyer and Parent, or such other
nationally recognized independent accounting firm as may be engaged by
Buyer and/or Parent as their independent auditors from time to time.
1.70 Real Property. "Real Property" shall mean the real
property, together with all improvements and fixtures thereon and all
easements, rights-of-way and other rights, privileges, uses, licenses,
hereditaments and appurtenants belonging or appertaining thereto,
owned, leased, used or occupied by the Company and the Subsidiaries as
of the Effective Time of Closing, as listed on Exhibit 1.70 attached
hereto.
1.71 Seller. "Seller" shall mean Chesapeake Corporation, a
Virginia corporation.
1.72 Seller's Closing Certificate. "Seller's Closing
Certificate" shall mean the certificate of Seller in the form of
Exhibit 1.72 attached hereto.
1.73 Short Form Prospectus. "Short Form Prospectus" shall mean
the short form prospectus to be prepared and delivered to potential
purchasers of Common Shares in connection with Parent's Equity
Offering, as described in Section 2.3(a) hereof, in the form such
prospectus is receipted for under applicable Canadian securities Laws.
1.74 Special Accounting Principles. "Special Accounting
Principles" shall mean those elections under, and modifications and
exceptions to, GAAP and the Company's past practice that are
specifically described in Exhibit 1.74 attached hereto.
1.75 Stand-Still Agreement. "Stand-Still Agreement" shall mean
the agreement, dated as of the Closing Date, between Seller and
Parent, substantially in the form of Exhibit 1.75 attached hereto.
1.76 Subsidiaries. "Subsidiaries" shall mean the following
entities to be formed after the date hereof to hold the assets
described on Exhibit 2.1(a)-2 attached hereto: (1) a Virginia
corporation that at the Effective Time of Closing shall own, directly
and/or indirectly through a single-member, Virginia limited liability
company, the assets described in items 1-4 of Exhibit 2.1(a)-2
attached hereto; (2) such limited liability company; (3) a Virginia
corporation that at the Effective Time of Closing shall own, directly
and/or indirectly through a single-member, Virginia limited liability
company, the assets described in the remaining items of Exhibit 2.1(a)
attached hereto; and (4) such limited liability company.
1.77 Subsidiary Stock. "Subsidiary Stock" and any similar term
shall mean all of the issued and outstanding shares of capital stock
of the Subsidiaries that are corporations.
1.78 Supply Agreements. "Supply Agreements" shall mean,
collectively, (a) the Paper Products Supply Agreement between Seller
and St. Laurent Paper Products, L.L.C., an indirect wholly-owned
subsidiary of Parent, (b) the Sheets Supply Agreement between Seller
and St. Laurent Packaging Corp., an indirect wholly-owned subsidiary
of Parent to be formed after the date hereof, (c) the Wood Fiber
Supply Agreement between Chesapeake Forest Products Company and St.
Laurent Forest Products Corp., an indirect wholly-owned subsidiary of
Parent to be formed after the date hereof, and (d) the Wood Chips
Supply Agreement between Chesapeake Forest Products Company and St.
Laurent Forest Products Corp., each dated as of the Closing Date and
substantially in the respective forms of Exhibits 1.78(a), 1.78(b),
1.78(c) and 1.78(d) attached hereto.
1.79 Taxes. "Taxes" shall have the meaning given in Section 3.20
hereof.
1.80 Transition Agreement. "Transition Agreement" shall mean the
agreement, dated as of the Closing Date, between Seller and Buyer in
substantially the form of Exhibit 1.80 attached hereto.
1.81 WARN. "WARN" shall mean the Worker's Adjustment and
Retraining Notification Act and any similar state or local "plant
closing" Law.
1.82 Welfare Plans. "Welfare Plans" shall have the meaning given
in Section 3.21 hereof.
ARTICLE II
PRE-CLOSING ASSET TRANSFERS; PURCHASE AND SALE OF
MEMBERSHIP INTEREST
2.1 Certain Actions to be Taken Prior to Closing.
(a) Asset Transfers. Prior to the Effective Time of
Closing, Seller shall: (i) cause the Company to distribute to Seller
by appropriate instruments of transfer those assets specifically
identified in Exhibit 2.1(a)-1 attached hereto; and (ii) transfer or
cause the Affiliated Predecessors to transfer to the Company or the
Subsidiaries by appropriate instruments of transfer those assets
described on Exhibit 2.1(a)-2 attached hereto.
(b) Assignment and Assumption. Prior to the Effective Time of
Closing, Seller and the Affiliated Predecessors shall assign to the
Company, and the Company shall assume from Seller and the Affiliated
Predecessors (i) all liabilities of the Business as to which the
Company was not then the obligor, and (ii) all obligations of the
assignors arising from and after the date of such assignment under
those contracts, agreements, leases, licenses, royalty agreements,
vendor agreements, purchase orders, commitments, sales orders, supply
agreements and other agreements that are described in Exhibit 2.1(b)-1
attached hereto. Such assignment and assumption shall be effected
pursuant to an Assignment and Assumption Agreement substantially in
the form of Exhibit 2.1(b)-2 attached hereto. Buyer shall use its
best commercially reasonable efforts to cause Seller and its
Affiliates to be released from any guarantees or surety arrangements
relating to such assigned obligations.
(c) Repayment of Certain Indebtedness. Immediately prior to the
Effective Time of Closing, Seller shall cause the Company and the
Subsidiaries to repay all Indebtedness for Borrowed Money of such
Persons outstanding as of the Effective Time of Closing (which
indebtedness shall include, without limitation, all intercompany debt
payable to Seller and its Affiliates as of the Effective Time of
Closing).
2.2 Purchase and Sale; Payment of Initial Purchase Price.
(a) At the Closing, and upon all of the terms and subject
to all of the conditions of this Agreement, Seller hereby agrees to
transfer, assign and convey to Buyer, and Buyer hereby agrees to
purchase and accept from Seller, the Membership Interest. In
consideration thereof, at the Closing: (i) Buyer will deliver to
Seller the various agreements, certificates, documents and instruments
referred to in Section 7.6 hereof; (ii) Seller will deliver to Buyer
the various agreements, certificates, documents and instruments
referred to in Section 6.6 hereof; and (iii) Buyer shall pay the
Initial Purchase Price to Seller, in the form determined pursuant to
Section 2.3(b) hereof, by wire transfer of immediately available funds
and by delivery of certificates representing any Common Shares
included therein.
(b) At Parent's request, at the Closing (i) Seller shall sell or
cause the Company to sell directly to Buyer or Parent the Subsidiary
Stock, and (ii) in the event the Initial Purchase Price includes
Common Shares, Seller shall sell or cause the Company to sell directly
to Parent assets (including the Subsidiary Stock) with a value equal
to the sum of the value of such Common Shares plus $2.0 million, in
each case by appropriate instruments of transfer.
2.3 Parent's Equity Offering; Composition of Initial Purchase Price.
(a) Within two Business Days after the date hereof (the "Filing
Date"), Parent shall file with the appropriate Canadian securities
regulatory authorities a preliminary Short Form Prospectus in
accordance with the terms of National Policy No. 47 of the Canadian
Securities Administrators and Section 18 of the Securities Act
(Quebec), in substantially the form previously provided to Seller,
relating to Parent's planned public offering of Common Shares in each
of the provinces of Canada with anticipated aggregate Gross Proceeds
of no less than $225.0 million ("Parent's Equity Offering"). Parent
covenants and agrees with Seller to use its best commercially
reasonable efforts to complete Parent's Equity Offering within fifteen
(15) Business Days after the Filing Date, and Parent has provided to
Seller a letter from Nesbitt Burns Inc., the lead underwriter for
Parent's Equity Offering, to the effect that such firm is highly
confident that Parent's Equity Offering will be completed on the terms
and within the time period described therein. Parent further
covenants and agrees with Seller that if, in the sole reasonable
judgment of Parent after consultation with such lead underwriter, the
size of Parent's Equity Offering may be increased prior to the
execution of a definitive firm commitment underwriting agreement with
respect thereto without a material adverse effect upon the initial
public offering price per Common Share, Parent shall cause the size of
such equity offering to be increased so as to maximize the portion of
the Initial Purchase Price that shall be payable in cash pursuant to
Section 2.3(b) hereof.
(b) The Initial Purchase Price to be delivered by Buyer to
Seller pursuant to Section 2.2(a) hereof shall consist of (i) an
amount of cash, payable by wire transfer of immediately available
funds, equal to the Initial Purchase Price minus $75.0 million, and
(ii) that number of Common Shares which, when multiplied by the Common
Share Price, equals $75.0 million; provided, however, that if the
Gross Proceeds exceed $225.0 million, then the portion of the Initial
Purchase Price payable in cash shall be increased, and the portion
thereof payable in Common Shares shall be decreased, by one Dollar for
each additional Dollar by which the Gross Proceeds exceeds $225.0
million (with the result that if the Gross Proceeds equals or exceeds
$300 million, the entire Initial Purchase Price shall be paid in
cash). For purposes of determining the portion of the Initial
Purchase Price payable in Common Shares under this Section 2.3(b), in
lieu of issuing any fractional shares the last fraction of a Common
Share will be rounded to the nearest whole share.
(c) In the event any portion of the Initial Purchase Price is
paid in Common Shares, and the underwriters for Parent's Equity
Offering thereafter exercise any over-allotment option related to such
equity offering, then Seller shall participate in such over-allotment
option as contemplated in the draft preliminary Short Form Prospectus.
2.4 Final Statement of Working Capital; Settlement of Final
Purchase Price.
(a) Within thirty (30) days after the Closing Date, C&L shall
prepare and deliver to Buyer and PW a draft Final Statement of Working
Capital, which shall be prepared (i) except as required by the Special
Accounting Principles, in accordance with GAAP applied on a basis
consistent with the past practice of the Business, and (ii) in a
manner consistent with the December Statement of Working Capital,
together with C&L's draft special procedures report thereon.
(b) If Buyer has no objections to the draft Final Statement of
Working Capital, such draft shall be certified by C&L and, upon C&L's
issuance of its special procedures report thereon, shall constitute
the Final Statement of Working Capital. If Buyer has any objections
to the draft Final Statement of Working Capital, it will deliver a
detailed statement describing its objections to C&L and Seller within
ten (10) days after receiving the draft Final Statement of Working
Capital. Buyer, Seller, C&L and PW will use their reasonable best
efforts to resolve any such objections. If a final resolution is not
obtained within thirty (30) days after Seller and C&L have received
the statement of objections, Buyer and Seller will select a
nationally-recognized independent accounting firm mutually acceptable
to them to resolve any remaining objections. If Buyer and Seller are
unable to agree on the choice of an accounting firm, they will select
a nationally-recognized independent United States accounting firm by
lot (after excluding C&L and PW).
(c) C&L will revise the draft Final Statement of Working Capital
as appropriate to reflect the resolution of Buyer's objections (as
agreed upon by Buyer, Seller, C&L and PW or as determined by such
selected accounting firm) and deliver it to Buyer and Seller within
ten (10) days after the resolution of such objections. Such revised
statement shall be accompanied by C&L's special procedures report
thereon and shall constitute the Final Statement of Working Capital.
(d) To the extent that the Final Statement of Working Capital,
as certified by C&L, shows that Final Working Capital is less than
Estimated Working Capital, Seller shall pay such difference to Buyer
in immediately available funds within two (2) Business Days of C&L's
delivery of such Final Statement of Working Capital. To the extent
that the Final Statement of Working Capital, as certified by C&L,
shows that the Final Working Capital is greater than Estimated Working
Capital, Buyer shall pay such excess to Seller in immediately
available funds within two (2) Business Days of C&L's delivery of such
Final Statement of Working Capital. All payments made pursuant to
this Section 2.4(d) shall be accompanied by accrued interest thereon
from the Closing Date at the prevailing prime rate as announced by
Crestar Bank in Richmond, Virginia, from time to time.
(e) If any unresolved objections are submitted to an
accounting firm for resolution as provided above, Buyer and Seller
will share equally the fees and expenses of such accounting firm.
(f) C&L will make the work papers used in preparing the
draft Final Statement of Working Capital and the Final Statement of
Working Capital available to Buyer and PW at reasonable times and upon
reasonable notice at any time during the preparation by C&L of the
draft Final Statement of Working Capital and the resolution of any
objections with respect thereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer and Parent, with
the understanding that these representations and warranties are being
relied upon by Buyer and Parent, that:
3.1 Organization of Seller. Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of
the Commonwealth of Virginia and has full corporate power to enter
into this Agreement and the Ancillary Agreements to which it is a
party and to perform its obligations hereunder and thereunder.
3.2 Authorization; Enforceability. The execution, delivery and
performance by Seller of this Agreement and of the Ancillary
Agreements to which Seller is a party, and of all of the other
documents and instruments required hereby and thereby from Seller, are
within the corporate power of Seller and have been duly authorized by
all necessary corporate action of Seller. No approval of the
shareholders of Seller is required in connection with the execution,
delivery and performance by Seller of this Agreement and of the
Ancillary Agreements to which Seller is a party. This Agreement is,
and the Ancillary Agreements to which Seller is a party and other
documents and instruments required hereby and thereby will be, when
executed and delivered by the parties hereto or thereto, the valid and
binding obligations of Seller, enforceable against Seller in
accordance with their respective terms.
3.3 No Violation or Conflict by Seller. The execution, delivery
and performance of this Agreement and of the Ancillary Agreements to
which Seller is a party by Seller, and the consummation of the
transactions contemplated herein and therein, do not and will not (a)
conflict with or violate any Law binding on Seller or the Articles of
Incorporation or Bylaws of Seller or (b) constitute a violation or
breach of any contract or agreement to which Seller is a party or by
which it is bound, the violation or breach of which could have a
Material Adverse Effect on Seller's ability to perform any of its
obligations hereunder and thereunder. No notice to, filing or
registration with, or authorization, consent or approval of, any
governmental, regulatory or self-regulatory Person is necessary or is
required to be made or obtained by Seller in connection with the
execution and delivery by Seller of this Agreement and the Ancillary
Agreements to which Seller is a party or the consummation by Seller of
the transactions contemplated hereby or thereby; provided, however,
that consummation of the transactions contemplated by this Agreement
and the Ancillary Agreements is subject to the requirements of the HSR
Act.
3.4 Title to Membership Interest. Seller owns good, valid and
marketable title to, and is the sole record and beneficial owner of,
the Membership Interest, free and clear of any and all Liens and, upon
(a) transfer of the Membership Interest to Buyer and substitution of
Buyer for Seller as the sole member of the Company at the Closing, and
(b) Buyer's payment of the Initial Purchase Price therefor, good and
valid title to the Membership Interest, free and clear of all Liens,
will pass to Buyer.
3.5 Organization and Authority of Company. The Company is a
limited liability company duly formed, validly existing and in good
standing under the laws of the Commonwealth of Virginia. The Company
has full power as a limited liability company to carry on its business
as it is now being conducted and as it is to be conducted after giving
effect to the Asset Transfers, and to own, operate and hold under
lease its assets and properties as, and in the places where, such
assets and properties now are and after the Asset Transfers will be
owned, operated or held. The Company is duly qualified as a foreign
limited liability company to do business, and is in good standing, in
each jurisdiction where the failure to be so qualified would have a
Material Adverse Effect, all of such jurisdictions being set forth on
Exhibit 3.5 attached hereto.
3.6 Capitalization of the Company. The Membership Interest
represents the sole membership interest in the Company, has been duly
and validly created and is fully paid and non-assessable. There are
no options, warrants, agreements, commitments or other rights to
subscribe for or purchase any membership interest in the Company or
securities convertible into or exchangeable for, or which otherwise
confer on a Person any right to acquire, any membership interest in
the Company, nor is the Company or Seller committed to issue any such
option, warrant or other right.
3.7 Organization and Authority of the Subsidiaries; No Other
Interests. (a) At the Effective Time of Closing, each
Subsidiary shall be a corporation or limited liability company duly
incorporated or organized (as appropriate), validly existing and in
good standing under the laws of the Commonwealth of Virginia. At the
Effective Time of Closing, each Subsidiary shall have full corporate
or limited liability company power to carry on its business as it is
to be conducted after giving effect to the Asset Transfers, and to
own, operate and hold under lease or otherwise its assets and
properties as, and in the places where, such assets and properties
after the Asset Transfers will be owned, operated or held. At the
Effective Time of Closing, each Subsidiary shall be duly qualified as
a foreign corporation or limited liability company to do business, and
shall be in good standing, in each jurisdiction where the failure to
be so qualified would have a Material Adverse Effect, all of such
jurisdictions being set forth on Exhibit 3.5 attached hereto.
(b) Except for the Company's ownership of the Subsidiary
Stock and the corporate Subsidiaries' ownership of the membership
interest in the Subsidiaries that are limited liability companies,
neither the Company nor any of the Subsidiaries owns, directly or
indirectly, any capital stock of or any interest in any Person, nor
does the Company or any of the Subsidiaries have the right or
obligation to acquire any interest in any Person.
3.8 Capitalization of the Subsidiaries. At the Effective
Time of Closing, the authorized equity capitalization of each
Subsidiary that will be a corporation shall consist of 100 shares of
common stock, without par value, all of which shares shall have been
issued and shall be owned of record and beneficially by the Company
free and clear of all Liens. At the Effective Time of Closing, the
Subsidiary Stock shall represent all of the issued and outstanding
capital stock of each such Subsidiary, shall have been duly and
validly issued and shall be fully paid and non-assessable. At the
Effective Time of Closing, there shall be no options, warrants,
agreements, commitments or other rights to subscribe for or purchase
any capital stock of or membership interest in any Subsidiary or
securities convertible into or exchangeable for, or which otherwise
confer on a Person any right to acquire, any capital stock or other
securities of or membership interest in any Subsidiary, nor shall the
Company or Seller be committed to issue any such option, warrant or
other right.
3.9 Consents and Approvals; No Violation or Conflict by
Company. The execution, delivery and performance of this Agreement
and of the Ancillary Agreements to which Seller is a party by Seller,
and the consummation of the transactions contemplated herein and
therein, do not and will not conflict with or violate any Law binding
on the Company or the Subsidiaries, or the Governing Instruments of
the Company or any Subsidiary. Except as set forth in Exhibit 3.9
attached hereto, the execution, delivery and performance of this
Agreement and of the Ancillary Agreements to which Seller is a party
by Seller, and the consummation of the transactions contemplated
herein and therein, do not and will not constitute a violation or
breach of any Contract to which any member of the Combined Group is a
party or by which any of them is bound, or require the consent or
approval of any party to any Contract or give any party to any
Contract any right of termination, cancellation, acceleration or
modification thereunder. Except as set forth in Exhibit 3.9 attached
hereto, no notice to, filing or registration with, or authorization,
consent or approval of, any governmental, regulatory or self-regulatory Person
is necessary or is required to be made or obtained
by any member of the Combined Group in connection with the
consummation of the transactions contemplated in this Agreement and
the Supply Agreements.
