UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File No. 1-7852
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POPE & TALBOT, INC.
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Delaware 94-0777139
- -------------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1500 S.W. 1st Ave., Portland, Oregon 97201
- -------------------------------------- ---------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 228-9161
--------------
NONE
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
Common stock, $1 par value - 13,481,441 shares as of September 30, 1999
<PAGE>
PART I. FINANCIAL INFORMATION
Page No.
--------
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets -
September 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations -
Three and Nine Months Ended September 30,
1999 and 1998 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
ITEM 3. Quantitative and Qualitative Disclosure of Market Risk 15
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 15
2
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PART I.
<TABLE>
<CAPTION>
POPE & TALBOT, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
September 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 98,168 $ 27,473
Short-term investments 15,848 9,857
Accounts receivable 74,461 62,356
Inventories:
Raw materials 47,634 53,765
Finished goods 27,952 23,992
--------- ---------
75,586 77,757
Prepaid expenses and other 10,871 10,651
--------- ---------
Total current assets 274,934 188,094
Properties:
Plant and equipment 449,019 424,519
Accumulated depreciation (224,893) (199,417)
--------- ---------
224,126 225,102
Land and timber cutting rights 10,082 9,290
--------- ---------
Total properties 234,208 234,392
Other assets:
Deferred income tax assets, net 19,019 16,218
Other 8,500 10,885
--------- ---------
Total other assets 27,519 27,103
--------- ---------
$ 536,661 $ 449,589
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 8,164 $ 10,259
Current portion of long-term debt 3,987 556
Accounts payable 28,083 21,532
Accrued payroll and related taxes 17,697 18,471
Other accrued liabilities 29,000 25,449
Income taxes 15,330 8,775
--------- ---------
Total current liabilities 102,261 85,042
Reforestation 15,171 15,441
Postretirement benefits 14,399 13,286
Long-term debt, net of current portion 199,259 138,004
Minority interest 40,349 39,759
Stockholders' equity:
Preferred stock - -
Common stock 13,972 13,972
Additional paid-in capital 31,160 31,160
Retained earnings 142,760 140,482
Cumulative translation adjustments (13,226) (18,113)
Common stock held in treasury, at cost (9,444) (9,444)
--------- ---------
Total stockholders' equity 165,222 158,057
--------- ---------
$ 536,661 $ 449,589
========= =========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
POPE & TALBOT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Wood products $ 65,039 $ 54,188 $ 186,585 $ 160,661
Pulp products 62,706 50,127 170,620 153,649
--------- --------- --------- ---------
Total 127,745 104,315 357,205 314,310
Costs and expenses:
Cost of sales:
Wood products 49,016 52,251 148,765 160,175
Pulp products 55,471 57,194 170,342 164,886
Selling, general and administrative 6,985 6,178 18,604 18,186
Interest, net 2,168 1,750 6,891 5,858
--------- --------- --------- ---------
Total 113,640 117,373 344,602 349,105
--------- --------- --------- ---------
Income (loss) before income taxes, minority interest
and discontinued operations 14,105 (13,058) 12,603 (34,795)
Income tax provision (benefit) 6,262 (4,874) 6,443 (11,277)
--------- --------- --------- ---------
Income (loss) before minority interest
and discontinued operations 7,843 (8,184) 6,160 (23,518)
Minority interest in net income (loss) of subsidiary,
net of income tax provision (benefit) 683 (1,431) (1,645) (3,046)
--------- --------- --------- ---------
Income (loss) from continuing operations 7,160 (6,753) 7,805 (20,472)
Income from discontinued operations
(net of tax provision of $24,794) - - - 27,074
--------- --------- --------- ---------
Net income (loss) $ 7,160 $ (6,753) $ 7,805 $ 6,602
========= ========= ========= =========
Basic and diluted income (loss) per common share:
Income (loss) from continuing operations $ .53 $ (.50) $ .58 $ (1.52)
Income from discontinued operations - - - 2.01
--------- --------- --------- ---------
Net income (loss) $ .53 $ (.50) $ .58 $ .49
========= ========= ========= =========
Cash dividends per common share $ .11 $ .19 $ .41 $ .57
========= ========= ========= =========
Weighted average number of
common shares outstanding (000's) 13,481 13,481 13,481 13,481
========= ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
</TABLE>
4
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<TABLE>
<CAPTION>
POPE & TALBOT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
Nine months ended
September 30,
-----------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 7,805 $ 6,602
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 24,853 22,703
Gain on sale of discontinued operations - (51,448)
Minority interest in subsidiary loss (1,645) (3,046)
Changes in assets and liabilities:
Accounts receivable (12,105) 2,092
Inventories 2,171 14,259
Prepaid expenses and other assets 5,078 2,614
Accounts payable and accrued liabilities 9,328 1,393
Current and deferred income taxes 1,073 9,747
Other liabilities (83) 841
--------- ---------
Net cash provided by operating activities 36,475 5,757
Cash flow from investing activities:
Purchases of short-term investments (25,066) (39,923)
Proceeds from maturities of short-term investments 19,075 16,400
Purchases of noncurrent investments held for sale - 4,965
Capital expenditures (15,036) (18,974)
Investment in subsidiary, net of cash acquired - (35,846)
Minority interest in subsidary treasury stock issue 100 -
Proceeds from sale of discontinued operations - 120,451
Proceeds from sale of other properties 271 463
--------- ---------
Net cash (used for) provided by investing activities (20,656) 47,536
Cash flow from financing activities:
Net decrease in short-term borrowings (2,095) (41,800)
Proceeds from issuance of long-term debt 64,574 -
Reduction of long-term debt, including current portion (2,076) (387)
Cash dividends (5,527) (7,685)
--------- ---------
Net cash provided by (used for) financing activities 54,876 (49,872)
--------- ---------
Increase in cash and cash equivalents 70,695 3,421
Cash and cash equivalents at beginning of period 27,473 31,911
--------- ---------
Cash and cash equivalents at end of period $ 98,168 $ 35,332
========= =========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
</TABLE>
5
<PAGE>
POPE & TALBOT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
(Unaudited)
1. Basis of Presentation
The accompanying condensed consolidated financial statements have been
prepared by the Company in accordance with the instructions to Form 10-Q
and, therefore, do not include all information and footnotes necessary for
a complete presentation of financial position, results of operations, and
cash flow activity required under generally accepted accounting principles.
In the opinion of the Company, all adjustments (consisting of only normal
accruals) necessary for a fair presentation of results have been made, and
the Company believes such presentation is adequate to make the information
presented not misleading. These interim financial statements should be read
in conjunction with the consolidated financial statements and footnotes in
the Company's Annual Report on Form 10-K for the year ended December 31,
1998.
2. Earnings Per Share
Certain Company stock options were not included in the computation of
diluted earnings per share because the options' exercise prices were
greater than the average market prices. Such stock options totaled 726,229
and 738,229 for the three and nine months ended September 30, 1999,
respectively, and 842,348 for the three and nine months ended September 30,
1998.
Refer to Exhibit 11.1 of this filing for the computation of average common
shares outstanding and earnings per average common share.
3. Legal Matters and Contingencies
The Company is a party to legal proceedings, environmental matters and
other contingencies generally incidental to its business. Although the
final outcome of these contingencies is subject to many variables and
cannot be predicted with any degree of certainty, the Company presently
believes that the ultimate outcome resulting from these proceedings and
matters would not have a material effect on the Company's current financial
position or liquidity; however, in any given future reporting period such
proceedings or matters could have a material effect on results of
operations.