3.10 Title to and Sufficiency of Assets. As of the date
hereof the Company and the Affiliated Predecessors own, and as of the
Effective Time of Closing the Company and the Subsidiaries shall own,
good and marketable title to all assets and properties, real or
personal, tangible or intangible, used in the Business in accordance
with the prior practice thereof, free and clear of all Liens except
the Permitted Liens, except for the Excluded Assets and those assets
and properties leased or licensed pursuant to Contracts.
3.11 Real Property. Exhibit 1.70 attached hereto is a true,
complete and correct list of all of the real property owned, leased,
used or occupied by any member of the Combined Group. With respect to
each such parcel of Real Property, except as set forth on Exhibit 1.70
attached hereto:
(a) there are no pending or, to the Knowledge of Seller,
proposed or threatened condemnation proceedings, lawsuits or
administrative actions relating thereto;
(b) there are no leases, subleases, licenses, occupancy
agreements, concessions or other agreements, written or oral, granting
to any Person the right to use or occupy any portion thereof;
(c) with respect to owned parcels of Real Property, as of
the date hereof the Company and the Affiliated Predecessors hold, and
as of the Effective Time of Closing the Company and/or the
Subsidiaries shall hold, good and marketable title thereto in fee
simple absolute, free and clear of any Liens except the Permitted
Liens;
(d) to the Knowledge of Seller, no work has been performed
on, or material supplied to, the Real Property within any applicable
statutory period which could give rise to any mechanics' or
materialmen's liens, other than work or materials that shall be paid
for prior to the Effective Time of Closing or for which payment shall
be accrued and reflected in the Final Statement of Working Capital;
(e) with respect to owned parcels of Real Property, there
are no outstanding accepted offers to buy, offers to sell, or options
or rights of first refusal to purchase or sell any portion thereof or
interest therein;
(f) to the Knowledge of Seller, there are no Persons (other
than members of the Combined Group) in possession of the parcel, other
than tenants under leases or subleases disclosed in Exhibit 1.70
attached hereto, who are in possession of space to which they are
entitled under such lease or sublease; and
(g) there are no pending or, to the Knowledge of Seller,
proposed or threatened requests, applications or proceedings to alter
or restrict the zoning or other use restrictions applicable to any
owned Real Property. To the Knowledge of Seller, the improvements on
and the present uses of the owned Real Property are permitted,
conforming structures and uses as a matter of right or are
"grandfathered" or have non-conforming structure or use status or are
subject to variances, special permits, licenses or other approvals
which are in full force and effect. Seller has not received notice of
and has no Knowledge of any plan, study or effort by any governmental
or regulatory authority which would have a Material Adverse Effect on
the present use or zoning of the owned Real Property.
3.12 Bank Accounts. The Bank Accounts shall constitute all
checking accounts, savings accounts, custodial accounts, certificates
of deposit, safe deposit boxes or other similar accounts maintained by
the Company and the Subsidiaries as of the Effective Time of Closing.
Exhibit 1.6 attached hereto is a true and complete listing of the Bank
Accounts, and sets forth the name of each person with signature
authority for each such account immediately prior to the Effective
Time of Closing.
3.13 Condition of Equipment. The Equipment, taken as a
whole, is in good operating condition and repair for equipment of like
type and age, subject to ordinary wear and tear, and is substantially
fit for the purposes for which it currently is being utilized.
3.14 Customer List. To the Knowledge of Seller, neither
Seller nor the Company nor any Affiliated Predecessor have received
any notice, whether written or oral, indicating that any customers of
the Business intend to cease doing business with the Business, or to
alter the amount of business they have previously done or are
presently doing with the Business (not including customers who cease
doing business with the Business or alter the amount of business they
have previously done or are presently doing with the Business because
of actions taken by Parent or any of its Affiliates), except where
such cessation or alteration would not have a Material Adverse Effect.
3.15 Intangible Assets. As of the date hereof the Company
and the Affiliated Predecessors own or hold under valid and subsisting
leases or licenses, and as of the Effective Time of Closing, the
Company and the Subsidiaries will own or hold under valid and
subsisting leases or licenses, all of the Intangible Assets, except
the Excluded Intangibles. All actions necessary to maintain the
registered Intangible Assets owned by the Company or any Affiliated
Predecessor have been taken. To the Knowledge of Seller, the use by
the Combined Group of any of the Intangible Assets does not violate
the proprietary rights of any Person. There are no claims, demands or
proceedings pending or, to the Knowledge of Seller, threatened by any
third party pertaining to or challenging the right to use any of the
Intangible Assets in the Business, and there is no trademark, trade
name, patent or copyright owned by a third party (other than Seller
and its Affiliates) which the Company is using without a license to do
so.
3.16 Books and Records. The Books and Records are complete
and correct in all material respects and have been maintained in
accordance with sound business practices including, without
limitation, the maintenance of an adequate system of internal
controls. As of the Effective Time of Closing, all of the Books and
Records will be in the possession of the Company and the Subsidiaries.
3.17 Contracts. Exhibit 3.17 attached hereto is a true and
complete list of all Contracts that constitute: (a) a lease of any
real or personal property with (i) aggregate annual rental payments in
excess of $100,000, or (ii) a remaining term in excess of one year and
which is non-cancellable without penalty on notice of ninety (90) days
or less; (b) an agreement to purchase or sell a capital asset for a
price in excess of $100,000; or (c) any other Contract involving an
amount in excess of $100,000. The Company and the Affiliated
Predecessors have performed each material term, covenant and condition
of each of the Contracts which is to be performed by it or them at or
before the date hereof. No event has occurred that would, with the
passage of time or compliance with any applicable notice requirements,
constitute a breach or default by the Company, any Subsidiary or any
Affiliated Predecessor or, to the Knowledge of Seller, any other
Person under any of the Contracts, and, to the Knowledge of Seller, no
party to any of the Contracts intends to cancel, terminate or exercise
any option under any of the Contracts, the result of which would be a
Material Adverse Effect. Except as set forth in Exhibit 3.17 attached
hereto, the performance of the obligations of the Business under any
of the Contracts has not, directly or indirectly, been guaranteed by
Seller or any Affiliate of Seller.
3.18 No Litigation. Except as listed in Exhibit 3.18
attached hereto, there is no litigation, arbitration proceeding or
governmental or administrative investigation, complaint, charge,
citation, enforcement action, claim or proceeding of any kind pending
or, to the Knowledge of Seller, proposed or threatened, (a) against
the Company or any Subsidiary, (b) relating to the Business or the
assets or properties used in the conduct thereof or (c) that seeks
restraint, prohibition, damages or other relief in connection with
this Agreement or the Ancillary Agreements or the consummation of the
transactions contemplated hereby or thereby which, in the case of (a)
or (b) hereof, is expected, in the reasonable judgment of Seller, to
have, alone or in the aggregate, a Material Adverse Effect.
3.19 Financial Statements.
(a) The Company Financial Statements are true and
correct in all material respects, present fairly the combined
financial position and results of operations, divisional equity and
cash flows of the Business as of the dates and for the periods
presented, and were prepared in accordance with GAAP applied on a
basis consistent with the past practice of the Business, subject to
the Special Accounting Principles. As of December 31, 1996, and March
31, 1997, the Business was not subject to any liability or obligation
of a nature that should be reflected or reserved against on a balance
sheet prepared in accordance with GAAP, subject to the Special
Accounting Principles, that was not reflected on the balance sheet as
of such date included in Exhibit 1.24 attached hereto (or disclosed in
the notes thereto) as so required.
(b) All of the trade receivables and other accounts
receivable (the "Accounts Receivable") reflected in the Company
Financial Statements or to be reflected in the Final Statement of
Working Capital arose (in the case of the former) or will have arisen
(in the case of the latter) from bona fide transactions in the
ordinary course of business. The allowance for doubtful accounts
reflected in the Company Financial Statements and to be reflected in
the Final Statement of Working Capital was (in the case of the former)
and will be (in the case of the latter) determined in accordance with
GAAP applied on a basis consistent with the past practice of the
Business, subject to the Special Accounting Principles. The accounts
payable reflected in the Company Financial Statements and to be
reflected in the Final Statement of Working Capital arose (in the case
of the former) or will have arisen (in the case of the latter) from
bona fide transactions in the ordinary course of business. All of the
work-in-process, finished goods, materials and supplies inventories
(the "Inventory") reflected in the Company Financial Statements or to
be reflected in the Final Statement of Working Capital were (in the
case of the former) or will have been (in the case of the latter)
acquired and held in the ordinary course of business. The Inventory
value reflected in the Company Financial Statements and to be
reflected in the Final Statement of Working Capital was (in the case
of the former) and will be (in the case of the latter) determined in
accordance with GAAP (including, without limitation, provisions of
GAAP related to the write-down of Inventory that is not usable or
saleable in the ordinary course of business) applied on a basis
consistent with the past practice of the Business, subject to the
Special Accounting Principles.
3.20 Taxes. Except as set forth on Exhibit 3.20 attached
hereto:
(a) each of the Company and the Subsidiaries has
timely filed (timely being understood to include all properly granted
extensions) all material returns and reports required to be filed by
it with respect to all federal, state, local and foreign income,
payroll, employment, unemployment, withholding, excise, sales,
personal property, use, business and occupation, franchise, occupancy,
real estate, property transfer or other taxes (all of the foregoing
taxes, including interest and penalties thereon and including
estimated taxes, being hereinafter collectively referred to as
"Taxes"). Each of the Company and the Subsidiaries has paid all Taxes
which are shown to have become due and payable pursuant to such
returns and has paid all other Taxes for which it has received a
notice of assessment or demand for payment. All such returns or
reports are true, correct and complete in all respects, except to the
extent not being so would not have, alone or in the aggregate, a
Material Adverse Effect. Each of the Company and the Subsidiaries has
withheld or collected and paid over to the appropriate Person or is
properly holding for such payment all Taxes required by Law to be
withheld or collected, except to the extent not doing so would not
have, alone or in the aggregate, a Material Adverse Effect. There are
no Liens for Taxes upon the assets or properties of the Company or any
Subsidiary other than Liens for Taxes not due and those which are
being contested in good faith by appropriate proceedings as described
in Exhibit 3.20 attached hereto. There is no due and payable
liability for any Tax of any Affiliated Predecessor for which any
Subsidiary is liable.
(b) The federal income tax returns of the Company and
the Affiliated Predecessors have been examined by the IRS or closed by
applicable statutes for all years through December 31, 1993. Any
deficiencies asserted as a result of such examinations have been paid
or finally settled. Income tax returns for the years ended December
31, 1994 through the date hereof remain subject to examination. Any
additional income finally determined as a result of a federal income
tax examination has been reported, to the extent required, to the
appropriate state taxing authorities on amended state income tax
returns and any additional taxes due the state taxing authorities
thereon have been paid. There are no outstanding agreements or
waivers extending the statutory period of limitation applicable to any
federal, state or local income tax return for any period with respect
to the Company or any Subsidiary or Affiliated Predecessor. To the
Knowledge of Seller, there is no pending or proposed examination,
claim, litigation or other proceeding with respect to Taxes of the
Company, any Subsidiary or, to the extent a Subsidiary would be liable
therefor, any Affiliated Predecessor.
(c) The total proceeds from sales of assets by the Company
outside the ordinary course of business (excluding any sale of assets
located outside Virginia and any transaction contemplated by this
Agreement) during the 12 months immediately prior to the date hereof
do not exceed $500,000.
3.21 Employee Benefit Plans.
(a) Exhibit 3.21 attached hereto sets forth a true,
complete and correct list of all "employee benefit plans" (as defined
in Section 3(3) of ERISA) and all other employee benefit arrangements
or payroll practices, including each severance pay, bonus, deferred
compensation, incentive compensation, stock purchase, stock option,
hospitalization or other medical, life, disability or other welfare,
pension, profit-sharing or retirement program (the "Employee Benefit
Plans") covering present and former employees of the Combined Group
(the "Business Employees"). Exhibit 3.21 attached hereto identifies
(i) each "pension plan" (as defined in Section 3(2) of ERISA) (the
"Pension Plans"), and denotes those Pension Plans intended to be
qualified under Section 401(a) of the Code (the "Qualified Plans"),
and (ii) each "welfare plan" (as defined in Section 3(1) of ERISA)
(the "Welfare Plans"), maintained for the benefit of Business
Employees or to which Seller, the Company or any ERISA Affiliate
contributes on behalf of Business Employees. Neither Seller, the
Company nor any ERISA Affiliate provides benefits under any Employee
Benefit Plan for leased employees (as defined in Section 414(n) of the
Code) of the Combined Group. True, complete and correct copies of the
following documents, with respect to each of the Employee Benefit
Plans, have been made available or delivered to Buyer by Seller: (i)
any plans and related trust documents, and all amendments thereto;
(ii) the most recent Forms 5500 and all schedules thereto; (iii) the
most recent IRS determination letter(s); and (iv) the most recent
summary plan descriptions. To the Knowledge of Seller, each Employee
Benefit Plan is enforceable in accordance with its terms.
(b) Each Qualified Plan complies in all material
respects with applicable Law, and the IRS has issued favorable
determination letters to the effect that the forms of Qualified Plans
(or predecessor plans) satisfy the requirements of Section 401(a) and
related Sections of the Code. There are no facts or circumstances
that would jeopardize or adversely affect the qualification under Code
Section 401(a) of any Qualified Plan or otherwise have a material
adverse effect on the qualified status of any Qualified Plan. Each
Qualified Plan has been amended to incorporate all changes in
eligibility, benefits, vesting and distribution options as in effect
as of the Closing Date.
(c) As of the Effective Time of Closing, full payment
of all contributions will be made or accrued on the Final Statement of
Working Capital with respect to each Employee Benefit Plan (including
all employer contributions and employee salary reduction
contributions) that are either required under the terms thereof or
under ERISA or the Code. No "accumulated funding deficiency" (as
defined in ERISA Section 302 or Code Section 412), whether or not
waived, exists with respect to any Pension Plan and all required
contributions for plan years ending on or before December 31, 1996,
that are required to be made before the Closing Date have been or will
be made prior to the Closing Date. None of Seller, the Company, any
ERISA Affiliate or any organization to which Seller is a successor or
parent corporation, within the meaning of Section 4069(b) of ERISA,
has engaged in any transaction, within the meaning of Section 4069 of
ERISA. Except as set forth in Exhibit 3.21 attached hereto, no
Pension Plan has incurred a "reportable event" as such term is defined
in Section 4043 of ERISA, other than a "reportable event" which was
not required to be reported.
(d) Each Employee Benefit Plan has been administered in
accordance with its terms, except where any noncompliance would not
have, alone or in the aggregate, a Material Adverse Effect. In
addition, each Employee Benefit Plan complies, and has been
administered in accordance with, any applicable provisions of ERISA
and the rulings and regulations promulgated thereunder (including the
continuation coverage requirements of group health plans under COBRA),
and all other applicable Laws, except where any noncompliance would
not have, alone or in the aggregate, a Material Adverse Effect.
Seller, the Company and any ERISA Affiliate have filed all reports,
returns and other documentation and paid all premiums and taxes
associated therewith that are required to have been filed with respect
to each Employee Benefit Plan with the IRS, the Department of Labor,
the PBGC or any other governmental agency (federal, state or local)
and such have been filed on a timely basis, except in each instance in
which the failure to file such reports, returns and other documents
would not have, alone or in the aggregate, a Material Adverse Effect.
No lawsuits, complaints, investigations or proceedings to or by any
Person or governmental authority have been filed or, to the Knowledge
of Seller, are proposed or threatened, with respect to any Employee
Benefit Plan, except where such lawsuits, complaints, investigations
or proceedings would not have, alone or in the aggregate, a Material
Adverse Effect.
(d) None of Seller, the Company or any ERISA Affiliate is
or has ever been a party to any "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) with respect to the Combined Group and
neither Seller, the Company nor any ERISA Affiliate has received a
notice of, or incurred, any withdrawal liability with respect to a
"multiemployer plan" that has not been satisfied.
(e) Seller, the Company and the Subsidiaries have not
incurred any material liability with respect to any Welfare Plan or
for "welfare benefits" (as defined in Code Section 419) that was not
fully reflected in the balance sheets included in the Company
Financial Statements or that will not be reflected in the Final
Statement of Working Capital. Except as set forth in Exhibit 3.21
attached hereto or as required under COBRA or the terms of any Pension
Plan, the Combined Group is not obligated to provide or to pay any
benefits to former employees, or to their dependents or beneficiaries,
solely as a result of the consummation of the transactions
contemplated in this Agreement (including, without limitation, the
Asset Transfers).
(f) Except as set forth in Exhibit 3.21 attached
hereto, at the Effective Time of Closing there will be no bonuses,
profit sharing, incentives, commissions or other compensation of any
kind, including severance benefits, or accrued vacation time or pay,
due to any Business Employees which have not been fully paid, or
accrued in the Company Financial Statements prior to such date or
reflected in the Final Statement of Working Capital. Except as set
forth on Exhibit 3.21 attached hereto, no severance pay obligation
under any Employee Benefit Plan, Contract or at Law, with respect to
Business Employees, will be triggered solely by the execution,
delivery and performance of this Agreement and the Ancillary
Agreements and the consummation of the transactions contemplated
herein and therein. Neither the Company, any Subsidiary, Parent nor
the Buyer, solely as a result of the purchase of the Membership
Interest or the Subsidiary Stock by Buyer and/or Parent, shall be
obligated to make a payment to an individual that would be a
"parachute payment" to a "disqualified individual" (as those terms are
defined in Section 280G of the Code, without regard to whether such
payment is reasonable compensation for personal services performed or
to be performed in the future).
(g) Seller has provided to Buyer a complete
description of all material employment policies which have applied to
Business Employees in the past twenty-four (24) months or which have
been communicated to such Business Employees in the past twenty-four
(24) months. Except as set forth in Exhibit 3.21 attached hereto, the
Combined Group is not a party to any employment contract covering any
Business Employee.
3.22 Labor Matters.
(a) Except as set forth in Exhibit 3.22 attached
hereto, no member of the Combined Group is a party to any labor or
collective bargaining agreement with any labor union or organization
pertaining to employees of the Business and, except as set forth in
the collective bargaining agreements listed in Exhibit 3.22 attached
hereto, no labor union or organization is recognized as the collective
bargaining representative of employees of the Business. To the
Knowledge of Seller, (i) no labor organization has made a pending
demand to any member of the Combined Group for recognition as the
bargaining representative of any employees of the Business, (ii) there
are no representation petitions pending before the National Labor
Relations Board with respect to employees of the Business and (iii) no
union organizing activities are in progress with respect to employees
of the Business. True, complete and correct copies of all collective
bargaining agreements pertaining to employees of the Business,
including any amendments or material side letters thereto, have been
delivered to Buyer by Seller.
(b) Except as set forth in Exhibit 3.22 attached
hereto: (i) there are no pending or, to Seller's Knowledge, proposed
or threatened strikes or lockouts involving employees of the Business;
(ii) there is no strike, formal dispute, formal grievance, arbitration
proceeding, general slowdown, work to rule or work stoppage, or charge
of unfair labor practice pending before a court, regulatory body or
arbitration tribunal or, to Seller's Knowledge, proposed or threatened
against or affecting the Business; and (iii) there are no charges or
complaints of discrimination pending or, to Seller's Knowledge,
proposed or threatened against the Business before the United States
Equal Employment Opportunity Commission or any other federal, state,
local or foreign agency, board or tribunal.
(c) With respect to the Business, there has been no
"mass layoff" or "plant closing," as defined by WARN, within six (6)
months prior to the Closing Date.
(d) The Final Statement of Working Capital will
include an accrual for workers' compensation claims as of the
Effective Time of Closing in accordance with GAAP, subject to the
Special Accounting Principles.
3.23 Compliance with Law. To the Knowledge of Seller, the
conduct of the Business and the use by the Combined Group of the
assets owned or used by the Business does not violate or conflict with
any Law, which violation or conflict would have, alone or in the
aggregate, a Material Adverse Effect. To the Knowledge of Seller, all
Permits required by the Combined Group to conduct the Business have
been obtained, are in full force and effect and are being complied
with in all material respects, except where such absence or
noncompliance would not have, alone or in the aggregate, a Material
Adverse Effect. Except as set forth in Exhibit 1.66 attached hereto,
consummation of the transactions contemplated by this Agreement and
the Ancillary Agreements will not, with respect to any Permit, require
the consent or approval of, or any filing with, any governmental,
regulatory or self-regulatory Person, and all such Permits will
continue in full force and effect immediately thereafter in accordance
with their terms. To Seller's Knowledge there is no fact or event
which will prevent the renewal of any of the Permits under existing
Law or which, with the passage of time or the giving of notice or
both, assuming operation of the Business substantially in accordance
with past practices, will constitute a violation of the terms of any
of the Permits or of any applications or agreements made in connection
therewith. No action or proceeding is pending or, to Seller's
Knowledge, proposed or threatened which is reasonably expected to
result in the revocation, cancellation or suspension of any of the
Permits, or in the modification or limitation of any of the Permits in
any material respect.
3.24 Environmental Matters.
(a) Certain Definitions. For purposes of this Section 3.24:
(i) "Environment" means any environmental medium
including, without limitation, land (surface and subsurface), surface
waters, ground waters, wetlands, stream sediments, air and similar
environmental media and includes the interiors of buildings, buildings
and construction materials.
(ii) "Environmental Claim" means any and all
administrative, regulatory or judicial actions, suits, demand letters,
directives, claims, liens, investigations, proceedings or written
notices by any Governmental Authority or other Person alleging
noncompliance or violation prior to or as of the Effective Time of
Closing of any Environmental Laws by the Company, any Subsidiary or,
to the extent such allegations relate to the Business or the Real
Property, any Affiliated Predecessor (including, without limitation,
potential responsibility for or liability for enforcement,
investigatory costs, cleanup costs, governmental response costs,
removal costs, remedial costs, natural resources damages, property
damages, personal injuries or penalties).
(iii) "Environmental Laws" means all applicable
Laws (excluding common law) relating to pollution, the Environment or
protection of human health as it relates to the Environment as such
Laws were in effect and judicially interpreted prior to, or are in
effect and judicially interpreted at, the Effective Time of Closing
including, without limitation, Laws relating to Releases of Hazardous
Materials.
(iv) "Hazardous Materials" means (A) any petroleum or
any by-products or fractions thereof, asbestos in any form that is
friable or that is likely to become friable under normal wear and
tear, urea formaldehyde foam insulation, any form of natural gas,
explosives and polychlorinated biphenyls ("PCBs"); and (B) any
chemicals, materials or substances, whether waste materials, raw
materials or finished products, which are now defined as or included
in the definition of "hazardous substances", "hazardous wastes",
"hazardous materials", "extremely hazardous substances", "restricted
hazardous wastes", "toxic substances", "toxic pollutants",
"pollutants", "contaminants", or words of similar import under any
Environmental Law.
(v) "Governmental Authority" shall mean any federal,
state, local, municipal or other governmental Person, or any court, in
each case having jurisdiction over the applicable matter.
(vi) "Release" shall have the same meaning given in any
Environmental Law.
(b) Except as disclosed in Exhibit 3.24 attached hereto
(the "Known Environmental Matters"):
(i) The Company, the Subsidiaries and their respective
Affiliated Predecessors (to the extent related to the Business or the
Real Property) and the facilities and operations of the Business do
not as of the date hereof and on the Closing Date will not violate,
and to the Knowledge of Seller have not in the past violated, any
applicable Environmental Law, and neither Seller, the Company, the
Subsidiaries nor the Affiliated Predecessors have received any written
communication from any Governmental Authority or other Person to the
effect that the Business or the Real Property is in violation of any
applicable Environmental Law, except where any such violation could
not reasonably be expected to result, alone or in the aggregate, in a
Material Adverse Effect.
(ii) There is no Environmental Claim arising out of a
violation of an applicable Environmental Law pending or, to the
Knowledge of Seller, proposed or threatened (A) against the Company,
the Subsidiaries or (to the extent such claim relates to the Business
or the Real Property) the Affiliated Predecessors, (B) against any
Person whose liability for any such Environmental Claim has been
retained or assumed by the Company, the Subsidiaries or (to the extent
such liability relates to the Business or the Real Property) the
Affiliated Predecessors, either contractually or by operation of Law,
or (C) against any real or personal property or operations which the
Business leases, occupies or operates, in whole or in part, which
Environmental Claim, in any such case could reasonably be expected to
have, alone or in the aggregate, a Material Adverse Effect.
(iii) The Company, the Subsidiaries and the
Affiliated Predecessors have obtained all permits, licenses,
variances, approvals and authorizations required under the
Environmental Laws (collectively, the "Environmental Permits") for the
construction of their facilities and the operation of the Business and
all such Environmental Permits are effective and the Business is in
compliance with all terms and conditions of such Environmental
Permits, except where such absence of or noncompliance with an
Environmental Permit would not have, alone or in the aggregate, a
Material Adverse Effect. To the Knowledge of Seller, such
Environmental Permits are transferrable.
(iv) To Seller's Knowledge, at the Effective Time of
Closing there will be no fact or event which, with the passage of time
or the giving of notice or both, will prevent the renewal of any of
the Environmental Permits under existing Environmental Law or which,
assuming operation of the Business is substantially in accordance with
past practices, will constitute a violation of any Environmental Law
or the terms of any of the Permits or of any applications or
agreements made in connection therewith.
(v) Neither Seller, the Company, the Subsidiaries,
nor, to Seller's Knowledge, any owner or prior owner of premises
leased or operated by the Business, has filed any notice with any
Governmental Authority with respect to such premises under any
Environmental Law indicating past or present treatment, storage or
disposal of Hazardous Materials, as regulated under 40 C.F.R. Parts
264-267 or any state, local or foreign equivalent.
(vi) None of the properties owned, leased or operated
by the Company, the Subsidiaries or, to the extent they relate to the
Business, the Affiliated Predecessors are now, or were in the past,
listed on the National Priorities List of Superfund Sites (the "NPL"),
the Comprehensive Environmental Response, Compensation and Liability
Information System ("CERCLIS"), or any other comparable state or local
environmental database (excluding easements that transgress such
Superfund or CERCLIS sites).
(vii) To the Knowledge of Seller, the consummation
of the transactions contemplated under this Agreement and the
Ancillary Agreements (including, without limitation, the Asset
Transfers) will not require any governmental approvals,
authorizations, consents or filings (other than Permit transfers)
under the Environmental Laws (including, without limitation, those
that are triggered by sales or transfers of businesses or real
property).
(viii) To the Knowledge of Seller, there is no
offsite source of groundwater contamination and there has been no
offsite Release of Hazardous Material that is migrating onto the Real
Property or other premises leased or occupied by the Business which in
any case would have, alone or in the aggregate, a Material Adverse
Effect.
(ix) There has been no Release of any Hazardous
Material in violation of any applicable Environmental Law that would
form the basis of any Environmental Claim (A) against the Company or
the Subsidiaries, or (B) against any Person whose liability for any
such Environmental Claim the Company or the Subsidiaries have or may
have retained or assumed either contractually or by operation of Law,
which in any such case would have, alone or in the aggregate, a
Material Adverse Effect.
(c) Notwithstanding any provision of this Agreement to the
contrary, this Section 3.24 shall constitute the sole representations
and warranties of Seller related to environmental matters.
3.25 Insurance. Exhibit 3.25 attached hereto lists all
policies of fire, liability, workers' compensation and other forms of
insurance coverage to or for the benefit of the Business. All of such
insurance coverage shall remain in full force until the Effective Time
of Closing but, except as set forth in Exhibit 3.25 attached hereto,
shall terminate as of such time. Except as set forth in Exhibit 3.25
attached hereto, the Seller, the Affiliated Predecessors and the
Company (i) have not failed to give any notice or present any claim
under any such policy or binder in due and timely fashion, (ii) have
not received notice of cancellation or non-renewal of any such policy
or binder and (iii) are not aware of any threatened or proposed
cancellation or non-renewal of any such policy or binder. Except as
set forth in Exhibit 3.25 attached hereto, there are no outstanding
claims under any such policy which have gone unpaid for more than
ninety (90) days, or as to which the insurer has disclaimed liability.
3.26 Related Party Transactions. Neither the Seller nor any
of its Affiliates (i) owns, directly or indirectly, on an individual
or joint basis, any material interest in, or serves as an officer or
director of, any customer, competitor or supplier of the Company or
any organization which has a material contract or arrangement with the
Business, or (ii) has any contract or agreement with the Business
other than as disclosed in Exhibit 3.26 attached hereto, and all such
agreements are, except as noted on such Exhibit, on arms-length terms.
3.27 No Adverse Change. Except as set forth in Exhibit 3.27
attached hereto and except for the Asset Transfers, since December 31,
1996, the Company and the Affiliated Predecessors have carried on the
Business only in the ordinary course and substantially in the same
manner as heretofore carried on by them and there has not been (a) any
change or development involving a prospective change with respect to
the Business constituting a Material Adverse Effect; (b) any loss,
damage, condemnation or destruction to the assets or properties of the
Business constituting a Material Adverse Effect; (c) any borrowings by
the Company, other than trade payables arising in the ordinary course
of business; (d) any Lien made on any of the assets or properties of
the Company, except for Permitted Liens; (e) any increase in the
compensation or bonus, incentive compensation, profit sharing,
retirement, insurance, medical reimbursement or other employee benefit
plan or arrangement payable or owed or to become payable or owed to
any Business Employee, other than increases made on the basis of
historical practice of the Seller and in the ordinary course of
business, compensation increases attendant to promotions and falling
within the normal range for the new position and scheduled increases
under existing pay progression practices; (f) any release or waiver of
any material right or claim of the Business with respect to any
Contract, the Real Property, the Permits or the Intangible Assets; (g)
any material change by the Seller in respect of the Business in
accounting principles or methods; or (h) any sale, transfer or other
disposition of assets or properties of the Business other than the
ordinary course of business.
3.28 Orders, Commitments and Returns. Except as set forth
in Exhibit 3.28 attached hereto, all accepted and unfulfilled orders
for the sale of products and the performance of services by the
Business and all outstanding contracts or commitments for the purchase
of supplies, materials and services used or to be used in the Business
were made in bona fide transactions in the ordinary course of business
(none of which contracts or commitments are in excess of normal
requirements, in accordance with the past practice of the Business, or
are at prices which are materially in excess of current market
prices). Except as set forth in Exhibit 3.28 attached hereto, there
are no products in the hands of customers, retailers or distributors
under an understanding that such products would be returnable to the
Business.
3.29 No Broker. The Company is not committed to any
liability for any brokers' or finders' fees or any similar fees in
connection with the conveyance of the Membership Interest to Buyer.
Seller has retained no broker or other intermediary to act on its
behalf in connection with the transactions contemplated by this
Agreement and the Ancillary Agreements except Goldman Sachs & Co.
("Goldman"), and Seller will pay all fees due to Goldman in connection
with the transactions contemplated by this Agreement and the Ancillary
Agreements.
3.30 Short Form Prospectus. None of the information
provided by Seller to Parent in writing specifically for inclusion in
the Short Form Prospectus (preliminary and final) will, as of the date
thereof, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they are made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
Parent and Buyer hereby jointly and severally represent and
warrant to Seller, with the understanding that these representations
and warranties shall be relied upon by Seller, that:
4.1 Organization and Authority of Buyer and Parent. Buyer
is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has full
corporate power to enter into this Agreement and the Ancillary
Agreements to which it is a party and to perform its obligations
hereunder and thereunder. Parent is a corporation duly incorporated,
validly existing and in good standing under the Canada Business
Corporations Act, and has full corporate power to enter into this
Agreement and the Ancillary Agreements to which it is a party and to
perform its obligations hereunder and thereunder. Each of Buyer and
Parent has full corporate power to carry on its business as it is now
being conducted and to own, operate and hold under lease its assets
and properties as, and in the places where, such assets and properties
now are owned, operated or held. Each of Buyer and Parent is duly
qualified as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the failure to be so qualified
would have a Material Adverse Effect.
4.2 Authorization; Enforceability. The execution, delivery
and performance by Buyer and Parent of this Agreement and of the
Ancillary Agreements to which they are parties, and of all of the
documents and instruments required hereby and thereby from Buyer and
Parent, are within the corporate power of Buyer and Parent and have
been duly authorized by all necessary corporate action of Buyer and
Parent. This Agreement is, and the Ancillary Agreements to which
Buyer and Parent are parties and the other documents and instruments
required hereby and thereby will be, when executed and delivered by
the parties hereto, the valid and binding obligations of Buyer and
Parent, enforceable against Buyer and Parent in accordance with their
respective terms.
4.3 Consents and Approvals; No Violation or Conflict by
Buyer and Parent. The execution, delivery and performance of this
Agreement and of the Ancillary Agreements to which Buyer and Parent
are parties by Buyer and Parent, and the consummation of the
transactions contemplated herein and therein, do not and will not
conflict with or violate any Law, judgment, order or decree binding on
Buyer or Parent or the Articles of Incorporation or Bylaws of Buyer or
Parent. Except as set forth in Exhibit 4.3 attached hereto, the
execution, delivery and performance of this Agreement and of the
Ancillary Agreements to which Buyer and Parent are parties by Buyer
and Parent, and the consummation of the transactions contemplated
herein and therein, do not and will not constitute a violation or
breach of any contract or agreement to which Buyer or Parent or any of
their respective subsidiaries is a party or by which they or any of
them is bound, or require the consent or approval of any party to any
such contract or agreement or give any party to any such contract or
agreement any right of termination, cancellation, acceleration or
modification thereunder, except for such violations, breaches, failure
to obtain consents or approvals, or terminations, cancellations,
accelerations or modifications which would not, alone or in the
aggregate, have a Material Adverse Effect. Except as set forth in
Exhibit 4.3 attached hereto, no notice to, filing or registration
with, or authorization, consent or approval of, any governmental,
regulatory or self-regulatory Person is necessary or is required to be
made or obtained by Buyer or Parent in connection with the execution
and delivery of this Agreement by Buyer and Parent or the consummation
by Buyer and Parent of the transactions contemplated hereby; provided,
however, that the consummation of the transactions contemplated by
this Agreement is subject to the requirements of the HSR Act and of
applicable Canadian securities Laws.
4.4 Title to Common Shares. Parent has the right to give
good, valid and marketable title to any Common Shares to be issued to
Seller as part of the Initial Purchase Price, free and clear of any
and all Liens and, upon delivery of such Common Shares to Seller at
the Closing, good and valid title to such Common Shares, free and
clear of all Liens (but subject to the terms of the Stand-Still
Agreement and any applicable holding periods and control block
restrictions, if any, under Canadian securities Laws), will pass to
Seller.
4.5 Capitalization. The authorized equity capitalization
of Parent consists of an unlimited number of Common Shares and an
unlimited number of Class "A" Preferred Shares, issuable in series, of
which 13,319,434 Common Shares were issued and outstanding as of March
31, 1997. Since March 31, 1997, there has been no material change in
the number of Common Shares outstanding. Except as set forth on
Exhibit 4.5 attached hereto, there are no options, warrants or other
rights to subscribe for or purchase any capital stock of Parent or
securities convertible into or exchangeable for, or which otherwise
confer on the holder any right to acquire, any capital stock of
Parent, nor is Parent committed to issue any such option, warrant or
other right. All of the outstanding Common Shares are, and any Common
Shares to be issued to Seller as part of the Initial Purchase Price
will be upon their issuance in accordance herewith, duly and validly
issued, fully paid and non-assessable shares of capital stock of
Parent and, subject to the terms of the Stand-Still Agreement and the
expiration of any applicable holding periods and control block
restrictions, if any, under Canadian securities Laws, shall be freely
tradeable on any of the stock exchanges on which the Common Shares are
listed and posted for trading, subject to compliance with applicable
Laws.
4.6 No Litigation. Except as set forth on Exhibit 4.6
attached hereto, there is no litigation, arbitration proceeding or
governmental or administrative investigation, complaint, charge,
citation, enforcement action, claim or proceeding of any kind pending
or, to the Knowledge of Buyer and/or Parent, proposed or threatened,
(a) against Buyer and/or Parent, (b) relating to the business, assets
or properties of Buyer and/or Parent or (c) that seeks restraint,
prohibition, damages or other relief in connection with this
Agreement, the Ancillary Agreements or the consummation of the
transactions contemplated hereby and thereby which, in the case of (a)
or (b) hereof, is expected, in the reasonable judgment of Buyer and
Parent, to have, alone or in the aggregate, a Material Adverse Effect.
4.7 Financial Statements. Parent's audited balance sheets
as of December 31, 1995 and 1996, and unaudited balance sheets as of
March 31, 1996 and 1997, including the notes thereto, copies of which
are included in Exhibit 4.7 attached hereto, are true and correct in
all material respects, present fairly the financial position of Parent
as of the dates thereof, and were prepared, except as set forth in
Exhibit 4.7 attached hereto, in accordance with Canadian generally
accepted accounting principles applied on a basis consistent with
Parent's past practice. Parent's audited statements of income and
cash flows for each of the three years in the period ended December
31, 1996, and unaudited statements of income and cash flows for the
fiscal quarters ended March 31, 1996 and 1997, which are included in
Exhibit 4.7 attached hereto, are true and correct in all material
respects, present fairly Parent's results of operations and cash flows
for such periods, and were prepared, except as set forth in Exhibit
4.7 attached hereto, in accordance with Canadian generally accepted
accounting principles applied on a basis consistent with Parent's past
practice. As of December 31, 1996, and March 31, 1997, Parent was not
subject to any liability or obligation of a nature that should be
reflected or reserved against on a balance sheet prepared in
accordance with Canadian generally accepted accounting principles that
was not reflected on the balance sheet as of such date included in
Exhibit 4.7 attached hereto (or disclosed in the notes thereto) as so
required.