The Internal Revenue Service (IRS) has assessed the Company additional tax
of approximately $5.3 million pertaining to transactions between the
Company and its wholly-owned Canadian subsidiary during its 1993 tax year.
The Company, which has filed a petition with the Tax Court, believes it has
substantial defenses against this claim and plans to vigorously defend its
position. The Company is currently negotiating settlement with the IRS on
this issue for the 1993 and certain subsequent tax years. The company has
established reserves for this matter in amounts it believes are reasonably
estimable.
6
<PAGE>
4. Comprehensive income (loss) is as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $ 7,160 $ (6,753) $ 7,805 $ 6,602
Foreign currency translation
adjustment 718 (4,157) 4,887 (7,655)
--------- --------- --------- ---------
Comprehensive income (loss) $ 7,878 $ (10,910) $ 12,692 $ (1,053)
========= ========= ========= =========
</TABLE>
5. Segment Information
The Company classifies its business into two operating segments: wood
products and pulp products. A reconciliation of the totals reported for the
operating segments to the applicable line items in the consolidated
financial statements is as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Wood products $ 65,039 $ 54,188 $ 186,585 $ 160,661
Pulp products 62,706 50,127 170,620 153,649
--------- --------- --------- ---------
Total operating segments $ 127,745 $ 104,315 $ 357,205 $ 314,310
========= ========= ========= =========
Operating profit (loss) from
continuing operations
Wood products $ 13,720 $ 941 $ 32,546 $ (2,405)
Pulp products 4,865 (9,447) (5,965) (17,421)
--------- --------- --------- ---------
Total operating segments 18,585 (8,506) 26,581 (19,826)
Corporate (2,312) (2,802) (7,087) (9,111)
Interest expense, net (2,168) (1,750) (6,891) (5,858)
--------- --------- --------- ---------
$ 14,105 $ (13,058) $ 12,603 $ (34,795)
========= ========= ========= =========
</TABLE>
6. Subsequent Event
On October 5, 1999, the minority shareholders of Harmac voted in favor of
Pope & Talbot, Inc.'s offer to acquire the balance of the Harmac shares it
does not already own in exchange for approximately 1.5 million Pope &
Talbot, Inc. common shares and approximately $20 million cash. Harmac's 8
percent subordinated convertible debentures will also be redeemed for
C$76.5 million, or approximately US$52 million. The entire transaction is
expected to close on November 8, 1999, after all conditions, including
regulatory approval, have been satisfied.
7
<PAGE>
POPE & TALBOT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Pope & Talbot, Inc.'s (the "Company's") income from continuing operations in the
third quarter of 1999 was $7.2 million, or $.53 per share, compared with a $6.8
million loss, or $.50 per share, in the third quarter of 1998. Strong lumber
markets, improving pulp markets and cost reduction efforts were the primary
reasons for the improved performance.
On a year-to-date basis, income from continuing operations in the first nine
months of 1999 was $7.8 million, or $.58 per share, compared with a loss from
continuing operations of $20.5 million, or $1.52 per share, in the same period a
year ago. The 1998 results also included $27.1 million of income from
discontinued operations, or $2.01 per diluted share. Net income was $6.6
million, or $.49 per diluted share, for the first nine months of 1998.
Total revenues were $127.7 million in the third quarter of 1999 compared with
$104.3 million in the same period of 1998. Wood products revenues in the third
quarter of 1999 increased to $65.0 million from $54.2 million in the same
quarter of 1998. Lumber sales prices in the current quarter increased 5 percent
over the second quarter of 1999 and 24 percent from the same period a year ago.
Lumber sales volumes in the third quarter of 1999 were 4 percent lower than the
second quarter of 1999 and about equal to the third quarter of 1998.
Pulp products revenues were $62.7 million in the third quarter of 1999 compared
with $50.1 million in the same period of 1998. Pulp sales totaled 144,560 metric
tons in the third quarter of 1999 compared with 135,350 metric tons in the
second quarter of 1999 and 123,100 metric tons in the third quarter of 1998.
Average pulp sales prices were 7 percent higher in the third quarter of 1999
than both the second quarter of 1999 and the third quarter of 1998.
On a year-to-date basis, wood products revenues in 1999 increased 16 percent
over the 1998 period primarily as a result of higher sales prices. Pulp products
revenues in the first nine months of 1999 were $17.0 million higher than the
1998 period primarily due to higher sales volumes and the result of the
inclusion of Harmac for only eight months in the first nine months of 1998.
Cost of sales for wood products in the third quarter of 1999 decreased $3.2
million from the third quarter of 1998 level. Lumber production totaled 149.4
million board feet in the third quarter of 1999 compared with 144.2 million
board feet in the third quarter of 1998. Total lumber production costs and
expenses per thousand board feet in the third quarter of 1999 decreased 11
percent from last year's third quarter, primarily the result of lower log costs.
Cost of sales for pulp products was $55.5 million in the third quarter of 1999
compared with $57.2 million in the same period of 1998. Pulp production totaled
147,840 metric tons in the third quarter of 1999 compared with 123,660 metric
tons in the third quarter of 1998. Production in the third quarter of 1998 was
relatively low, as both mills were shut down for maintenance in that quarter. At
Harmac, fiber costs in the third quarter of 1999 were about equal with the
second quarter of 1999 and were 6 percent lower than fiber costs in the third
quarter of 1998. Fiber costs at the Halsey mill in the third quarter of 1999
were also about equal compared with the second quarter of 1999, but were down 19
percent from the third
8
<PAGE>
quarter of 1998, primarily the result of lower chip prices and an increase in
the proportion of sawdust pulp produced.
Cost of sales for wood products in the first nine months of 1999 were 7 percent
less than the same period of 1998, primarily as the result of lower log costs.
Year-to-date cost of sales for pulp products in 1999 were $5.5 million higher
than the same period of 1998, primarily due to higher production levels.
Harmac's operations were also included in the 1998 period for only 8 months.
Average cost of production per ton of pulp at the Halsey mill fell 11 percent
for the first nine months of 1999 from the same period in 1998. At the Harmac
mill, average production costs in 1999 fell 9 percent from the same period in
1998, primarily the result of lower chip costs and cost reduction efforts at the
mill.
Selling, general and administrative expenses for the first nine months of 1999
totaled $18.6 million compared with $18.2 million in the same period of 1998.
Selling, general and administrative expenses in the third quarter of 1999 were
$800,000 higher than third quarter of 1998 primarily due to employee incentive
plans linked to the Company's 1999 financial performance.
DERIVATIVE FINANCIAL INSTRUMENTS
- --------------------------------
The Company's subsidiary Harmac enters into Canadian dollar forward exchange
contracts with maturities of one to five months to fix the conversion of a
portion of pulp sales receivables denominated in U.S. dollars. At September 30,
1999, the Company had contracts to purchase $17.5 million Canadian with the
exchange rate to be used at settlement approximating the spot rate at the date
the contract was acquired.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the first nine months of 1999, operations generated cash of $36.5 million
compared with $5.8 million for the first nine months of 1998. Income in the
third quarter of 1999 before interest, taxes, depreciation and amortization
("EBITDA") was $24.7 million, a significant improvement from the negative result
of $3.6 million in the third quarter of 1998 and EBITDA of $14.3 million in the
second quarter of 1999. For the nine months ended September 30, 1999, increases
in accounts receivables due to stronger pulp sales and higher pulp prices were
offset by an increase in accounts payable, mainly the result of higher logging
activity, and an increase in prepaid assets, primarily timber deposits.