4.8 No Adverse Change. Except as set forth in Exhibit 4.8
attached hereto, since December 31, 1996, Parent has carried on its
business only in the ordinary course and substantially in the same
manner as heretofore carried on and there has not been: (a) any
change or development involving a prospective change in the business,
financial position or results of operations of Parent constituting a
Material Adverse Effect; (b) any loss, damage, condemnation or
destruction to the properties of Parent constituting a Material
Adverse Effect; (c) to the Knowledge of Parent, any labor dispute or
disturbance of a character that could reasonably be expected to result
in a Material Adverse Effect; (d) any borrowings by Parent, other than
those arising in the ordinary course of business under credit
facilities in effect or available to Parent as of the date hereof, and
borrowings incurred in connection with Parent's obligations hereunder;
or (e) any sale, transfer or other disposition of assets of Parent
other than to a subsidiary of the Parent or other than in the ordinary
course of business and involving only assets that were either (i)
inventory held for sale, or (ii) equipment, fixtures, supplies or
materials no longer required in the operation of the business of the
Parent or any of its subsidiaries or that were obsolete.
4.9 Compliance with Law. To the Knowledge of Buyer and
Parent, the conduct of Buyer's and Parent's business and their use of
their assets does not violate or conflict with any Law, which
violation or conflict would have, alone or in the aggregate, a
Material Adverse Effect. To the Knowledge of Buyer and Parent, all
permits, licenses and governmental authorizations, registrations and
approvals required by Buyer and Parent to conduct their business have
been obtained, are in full force and effect and are being complied
with in all material respects, except where such absence or
noncompliance would not have, alone or in the aggregate, a Material
Adverse Effect.
4.10 No Broker. Buyer has retained no broker or other
intermediary to act on its behalf in connection with the transactions
contemplated by this Agreement and the Ancillary Agreements except for
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), and Buyer
or Parent will pay all fees due to DLJ in connection with the
transactions contemplated by this Agreement.
4.11 Purchase for Investment. Buyer acknowledges that the
offer and sale of the Membership Interest contemplated herein has not
been registered under the Securities Act of 1933, as amended, or under
any state securities Laws. Buyer represents that it is purchasing the
Membership Interest for investment and not with a view for the
distribution thereof except in accordance with applicable securities
Laws.
4.12 Committed Debt Financing. Parent is a party to that
certain Commitment Letter, dated as of April 30, 1997, between Parent,
DLJ and DLJ Capital Funding, Inc. (the "Commitment Letter"), a true
and complete copy of which has been delivered by Parent to Seller.
Buyer shall have, on the Closing Date, the ability to borrow no less
than $225.0 million pursuant to the Commitment Letter to apply (as
required) towards payment of the Initial Purchase Price.
4.13 Short Form Prospectus. The preliminary and final Short
Form Prospectus will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; provided,
however, that no representation is made by Buyer or Parent with
respect to information that is supplied by Seller to Parent in writing
specifically for inclusion in the Short Form Prospectus. The Short
Form Prospectus will comply as to form in all material respects with
the provisions of National Policy No. 47 of the Canadian Securities
Administrators, Section 18 of the Securities Act (Quebec) and all
other applicable Canadian securities Laws.
ARTICLE V
CERTAIN MATTERS PENDING THE CLOSING
Seller, Buyer and Parent covenant and agree that from and
after the date of this Agreement and until the Closing Date:
5.1 Carry on in Regular Course. Except for the Asset
Transfers, Seller shall cause the Company and the Affiliated
Predecessors to carry on the Business, including transactions with
their Affiliates, in the ordinary course and substantially in
conformity with past practices in the same manner as heretofore
carried on and to use their reasonable best efforts to preserve the
assets, properties, business and relationships with suppliers and
customers of the Business, and the services of the present officers,
employees, agents, representatives and others having business
relations with the Business. The Combined Group shall not make any
commitment for any capital expenditures relating to the Business in
excess of $25,000, not including maintenance in the ordinary course.
Seller will advise Buyer and Parent promptly in writing of any change
in the Company's business, financial position or results of operations
having a Material Adverse Effect.
5.2 Indebtedness. Seller shall not permit the Company to
(a) create, incur, assume or become liable for any Indebtedness for
Borrowed Money except for any Indebtedness for Borrowed Money which
shall be fully repaid by the Company prior to the Closing Date, (b)
mortgage, pledge or otherwise encumber or allow any Lien to be placed
upon the Membership Interest and/or the Subsidiary Stock or any assets
or properties of the Business, except for Permitted Liens or (c)
create, incur or assume any other indebtedness except accounts payable
and other current liabilities incurred in the ordinary course of
business.
5.3 Issuance of Membership Interests or Subsidiary Stock;
Fundamental Changes. Seller shall not permit the Company or, except
as contemplated by this Agreement, any Subsidiary to (a) issue any
membership interest or capital stock of any class or grant any
warrants, options, agreements, commitments or rights to subscribe for
any membership interest or capital stock of any class or securities
convertible into or exchangeable for, or which otherwise confer on the
holder any right to acquire, any membership interest or capital stock
of any class, or (b) amend its Governing Instruments or to merge or
consolidate with or into any other entity.
5.4 Compensation. Without the prior written consent of
Parent or as otherwise expressly contemplated in this Agreement,
Seller shall not permit any member of the Combined Group to (i) grant
any increases, except for increases in the ordinary course of
business, in the rate of pay of any employees of the Business, (ii)
declare, set aside or pay any dividend or other distribution (whether
in cash, stock, property or any combination thereof) in respect of the
Membership Interest or the Subsidiary Stock, or redeem, repurchase or
otherwise acquire any equity securities issued by the Company or any
Subsidiary, other than in the ordinary course of business, (iii)
revalue any assets of the Business, other than in the ordinary course,
(iv) establish or increase any bonus, incentive compensation,
severance, deferred compensation, pension, retirement, profit sharing,
stock option (including, without limitation, the granting of
restricted stock awards), stock purchase, insurance, medical
reimbursement or other employee benefit plan or arrangement, or
otherwise increase the compensation payable or to become payable to
any officers or key employees of the Business, except in the ordinary
course of business consistent with past practice, (v) enter into any
employment or severance agreement with any Business Employees or
establish, adopt or enter into any collective bargaining agreement
with respect to any Business Employees or (vi) enter into any
Contracts other than purchases from suppliers and sales to customers
in the ordinary course, and other than renewals of existing Contracts
for a term not to exceed sixty (60) days; except, in the case of any
of the foregoing, as required by Law, or in accordance with the terms
of any existing Employee Benefit Plan or as otherwise expressly
permitted by this Agreement.
5.5 Compliance with Law. Seller shall cause the Company
and the Subsidiaries to comply with all applicable Laws, non-compliance with
which could have, alone or in the aggregate, a
Material Adverse Effect, and with all orders of any court or of any
federal, state, municipal or other governmental Person binding upon
the Company or the Subsidiaries (except for any such orders which are
being contested by the Company or the Subsidiaries in good faith by
appropriate proceedings).
5.6 Access. At Buyer's and Parent's expense, Buyer and
Parent and their authorized agents, officers and representatives shall
have reasonable access to the officers, assets, properties, Books and
Records, Contracts and other documents of the Combined Group, to the
extent related to the Business, to conduct such examinations and
investigations of the Business as Buyer and Parent deem necessary;
provided, however, that such examinations and investigations: (a)
shall be conducted only in the presence of a designated representative
of Seller; (b) shall be conducted during the Company's or the
applicable Subsidiary's normal business hours; and (c) shall not
unreasonably interfere with the Company's or the applicable
Subsidiary's operations and activities. Seller shall cause the
Combined Group and their respective officers, employees, counsel,
independent auditors and financial advisors to cooperate in all
reasonable respects with Buyer's and Parent's examinations and
investigations.
5.7 Cooperation. Buyer, Parent and Seller will cooperate
in all respects in connection with the giving of any notices to any
governmental or regulatory Person or securing the permission,
approval, determination, consent or waiver of any governmental or
regulatory Person required by Law in connection with the transactions
contemplated herein including, without limitation, the filing of
premerger notification and report forms under the HSR Act.
5.8 Publicity. The parties hereto expect to make public
announcements of the transactions contemplated herein as soon as
practicable after the execution hereof pursuant to press releases in
the forms previously agreed upon by Buyer, Parent and Seller.
Thereafter and until the Closing, all general notices, releases,
statements and communications to employees, suppliers, distributors
and customers of the Company and to the general public and the press
relating to the transactions contemplated by this Agreement shall be
made only at such times and in such manner as may be mutually agreed
upon by Buyer, Parent and Seller; provided, however, that either
Seller, Parent or Buyer shall be entitled to make a public
announcement relating to the transactions contemplated herein if, in
the opinion of its legal counsel, such announcement is required to
comply with Law or applicable stock exchange rules and regulations (in
which case the disclosing party shall use its best efforts to provide
the other parties with as much advance notice as possible with respect
to the reasons for and text of such announcement).
5.9 Confidentiality. Notwithstanding any other provision
of this Agreement to the contrary, Buyer and Parent agree that, unless
and until the transactions contemplated herein are consummated, (a)
Buyer shall remain subject to all of the terms and conditions of the
Confidentiality Agreement, dated October 14, 1996, between Goldman, as
representative of Seller, and Buyer, the terms of which
Confidentiality Agreement are incorporated herein by reference, and
(b) Seller shall remain subject to all of the terms and conditions of
its Confidentiality Letter, dated April 11, 1997, to Parent, the terms
of which letter are incorporated herein by reference. At the Closing,
such Confidentiality Agreement and Confidentiality Letter shall
terminate, and the parties shall be subject to the nondisclosure
obligations set forth in Section 9.3 hereof and in the Ancillary
Agreements.
5.10 Exclusivity. Seller will not, and will not permit the
Company or any of their respective Affiliates, officers, directors,
investment bankers or other representatives to, solicit or initiate
the submission of, or respond to or negotiate with respect to, any
proposal or offer from any Person relating to any (a) merger or
consolidation involving the Company, (b) acquisition or purchase of
securities, assets or properties relating to the Business, other than
purchases from suppliers and sales to customers in the ordinary course
of business consistent with past practices or (c) similar transaction
or business combination involving the Company and/or the Business;
provided, however, that during the period from the date hereof until
the execution by Parent of the underwriting agreement for Parent's
Equity Offering, Seller and its Affiliates shall have the right to
respond to and negotiate with respect to any unsolicited proposal
relating to any such transaction, subject to the termination,
liquidated damages and expense reimbursement provisions of Sections
9.1 and 9.2 hereof. Seller shall promptly notify Buyer and Parent if
any Person makes any proposal or offer with respect to any of the
foregoing, including the delivery of a true and complete summary of
the material terms thereof, unless precluded from doing so by the
conditions of such proposal or offer (it being understood that Buyer
and Parent shall in any event be entitled to a period of two (2)
Business Days to respond to any such proposal or offer pursuant to
Section 9.1 hereof).
5.11 Phase II Investigation. Buyer shall have the right to
conduct certain "Phase II" sampling and analysis of air emissions,
storm water effluent, soil and groundwater of the operations of the
Business (the "Phase II Investigation"), which Phase II Investigation
shall be (a) conducted within the scope described in Exhibit 5.11
attached hereto (which scope shall not be exceeded except with
Seller's written consent, not to be unreasonably withheld), and (b)
completed at least five (5) Business Days prior to the Closing Date.
Buyer shall provide Seller with (i) copies of all raw data gathered in
the course of the Phase II Investigation, (ii) an oral report with
respect to the results of the Phase II Investigation from time-to-time
as they become available and (iii) a copy of the draft and final
written report of the Phase II Investigation as soon as they become
available. Matters discovered in the course of the Phase II
Investigation that would constitute breaches of the representations
and warranties set forth in Section 3.24 hereof shall be added to the
schedule of Known Environmental Matters listed in Exhibit 3.24
attached hereto and shall be subject to remediation in accordance with
Section 8.3 hereof.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER AND PARENT
Each and every obligation of Buyer and Parent to be performed
at the Closing shall be subject to the satisfaction prior to or at the
Closing, or waiver by Buyer and Parent, of the following express
conditions precedent:
6.1 Compliance with Agreement. Seller and the Company
shall have performed and complied in all respects with all of their
obligations under this Agreement, which are to be performed or
complied with by them prior to or at the Closing, except where such
non-performance or non-compliance would not result in a Material
Adverse Effect.
6.2 Proceedings and Instruments Satisfactory. All
proceedings, corporate or other, to be taken by Seller and/or the
Company, as the case may be, in connection with the transactions
contemplated by this Agreement and the Ancillary Agreements to which
it is a party, and all documents incident hereto and thereto, shall be
reasonably satisfactory in form and substance to Buyer and Parent, and
Seller and the Company shall have made available to Buyer and Parent
for examination the originals or true and correct copies of all
documents which Buyer or Parent may reasonably request in connection
with the transactions contemplated by this Agreement and the Ancillary
Agreements.
6.3 No Litigation. No investigation, suit, action or other
proceeding shall be pending before any court or governmental agency
that seeks restraint, prohibition, damages or other relief in
connection with this Agreement or the Ancillary Agreements or the
consummation of the transactions contemplated hereby and thereby,
except where such actions would not have, alone or in the aggregate, a
Material Adverse Effect.
6.4 Representations and Warranties. The representations
and warranties made by Seller in this Agreement shall be true and
correct as of the Closing Date with the same force and effect as
though such representations and warranties had been made on the
Closing Date, except for such breaches and inaccuracies thereof which
do not, in the aggregate, constitute a Material Adverse Effect.
6.5 Material Damage to Assets. Between the date of this
Agreement and the Closing Date, the assets and properties of the
Business, considered as a whole, shall not have suffered a Material
Adverse Effect by reason of any loss, taking, condemnation,
destruction or physical damage, whether or not insured against.
6.6 Deliveries at Closing. Seller shall have delivered to
Buyer and Parent the following documents, each properly executed by
each party thereto (other than Buyer, Parent and their respective
Affiliates) and dated as of the Closing Date: (a) the Opinion of
Seller's and Company's Counsel; (b) executed resignations of those
officers, directors and limited liability company managers of the
Company and the Subsidiaries who are designated by Buyer and/or
Parent; (c) Seller's Closing Certificate; (d) the Supply Agreements;
(e) the Noncompetition Agreement; (f) the Stand-Still Agreement; (g)
the Transition Agreement; (h) all Books and Records not in the
possession of the Company and the Subsidiaries; (i) an amendment to
the Operating Agreement of the Company providing for substitution of
Buyer for Seller as the sole member of the Company; Agreements
relating to the Mann Landfill and (j) such instruments of transfer as
are necessary to give effect to any conveyance effected pursuant to
Section 2.2(b) hereof.
6.7 Antitrust Filings. In the reasonable opinion of Buyer
and Parent, all necessary requirements of the HSR Act and the
regulations promulgated thereunder shall have been complied with, and
any "waiting period" applicable to the transactions contemplated by
this Agreement and the Ancillary Agreements which are imposed by such
statute or regulations shall have expired prior to the Closing Date or
shall have been terminated by the appropriate agency.
6.8 Parent's Equity Offering. Parent shall have received
Gross Proceeds of not less than $225.0 million from Parent's Equity
Offering within fifteen (15) Business Days of the Filing Date.
6.9 Consents. All consents, approvals, certificates and
authorizations required to be obtained by Seller or the Company in
connection with the sale of the Membership Interest and the Asset
Transfers and identified on Exhibit 3.9 attached hereto shall have
been obtained.
6.10 Phase II Investigation. The Phase II Investigation
shall not have revealed matters that would constitute breaches of the
representations and warranties set forth in Section 3.24 hereof, with
respect to which the cost of Remediation Work (determined in
accordance with Section 8.3 hereof) would exceed $20.0 million in the
aggregate.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
Each and every obligation of Seller to be performed at the
Closing shall be subject to the satisfaction prior to or at the
Closing, or waiver by Seller, of the following express conditions
precedent:
7.1 Compliance with Agreement. Buyer and Parent shall have
performed and complied in all respects with all of their obligations
under this Agreement, which are to be performed or complied with by
them prior to or at the Closing, except where such non-performance or
non-compliance would not result in a Material Adverse Effect.
7.2 Proceedings and Instruments Satisfactory. All
proceedings, corporate or other, to be taken by Buyer and/or Parent in
connection with the transactions contemplated by this Agreement and
the Ancillary Agreements to which they are parties, and all documents
incident hereto and thereto, shall be reasonably satisfactory in form
and substance to Seller, and Buyer and/or Parent shall have made
available to Seller for examination the originals or true and correct
copies of all documents which Seller may reasonably request in
connection with the transactions contemplated by this Agreement and
the Ancillary Agreements.
7.3 No Litigation. No investigation, suit, action or other
proceeding shall be pending before any court or governmental agency
that seeks restraint, prohibition, damages or other relief in
connection with this Agreement or the Ancillary Agreements or the
consummation of the transactions contemplated hereby or thereby,
except where such actions would not have, alone or in the aggregate, a
Material Adverse Effect.
7.4 Representations and Warranties. The representations
and warranties made by Buyer and Parent in this Agreement shall be
true and correct as of the Closing Date with the same force and effect
as though such representations and warranties had been made on the
Closing Date, except for such breaches and inaccuracies thereof which
do not, in the aggregate, constitute a Material Adverse Effect;
provided, however, that if Parent's Equity Offering and Buyer's
financing pursuant to the Commitment Letter are each to close on the
Closing Date, then the Buyer's and Parent's representations and
warranties set forth in Sections 4.6, 4.8 and 4.9 hereof shall be
excluded from the scope of this Section.
7.5 Material Damage to Assets. Between the date of this
Agreement and the Closing Date, the assets and properties of Buyer and
Parent, considered as a whole, shall not have suffered a Material
Adverse Effect by reason of any loss, taking, condemnation,
destruction or physical damage, whether or not insured against.
7.6 Deliveries at Closing. Buyer and/or Parent shall have
delivered to Seller the following documents, each properly executed by
each party thereto (other than Seller and its Affiliates) and dated as
of the Closing Date: (a) the Opinions of Buyer's and Parent's Counsel;
(b) Buyer's and Parent's Closing Certificates; (c) the Supply
Agreements; (d) the Noncompetition Agreement; (e) the Stand-Still
Agreement; (f) the Transition Agreement; (g) the Buyer Guaranty; (h)
copies of receipts issued by Canadian securities regulatory
authorities in respect of the final Short Form Prospectus; and (i)
evidence, satisfactory to Seller, of the listing and posting for
trading of the Common Shares issued to Seller as part of the Initial
Purchase Price on each of the stock exchanges on which the Common
Shares generally are listed and posted for trading.
7.7 Antitrust Filings. In the reasonable opinion of
Seller, all necessary requirements of the HSR Act and the regulations
promulgated thereunder shall have been complied with, and any "waiting
period" applicable to the transactions contemplated by this Agreement
and the Ancillary Agreements which are imposed by such statute or
regulations shall have expired prior to the Closing Date or shall have
been terminated by the appropriate agency.
7.8 Consents. All consents, approvals, certificates and
authorizations required to be obtained by Buyer or Parent in
connection with the purchase of the Membership Interest and identified
on Exhibit 4.3 attached hereto shall have been obtained.