On September 30, 1999, the Company concluded a $64.6 million sale and leaseback
of its Halsey, Oregon pulp mill, which has been accounted for as a financing for
financial reporting purposes. A portion of the proceeds will be used to bring
the Halsey mill into compliance with the Environmental Protection Agency's
"Cluster Rules." The cost of this project is expected to be approximately $35
million, with $4.2 million spent through September 30, 1999.
In conjunction with the Company's pending acquisition of the minority interest
of its majority owned subsidiary Harmac, the Company will issue approximately
1.5 million shares of common stock and approximately $20 million cash. Harmac's
8 percent convertible subordinated debentures will also be redeemed for C$76.5
million, or approximately US$52.0 million. The entire transaction is expected to
close on November 8, 1999. The cash requirements for the Harmac transaction will
be financed with a portion of the proceeds from the Halsey sale and leaseback
and existing cash balances.
9
<PAGE>
The Company invested $15.0 million in capital projects in the first nine months
of 1999 and estimates that total 1999 capital spending, excluding
environmental-related capital costs at the Halsey pulp mill, will approximate
$18.0 million. These capital projects will relate primarily to maintenance of
existing operations with a limited number of relatively small, high-return
projects. Environmental-related expenditures at the Halsey pulp mill in 1999 are
anticipated to be approximately $10.5 million.
YEAR 2000 UPDATE
- ----------------
The Company, like all other companies using computers and microprocessors, is
faced with the task of addressing the Year 2000 problem. The Year 2000 issue
exists because many computer systems and applications currently use two-digit
fields to designate a year. This can lead to incorrect results when computer
software performs arithmetic operations, comparisons or data field sorting
involving years later than 1999. The Company implemented a comprehensive
approach to identify where this problem may occur in its information technology
and manufacturing systems, and to evaluate the Year 2000 readiness of certain
third parties, such as suppliers and customers. The direct costs of projects
solely intended to correct the Company's Year 2000 problems are currently
estimated at $3.3 million, of which $3.1 million had been spent as of September
30, 1999. Most of these expenditures relate to replacement of systems and
applications and have been capitalized.
The Company completed an inventory of its core financial reporting processes and
other information technology systems in 1997 and has made the necessary
revisions to substantially all of these systems and processes as of September
30, 1999. The Company has also completed an inventory of the process control
systems and embedded microprocessors used in its manufacturing operations and
determined that only a small percentage of such systems and microprocessors
could be subject to Year 2000 problems. The Company expects to have the
remaining non-critical manufacturing systems replaced or corrected and complete
testing and verification of such systems early in the fourth quarter of 1999 in
conjunction with planned maintenance shutdowns at the pulp mills. The Company
presently believes that, with conversions to new computer and financial systems
and modifications to existing software, the Year 2000 issues will not pose
significant operational problems for the Company.
Due to the general uncertainty inherent in the Year 2000 problem, however, there
can be no assurance that all Year 2000 problems will be foreseen and corrected,
or if foreseen, corrected on a timely basis, or that no material disruption to
the Company's business or operations will occur. Further, the Company's
expectations are based on the assumption that there will be no general failure
of external local, national or international systems (such as power,
communications or transportation systems) necessary for the ordinary conduct of
business. There can be no assurance that successful contingency plans can, in
fact, be developed or implemented to deal with such failures.
FACTORS THAT MAY AFFECT FUTURE RESULTS
- --------------------------------------
Cyclical Operating Results and Product Pricing
- ----------------------------------------------
The Company's financial performance is principally dependent on the prices it
receives for its products. Prices for the Company's products are highly cyclical
and have fluctuated significantly in the past and may fluctuate significantly in
the future. Prices for both of the Company's principal products, lumber and
pulp, fell during 1998 but have shown improvement in the first nine months of
1999. No assurance can be given as to the sustainability of the recent price
improvements.
10
<PAGE>
The Company's financial performance is also dependent on the rate at which it
utilizes its production capacity. When capacity utilization is reduced in
response to weak demand for the Company's products, its cost per unit of
production increases and its profitability decreases.
The markets for the Company's products are highly cyclical and are characterized
by periods of excess product supply due to many factors, including:
o additions to industry capacity;
o increased industry production;
o periods of insufficient demand due to weak general economic activity or
other causes; and
o inventory destocking by customers.
The Company's primary products are commodities, resulting in extreme price
competition. Both the wood products and pulp industries have had over-capacity
for several years. The Company's industries are capital-intensive, which leads
to high fixed costs and generally results in continued production as long as
prices are sufficient to cover marginal costs. This has caused substantial price
competition and volatility and caused the Company to generate net losses from
continuing operations as recently as 1996 and 1998. These losses were primarily
due to losses in its pulp operations, which continue to be unprofitable in 1999.
In the event of a recession, demand and prices are likely to drop substantially.
Risks of International Business
- -------------------------------
In general, the Company's sales are subject to the risks of international
business, including:
o fluctuations in foreign currencies;
o changes in the economic strength of the countries in which it does
business;
o trade disputes;
o changes in regulatory requirements;
o tariffs and other barriers; and
o quotas, duties, taxes and other charges or restrictions upon
exportation and importation.
The economic crisis in Asia softened demand for wood and pulp products in that
region and, consequently, lowered prices in 1998. As a result, producers for the
Asian markets redirected their products to other regions, thereby lowering
prices elsewhere. In addition, Asian producers may be able to further lower
prices and increase exports as a result of their depreciated currencies.
Weakness in Asian markets has eroded worldwide pricing for the Company's
products, indirectly adversely affecting its financial results. Asian markets
have strengthened in 1999, but if these markets worsened, it could have a
material adverse effect on the Company's financial condition and results of
operations.
Availability and Pricing of Raw Materials
- -----------------------------------------
Logs, wood chips and sawdust, the principal raw materials used in the
manufacture of the Company's products, are purchased in highly competitive,
price-sensitive markets. These raw materials have historically exhibited price
and demand cyclicality. Supply and price of these raw materials are dependent
upon a variety of factors over which the Company has no control, including
environmental and conservation regulations, and natural disasters, such as
forest fires, hurricanes and other extreme weather conditions. A decrease in the
supply of logs, wood chips and sawdust can cause higher raw material costs.
11
<PAGE>
The principal sources of raw material for the Company's wood products operations
are timber obtained through long-term cutting licenses on public lands, logs
purchased on open markets, timber offered for sale through competitive bidding
by U.S. federal agencies and timber purchased under long-term contracts to cut
timber on private lands. The Company's lumber capacity comes from British
Columbia (75%) and the Black Hills region of South Dakota and Wyoming (25%). In
Canada, the Company's timber requirements are obtained primarily from the
Provincial Government of British Columbia under long-term timber harvesting
licenses which allow the Company to remove timber from defined areas annually on
a sustained yield basis. Under these licenses, the Provincial Government has the
authority to modify prices and harvest volumes at any time. British Columbia's
Commission on Resources and Environment issued the Kootenay Boundary Land Use
Plan of 1997. This land use plan set aside several new wilderness areas. The
British Columbia government has also implemented a Forest Practices Code, which
sets strict standards for logging activities and reforestation responsibilities.
No assurance can be given that in the near or long-term the Company's timber
supplies will be stable or that these forest restrictions will not have a
material adverse effect on the Company's operations.