ARTICLE VIII
INDEMNIFICATION AND ADDITIONAL COVENANTS
8.1 Seller's Indemnity. (a) Seller hereby agrees to
indemnify and hold the Company, Buyer, the Subsidiaries and Parent and
their respective officers, directors, agents and employees
(individually, a "Buyer Indemnitee" and collectively, the "Buyer
Indemnitees") harmless from and against, and agrees to defend promptly
the Buyer Indemnitees from and to reimburse the Buyer Indemnitees for,
any and all losses, damages, costs, expenses, judgments, penalties or
fines (whether civil or criminal), liabilities, obligations and claims
of any kind, including, without limitation, reasonable attorneys' fees
and other legal costs and expenses (hereinafter referred to
collectively as "Losses"), that any Buyer Indemnitee may at any time
suffer or incur, or become subject to, as a result of or in connection
with (i) any breach or inaccuracy of any of the representations and
warranties made by Seller in or pursuant to this Agreement or in any
agreements (other than the Supply Agreements), documents, certificates
or affidavits delivered by Seller pursuant to the provisions of this
Agreement; (ii) any failure by Seller to perform any of its covenants
and obligations set forth in this Agreement or in any agreement (other
than the Supply Agreements), document or instrument delivered pursuant
hereto and (iii) the matters described on Exhibit 8.1 attached hereto;
provided, however, that Seller shall not be required to indemnify,
hold harmless, defend or reimburse any Buyer Indemnities pursuant to
Section 8.1(a)(i) hereof in respect of the representations and
warranties made by Seller unless such right to indemnification is
asserted by such Buyer Indemnitee (whether or not such Losses have
actually been incurred) by notice to Seller within the following time
periods:
(w) with respect to the representations and warranties set
forth in Section 3.24 hereof, within thirty (30) months
after the Closing Date;
(x) with respect to the representations and warranties set
forth in Sections 3.20, 3.21, and 3.30 hereof, insofar
as they related to compliance with tax Laws, ERISA and
securities Laws, within the applicable statute of
limitations for a violation of the underlying Law which
forms the basis of such claim (including all extensions
thereof agreed to with tax authorities), plus two
months;
(y) with respect to the representations and warranties set
forth in Sections 3.4, 3.8, 3.10 and 3.11(c) hereof,
without time limitations; and
(z) with respect to all other representations and
warranties set forth in Article III hereof, within one
(1) year after the Closing Date.
Notwithstanding the foregoing, Seller shall not be required to
indemnify, hold harmless, defend or reimburse any Buyer Indemnitee
pursuant to Section 8.1(a)(i) in respect of the representations and
warranties made by Seller, or pursuant to Section 8.1(a)(iii) hereof,
except as follows:
(A) Seller shall not be required to indemnify, hold harmless,
defend or reimburse the Buyer Indemnitees with respect to
the first $2.0 million of such Losses (the "Deductible"),
except that the Deductible shall not apply to: (1) claims
with respect to the representations and warranties set forth
in Sections 3.4, 3.8, or 3.11(c) hereof; (2) insofar as such
claims relate to compliance with tax Laws or ERISA, Sections
3.20 or 3.21 hereof; or (3) claims pursuant to Section
8.1(a)(iii) hereof;
(B) with respect to any claim arising with respect to the
representations and warranties set forth in Section 3.24
hereof, Seller shall indemnify, hold harmless, defend and
reimburse the Buyer Indemnitees for all Losses in excess of
the Deductible, provided that in the case of Losses related
to remediation of noncompliance with the Environmental Laws,
such remediation shall be conducted in the most reasonably
cost-effective manner that is practicable and that is
consistent with the operations and facilities of the
Business as of the Effective Time of Closing, determined in
accordance with the procedures governing negotiation set
forth in Section 8.3 hereof, provided that Seller's
aggregate obligation related to such Losses, plus Seller's
aggregate reimbursement and indemnification obligations
pursuant to Section 8.3 hereof, shall in no event exceed the
amount of the Environmental Indemnity Cap (as defined in
Section 8.3 hereof); and
(C) with respect to all other claims arising in respect to the
representations and warranties set forth in Article III
hereof, and claims pursuant to Section 8.1(a)(iii) hereof,
Seller shall indemnify, hold harmless, defend and reimburse
the Buyer Indemnitees for all Losses in excess of the
Deductible (if applicable), provided, however, that Seller's
aggregate obligation related to such other claims (except
the W-2 Matter, as defined in Section 8.1 attached hereto,
as to which neither the General Indemnity Cap nor any other
cap will apply) shall in no event exceed $150.0 million (the
"General Indemnity Cap"); provided, further, that if the
Buyer Indemnitees' Losses related to claims arising in
respect of the representations and warranties set forth in
Section 3.30 hereof ("Securities Claims") exceed $150.0
million, then the General Indemnity Cap shall be increased
by the amount of such excess (but in no event to an amount
greater than the Gross Proceeds), it being understood that
such increased portion of the General Indemnity Cap shall
only be available to satisfy Securities Claims (not other
claims for indemnification by the Buyer Indemnitees).
(b) The amounts for which Seller shall be liable under Section
8.1(a) of this Agreement shall be net of any insurance proceeds
received by any Buyer Indemnitee in connection with the facts giving
rise to the right of indemnification. The term "Losses" shall be
deemed to include all costs and expenses incurred by any Buyer
Indemnitee in enforcing its rights to indemnification hereunder.
(c) Notice to Seller shall be given promptly (but in any event
no later than 30 days) after receipt by any Buyer Indemnitee of actual
knowledge of the commencement of any action, the assertion of any
claim or the occurrence of any event, condition or incident in respect
of the Business or the Real Property that will likely result in a
claim by it for indemnity pursuant to this Section. Such notice shall
set forth in reasonable detail the nature of such action, claim,
event, condition or incident to the extent known, and include copies
of any written correspondence from the party asserting such claim or
initiating such action. Seller shall be entitled, at its own expense,
to assume or participate in the defense of such action or claim. In
the event that Seller assumes the defense of such action or claim,
such defense shall be conducted by counsel chosen by Seller and
approved by the Buyer Indemnitee, which approval shall not be
unreasonably withheld, and the Buyer Indemnitee shall be entitled to
participate in the conduct of such litigation, at its sole cost.
(d) With respect to actions as to which Seller does not exercise
its right to assume the defense, the Buyer Indemnitee shall assume and
control the defense of and contest such action with counsel chosen by
it and approved by Seller, which approval shall not be unreasonably
withheld. Seller shall be entitled to participate in the defense of
such action, the cost of such participation to be at its own expense.
Seller shall be obligated to pay the reasonable attorneys' fees and
expenses of the Buyer Indemnitee to the extent that such fees and
expenses are related to claims as to which indemnification is payable
under this Section as such expenses are incurred. Subject to the
prior approval of Seller, which approval will not be unreasonably
withheld, the Buyer Indemnitee shall have full right to dispose of
such action and enter into any monetary compromise or settlement.
(e) Both Seller and the Buyer Indemnitee shall cooperate fully
with one another in connection with the defense, compromise or
settlement of any such claim or action, including, without limitation,
by making available to the other all pertinent books, records and
information and witnesses within its control.
(f) Except as set forth in Sections 8.3, 8.4 and 8.5 hereof,
this Section 8.1 shall be the sole remedy of the Buyer Indemnitees
against Seller for any claim arising in connection with the
transactions contemplated herein. Seller's representations and
warranties made herein shall survive the Closing, but only to the
extent and for such time as is necessary to enable the Buyer
Indemnitees to enforce their rights to indemnification under this
Section.
8.2 Buyer's and Parent's Indemnity. (a) Buyer and Parent hereby
jointly and severally agree to indemnify and hold Seller and its
officers, directors, agents and employees (individually, a "Seller
Indemnitee" and collectively, the "Seller Indemnitees") harmless from
and against, and agree to defend promptly the Seller Indemnitees from
and to reimburse the Seller Indemnitees for, any and all Losses that
any Seller Indemnitee may at any time suffer or incur, or become
subject to, as a result of or in connection with (i) any breach or
inaccuracy of any of the representations and warranties made by Buyer
or Parent in or pursuant to this Agreement or in any agreements (other
than the Supply Agreements), documents, certificates or affidavits
delivered by Buyer or Parent pursuant to the provisions of this
Agreement; and (ii) any failure by Buyer or Parent to perform any of
their respective covenants and obligations set forth in this Agreement
or in any agreement (other than the Supply Agreements), document or
instrument delivered pursuant hereto; provided, however, that Buyer
and Parent shall not be required to indemnify, hold harmless, defend
or reimburse any Seller Indemnitee pursuant to Section 8.2(a)(i)
hereof in respect of the representations and warranties made by Buyer
or Parent unless such right is asserted (whether or not such Losses
have actually been incurred) by notice to Buyer or Parent within the
following time periods:
(x) with respect to the representations and warranties set forth
in Section 4.13 hereof, within the applicable statute of
limitations for a violation of the underlying Law which
forms the basis of such claim, plus two months;
(y) with respect to the representations and warranties set forth
in Section 4.4 hereof, without time limitation; and
(z) with respect to all other representations and warranties set
forth in Article IV hereof, within one (1) year after the
Closing Date.
Notwithstanding the foregoing, Buyer and Parent shall not be required
to indemnify, hold harmless, defend or reimburse any Seller Indemnitee
pursuant to Section 8.2(a)(i) in respect of the representations and
warranties made by Buyer and Parent except as follows:
(A) Buyer and Parent shall not be required to indemnify, hold
harmless, defend or reimburse the Seller Indemnitees with
respect to the first $2.0 million of such Losses (the
"Deductible"), except that the Deductible shall not apply to
claims with respect to the representations and warranties
set forth in Section 4.4 hereof; and
(B) with respect to all claims arising pursuant to the
representations and warranties set forth in Article IV
hereof, Buyer and Parent shall indemnify, hold harmless,
defend and reimburse the Seller Indemnitees for Losses in
excess of the Deductible (if applicable), provided that
Buyer's and Parent's aggregate obligation related to such
claims shall in no event exceed $150.0 million.
(b) The amounts for which Buyer and Parent shall be liable under
Section 8.2(a) of this Agreement shall be net of any insurance
proceeds received by any Seller Indemnitee in connection with the
facts giving rise to the right of indemnification. The term "Losses"
shall be deemed to include all costs and expenses incurred by any
Seller Indemnitee in enforcing its rights to indemnification
hereunder.
(c) Notice to the indemnifying party shall be given promptly
(but in any event no later than 30 days) after receipt by any Seller
Indemnitee of actual knowledge of the commencement of any action or
the assertion of any claim that will likely result in a claim by it
for indemnity pursuant to this Section. Such notice shall set forth
in reasonable detail the nature of such action or claim to the extent
known, and include copies of any written correspondence from the party
asserting such claim or initiating such action. The indemnifying
party shall be entitled, at its own expense, to assume or participate
in the defense of such action or claim. In the event that the
indemnifying party assumes the defense of such action or claim, such
defense shall be conducted by counsel chosen by such party and
approved by the Seller Indemnitee, which approval shall not be
unreasonably withheld, and the Seller Indemnitee shall be entitled to
participate in the conduct of such litigation, at its sole cost.
(d) With respect to actions as to which the indemnifying party
does not exercise its right to assume the defense, the Seller
Indemnitee shall assume and control the defense of and contest such
action with counsel chosen by it and approved by the indemnifying
party, which approval shall not be unreasonably withheld. The
indemnifying party shall be entitled to participate in the defense of
such action, the cost of such participation to be at its own expense.
The indemnifying party shall be obligated to pay the reasonable
attorneys' fees and expenses of the Seller Indemnitee to the extent
that such fees and expenses related to claims as to which
indemnification is payable under this Section, as such expenses are
incurred. Subject to the prior approval of the indemnifying party,
which approval will not be unreasonably withheld, the Seller
Indemnitee shall have full right to dispose of such action and enter
into any monetary compromise or settlement.
(e) Both the indemnifying party and the Seller Indemnitee shall
cooperate fully with one another in connection with the defense,
compromise or settlement of any such claim or action, including,
without limitation, by making available to the other all pertinent
books, records and information and witnesses within its control.
(f) Except as provided in Sections 8.4, 8.5, 8.7 and 8.10
hereof, this Section 8.2 shall be the sole remedy of Seller against
Buyer and Parent for any claim arising in connection with the
transactions contemplated herein. Buyer's and Parent's
representations and warranties made herein shall survive the Closing,
but only to the extent and for such time as is necessary to enable
Seller to enforce its rights to indemnification under this Section.
8.3 Other Environmental Indemnification.
(a) Buyer and Seller agree that, as soon as practicable, they
shall negotiate in good faith with respect to, and agree upon, a
remediation plan related to the Known Environmental Matters (the
"Remediation Plan"). The Remediation Plan shall describe, in detail,
the parties' agreed-upon method for remediating each Known
Environmental Matter so that each such matter complies with applicable
Environmental Laws, as in effect on the Closing Date, in the most
reasonably cost-effective manner that is practicable and that is
consistent with the operations and facilities of the Business as of
the Effective Time of Closing (the "Remediation Work"). All
Remediation Work contemplated in the Remediation Plan shall be
conducted under Buyer's control and at Buyer's sole cost and expense,
subject to reimbursement by Seller pursuant to Section 8.3(b) hereof,
except that Buyer shall have no responsibility for any of Seller's
costs or expenses. All Remediation Work shall be conducted in a
prompt, good and workmanlike manner and in material compliance with
all Environmental Laws then in effect, it being understood that
representatives of Seller shall be entitled to be present to observe
all Remediation Work and to review all relevant books and records
related thereto (except those protected by the attorney-client
privilege).
(b) (i) In the event that the Seller and Buyer are unable
to reach agreement with respect to a future Remediation Work, the
issue shall be promptly referred to a qualified disinterested third
party ("Third Party Mediator") mutually acceptable to Seller and
Buyer. The Third Party Mediator shall have experience and expertise
in environmental regulations, the pulp and paper industry, and
arbitration and mediation. The decision of the Third Party Mediator
shall be final and binding on the parties, subject to the approval of
Governmental Authorities if required by applicable Environmental Law
and subject to Environmental Laws. The fees and expenses of any Third
Party Mediator shall be borne 50 per centum by the Seller and 50 per
centum by the Buyer.
(ii) Should emergency circumstances arise with respect
to a particular Remediation Work whereunder imminent health and safety
considerations, or applicable Environmental Law requires the
performance by the Buyer of Remediation Work within statutory or
regulatory deadlines less than 30 days, the procedures set forth
regarding Remediation Work in Section 8.3(a) shall be suspended
temporarily for a period coextensive with the time required to perform
such emergency Remediation Work. However, in all cases, Buyer shall
make reasonable efforts to notify Seller and include Seller in
negotiations of Remediation Work.
(iii) The participation of the Seller and the Buyer in
the performance of the Remediation Work is not and shall not be
considered an admission of liability under any Environmental Law with
respect to any Environmental Law and shall not be admissible in
evidence against any Party in any judicial or administrative
proceeding.
(c) Seller hereby agrees to reimburse Buyer promptly for all
actual out-of-pocket costs and expenses of Buyer in connection with
Remediation Work done pursuant to the Remediation Plan and paid or
incurred by Buyer within thirty (30) months after the Closing Date (it
being understood that, prior to the expiration of such 30 month
period, the parties will address, on a case-by-case basis, any
situation in which such 30 month limitation on reimbursement would
result in an acceleration of expenses or Remediation Work to their
mutual disadvantage); provided, however, that Seller shall not be
required to reimburse Buyer until such costs and expenses first exceed
$500,000, in which event Seller shall reimburse Buyer for the entire
amount of such costs and expenses back to the first dollar; and
provided, further, that Seller's aggregate reimbursement obligation
pursuant to this Section 8.3(c), plus Seller's aggregate
indemnification obligation pursuant to Section 8.1(a) hereof relating
to a breach of the representations and warranties set forth in Section
3.24 hereof plus Seller's aggregate indemnification obligation
pursuant to Section 8.3(d) hereof, shall in no event exceed the amount
of the Environmental Indemnity Cap. Any other provision of this
Agreement to the contrary notwithstanding, this Section 8.3(c) shall
be the sole remedy of Buyer, the Company, the Subsidiaries, their
Affiliates and their respective successors and assignees with respect
to the Known Environmental Matters.
(d) Seller hereby agrees to indemnify, hold harmless and defend
promptly the Company and the Buyer Indemnitees from (i) Losses arising
under the Comprehensive Environmental Response, Compensation and
Liability Act or similar state or local Environmental Law that result
from offsite shipments or Releases of Hazardous Materials by the
Company, the Subsidiaries and their respective Affiliated Predecessors
(to the extent related to the Business or the Real Property) prior to
the Effective Time of Closing; and (ii) 50% of Losses that result from
common law or Environmental Law claims by non-governmental Persons,
which claims are based on Releases of Hazardous Materials that
occurred prior to the Effective Time of Closing, and (A) for which
suit is actually filed by such Persons without instigation of Buyer or
the Buyer Indemnities within 30 months of the Effective Time of
Closing, or (B) that are asserted in writing by such Persons (a copy
of which writing is provided to Seller within 30 months of the
Effective Time of Closing), where the nature and extent of such claim
would require financial statement disclosure and accrual under GAAP,
and with respect to which a suit is actually filed by such Persons
without instigation of Buyer or the Buyer Indemnitees within 36 months
after the Effective Time of Closing; provided, however, that Seller's
aggregate indemnification obligation pursuant to this Section 8.3(d),
plus Seller's aggregate indemnification obligation pursuant to Section
8.1(a) hereof relating to a breach of the representations and
warranties set forth in Section 3.24 hereof and Seller's aggregate
reimbursement obligation pursuant to Section 8.3(c) hereof related to
Known Environmental Matters, shall in no event exceed the amount of
the Environmental Indemnity Cap.
(e) For purposes of this Agreement, "Environmental Indemnity
Cap" shall mean $50.0 million in the aggregate; provided, however,
that if the cost of Remediation Work (determined in accordance with
this Section 8.3) for matters discovered in the course of the Phase II
Investigation that are added to the schedule of Known Environmental
Matters in accordance with Section 5.11 hereof (the "Phase II
Matters") exceeds $5.0 million, then the amount of the Environmental
Indemnity Cap shall be increased by the amount of such excess (but in
no event will the aggregate Environmental Indemnity Cap exceed $65.0
million), it being understood that such increased portion of the
Environmental Indemnity Cap shall only be available to pay the cost of
Remediation Work directly related to such Phase II Matters.