Softwood fiber (wood chips and sawdust), particularly in the quantities
necessary to support world-scale pulp production facilities, is in increasingly
short supply in the Pacific Northwest. In the last decade Pacific Northwest log
availability has been reduced and lumber and plywood mills have shut down. The
volume of lower cost residual chips has dropped correspondingly. Pulp mills that
require wood chips as the primary source of raw material now rely on additional
higher cost supply sources which produce chips directly from pulpwood and/or
deliver from greater distances. Consequently, the market price of chips to all
buyers has increased. To provide an adequate supply of wood fiber for its
Halsey, Oregon mill, the Company has expanded its capability of using sawdust as
a raw material for a significant portion of the production and diversified its
suppliers of fiber. There can be no assurance that the Company will be able to
obtain an adequate supply of softwood fiber for its operations.
Dependence on a Single Supplier for the Harmac Pulp Mill
- --------------------------------------------------------
Harmac has a long-term fiber supply agreement with MacMillan Bloedel Limited
that provides for at least 80% of Harmac's fiber requirements through 2019.
Fiber is purchased at market or at prices determined under a formula intended to
reflect fair market value of the fiber and which takes into account the net
sales value of pulp sold by Harmac. The failure by MacMillan Bloedel Limited to
produce the required fiber pursuant to this contract could have a material
adverse effect on the Company as a whole.
Dependence on a Single Customer for the Halsey, Oregon Pulp Mill
- ----------------------------------------------------------------
Approximately 30% of the pulp produced by the Halsey, Oregon pulp mill is sold
to Grays Harbor Paper Company pursuant to a long-term contract. Loss of this key
customer would have a material adverse impact on the Company if a replacement
buyer could not be secured on a timely basis.
Quotas and Export Fees on Lumber Exports to the United States
- -------------------------------------------------------------
Softwood lumber exports to the U.S. by Canadian producers have been a
contentious trade issue between Canada and the U.S. for a number of years.
Effective April 1996, the governments of Canada and the U.S. entered into a
softwood lumber agreement for the export of softwood lumber to the U.S. Pursuant
to the agreement, in each fiscal year ended March 31, Canadian softwood lumber
producers are assigned quotas of lumber volumes which may be shipped to the U.S.
tariff-free. Incremental volumes were subject to a two-tier tariff of $53 per
thousand board feet and $106 per thousand board feet. On August 26, 1999 Canada
and the
12
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United States amended the softwood lumber agreement to add a third-tier tariff
at a rate of $146 per thousand board feet and to reduce the amount of timber
volume subject to the first tier by 25%. The Company has been allocated a
specific quota within each tier. The Company's tariff-free volume was reduced by
11.4 million board feet from the 1996/1997 fiscal year to the 1997/1998 fiscal
year, and then by another 11.6 million board feet for the 1998/1999 fiscal year.
As a partial offset, the Company received increases in allocation at the lower
tariff from the 1996/1997 fiscal year to the 1998/1999 fiscal year.
In March 1999, the Company filed under the North American Free Trade Agreement a
claim against the Canadian Federal Government. In its claim, the Company asserts
that its duty-free export quota has been unfairly reduced. There can be no
assurance as to when the claim will be resolved. The Canadian softwood lumber
agreement expires in 2001 and the Company cannot predict whether the agreement
will be renewed or what the terms of any renewed agreement might be.
Global Competition
- ------------------
The markets for the Company's products are highly competitive on a global basis,
with a number of major companies competing in each market and with no company
holding a dominant position. In particular, the wood products industry is highly
competitive, with a large number of companies producing products that are
reasonably standardized. Many of the Company's competitors have substantially
greater financial resources than it does. Some of its competitors may have the
advantage of not being affected by fluctuations in the value of the Canadian
dollar. While the principal basis for competition is price, the Company also
competes to a lesser extent on the basis of quality and customer service.
Exchange Rate Fluctuations
- --------------------------
Although the Company's sales are made primarily in U.S. dollars, a substantial
portion of its operating costs and expenses are incurred in Canadian dollars.
Significant variations in relative currency values, particularly a significant
increase in the value of the Canadian dollar relative to the U.S. dollar, could
have a material adverse effect on its business, financial condition, results of
operations and cash flows.
Environmental Regulation
- ------------------------
The Company is subject to extensive federal, state, provincial and local
environmental laws and regulations. These laws and regulations impose stringent
standards on the Company regarding, among other things:
o air emissions;
o water discharges;
o use and handling of hazardous materials;
o use, handling and disposal of waster; and
o remediation of environmental contamination.
The Company may incur substantial costs to comply with current requirements or
new environmental laws that might be adopted. In addition, the Company may
discover currently unknown environmental problems or conditions which may or may
not require remediation. Any such event could have a material adverse effect on
its business, financial condition, results of operations and cash flows. The
Company has spent significant amounts of money in the past to comply with
environmental regulations and expects that it will have to spend money in the
future. The Company has taken reserves based on current information to address
environmental liabilities. Additional significant expenditures could be required
if the law
13
<PAGE>
changes or new information is discovered, and those expenditures could have a
material adverse effect on its financial condition. In addition, the Company has
been required to make significant environmental capital expenditures every year,
and the Company expects those expenditures to increase significantly in the next
several years.
In April 1998, the U.S. Environmental Protection Agency published regulations
known as the "Cluster Rules" establishing standards and limitations for air and
water emissions by pulp mills. The capital costs to comply with these new
regulations at the Halsey pulp mill are anticipated to total approximately $35
million, with compliance required by the first quarter of 2001. The Company has
spent $4.2 million of these capital costs through the end of the third quarter
of 1999.
Current legislation requires all pulp mills in British Columbia to eliminate the
discharge of chlorinated organic compounds by December 31, 2002. Currently, the
cost of available technology to eliminate all chlorinated organic compounds at
kraft pulp mills is prohibitive. The British Columbia government, industry
participants and other stakeholders are engaged in discussion to resolve this
issue. If the current legislation is not amended, substantially all of the
chemical pulp mills in British Columbia, including Harmac's, would likely be
required to be closed, which would have a material adverse effect on the
Company's business.
The Company is currently participating in the investigation of environmental
contamination at two sites on which it previously conducted business. The
ultimate cost to the Company for site remediation and monitoring on these sites
cannot be predicted with certainty due to the unknown magnitude of the
contamination, the varying costs of alternative clean-up methods, the clean-up
time frame possibilities, the evolving nature of remediation technologies and
governmental regulations and the inability to determine its share of multi-party
obligations or the extent to which contributions will be available from the
other parties, including insurance carriers.
Cost Reductions Expected from the Arrangement and Other Capital Expenditures
- ----------------------------------------------------------------------------
Following the Company's acquisition of a majority interest in Harmac in February
1998, a number of steps have been taken to reduce Harmac's operating costs.
Acquisition of the remaining minority interest in Harmac is expected to result
in additional administrative and marketing efficiencies. Moreover, the Company
has made and will continue to make capital expenditures in both its lumber and
pulp operations which it expects to generate cost savings. Although the
Company's management is experienced in achieving cost reductions and operating
efficiencies, there can be no assurance that any specified level of cost savings
will be fully achieved or will be achieved within the time periods contemplated.
Costs of Acquiring Harmac Shares and Redeeming the Harmac Debentures and the
Company's Leverage
- ----------------------------------------------------------------------------
The Company financed the cash requirements for the purchase of the remaining
minority interest in Harmac and the redemption of Harmac's outstanding 8%
convertible unsecured subordinated debentures and related fees and expenses
through the use of existing cash, cash equivalents and a portion of the proceeds
from the sale and leaseback of the Halsey pulp mill. As a result of the new
borrowings, the Company's long-term debt as a percentage of total capitalization
at September 30, 1999, is temporarily higher than in recent years. After
redemption of Harmac's debentures and issuance of approximately 1.5 million
shares of the Company's common stock in November 1999, the Company's long-term
debt as a percentage of total capitalization will be closer to historical
levels. While the Company's leverage level is not unusual for the forest
products and pulp industries, such leverage increases its financial risk
14
<PAGE>
by (i) potentially increasing the cost of additional financing for working
capital, capital expenditures and other purposes, and (ii) increasing the amount
of cash flow dedicated to the payment of interest and principal.