8.4 Employee Benefit Matters.
(a) Except as otherwise specifically provided in this
Agreement, Seller and Buyer agree that the obligations of the Combined
Group with respect to the following Employee Benefit Plans and the
participation of Continuing Employees and their dependents and
beneficiaries therein shall cease at or, to the extent agreed to by
Seller and Buyer, prior to or after the Effective Time of Closing and
no employee or former employee, dependent or beneficiary shall have
any claim against the Combined Group arising out of such plans after
the cessation of their participation:
(1) Chesapeake Corporation 401(k) Savings Plan for Salaried Employees;
(2) Chesapeake Corporation Retirement Plan for Hourly Employees;
(3) Chesapeake Corporation Retirement Plan for Salaried Employees;
(4) Employee Stock Ownership Plan of Chesapeake Corporation;
(5) Chesapeake Corporation Salaried Employees' Stock Purchase Plan;
(6) Chesapeake Corporation Hourly Employees' Stock Purchase Plan;
(7) Chesapeake Corporation Group Life, Medical and Dependent Life Plan
for Salaried Employees;
(8) Chesapeake Corporation Flex Plan for Salaried Employees;
(9) Chesapeake Corporation Hourly Flex Plan;
(10) Chesapeake Corporation Travel Accident Plan for Salaried Employees;
(11) Chesapeake Corporation 1987 Stock Option Plan;
(12) Chesapeake Corporation 1993 Incentive Plan;
(13) Chesapeake Corporation Long-Term Disability Plan;
(14) Chesapeake Corporation Executive Supplemental Retirement Plan;
(15) Chesapeake Corporation 401(k) Restoration Plan;
(16) Chesapeake Corporation Sick Leave (Disability) Plan for Salaried
Employees;
(17) Chesapeake Packaging Co. Retirement Plan for Hourly Employees;
(18) Chesapeake Packaging Co. 401(k) Savings Plan for Hourly Employees;
(19) Chesapeake Packaging Co. Hourly Flex Plan;
(20) Chesapeake Packaging Co. Roanoke Division Salaried Employees Profit
Sharing Retirement Plan; and
(21) Chesapeake Corporation Salaried Employees' Benefits Continuation Plan;
(22) Lawless Holding Corporation Profit Sharing Plan; and
(23) any other Employee Benefit Plan of the Company in force as of the
Effective Time of Closing which Seller
has failed to list in Exhibit 3.21 attached hereto.
Except as specifically provided in this Agreement, Buyer (and the
Combined Group after the Effective Time of Closing) shall have no
liability (other than for contributions accrued but not yet paid),
duties or obligations with respect to the above-listed plans to Seller
or to any employee, former employee or beneficiary, dependent other
party enforcing the same or having or claiming an interest thereunder,
including governmental agencies.
(b) When used in this Section 8.4, the following terms shall
have the meanings specified;
(i) "Buyer's Packaging Plan" means a defined benefit pension
plan that is qualified under Code Section 401(a) and that is adopted
or designated by Buyer to receive the Packaging Plan Spinoff Amount.
(ii) "Buyer's Plan" means a defined benefit pension plan
that is qualified under Code Section 401(a) and that is adopted or
designated by Buyer to receive the Salaried Plan Spinoff Amount.
(iii) "Buyer's Retirement Plan" means a defined benefit
pension plan that is qualified under Code Section 401(a) and that is
adopted or designated by Buyer to receive the Hourly Retirement Plan
Spinoff Amount.
(iv) "Continuing Employee" means an individual employed by the
Combined Group at and after the Effective Time of Closing.
(v) "Hourly Employee" means each employee of the Combined Group
who is paid on an hourly or daily basis and who is in the active
employment of the Combined Group at the Effective Time of Closing.
(vi) "Hourly Plan" means the Chesapeake Paper Products Company
Retirement Plan for Mill Hourly Employees.
(vii) "Hourly Plan Benefit" means the total of the present value
of the accrued benefits (whether or not vested) of each Hourly Plan
participant, beneficiary or contingent annuitant, computed as of the
Closing Date in accordance with the actuarial assumptions and methods
specified in Exhibit 8.4(a) attached hereto.
(viii) "Hourly Retirement Plan" means the Chesapeake Corporation
Retirement Plan for Hourly Employees.
(ix) "Hourly Retirement Plan Benefit" means the total of the
present value of the accrued benefits (whether or not vested) under
the Hourly Retirement Plan of each Hourly Employee who is employed by
the Combined Group on the day after the Closing, computed as of the
Closing Date in accordance with the actuarial assumptions and methods
specified in Exhibit 8.4(a) attached hereto.
(x) "Hourly Retirement Plan Spinoff Amount" means the present
value of accrued benefits (whether or not vested) under the Hourly
Retirement Plan of all Hourly Employees who are employed by the
Combined Group on the day after the Closing Date, computed as of the
Closing Date in accordance with the actuarial assumptions and methods
specified in Exhibit 8.4(c) attached hereto.
(xi) "Packaging Plan" means the Chesapeake Packaging Co.
Retirement Plan for Hourly Employees.
(xii) "Packaging Plan Benefit" means the total of the present
value of the accrued benefits (whether or not vested) under the
Packaging Plan of each Hourly Employee who is employed by the Combined
Group on the day after the Closing Date, computed as of the Closing
Date in accordance with the actuarial assumptions and methods
specified in Exhibit 8.4(a) attached hereto.
(xiii) "Packaging Plan Spinoff Amount" means the present value of
accrued benefits (whether or not vested) under the Packaging Plan of
all Hourly Employees who are employed by the Combined Group on the day
after the Closing Date, computed as of the Closing Date in accordance
with the actuarial assumptions and methods specified in Exhibit 8.4(c)
attached hereto.
(xiv) "Projected Plan Benefit" means the projected benefit
obligation with respect to any Plan, computed as of the Closing Date
in accordance with the actuarial assumptions and methods specified in
Exhibit 8.4(b) attached hereto.
(xv) "Roanoke Plan" means the Chesapeake Packaging Co. Roanoke
Division Retirement Plan for Hourly Employees.
(xvi) "Roanoke Plan Benefit" means the total of the present value
of the accrued benefits (whether or not vested) of each Roanoke Plan
participant, beneficiary or contingent annuitant computed as of the
Closing Date in accordance with the actuarial assumptions and methods
specified in Exhibit 8.4(a) attached hereto.
(xvii) "Salaried Employee" means each salaried employee of the
Combined Group who is in the active employment of the Combined Group
at the Effective Time of Closing.
(xviii) "Salaried Plan" means the Chesapeake Corporation
Retirement Plan for Salaried Employees.
(xix) "Salaried Plan Benefit" means the total of the present
value of the accrued benefits (whether or not vested) under the
Salaried Plan of each Salaried Employee who is employed by the
Combined Group on the day after the Closing Date, computed as of the
Closing Date in accordance with the actuarial assumptions and methods
specified in Exhibit 8.4(a) attached hereto.
(xx) "Salaried Plan Spinoff Amount" means the present value of
accrued benefits (whether or not vested) under the Salaried Plan of
all Salaried Employees who are employed by the Combined Group on the
day after the Closing Date, computed as of the Closing Date in
accordance with the actuarial assumptions and methods specified in
Exhibit 8.4(c) attached hereto.
(c) (i) Buyer agrees to adopt and/or maintain welfare benefit
plans (as defined in ERISA section 3(1)) (the "Buyer's Welfare Plans")
that, for at least two (2) years after the Closing Date, provide
benefits to Continuing Employees, to Continuing Employees who retire
after the Closing Date, to former employees who were paid on an hourly
or daily basis who retired before the Closing Date and to their
beneficiaries and dependents that are comparable in all material
respects to benefits provided to such persons under the Welfare Plans
immediately prior to the Closing Date. With respect to the persons
described in the preceding sentence, Buyer's Welfare Plans shall not
include a waiting or eligibility period (except to the extent any such
person is subject to a waiting or eligibility period under the Welfare
Plans) or a preexisting condition restriction or limitation and, to
the extent that such persons have satisfied any internal limits,
deductibles or copayment requirements of the Welfare Plans for the
year that includes the Closing Date, such amounts will be credited
toward the satisfaction of any such requirements under Buyer's Welfare
Plans.
(ii) (A) Seller and the Welfare Plans will remain responsible for
administering and paying claims incurred by employees of the Combined
Group prior to the Effective Time of Closing. Seller and the Welfare
Plans also will remain responsible for administering and paying claims
incurred by Continuing Employees who are unable to perform employment
duties on the Closing Date by reason of a medical condition or on
account of a medical restriction; provided that such claims are
incurred before the Continuing Employee returns to work for the
Combined Group, Buyer or one of Buyer's Affiliates.
(B) Seller and the Welfare Plans will remain responsible for
claims incurred by the dependents and beneficiaries of employees of
the Combined Group prior to the Effective Time of Closing. If the
dependent or beneficiary of a Continuing Employee is hospitalized on
the Closing Date, Seller and the Welfare Plans will remain responsible
for claims incurred by such dependent or beneficiary after the
Effective Time of Closing and before such beneficiary or dependent is
discharged from the hospital.
(C) Seller and the Welfare Plans will remain responsible for
claims incurred by salaried employees of the Combined Group who
terminated employment before the Effective Time of Closing and for
claims incurred by the dependents and beneficiaries of such salaried
employees. Seller will remain responsible for workers' compensation
benefits that are payable before the Closing Date.
(iii)(A) Buyer and Buyer's Welfare Plans will be responsible for
administering and paying claims incurred from and after the Effective
Time of Closing by Continuing Employees of the Combined Group who are
at work for the Combined Group, Buyer or Buyer's Affiliates on the
Closing Date. Buyer and Buyer's Welfare Plans will be responsible for
administering and paying claims incurred by Continuing Employees of
the Combined Group who are unable to perform employment duties on the
Closing Date on account of a medical condition or on account of a
medical restriction only with respect to claims incurred on or after
the Continuing Employee returns to work for the Combined Group, Buyer
or one of Buyer's Affiliates.
(B) Buyer and Buyer's Welfare Plans will be responsible for
claims incurred by the dependents and beneficiaries of Continuing
Employees after the Effective Time of Closing. If the dependent or
beneficiary of a Continuing Employee is hospitalized on the Closing
Date, Buyer and Buyer's Welfare Plans will not be responsible for
claims incurred by such dependent or beneficiary after the Effective
Time of Closing and before such beneficiary or dependent is discharged
from the hospital.
(C) Buyer and Buyer's Welfare Plans will be responsible for
claims incurred by Continuing Employees of the Combined Group who
cease to be employed by the Combined Group after the Effective Time of
Closing and for claims incurred by the dependents and beneficiaries of
such Continuing Employees. Buyer and Buyer's Welfare Plans will be
responsible for claims incurred by employees of the Combined Group who
were compensated on an hourly or daily basis and who retired before
the Closing Date and for claims incurred by the dependents and
beneficiaries of such former employees. Buyer and the Combined Group
shall be responsible for workers' compensation benefits that are
payable on or after the Closing Date, regardless of whether the
injury, accident or illness occurred before the Closing Date and shall
pay such benefits or promptly reimburse Seller for any such benefits
paid by Seller.
(D) Buyer and Buyer's Welfare Plans shall be responsible for any
continuation coverage obligations under COBRA with respect to each
Continuing Employee and each qualified beneficiary (as defined in Code
Section 4980B(g)) of a Continuing Employee who has a qualifying event
(as defined in Code Section 4980B(f)) regardless of whether such
qualifying event occurs or occurred before, on or after the Effective
Time of Closing.
(d)(i) Buyer agrees that the Salaried Employees of the
Combined Group shall be eligible to participate in the Buyer's Plan
commencing as of the Closing Date, based on the terms and conditions
of the Buyer's Plan. Buyer's Plan shall provide benefits or benefit
accruals to Salaried Employees that are comparable to the benefits or
benefit accruals provided under the Salaried Plan as of the Closing
Date. Employment with the Company, the Seller and Affiliates of the
Seller prior to the Closing Date shall count for eligibility and
vesting purposes and, upon transfer of the Salaried Plan Spinoff
Amount, for benefit accrual purposes, under the Buyer's Plan to the
extent such service is recognized for such purposes under the Salaried
Plan as of the Closing Date.
(ii) Buyer agrees to cause Buyer's Plan to assume liability for
the Salaried Plan Benefits which accrued prior to the Closing Date and
which commence to be paid to Salaried Employees (or their surviving
spouse, beneficiary or alternate payee) on or after the Closing Date;
provided, however, that the receipt by Buyer's Plan of the Salaried
Plan Spinoff Amount shall be a condition precedent to the assumption
of such liability. Buyer and Seller agree to comply with all rules
and procedures established by the IRS and the PBGC with respect to the
assumption of such liability.
(iii) Seller agrees to cause the trust of the Salaried Plan to
transfer assets to Buyer's Plan equal to the Salaried Plan Spinoff
Amount. Such transfer shall be made as soon as practicable after the
Closing Date and the Salaried Plan Spinoff Amount shall be adjusted to
reflect gains, losses and expenses of the trust of the Salaried Plan
from the Closing Date until the date of transfer. Buyer and Seller
agree to comply with all rules and procedures established by the IRS
and the PBGC with respect to such transfer. Buyer warrants that as of
the date of transfer Buyer's Plan will be qualified, and its
concomitant trust exempt from tax, under Code Sections 401(a) and
501(a), respectively.
(e)(i) Buyer agrees that the Hourly Employees of the
Combined Group who participate in the Packaging Plan shall be eligible
to participate in the Buyer's Packaging Plan commencing as of the
Closing Date, based on the terms and conditions of the Buyer's
Packaging Plan. Buyer's Packaging Plan shall provide benefits or
benefit accruals to Hourly Employees that are comparable to the
benefits or benefit accruals provided under the Packaging Plan as of
the Closing Date. Employment with the Company, the Seller and
Affiliates of the Seller prior to the Closing Date shall count for
eligibility and vesting purposes and, upon transfer of the Packaging
Plan Spinoff Amount, for benefit accrual purposes, under the Buyer's
Packaging Plan to the extent such service is recognized for such
purposes under the Packaging Plan as of the Closing Date.
(ii) Buyer agrees to cause Buyer's Packaging Plan to assume
liability for the Packaging Plan Benefits which accrued prior to the
Closing Date and which commence to be paid to Hourly Employees
described in Section 8.4(e)(i) (or their surviving spouse, beneficiary
or alternate payee) on or after the Closing Date; provided, however,
that the receipt by Buyer's Packaging Plan of the Packaging Plan
Spinoff Amount shall be a condition precedent to the assumption of
such liability. Buyer and Seller agree to comply with all rules and
procedures established by the IRS and the PBGC with respect to the
assumption of such liability.
(iii) Seller agrees to cause the trust of the Packaging Plan to
transfer assets to Buyer's Packaging Plan equal to the Packaging Plan
Spinoff Amount. Such transfer shall be made as soon as practicable
after the Closing Date and the Packaging Plan Spinoff Amount shall be
adjusted to reflect gains, losses and expenses of the trust of the
Packaging Plan from the Closing Date until the date of transfer.
Buyer and Seller agree to comply with all rules and procedures
established by the IRS and the PBGC with respect to such transfer.
Buyer warrants that as of the date of transfer Buyer's Packaging Plan
will be qualified, and its concomitant trust exempt from tax, under
Code Sections 401(a) and 501(a), respectively.
(f)(i) Buyer agrees that the Hourly Employees of the
Combined Group who participate in the Hourly Retirement Plan shall be
eligible to participate in the Buyer's Retirement Plan commencing as
of the Closing Date, based on the terms and conditions of the Buyer's
Retirement Plan. Buyer's Retirement Plan shall provide benefits or
benefit accruals to Hourly Employees that are comparable to the
benefits or benefit accruals provided under the Hourly Retirement Plan
as of the Closing Date. Employment with the Company, the Seller and
Affiliates of the Seller prior to the Closing Date shall count for
eligibility and vesting purposes and, upon transfer of the Hourly
Retirement Plan Spinoff Amount, for benefit accrual purposes, under
the Buyer's Retirement Plan to the extent such service is recognized
for such purposes under the Hourly Retirement Plan as of the Closing
Date.
(ii) Buyer agrees to cause Buyer's Retirement Plan to assume
liability for the Hourly Retirement Plan Benefits which accrued prior
to the Closing Date and which commence to be paid to Hourly Employees
described in Section 8.4(f)(i) (or their surviving spouse, beneficiary
or alternate payee) on or after the Closing Date; provided, however,
that the receipt by Buyer's Retirement Plan of the Hourly Retirement
Plan Spinoff Amount shall be a condition precedent to the assumption
of such liability. Buyer and Seller agree to comply with all rules
and procedures established by the IRS and the PBGC with respect to the
assumption of such liability.
(iii) Seller agrees to cause the trust of the Hourly Retirement
Plan to transfer assets to Buyer's Retirement Plan equal to the Hourly
Retirement Plan Spinoff Amount. Such transfer shall be made as soon
as practicable after the Closing Date and the Hourly Retirement Plan
Spinoff Amount shall be adjusted to reflect gains, losses and expenses
of the trust of the Hourly Retirement Plan from the Closing Date until
the date of transfer. Buyer and Seller agree to comply with all rules
and procedures established by the IRS and the PBGC with respect to
such transfer. Buyer warrants that as of the date of transfer Buyer's
Retirement Plan will be qualified, and its concomitant trust exempt
from tax, under Code Sections 401(a) and 501(a), respectively.
(g) (i) Buyer agrees that as of the Effective Time of
Closing, Buyer shall assume sponsorship of the Hourly Plan. With
respect to any Continuing Employee, the Hourly Plan shall continue to
recognize, for all purposes, service with the Company, the Seller and
Affiliates of the Seller prior to the Closing Date to the same extent
that such service is recognized under the Hourly Plan as in effect on
such date. The Hourly Plan and Buyer shall be responsible for all
liabilities and obligations of the Hourly Plan, including, without
limitation, benefits accrued prior to the Closing Date and benefits
payable to any Hourly Plan participants who retired or separated from
service prior to the Closing Date.
(ii) No later than the Effective Time of Closing, Buyer
agrees to establish or designate a trust that is exempt from tax under
Section 501(a) of the Code to receive the assets of the Hourly Plan.
Seller agrees to transfer the Hourly Plan assets, valued as of the
date of transfer, to such trust as soon as practicable after the
Closing Date and after the establishment or designation of such trust.
(h)(i) Buyer agrees that as of the Effective Time of
Closing, Buyer shall assume sponsorship of the Roanoke Plan. With
respect to any Continuing Employee, the Roanoke Plan shall continue to
recognize, for all purposes, service with the Company, the Seller and
Affiliates of the Seller prior to the Closing Date to the same extent
that such service is recognized under the Roanoke Plan as in effect on
such date. The Roanoke Plan and Buyer shall be responsible for all
liabilities and obligations of the Roanoke Plan, including, without
limitation, benefits accrued prior to the Closing Date and benefits
payable to any Roanoke Plan participants who retired or separated from
service prior to the Closing Date.
(ii) No later than the Effective Time of Closing, Buyer agrees to
establish or designate a trust that is exempt from tax under Section
501(a) of the Code to receive the assets of the Roanoke Plan. Seller
agrees to transfer the Roanoke Plan assets, valued as of the date of
transfer, to such trust as soon as practicable after the Closing Date
and after the establishment or designation of such trust.