ITEM 3. Quantitative and Qualitative Disclosure of Market Risk
The information called for by this item is provided under the caption
"Derivative Financial Instruments" under Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations.
PART II.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
4.4 Participation Agreement dated as of September 15, 1999 among the
Company, SELCO Service Corporation, the Note Purchasers named
therein, Wilmington Trust Company and First Security Bank, National
Association.
4.5 Facility Lease between the Company and Wilmington Trust Company
dated September 30, 1999.
11.1 Statement showing computation of per share earnings.
27.1 Financial Data Schedule.
The undersigned registrant hereby undertakes to file with the Commission a copy
of any agreement not filed under exhibit item (4) above on the basis of the
exemption set forth in the Commission's rules and regulations.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the three months ended
September 30, 1999.
15
<PAGE>
SIGNATURE
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.
POPE & TALBOT, INC.
-----------------------------
Registrant
Date: November 2, 1999 /s/ MARIA M. POPE
-----------------------------
Maria M. Pope
Vice President and
Chief Financial Officer
16
Draft dated as of September 30, 1999
================================================================================
PARTICIPATION AGREEMENT
Dated as of September 15, 1999
AMONG
POPE & TALBOT, INC.,
as Lessee
SELCO SERVICE CORPORATION,
as Owner Participant
NOTE PURCHASERS NAMED HEREIN,
as Note Purchasers
WILMINGTON TRUST COMPANY,
not in its individual capacity,
except as expressly provided herein,
but solely as Owner Trustee
And
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
as Indenture Trustee
================================================================================
<PAGE>
TABLE OF CONTENTS
SECTION HEADING PAGE
SECTION 1. COMMITMENTS OF THE PARTICIPANTS............................ 2
Section 1.1. Issue and Sale of Series A Notes........................... 2
Section 1.2. Investments by the Owner Participant....................... 2
Section 1.3. The Closing Date........................................... 3
Section 1.4. Expiration of Commitments.................................. 3
SECTION 2. TRANSACTIONAL EXPENSES..................................... 3
Section 2.1. Transactional Expenses to be Borne by Owner Trustee........ 3
Section 2.2. Transactional Expenses to be Borne by Lessee............... 4
SECTION 3. WARRANTIES AND REPRESENTATIONS............................. 4
Section 3.1. Warranties and Representations of the Owner Trustee........ 4
Section 3.2. Warranties and Representations of the Lessee............... 6
Section 3.3. Warranties and Representations of the Indenture Trustee....15
Section 3.4. Private Offering...........................................16
Section 3.5. Representations and Covenants of the Participants..........17
SECTION 4. CLOSING CONDITIONS.........................................19
Section 4.1. Conditions Precedent to Investment by each Participant.....19
Section 4.2. Additional Conditions Precedent to Investments by
Owner Participant..........................................22
Section 4.3. Additional Conditions Precedent to Series A Note
Purchases..................................................23
SECTION 5. SPECIAL RIGHTS OF NOTE PURCHASERS..........................23
SECTION 6. CL02 SYSTEM................................................24
Section 6.1. Lessee Rights Relating to CLO2 System......................24
Section 6.2. Financing of CLO2 System...................................25
Section 6.3. Special Purchase Option Date...............................27
SECTION 7. GENERAL TAX INDEMNITY......................................28
Section 7.1. Tax Indemnitee Defined.....................................28
Section 7.2. Taxes Indemnified..........................................28
Section 7.3. Taxes Excluded.............................................29
Section 7.4. All Tax Obligations in this Section, Etc...................31
Section 7.5. Payments to Lessee.........................................31
Section 7.6. Procedures.................................................31
Section 7.7. Contest....................................................32
Section 7.8. Reports....................................................34
<PAGE>
Section 7.9. Survival...................................................34
SECTION 8. INDEMNITIES OF THE OWNER TRUSTEE AND THE
OWNER PARTICIPANT..........................................34
SECTION 9. INDEMNIFICATION............................................35
Section 9.1. General Indemnity..........................................35
Section 9.2. Payments, Survival and other Provisions....................36
Section 9.3. No Guarantee of Residual Value or Notes....................36
SECTION 10. TRANSACTION ECONOMICS......................................36
SECTION 11. RESTRICTIONS ON TRANSFER OF BENEFICIAL INTEREST............36
SECTION 12. LESSEE ASSUMPTION OF NOTES.................................39
Section 12.1. Assumption.................................................39
Section 12.2. No Other Assumption; Payment of Expenses...................41
SECTION 13. REFINANCING OF NOTES.......................................41
SECTION 14. MISCELLANEOUS..............................................44
Section 14.1. Amendments.................................................44
Section 14.2. Notices....................................................44
Section 14.3. Survival...................................................44
Section 14.4. Successors and Assigns.....................................44
Section 14.5. Governing Law..............................................45
Section 14.6. Counterparts...............................................45
Section 14.7. Headings and Table of Contents.............................45
Section 14.8. Limitations of Liability...................................45
Section 14.9. Purchase of Beneficial Interest by Lessee;
Termination of Trust by Owner Participant..................46
Section 14.10. Certain Limitations in Reorganization......................46
Section 14.11. Amendment of Indenture, Deed of Trust and Trust Agreement..47
Section 14.12. Submission to Jurisdiction.................................47
Section 14.13. Waiver of Jury Trial.......................................47
Section 14.14. Complete Facility..........................................48
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ATTACHMENTS TO PARTICIPATION AGREEMENT:
Schedule 1 -- Note Purchaser Information
Schedule 3.2(r) -- ERISA Matters
Schedule 3.2(s) -- Environmental Matters
Schedule 3.2(w) -- Existing Leases
Annex I -- Definitions
Annex II -- Forms of Opinions of Counsel
Exhibit A -- Form of Trust Agreement
Exhibit B -- Form of Site Lease
Exhibit C -- Form of Facility Lease
Exhibit D -- Form of Trust Indenture and Security Agreement
Exhibit E -- Form of Deed of Trust
Exhibit F -- Description of CLO2 System
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<PAGE>
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT dated as of September 15, 1999 is among POPE &
TALBOT, INC., a Delaware corporation (herein, together with its successors and
assigns, the "Lessee"), SELCO SERVICE CORPORATION, an Ohio corporation (herein,
together with its successors and assigns, the "Owner Participant"), the Note
Purchasers named in Schedule 1 hereto (the "Note Purchasers"), WILMINGTON TRUST
COMPANY, not in its individual capacity except as expressly stated herein, but
solely as trustee (herein in such capacity, together with its successors and
assigns, called the "Owner Trustee") under the Trust Agreement referred to
below, and FIRST SECURITY BANK, NATIONAL ASSOCIATION (herein in such capacity,
together with its successors and assigns, called the "Indenture Trustee"). The
Owner Participant and the Note Purchasers are herein sometimes referred to
collectively as the "Participants" and individually as a "Participant".
Recitals
A. The capitalized terms used in this Participation Agreement shall have
the respective meanings specified in Annex I attached hereto, unless otherwise
herein defined or the context hereof shall otherwise require.
B. The Owner Trustee and the Owner Participant have entered into a Trust
Agreement dated as of September 15, 1999, substantially in the form attached
hereto as Exhibit A, and pursuant to the authorities and directions contained in
the Trust Agreement, the Owner Trustee agrees to enter into:
(1) a Site Lease substantially in the form attached hereto as Exhibit
B between the Lessee, as landlord, and the Owner Trustee, as tenant,
providing for the grant by the Lessee to the Owner Trustee of a leasehold
estate in the Site for the Facility and certain other rights, licenses and
easements relating to the Facility, but which shall not, during the Term of
the Facility Lease, in any event require the Owner Trustee, as tenant, to
pay Rent under the Site Lease which is not fully offset by the obligation
of the Lessee to pay Periodic Site Rent on a dollar-for-dollar basis
pursuant to the Facility Lease;
(2) a Facility Lease substantially in the form attached hereto as
Exhibit C between the Owner Trustee, as lessor, and the Lessee, as lessee,
for the Facility, providing for the lease of the Facility and the sublease
of the Site for the Facility to the Lessee;
(3) a Trust Indenture and Security Agreement substantially in the form
attached hereto as Exhibit D between the Owner Trustee and the Indenture
Trustee, under which the Notes will be issued and secured, and providing
for particular description of certain Collateral;
(4) a Deed of Trust substantially in the form of Exhibit E between the
Owner Trustee, as grantor, the deed of trust trustee thereunder, and the
Indenture Trustee, as beneficiary, providing for the grant of a mortgage on
the Facility, the Owner Trustee's
<PAGE>
leasehold interest in the Site and the Owner Trustee's interests under the
Site Lease and the Facility Lease; and
(5) a Tax Indemnity Agreement between the Lessee and the Owner
Participant.
SECTION 1. COMMITMENTS OF THE PARTICIPANTS.
Section 1.1. Issue and Sale of Series A Notes.
(a) The Series A Notes. In order to finance a portion of the Facility Cost,
the Trust Agreement authorizes the Owner Trustee to issue and sell its 8.96%
Secured Notes, Series A, due January 2, 2008 (the "Series A Notes") in an
aggregate principal amount not to exceed the aggregate amount of the commitments
of the Note Purchasers set forth below. The Series A Notes are issued under and
secured by the Indenture, will be dated the date of issue and will mature on
January 2, 2008. The Series A Notes will bear interest at the rate of 8.96% per
annum prior to maturity payable semiannually on each Rent Payment Date, and are
to be otherwise substantially in the form attached to the Indenture as Exhibit
A.
(b) Commitment of Note Purchasers. Subject to the terms and conditions
hereof and on the basis of the representations and warranties hereinafter set
forth, the Owner Trustee agrees to issue and sell to each Note Purchaser, and
each Note Purchaser agrees to purchase from the Owner Trustee, on the Closing
Date, Series A Notes of the Owner Trustee at a price of 100% of the principal
amount thereof and in an aggregate principal amount equal to such Note
Purchaser's Commitment as set forth in Schedule 1 hereto. The Series A Notes
delivered to each Note Purchaser on the Closing Date will, unless otherwise
indicated on Schedule 1 hereto, be in the form of a single Series A Note
registered in the name of such Note Purchaser.
(c) Failure to Deliver. If at the Closing the Owner Trustee fails to tender
to any Series A Note Purchaser the Notes to be purchased by such Note Purchaser
at the Closing or if the conditions to the obligation of such Note Purchaser
specified in Section 4 for the Closing have not been fulfilled, each Note
Purchaser may thereupon elect to be relieved of all further obligations under
this Agreement. Nothing in this Section shall operate to relieve the Owner
Trustee, the Owner Participant or the Lessee from their respective obligations
hereunder or to waive any of any Note Purchaser's rights against the Owner
Trustee, the Owner Participant or the Lessee.
Section 1.2. Investments by the Owner Participant. (a) Subject to the terms
and conditions hereof and on the basis of the representations and warranties
hereinafter set forth and set forth in the other Operative Agreements, on the
Closing Date the Owner Participant will pay to the Owner Trustee, an amount
equal to the Facility Cost for the Facility less the proceeds of the Series A
Notes issued on the Closing Date. The aggregate investment required to be made
by the Owner Participant pursuant to this Section 1.2(a) shall not exceed
$17,398,444.06.
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<PAGE>
(b) In addition, the Owner Participant will make such further payments as
may be necessary from time to time to permit the Owner Trustee to satisfy its
obligations under Section 2.
(c) If at the Closing the conditions to the obligations of the Owner
Participant specified in Section 4 for the Closing have not been fulfilled, the
Owner Participant may thereupon elect to be relieved of all further obligations
under this Agreement. Nothing in this Section shall operate to relieve the
Lessee from its obligations hereunder or to waive any of the Owner Participant's
rights against the Lessee.
Section 1.3. The Closing Date. The closing of the transactions contemplated
hereby (the "Closing") shall take place after 10:00 a.m., New York City Time, on
September 30, 1999 or such other date as the parties hereto shall mutually agree
(the "Closing Date"), at the offices of Chapman and Cutler, 111 West Monroe
Street, Chicago, Illinois 60603. On the Closing Date, the payment by the Owner
Participant to be made pursuant to Section 1.2(a) and payment for the Series A
Notes to be issued on the Closing Date shall be made not later than 11:00 a.m.,
New York City Time, by transferring or delivering such amounts, in funds
immediately available on the Closing Date, to the Owner Trustee. Subject to the
applicable conditions set forth in Section 4, the Owner Trustee hereby directs
the Indenture Trustee, and the Indenture Trustee hereby agrees, to apply for the
account of the Owner Trustee on the Closing Date the proceeds of the sale of the
Series A Notes to the account of the Seller, and the Owner Participant will
cause to be paid to the Seller for the account of the Owner Trustee, the amounts
to be invested and paid by the Owner Participant pursuant to Section 1.2 on the
Closing Date.
Section 1.4. Expiration of Commitments. The commitment of the Owner
Participant under Section 1.2(a) and the several commitments of the Note
Purchasers hereunder shall expire on September 30, 1999.
Section 1.5. Several Commitments. The obligations hereunder of the
Participants shall be several and not joint and no Participant shall be liable
or responsible for the acts or defaults of any other Participant.
SECTION 2. TRANSACTIONAL EXPENSES.
Section 2.1. Transactional Expenses to be Borne by Owner Trustee. If the
Owner Participant shall have made its investment provided for in Section 1.2(a)
with respect to the Closing and the Facility shall have been purchased, the
Owner Trustee will, subject to the final clause of the last sentence of Section
2.2, pay all expenses relating to the transactions contemplated by this
Agreement (other than any expenses incurred by the Lessee, including without
limitation the fees and expenses of Stoel Rives LLP, its counsel), including but
not limited to: (i) the cost of reproducing the Operative Agreements; (ii) the
reasonable fees and expenses of Chadbourne & Parke LLP, special counsel for the
Owner Participant; (iii) the reasonable fees and expenses of Thompson, Hine &
Flory, special Ohio counsel to the Owner Participant; (iv) the reasonable fees
and expenses of Chapman and Cutler, special counsel for the Note Purchasers; (v)
the reasonable out-of-pocket expenses of the Participants; (vi) the cost of
delivering to the main office of each Note Purchaser, insured to the reasonable
satisfaction of such Note Purchaser, the
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<PAGE>
Series A Notes purchased by such Note Purchaser on the Closing Date; (vii) the
initial fees and expenses of the Owner Trustee under the Trust Agreement
(including the reasonable fees and expenses of Morris, James, Hitchens &
Williams, its counsel, incurred in connection with the negotiation and delivery
of the Operative Agreements); (viii) the initial fees and expenses of the
Indenture Trustee under the Indenture (including the reasonable fees and
expenses of Ray Quinney & Nebeker, its counsel, incurred in connection with the
negotiation and delivery of the Operative Agreements); (ix) the reasonable fees
and expenses of Davis Wright Tremaine, local counsel for the Participants; and
(x) the fees and expenses of Independent Equipment Company.