(i) Seller agrees that (A) the aggregate sum of (1) the Salaried
Plan Spinoff Amount, (2) the Packaging Plan Spinoff Amount, (3) the
Hourly Retirement Plan Spinoff Amount, (4) the assets of the Hourly
Plan as of the Closing Date, and (5) the assets of the Roanoke Plan as
of the Closing Date, less (B) the aggregate sum of (1) the Projected
Plan Benefit for the Salaried Plan, (2) the Packaging Plan Benefit,
(3) the Hourly Retirement Plan Benefit, (4) the Hourly Plan Benefit,
(5) the Roanoke Plan Benefit and (6) the present value of post-retirement
benefits other than pensions for employees of the Combined
Group who were compensated on an hourly or daily basis and who retired
prior to Closing, computed as of the Closing Date in accordance with
the actuarial assumptions and methods specified in Exhibit 8.4(d)
attached hereto, shall equal or exceed Ten Million Dollars
($10,000,000). If such aggregate sum is less than Ten Million Dollars
($10,000,000), then Seller shall pay to Buyer an amount equal to such
deficiency in immediately available funds within ten (10) Business
Days of such determination accompanied by accrued interest from the
Closing Date to the date of payment at the prevailing prime rate as
announced by Crestar Bank in Richmond, Virginia, from time to time.
(j) Buyer agrees to adopt a supplemental executive retirement
plan (the "Buyer's SERP") for the benefit of Salaried Employees who
participate in the Chesapeake Corporation Executive Supplemental
Retirement Plan (the "SERP"). The Buyer's SERP shall provide benefits
or benefit accruals that are substantially comparable to the benefits
or benefit accruals provided under the SERP as of the Closing Date and
shall recognize, for all purposes, service with the Company, the
Seller and Affiliates of the Seller prior to the Closing Date to the
same extent that such service is recognized under the SERP as in
effect on such date; provided, however, that the benefit payable to a
participant under the Buyer's SERP shall be reduced, on an actuarially
equivalent basis, by the benefit accrued by such participant under the
SERP as of the Closing Date and set forth on Exhibit 8.4(e) attached
hereto. Seller agrees to amend the SERP to (i) fully vest the
Salaried Employees who participate in the SERP in their right to
receive SERP benefits or (ii) to recognize service with the Combined
Group, Buyer or an Affiliate of Buyer after the Closing Date for
purposes of determining eligibility to receive a SERP benefit. Seller
agrees to provide to such Salaried Employees the benefits provided
under the SERP as of the Closing Date or to make one or more payments
to each Salaried Employee in satisfaction of such benefits.
Notwithstanding the preceding sentence, the obligation of Seller and
the SERP to provide benefits to Salaried Employees may be transferred
to Buyer's SERP upon such terms and conditions as may be agreed upon
by Buyer and Seller.
(k) Buyer agrees to adopt a Code section 401(k) Restoration Plan
(the "Buyer's Restoration Plan") for the benefit of Salaried Employees
who were eligible to participate in the Chesapeake Corporation 401(k)
Restoration Plan. The Buyer's Restoration Plan shall provide benefits
or benefit accruals that are comparable to the benefits or benefit
accruals provided under the Chesapeake Corporation 401(k) Restoration
Plan as of the Closing Date. At Closing, Seller shall transfer to
Buyer or a trust established by Buyer assets in an amount equal to the
sum of (x) Salaried Employees' accrued benefits under the Chesapeake
Corporation 401(k) Restoration Plan, valued as of the end of the month
preceding the Closing Date and (y) any Salaried Employees' deferrals
under the 401(k) Restoration Plan made after the end of the month
preceding the Closing Date and before the Closing Date, and Buyer
agrees that upon completion of the transfer the obligation to pay such
accrued benefits shall be an obligation of the Buyer's Restoration
Plan.
(l) (i) Buyer agrees that as of the Effective Time of Closing,
Buyer shall assume sponsorship of the Chesapeake Paper Products 401(k)
Savings Plan for Hourly Employees (the "Hourly 401(k) Plan"). With
respect to any Continuing Employee, the Hourly 401(k) Plan shall
continue to recognize, for all purposes, service with the Company, the
Seller and Affiliates of the Seller prior to the Closing Date to the
same extent that such service is recognized under the Hourly 401(k)
Plan as in effect on such date. The Hourly 401(k) Plan and Buyer
shall be responsible for all liabilities and obligations of the Hourly
401(k) Plan, including, without limitation, benefits accrued prior to
the Closing Date and benefits payable to any Hourly 401(k) Plan
participants who retired or separated from service prior to the
Closing Date.
(ii) Buyer agrees that the Hourly 401(k) Plan or another
defined contribution plan that is qualified under Section 401(a) of
the Code established or designated by Buyer shall accept transfers of
any Continuing Employees' account balances under the Chesapeake
Packaging Co. 401(k) Savings Plan for Hourly Employees. Buyer further
agrees that the Hourly 401(k) Plan or such other established or
designated plan shall provide benefits or benefit accruals that are
comparable to the benefits or benefit accruals as provided under the
Chesapeake Packaging Co. 401(k) Savings Plan for Hourly Employees as
of the Closing Date. Upon the transfer of said account balances, the
Hourly 401(k) Plan or such other established or designated plan and
Buyer shall be responsible for all liabilities and obligations of the
Chesapeake Packaging Co. 401(k) Savings Plan for Hourly Employees to
such Continuing Employees and shall recognize, for all purposes,
service with the Company, the Seller and Affiliates of the Seller
prior to the Closing Date to the same extent that such service is
recognized under the Chesapeake Packaging 401(k) Savings Plan for
Hourly Employees as in effect on such date. The transfer of account
balances from the Chesapeake Packaging Co. 401(k) Savings Plan for
Hourly Employees shall comply with all rules and procedures
established by the IRS with respect to such transfers.
(iii) Buyer agrees that the Hourly 401(k) Plan or another defined
contribution plan that is qualified under Section 401(a) of the Code
established or designated by Buyer shall accept transfers of any
Continuing Employees' account balances under the Chesapeake
Corporation 401(k) Savings Plan for Salaried Employees. Buyer further
agrees that the Hourly 401(k) Plan or such other established or
designated plan shall provide benefits or benefit accruals that are
comparable to the benefits or benefit accruals as provided under the
Chesapeake Corporation 401(k) Savings Plan for Salaried Employees as
of the Closing Date. Upon the transfer of said account balances, the
Hourly 401(k) Plan or such other established or designated plan and
Buyer shall be responsible for all liabilities and obligations of the
Chesapeake Corporation 401(k) Savings Plan for Salaried Employees to
such Continuing Employees and shall recognize, for all purposes,
service with the Company, the Seller and Affiliates of the Seller
prior to the Closing Date to the same extent that such service is
recognized under the Chesapeake Corporation 401(k) Savings Plan for
Salaried Employees as in effect on such date. The transfer of account
balances from the Chesapeake Corporation 401(k) Savings Plan for
Salaried Employees shall comply with all rules and procedures
established by the IRS with respect to such transfers.
(iv) Buyer agrees that the account balances under the Hourly
401(k) Plan of any hourly employees who become employees of the Seller
or an Affiliate of the Seller prior to the Closing Date shall be
transferred to a defined contribution plan that is qualified under
Section 401(a) of the Code that is established or designated by
Seller. Upon the transfer of said account balances, the plan
established or designated by Seller and Seller shall be responsible
for all liabilities and obligations of the Hourly 401(k) Plan to such
employees. The transfer of account balances from the Hourly 401(k)
Plan shall comply with all rules and procedures established by the IRS
with respect to such transfers.
(v) Within ninety (90) days after the Effective Time of Closing,
Buyer agrees to establish or designate one or more trusts exempt from
tax under Section 501(a) of the Code to receive the transfer of
account balances in accordance with Sections 8.4(l)(i), (ii) and (iii)
hereof. Seller agrees to transfer the assets of such accounts to such
trust as soon as practicable after the establishment or designation of
such trust.
(m) (i) As soon as practicable after the Closing, but in no
event later than ninety (90) days after the Closing Date, Seller shall
prepare and deliver to Buyer the following information with respect to
each Continuing Employee as of the Closing Date:
(A) name;
(B) Social Security number;
(C) accrued normal retirement benefit amount, payable as
a single life annuity under the Salaried, Hourly or
Packaging Plan;
(D) years (and fractions) of service recognized for
benefit accrual purposes under the Salaried, Hourly or
Packaging Plan; and
(E) years (and fractions) of service recognized for
vesting purposes under the Salaried, Hourly or Packaging
Plan.
(ii) From time to time after the Closing Date, Seller and
Buyer may require information with respect to one or more employees.
Seller and Buyer agree to furnish such information to the other, if
available, within thirty (30) days after receipt of any reasonable and
lawful written request from the other.
(n) Buyer agrees that it will credit (or cause the Combined Group
to credit) Continuing Employees with vacation time that is earned
under the terms of the Combined Group's vacation policy in effect
prior to the Effective Time of Closing but is unused as of the Closing
Date, and that Buyer will recognize (and cause the Combined Group to
recognize) service with Seller, the Company and the ERISA Affiliates
for purposes of earning vacation time from and after the Effective
Time of Closing.
(o) Buyer agrees that, for at least two (2) years after the
Closing Date, it shall maintain in full force and effect the Combined
Group's severance benefit programs listed in Exhibit 3.21 attached
hereto, and shall pay or cause the Combined Group to pay severance pay
and other benefits to Continuing Employees in accordance with the
terms of such programs. Buyer has advised Seller, and hereby
confirms, that Buyer has no present intention to effect any material
layoffs or work force reductions which would affect the employees of
the Combined Group after the Closing.
(p) Seller hereby agrees to indemnify and hold the Combined
Group, Buyer and Parent harmless from and against, and agrees to
defend promptly the Combined Group, Buyer and Parent from and to
reimburse the Combined Group and Buyer for, any Losses resulting from
or relating to each of the following: (i) any ERISA Affiliate Plan;
(ii) any "welfare plan" (within the meaning of Section 3(1) of ERISA)
whether or not such "welfare plan" is an Employee Benefit Plan, for
claims for benefits on or prior to the Effective Time of Closing;
(iii) any severance benefits payable to any employee or former
employee solely as a result of the Closing and consummation of the
transactions contemplated in this Agreement; (iv) any actual or
threatened disqualification or penalty with respect to the Qualified
Plans occurring prior to the transfer of assets and liabilities
related thereto or the sponsorship thereof; and (v) any workers'
compensation benefits payable prior to the Effective Time of Closing.
Seller agrees to take any and all actions necessary to maintain the
qualification of any Qualified Plan prior to the transfer of assets
and liabilities related thereto or the sponsorship thereof.
8.5 Income Tax Matters.
(a) Federal Income Taxes in General. The income and
other tax items of the Company and the Subsidiaries for periods ending
on or before the Closing Date shall be included in the consolidated
federal income tax return of the affiliated group, within the meaning
of Section 1504(a) of the Code, of which Seller is a member. Except
as otherwise provided in this Section 8.5, Seller shall be responsible
for and shall hold Buyer, the Company and the Subsidiaries harmless
from any federal income taxes of each of the Company and the
Subsidiaries (including any amount payable by reason of Treasury
Regulation 1.1502-6 or successor regulation of similar import) not
heretofore paid, and shall be entitled to any reductions in such taxes
or refunds (including interest) not heretofore received, for taxable
periods ending on or before or, with respect to the consolidated
federal income tax return of Seller's affiliated group, including the
Closing Date. If Buyer, the Company or any Subsidiary receives any
such refund, Buyer shall promptly pay (or cause the Company or such
Subsidiary to pay) the entire amount of the refund (including
interest) to Seller.
Buyer, the Company and the Subsidiaries shall be responsible
for and shall hold Seller harmless from all federal income taxes of
each of the Company and the Subsidiaries for any taxable period
beginning after the Closing Date and, with respect to prior taxable
periods, for all federal income taxes resulting from any action taken
without Seller's written consent by Buyer, the Company or any
Subsidiary after the Closing (including, without limitation, actions
taken outside the ordinary course of business and occurring on the
Closing Date but excluding operations within the ordinary course of
business on the Closing Date). Buyer, the Company and the
Subsidiaries shall be entitled to all refunds of such taxes (including
interest).
(b) State Income Taxes in General. For purposes of this
Agreement, the term "state income tax" means any tax, imposed by a
state in the United States, that is based on or measured by net
income. Seller shall be responsible for preparing and filing the
state income tax returns of the Company and the Subsidiaries for
taxable periods ending on or before the Closing Date. Except as
otherwise provided in this Section 8.5, Seller shall hold Buyer, the
Company and the Subsidiaries harmless from any state income taxes of
each of the Company and the Subsidiaries (including any amount payable
by reason of any applicable provision of state income tax law similar
to Treasury Regulation 1.1502-6 or successor regulation of similar
import) not heretofore paid and shall be entitled to any reductions in
such taxes or refunds (including interest) not heretofore received for
such taxable periods and, with respect to state income taxes of Seller
or any corporation affiliated with Seller with which the Company or
any Subsidiary files a combined or similar state income tax return,
the taxable period including the Closing Date. If Buyer, the Company
or any Subsidiary receives any such refund, Buyer shall promptly pay
(or cause the Company or such Subsidiary to pay) the entire amount of
such refund (including interest) to Seller.
Buyer, the Company and the Subsidiaries shall be responsible
for and shall hold Seller harmless from all state income taxes of each
of the Company and the Subsidiaries for any taxable period beginning
after the Closing Date and, with respect to prior taxable periods, for
all state income taxes resulting from any action taken without
Seller's written consent by Buyer, the Company or any Subsidiary after
the Closing (including, without limitation, actions taken outside the
ordinary course of business and occurring on the Closing Date but
excluding operations within the ordinary course of business on the
Closing Date). Buyer, the Company and the Subsidiaries shall be
entitled to all refunds of such taxes (including interest).
If any Subsidiary is required to file any state income tax
return for a taxable period covering days before and after the Closing
Date, Buyer shall cause such return to be filed and shall be
responsible for the payment of any tax for such period. However,
Seller shall pay to Buyer, as an adjustment to the Purchase Price, the
amount by which the state income tax attributable to the period
through the Closing Date exceeds the amount of such tax paid
(including payments of estimated tax) on or before the Closing Date.
The tax attributable to the period through the Closing Date shall be
determined (i) as if that period were a separate taxable year, and
(ii) except as otherwise required by Law, by using the tax accounting
methods and tax elections used by the Subsidiary before the Closing
Date. Seller shall compute the amount of the Subsidiary's tax
attributable to the period through the Closing Date and shall notify
Buyer of such amount in writing no later than 90 days after the
Closing Date. Within 45 days after the date of such notification,
Seller shall pay to Buyer the excess of (i) the amount of tax
determined by Seller as attributable to the portion of the period
through the Closing Date, over (ii) the amount of the tax for the
taxable period paid (including payments of estimated tax) on or before
the Closing Date unless, within 30 days after such date, Buyer
notifies Seller in writing that Buyer disagrees with the computation
of any such amount. In that case, Seller and Buyer shall proceed in
good faith to determine the correct amount, and Seller's payment to
Buyer shall be due the later of (i) the time specified in the
immediately preceding sentence, and (ii) 10 days after Seller and
Buyer agree to the amount payable.
(c) Income Tax Characterization of the Company and the
Sale and Purchase of the Membership Interest. As a single-member,
limited liability company formed after December 31, 1996, the Company
is to be treated as an unincorporated division of Seller for federal
income tax purposes pursuant to Treasury Regulation 301.7701-2(c)(2)
and -3(b)(1) and for state income tax purposes in any state (including
the Commonwealth of Virginia) not having a contrary rule.
Consequently, Seller's sale of the Membership Interest to Buyer is to
be treated as a sale by Seller, and a purchase by Buyer, of the assets
owned by the Company at the Effective Time of Closing for federal and
such state income tax purposes. The parties intend and agree to
report the sale and purchase of the Membership Interest as such a sale
and purchase of assets for federal, Virginia, and any other applicable
state income tax purposes. In accordance with such intent and
agreement, Seller and Buyer represent, warrant, and covenant that
neither of them will cause or permit the Company to elect pursuant to
Treasury Regulation 301.7701-3, or take, cause, or permit any other
action that would cause the Company, to be classified as an
association taxable as a corporation for federal, Virginia, or other
applicable state income tax purposes.
Buyer and Seller shall mutually determine the deemed sales
prices of the assets of the Company for purposes of Section 1060 of
the Code in accordance with all applicable Treasury Regulations
promulgated under Section 1060 of the Code. Buyer and Seller shall
cooperate to determine such deemed sales prices as promptly as
practicable, before Closing (if reasonably feasible) and in any event
within 90 days after the Closing Date. The parties shall mutually
adjust such determination to the extent required to reflect the
determination of the Final Purchase Price pursuant to Section 2.4
hereof. Neither Buyer nor Seller shall take, nor shall they permit
any affiliated Person (including, without limitation, the Company) to
take, any position for income tax purposes that is inconsistent with
the deemed sales prices as finally determined hereunder; provided,
however, that the deemed purchase prices of the assets shall differ
from the deemed sales prices to the extent necessary to reflect the
inclusion in the total deemed purchase price of items (for example,
Buyer's capitalized acquisition costs in addition to the Final
Purchase Price) not included in the total deemed sales price.
(d) Section 338(h)(10) Election for Subsidiaries. An election
shall be made by Buyer and Seller under Section 338(h)(10) of the Code
with respect to each Subsidiary that is a corporation. Seller shall
prepare and file the returns for, be responsible for the payment of,
and indemnify and hold Buyer, the Subsidiaries and Parent harmless
from, any federal and state income taxes resulting from that election
(and any corresponding election under state law), and Seller shall be
entitled to any refund or reduction in any such taxes. Buyer and
Seller shall cooperate to prepare and shall execute IRS Form 8023-A
(or any applicable successor form) prior to or at Closing. Buyer
shall retain custody of such form, and all required attachments
thereto, and shall timely file such form with the appropriate
office(s) of the IRS. Promptly after such filing, Buyer shall provide
to Seller a photocopy of the form (including all attachments) as filed
and proof of filing. The parties acknowledge that the effect of such
election will be to cause each such Subsidiary to be treated as two
corporations for federal income tax purposes: (i) an "old"
corporation, which shall be treated (a) as having sold all of its
assets (including the assets of any Subsidiary that is a limited
liability company owned by such corporate Subsidiary) in a taxable
transaction as of the end of the Closing Date while a member of the
Seller's affiliated group, and (b) as having completely liquidated
pursuant to Sections 332 and 337 of the Code, and (ii) a "new"
corporation, which shall be treated as having purchased (as of the
beginning of the day after the Closing Date) the assets deemed sold by
the old corporation. The parties hereto further intend for such
election to be effective, if possible, for state (as well as federal)
income tax purposes, and they shall timely execute and file any
documents that may be required under any applicable law, rule or
regulation for such election (or any corresponding election under
state law, rule or regulation) to be effective for state income tax
purposes.
Buyer and Seller shall cooperate in the same manner as
provided in Section 8.5(c) to determine the portion of the Final
Purchase Price allocable to the Subsidiaries and the deemed sales
prices of the assets of each Subsidiary for purposes of Section
338(a)(1) of the Code in accordance with all applicable Treasury
Regulations. Neither Buyer nor Seller shall take, nor shall they
permit any affiliated Person (including, without limitation, the
Subsidiaries) to take, any position for income tax purposes that is
inconsistent with the deemed sales prices as finally determined
hereunder; provided, however, that the deemed purchase prices of the
assets shall differ from the deemed sales prices to the extent
necessary to reflect the inclusion in the total deemed purchase price
of items (for example, Buyer's capitalized acquisition costs in
addition to the Final Purchase Price) not included in the total deemed
sales price.
(e) Cooperation. Buyer agrees to cooperate and to cause
the Company to cooperate with Seller to the extent reasonably required
after the Closing Date in connection with (i) the filing, amendment,
preparation and execution of all federal and state income tax returns
and documents with respect to any taxable period of the Company ending
on or before the Closing Date, (ii) contests concerning the federal or
state income tax due for any such period and (iii) audits and other
proceedings conducted by income tax authorities with respect to any
such period. Within a reasonable time (but not more than 10 days)
after Buyer or the Company receives official notice of any such
contest, audit or other proceeding, Buyer shall notify or cause the
Company to notify Seller in writing of such contest, audit or other
proceeding. In any case where the Company is responsible under
applicable Law for the defense of such contest, audit or other
proceeding, Seller shall have the right to conduct the defense at its
expense, whether such contest, audit or other proceeding commenced
before or commences after the Closing. Notwithstanding Seller's
obligations under the preceding provisions of this Section 8.5, Seller
shall have no obligation to pay or to indemnify or hold Buyer or the
Company harmless from any tax imposed or assessed as a result of (i)
the failure of Buyer or the Company to notify Seller as required by
this paragraph, if such failure adversely affects Seller's ability to
respond adequately in a timely manner to the notice of contest, audit
or other proceeding, or (ii) any action taken by Buyer or the Company
with respect to any contest, audit or other proceeding without
Seller's written consent.
In addition, the parties agree that Seller shall be entitled
to the federal and state income tax benefit resulting from
compensation deductions relating to the exercise after the Closing of
options to purchase common stock of Seller by employees or former
employees of the Company or any Subsidiary. Seller or an Affiliated
Predecessor shall claim such deductions, and the Company, its members
(other than Seller) and the Subsidiaries shall not unless requested to
do so by Seller. If the Company, any of its members (other than
Seller) or any Subsidiary realizes any federal or state income tax
benefit resulting from any such deduction, the Company and Buyer shall
promptly notify Seller and shall promptly pay to Seller the amount of
the tax benefit realized plus any interest paid or credited thereon by
any taxing authority.
Seller agrees to make available to Buyer and the Company
records in the custody of Seller or of any member of the Seller's
affiliated group, to furnish other information and otherwise to
cooperate to the extent reasonably required for the filing of federal
and state income tax returns and other documents relating to the
Company for any taxable period ending after the Closing Date.
However, no loss, credit or other item of the Company may be carried
back to a taxable period for which the Company and Seller or any
corporation affiliated with Seller filed a consolidated, unitary or
combined return.
Seller agrees to cooperate with Buyer, and Buyer agrees to
cooperate (and cause the Company to cooperate) with Seller, to the
extent necessary in connection with the filing of any information
return or similar document relating to the Buyer's acquisition of the
Company.
(f) Payment of Accrued Income Taxes. Seller has the
right to receive from the Company accrued but unpaid federal and state
income taxes for taxable periods ending on or before the Closing Date.
If funds for any such taxes have not been paid by the Company to
Seller before Closing, such funds shall be payable (and Buyer shall
cause such funds to be paid) upon Seller's demand.
(g) Taxes to Include Interest, Etc. For purposes of this
Section 8.5, the term "tax" or "taxes" includes any addition to tax,
interest and penalty imposed with respect to the tax or taxes. Thus,
for example, any obligation to hold a party harmless from federal
income tax for a taxable period includes the obligation to hold the
party harmless from any addition to tax, interest or penalty imposed
with respect to such federal income tax.
(h) Termination of Tax-Sharing Agreement. After the
Closing, this Section 8.5 shall supersede any and all tax-sharing or
similar agreements to which (i) the Company and the Subsidiaries, on
the one hand, and (ii) Seller or any of its Affiliates, on the other
hand, are parties. Neither the Company, any Subsidiary, Seller nor
any such Affiliates shall have any obligation or right with respect to
each other under any such prior agreement after the Closing.
(i) If Parent is a purchaser pursuant to Section 2.2(b)
hereof, references in this Section 8.5 to Buyer shall be deemed to
include Parent.
8.6 Records. Buyer shall cause the Company and the Subsidiaries
to preserve and keep, free of charge, all original books, papers and
records of the Business relating to periods prior to the Closing Date
for a period of no less than seven years following the Closing Date.
Buyer agrees to permit Seller and its attorneys, accountants, agents
and designees access to such books, papers and records from and after
the Closing Date for all reasonable purposes. Any such examination
shall be at the expense of Seller, shall be performed at the place
where such books, papers and records are regularly maintained and
shall not interfere unreasonably with Buyer's normal business
activities. Buyer shall notify Seller at any time that it intends to
destroy any or all of such books, papers and records, and Seller shall
have the right to review and remove at Seller's expense any of such
books, papers and records.
8.7 No Use of Name. Buyer and Parent agree that without
Seller's consent it will not, nor will it permit the Company or the
Subsidiaries after the Closing Date to, make any use of the names
"Chesapeake Corporation", "Chesapeake Paper Products Company",
"Chesapeake Forest Products Company" or "Chesapeake Packaging Co.",
the word "Chesapeake" or the "rolling C" logo, or any variation
thereof in any manner; provided, that for up to one year following the
Closing Date, the Company and the Subsidiaries may sell in the
ordinary course of their business any inventory bearing any of such
marks as of the Effective Time of Closing; and provided further, that
Buyer, Parent and the Company shall indemnify and hold Seller harmless
for any Losses suffered by Seller that are directly attributable to
such use.
8.8 Cooperation in Third-Party Litigation. (a) Seller agrees
that after the Closing, Seller shall provide such cooperation as
Buyer, Parent and/or the Company or their counsel may reasonably
request in connection with any proceedings related to the conduct of
the Business prior to the Closing. Such cooperation shall include,
without limitation, making employees of Seller available upon the
reasonable request and at the expense of Buyer, Parent and/or the
Company, as the case may be, to consult with and assist Buyer, Parent
and the Company and their counsel in connection with any such
proceedings and to prepare for and testify in any such proceedings,
including depositions, trials and arbitration proceedings.
(b) Parent agrees that after the Closing, Parent shall
provide and shall cause the Company and the Subsidiaries to provide
such cooperation as Seller or its counsel may reasonably request in
connection with any proceedings relating to the Business to which
Seller or any of its Affiliates is a party. Such cooperation shall
include, without limitation, making employees of Parent, the Company
and the Subsidiaries available upon the reasonable request and at the
expense of Seller to consult with and assist Seller and its counsel
regarding any such proceedings and to prepare for and testify in
connection with any such proceedings, including depositions, trials
and arbitration proceedings.
8.9 Further Assurances. Seller shall, from time to time after
the Closing, at Buyer's, Parent's and/or the Company's request,
execute, acknowledge and deliver to such requesting Person other
instruments of conveyance and transfer and will take such other
actions and execute and deliver such other documents, certifications
and further assurances as such requesting Person may reasonably
require in order to vest more effectively in Buyer, or to put Buyer
more fully in possession of, the Membership Interest, or to give
effect to the transactions contemplated by this Agreement and the
Ancillary Documents (including, without limitation, the Asset
Transfers). Each of the parties hereto will cooperate with the other
and execute and deliver to the other parties hereto such other
instruments and documents and take such other actions as may be
reasonably requested from time to time by any other party hereto as
necessary to carry out, evidence and confirm the intended purposes of
this Agreement.
8.10 DEF Project. Buyer hereby agrees to cause the Company,
after Closing, to indemnify and hold Seller and its Affiliates
harmless from and against, and agrees to cause the Company promptly to
reimburse Seller and its Affiliates for, any Losses resulting from or
relating to the DEF Project.
8.11 Certain Matters Related to Tax-Exempt Securities. Parent
hereby agrees that, from and after the Effective Time of Closing, it
will not take or omit to take, nor will it permit the Company, the
Subsidiaries or any of its other Affiliates to take or omit to take,
any action which would cause interest on the tax-exempt securities
listed on Exhibit 8.11 attached hereto to be included in the gross
income of the holders thereof for federal income tax purposes.
ARTICLE IX
TERMINATION
9.1 Termination. Time is of the essence of this Agreement.
This Agreement may be terminated and the transactions contemplated
hereby may be abandoned as follows: (a) at any time prior to the
Closing Date by mutual written agreement of Seller, on the one hand,
and Buyer and/or Parent, on the other hand; or (b) by Buyer and/or
Parent on the Closing Date if any of the conditions set forth in
Article VI of this Agreement shall not have been fulfilled by the
Closing Date; or (c) by Seller on the Closing Date if any of the
conditions set forth in Article VII of this Agreement shall not have
been fulfilled by the Closing Date; or (d) by Seller if, prior to the
execution of a definitive firm-commitment underwriting agreement with
respect to Parent's Equity Offering, a Person or group shall have made
a bona fide, fully financed proposal with respect to the Membership
Interest that the Board of Directors of the Seller believes, in good
faith after consultation with its financial advisors, is more
favorable, from a financial point of view, to the shareholders of
Seller than the proposal set forth in this Agreement, and with respect
to which such offeror is prepared to execute and deliver an
irrevocable and unconditional binding agreement (subject only to
customary closing conditions consistent with Article VI of this
Agreement, excluding Section 6.8 thereof, and compliance with the HSR
Act) (a "Superior Proposal"), and all of the material terms of such
Superior Proposal are immediately communicated in writing by Seller to
Buyer and Parent; provided, that the Buyer and/or Parent does not
make, within two (2) Business Days of receiving notice of such
Superior Proposal, an offer that the Board of Directors of the Seller
believes, in good faith after consultation with its financial
advisors, is at least as favorable, from a financial point of view, to
Seller's shareholders as such Superior Proposal.
9.2 Rights on Termination; Waiver.
(a) If this Agreement is terminated pursuant to Section
9.1, all further obligations of the parties under or pursuant to this
Agreement shall terminate without further liability of either party to
the other, except as otherwise provided in Section 9.2(b) and Section
9.2(c) hereof; provided, that the parties' obligations contained in
Sections 5.9 and 9.3 of this Agreement shall survive any such
termination.
(b) In the event this Agreement is terminated by Seller
as a result of Buyer's and/or Parent's failure to satisfy the
conditions precedent to Closing set forth in Article VII of this
Agreement (excluding Sections 7.3 and 7.7 thereof), then Parent shall
pay to Seller (i) a termination fee of $10.0 million as liquidated
damages (it being understood that the parties hereto have agreed that
the actual damages suffered by Seller upon any such termination of the
Agreement would be difficult or impossible to ascertain, and that such
amount is a reasonable approximation thereof in light of the
circumstances), plus (ii) an amount equal to Seller's documented out-of-pocket
expenses incurred from and after October 1, 1996, in
connection with the transactions contemplated herein (including,
without limitation, filing fees and the fees and expenses of legal
counsel, accountants and other consultants and advisors), which
expense reimbursement shall not exceed $5.0 million. Such amount
shall be due and payable in equal installments to be paid six (6),
nine (9) and twelve (12) months after the date of any such
termination, together with interest thereon at a rate per annum equal
to the LIBOR rate plus three percent (3%) (it being understood that
such amount may be prepaid in full at any time without penalty).
(c) In the event that this Agreement is terminated either
(i) by Buyer and/or Parent as a result of Seller's failure to satisfy
the conditions precedent to Closing set forth in Article VI of this
Agreement (excluding Sections 6.3, 6.7 and 6.10 thereof), or (ii) by
Seller pursuant to Section 9.1(d) hereof, then Seller shall pay to
Buyer or Parent (A) a termination fee of $10.0 million as liquidated
damages (it being understood that the parties have agreed that the
actual damages suffered by Buyer and/or Parent upon any such
termination of the Agreement would be difficult or impossible to
ascertain, and that such amount is a reasonable approximation thereof
in light of the circumstances), plus (B) an amount equal to Buyer's
and Parent's documented out-of-pocket expenses incurred from and after
October 1, 1996, in connection with the transactions contemplated
herein (including, without limitation, filing fees and the fees and
expenses of legal counsel, accountants and other consultants and
advisors) which expense reimbursement shall not exceed $5.0 million.
Such amount shall be due and payable in equal installments to be paid
six (6), nine (9) and twelve (12) months after the date of any such
termination, together with interest thereon at a rate per annum equal
to the LIBOR rate plus three percent (3%) (it being understood that
such amount may be prepaid in full at any time without penalty).
(d) If any of the conditions set forth in Article VI of
this Agreement have not been satisfied, Buyer and/or Parent may
nevertheless elect to waive such conditions and proceed with the
consummation of the transactions contemplated hereby. If any of the
conditions set forth in Article VII of this Agreement have not been
satisfied, Seller may nevertheless elect to waive such conditions and
proceed with the consummation of the transactions contemplated hereby.
9.3 Nondisclosure. Prior to Closing, the parties shall agree
upon a nondisclosure agreement to be entered into by the parties
hereto, the terms of which will be consistent with the Confidentiality
Agreement and Confidentiality Letter referred to in Section 5.9
hereof, and which will be effective from and after the Effective Time
of Closing.
ARTICLE X
MISCELLANEOUS
10.1 Transfer Taxes and Filing Fees. Seller shall pay or cause
the Company to pay all fees, taxes or assessments charged to grantees,
transferees or assignees under applicable Law in connection with the
Asset Transfers, and Seller shall pay the filing fee for any HSR Act
filing in which it is identified as the "acquiring person." Buyer or
Parent shall pay any other transfer, sales, recording and other filing
fees, taxes or assessments arising under applicable Law in connection
with the transactions contemplated hereunder, and Parent shall pay the
filing fee for any HSR Act filing in which it is identified as the
"acquiring person."
10.2 Entire Agreement; Amendment; No Waiver. Except as set forth
in Section 5.9 hereof, this Agreement and the documents referred to
herein and to be delivered pursuant hereto constitute the entire
agreement between the parties pertaining to the subject matter hereof,
and supersede all prior and contemporaneous agreements,
understandings, negotiations and discussions of the parties, whether
oral or written, and there are no warranties, representations or other
agreements between the parties in connection with the subject matter
hereof, except as specifically set forth herein or therein. No
amendment, supplement, modification, waiver or termination of, and no
election under, this Agreement shall be binding unless executed in
writing by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provision of this Agreement, whether or not
similar, nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
10.3 Expenses. Subject to Sections 9.2 and 10.1 hereof, whether
or not the transactions contemplated by this Agreement are
consummated, each of the parties hereto shall pay the fees and
expenses of their respective counsel, accountants and other experts
and the other expenses incident to the negotiation and preparation of
this Agreement and consummation of the transactions contemplated
hereby.
10.4 Governing Law. This Agreement shall be construed and
interpreted according to the laws of the Commonwealth of Virginia,
without regard to the conflicts of law rules thereof.
10.5 Assignment; Accommodation of Like-Kind Exchanges.
(a) Except as set forth in subsection (b) and (c) hereof, this
Agreement and each party's respective rights hereunder may not be
assigned at any time except as expressly set forth herein without the
prior written consent of the other parties hereto.
(b) Buyer and Parent shall cooperate as reasonably
requested by Seller to permit Seller to effect one or more like-kind
exchanges pursuant to Section 1031 of the Code and the regulations
thereunder with respect to any or all of the assets of the Business.
Such cooperation shall include, without limitation, permitting Seller
to assign all or any portion of Seller's rights under this Agreement
to a "qualified intermediary," as defined in such regulations, and
paying all or any portion of the Purchase Price to such qualified
intermediary or to a qualified escrow account or qualified trust.
Notwithstanding the foregoing, (i) Seller shall indemnify against and
hold each of Buyer and Parent harmless from any liability incurred by
Buyer or Parent as a result of performing its obligations under this
subparagraph, and (ii) Seller shall not be relieved of any of its
obligations under this Agreement by reason of this subparagraph.
(c) Notwithstanding any provision of this Agreement to the
contrary, from and after the settlement of the Final Purchase Price,
Buyer and Parent may assign their respective rights and obligations
hereunder to any transferee of the Membership Interest.
10.6 Notices. All communications, notices and disclosures
required or permitted by this Agreement shall be in writing and shall
be deemed to have been given when delivered personally or by messenger
or two (2) days after having been sent by overnight delivery service,
or when received via telecopy, telex or other electronic transmission,
in all cases addressed to the person for whom it is intended at his
address set forth below or to such other address as a party shall have
designated by notice in writing to the other parties in the manner
provided by this Section:
If to Seller: Chesapeake Corporation
2 James Center, 22nd Floor
1021 East Cary Street
P.O. Box 2350
Richmond, Virginia 23218-2350
Attention: J. Carter Fox,
Chairman, President &
Chief Executive Officer
Facsimile Telephone Number:
(804) 697-1183
With a copy to: Chesapeake Corporation
2 James Center, 22nd Floor
1021 East Cary Street
P.O. Box 2350
Richmond, Virginia 23218-2350
Attention: J.P. Causey Jr., Esq.,
Senior Vice President, Secretary
& General Counsel
Facsimile Telephone Number:
(804) 697-1183
If to Buyer: St. Laurent Paperboard Inc.
630 Rene-Levesque Boulevard West
Suite 3000
Montreal, Quebec H3B 5C7
Attention: Joseph J. Gurandiano, President &
Chief Executive Officer
Facsimile Telephone Number:
(514) 861-9408
With a copy to: David A. Garbus, Esq.
Robinson & Cole LLP
One Boston Place
Boston, Massachusetts 02108
Facsimile Telephone Number:
(617) 557-5999
10.7 Counterparts; Headings. This Agreement may be executed in
several counterparts, each of which shall be deemed an original, but
such counterparts shall together constitute but one and the same
Agreement. The Table of Contents and Article and Section headings in
this Agreement are inserted for convenience of reference only and
shall not constitute a part hereof.
10.8 Interpretation. Unless the context requires otherwise, all
words used in this Agreement in the singular number shall extend to
and include the plural, all words in the plural number shall extend to
and include the singular and all words in any gender shall extend to
and include all genders. All references to contracts, agreements,
leases, Employee Benefit Plans or other understandings or arrangements
shall refer to oral as well as written matters.
10.9 Severability. If any provision, clause or part of this
Agreement, or the application thereof under certain circumstances, is
held invalid, the remainder of this Agreement, or the application of
such provision, clause or part under other circumstances, shall not be
affected thereby.
10.10 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any of the provisions of
this Agreement were not performed in accordance with the terms hereof
and that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or equity.
10.11 No Reliance. No third party is entitled to rely on any of
the representations, warranties and agreements contained in this
Agreement. Parent, Buyer and Seller assume no liability to any third
party because of any reliance on the representations, warranties and
agreements of Parent, Buyer and Seller contained in this Agreement.
IN WITNESS WHEREOF, the parties have caused this Purchase
Agreement to be duly executed as of the day and year first above
written.
CHESAPEAKE CORPORATION
By: ______________________________
Its: _______________________
ST. LAURENT PAPERBOARD INC.
By: ______________________________
Its: _______________________
ST. LAURENT PAPERBOARD (U.S.) INC.
By: ______________________________
Its: _______________________