Section 2.2. Transactional Expenses to be Borne by Lessee. If the
transactions contemplated by this Agreement with respect to the Closing are not
consummated, the Lessee will pay all expenses relating to the transactions
contemplated by this Agreement, including without limitation those referred to
in Section 2.1. If the transactions contemplated by this Agreement with respect
to the Closing are consummated, the Lessee shall in any event pay: (i) the fees
and expenses of counsel for the Lessee; (ii) the cost of delivering to or from
the home office of any Note Purchaser from or to the Indenture Trustee, insured
to the reasonable satisfaction of such Note Purchaser, any Notes surrendered
pursuant to the Indenture and any Note issued in substitution or replacement for
the surrendered Notes; (iii) the expenses of the Owner Trustee, the Indenture
Trustee and the Participants, including reasonable fees and expenses of their
counsel, in connection with any amendments, waivers or consents requested by any
party in connection with any of the Operative Agreements and all recording and
filing fees, stamp taxes and other recording or filing taxes in connection with
the recordation or filing of any such amendments, waivers and consents and in
connection with any continuation statements or other documents filed to maintain
and protect the rights of the parties under the Operative Agreements; (iv) the
ongoing fees and expenses of the Owner Trustee under the Trust Agreement,
including fees and expenses incurred in connection with the enforcement of the
obligations of the Lessee under the Operative Agreements; (v) the ongoing fees
and expenses of the Indenture Trustee under the Indenture, including fees and
expenses incurred in connection with the enforcement of the obligations of the
Lessee under the Operative Agreements; (vi) the premiums for the title insurance
and the cost of surveys required by Section 4 and (vii) any costs set forth in
Section 2.1 hereof to the extent that the total of all such costs exceeds 0.725%
of the Facility Cost.
SECTION 3. WARRANTIES AND REPRESENTATIONS.
Section 3.1. Warranties and Representations of the Owner Trustee. (a)
Wilmington Trust Company warrants and represents in its individual capacity
notwithstanding the provisions of Section 14.8(b) or any similar provision of
any other Operative Agreement, that as of the Closing Date:
(i) Wilmington Trust Company
(A) is a banking corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware;
(B) has the corporate power and authority to enter into and
perform its obligations under the Trust Agreement and this Agreement;
and
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<PAGE>
(C) has full right, power and authority under the Trust Agreement
to enter into and perform its obligations, as Owner Trustee, under the
Owner Trustee Agreements other than the Trust Agreement.
(ii) There are no proceedings pending or, to the knowledge of
Wilmington Trust Company, threatened and to the knowledge of Wilmington
Trust Company, there is no existing basis for any such proceedings, against
or affecting Wilmington Trust Company in any court or before any
governmental authority or arbitration board or tribunal which, if adversely
determined, might materially and adversely affect the Trust Estate or would
call into question the right, power and authority of Wilmington Trust
Company to enter into or perform the Owner Trustee Agreements.
(iii) The Trust Estate is free and clear of any liens and encumbrances
which result from claims against Wilmington Trust Company in its individual
capacity; and Wilmington Trust Company has not by affirmative act, in its
individual capacity, conveyed any interest in the Trust Estate to any
Person or subjected the Trust Estate to any Lien except pursuant to the
Operative Agreements.
(iv) The Trust Agreement and (insofar as it is entering into this
Agreement in its individual capacity) this Agreement have been duly
authorized by all necessary corporate action on the part of Wilmington
Trust Company in its individual capacity, have been duly executed and
delivered by Wilmington Trust Company in its individual capacity, and
constitute the valid and binding obligations of Wilmington Trust Company in
its individual capacity.
(v) Neither the nature of the Trust Estate, nor any relationship
between Wilmington Trust Company and any other Person, nor any circumstance
in connection with the execution and delivery of the Trust Agreement or
this Agreement, is such as to require a consent, approval or authorization
of, or filing, registration or qualification with, any governmental
authority of the State of Delaware or the federal government of the United
States of America governing the banking or trust powers of Wilmington Trust
Company on the part of Wilmington Trust Company in connection with the
execution and delivery of the Trust Agreement or this Agreement.
(vi) The execution and delivery of the Trust Agreement and this
Agreement and compliance by Wilmington Trust Company with all of the
provisions thereof do not and will not contravene any law regulating the
banking or trust activities or business of Wilmington Trust Company, or any
order of any court or governmental authority or agency applicable to or
binding on Wilmington Trust Company or its certificate of incorporation or
its by-laws.
(b) The Owner Trustee warrants and represents as Owner Trustee that:
(i) The other Owner Trustee Agreements are duly authorized by the
Trust Agreement and the Owner Trustee Agreements have been duly executed
and delivered by the Owner Trustee, as trustee under the Trust Agreement.
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<PAGE>
(ii) The Owner Trustee is not in violation of any term of any of the
Owner Trustee Agreements.
(iii) Neither the nature of the Trust Estate, nor any relationship
between the Owner Trustee and any other Person, nor any circumstance in
connection with the offer, issue, sale or delivery of the Beneficial
Interest or the Series A Notes or the execution and delivery of the Owner
Trustee Agreements is such as to require a consent, approval or
authorization of, or filing, registration or qualification with, any
governmental authority of the State of Delaware or the federal government
of the United States of America governing the banking or trust powers of
Wilmington Trust Company on the part of the Owner Trustee in connection
with the execution and delivery of the Owner Trustee Agreements or the
offer, issue, sale or delivery of the Beneficial Interest or the Series A
Notes.
(iv) The Owner Trustee has not by affirmative act conveyed any
interest in the Trust Estate to any Person or subjected the Trust Estate to
any Lien except pursuant to the Operative Agreements.
Section 3.2. Warranties and Representations of the Lessee. The Lessee
warrants and represents that as of Closing on the Closing Date:
(a) Organization and Authority. The Lessee (i) is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware; (ii) has all requisite power and authority to own or
hold under lease its assets and properties, conduct its business as now
conducted and as presently proposed to be conducted and enter into and
perform its obligations under this Agreement and each of the other
Operative Agreements to which it is or will be a party; and (iii) is duly
licensed or qualified and is in good standing as a foreign corporation in
each jurisdiction wherein the failure to be so qualified would have a
Material Adverse Effect.
(b) Due Authorization, Enforceability, etc. The execution, delivery
and performance of the Lessee Agreements and the compliance by the Lessee
with the terms and provisions thereof have been duly authorized by all
necessary corporate action of the Lessee. Each of the Lessee Agreements has
been duly executed and delivered by the Lessee. Assuming the due
authorization, execution and delivery by each other party thereto, each of
the Lessee Agreements constitutes the legal, valid and binding obligations
of the Lessee, enforceable against the Lessee in accordance with their
respective terms, except as the same may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, arrangement, moratorium
or other laws relating to or affecting the rights of creditors generally
and by general principles of equity.
(c) No Conflicts. The execution, delivery and performance by the
Lessee of each of the Lessee Agreements, the consummation by the Lessee of
the transactions contemplated thereby, and compliance by the Lessee with
the terms and provisions thereof, do not and will not (i) conflict with or
result in any breach of any agreement to which the Lessee is a party, (ii)
conflict with any Applicable Law which could reasonably
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<PAGE>
be expected to result in a Material Adverse Effect, (iii) conflict with the
certificate of incorporation or by-laws of the Lessee, or (iv) result in
the creation of any Lien (except Permitted Encumbrances) upon any of the
property or assets of the Lessee pursuant to the terms of any indenture,
mortgage, deed of trust, credit agreement or any other agreement, contact
or instrument to which the Lessee is a party or by which its property or
assets are bound.
(d) Governmental Consent. Neither the nature of the Lessee or any of
its business or properties, nor any relationship between the Lessee and any
other Person, nor any circumstance in connection with the execution and
delivery of the Lessee Agreements is such as to require a consent, approval
or authorization of, or filing, registration or qualification with, any
regulatory body, state, Federal or local, on the part of the Lessee as a
condition to the execution and delivery of the Lessee Agreements.
(e) Litigation. Except as described in the Lessee's Annual Report on
SEC Form 10-K dated March 24, 1999, there are no proceedings pending, or to
the knowledge of the Lessee threatened, against or affecting the Lessee in
any court or before any governmental authority or arbitration board or
tribunal which if adversely determined would have a Material Adverse
Effect, nor are there any other circumstances which, to the knowledge of
the Lessee, would lead to or result in any such proceedings. The Lessee is
not in default with respect to any order of any court, governmental
authority or arbitration board or tribunal.
(f) No Defaults. No Lease Default or Lease Event of Default has
occurred and is continuing. The Lessee is not in default in the payment of
principal or interest on any indebtedness for borrowed money and no event
of default has occurred under any instrument or instruments or agreements
to which the Lessee or any Person acting at the instruction of the Lessee
with respect to the Lessee's obligations thereunder is a party (i) under
and subject to which any indebtedness for borrowed money has been issued or
(ii) pursuant to which the Lessee has any obligations the non-performance
of which could reasonably be expected to have a Material Adverse Effect;
and no event has occurred and is continuing under the provisions of any
such instrument or agreement which with the lapse of time or the giving of
notice, or both, would constitute such an event of default thereunder.
(g) No Materially Adverse Contracts. The Lessee is not a party to, or
bound or affected by, any contract or agreement or subject to any judgment,
order, writ, injunction, rule or regulation or decree or other action of
any court or other governmental authority or agency, or the award of any
arbitrator, or any charter or contractual restriction that materially
adversely affects or in the future may (so far as the Lessee can now
reasonably foresee based on facts known to the Lessee) materially adversely
affect the business, Properties, or financial condition of the Lessee or
impair the ability of the Lessee to perform its obligations under the
Lessee Agreements.
(h) Location of Chief Place of Business and Chief Executive Office.
The chief executive office and principal place of business of the Lessee
and the office where the
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Lessee keeps its corporate records concerning the Facility, the Site and
the Operative Agreements is located at Suite 200, 1500 SW First Avenue,
Portland, Oregon 97201.
(i) Title. The Owner Trustee has good and marketable title to the
Facility, free and clear of all Liens other than (i) any Liens thereon for
taxes, assessments, levies, fees and other governmental and similar charges
not due and payable, (ii) any Liens of mechanics, suppliers, materialmen
and laborers for work or service performed or materials furnished in
connection with the Facility which are not due and payable and are insured
over by the Title Policy relating to the Facility issued at Closing, and
(iii) those exceptions to title set forth on Schedule B to the Title Policy
relating to the Facility issued at Closing.
(j) Financial Statements. The audited consolidated balance sheet and
consolidated statements of income and retained earnings and cash flows of
the Lessee for the fiscal years ended December 31, 1998, December 31, 1997,
December 31, 1996 and December 31, 1995 fairly present, in conformity with
generally accepted accounting principles, the consolidated financial
position of the Lessee as of such dates and the results of its operations
for the periods then ended. The unaudited consolidated balance sheet and
consolidated statements of income and retained earnings and cash flows of
the Lessee for the fiscal quarter ended June 30, 1999, fairly present, in
conformity with generally accepted accounting principles, the consolidated
financial position of the Lessee as of such date and the results of its
operations for the period then ended, subject to normal year-end
adjustments. Since June 30, 1999, there has been no change in such
financial condition or results of operations which could reasonably be
expected to have a Material Adverse Effect.
(k) Full Disclosure. The Private Placement Memorandum, the financial
statements referred to in clause (j) above, the Lessee Agreements and all
other written statements furnished by or on behalf of the Lessee to the
Participants in connection with the transactions contemplated by this
Agreement, do not, taken as a whole, contain any untrue statement of a
material fact or omit a material fact necessary to make the statements
contained therein or herein not misleading. There is no fact peculiar to
the Lessee which the Lessee has not disclosed to the Participants in
writing which has a Material Adverse Effect on nor, so far as the Lessee
can now foresee, will have a Material Adverse Effect on the business,
Properties or financial condition of the Lessee or impair the ability of
the Lessee to perform its obligations under the Lessee Agreements.
(l) Use of Proceeds. The net proceeds from the sale of the Series A
Notes will be applied to the payment of a portion of the Facility Cost.
None of the transactions contemplated in the Operative Agreements
(including, without limitation thereof, the use of the proceeds from the
sale of the Series A Notes) or any direct or indirect use or application of
the proceeds of the Notes will violate or result in a violation of Section
7 of the Securities Exchange Act of 1934, as amended, or any regulations
issued pursuant thereto including, without limitation, Regulation T, U or X
of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter
II.
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<PAGE>
(m) Investment Company Act. The Lessee is not an "investment company"
or a company "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
(n) Holding Company. The Lessee is not subject to regulation as a
"holding company," an "affiliate" of a "holding company," or a "subsidiary
company" of a " holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
(o) Compliance with Law. The Lessee:
(i) is not, to the knowledge of the Lessee after reasonable
inquiry, in violation of any laws, ordinances, governmental rules or
regulations to which it is subject, and
(ii) has not failed to obtain any license, permit, franchise or
other governmental authorization (and in the case of any temporary
permits, application for permanent permits have been made and are
pending) necessary to the ownership or operation of its property or to
the conduct of its business,
which violation or failure to obtain would materially adversely affect the
business, properties or financial condition of the Lessee or impair the
ability of the Lessee to perform its obligations under the Lessee
Agreements.
(p) Taxes. All tax returns required to be filed by the Lessee in any
jurisdiction (other than those for which the failure to file would not have
a Material Adverse Effect) have, in fact, been filed, and all taxes,
assessments, fees and other governmental charges upon the Lessee or upon
any of its properties, income or franchises, which are shown to be due and
payable in such returns have been paid. Except as described in the Lessee's
Annual Report on SEC Form 10-K dated March 24, 1999, the Lessee does not
know of any material proposed additional tax assessment against it for
which adequate provision has not been made on its accounts and no
controversy in respect of additional income taxes due is pending or to the
knowledge of the Lessee threatened which, if adversely determined, could
reasonably be expected to have a Material Adverse Effect. The provisions
for taxes on the books of the Lessee are adequate for all open years, and
for its current fiscal period.
(q) Restrictions on Lessee. The Lessee is not a party to or bound by
any security, contract, indenture, agreement, instrument, order of any
court or governmental agency, law or rule or regulation which restricts the
right or ability of the Lessee to enter into leases of the type of the
Facility Lease or the Site Lease.
(r) Employee Retirement Income Security Act of 1974. (i) The
consummation of the transactions provided for in the Operative Agreements
and compliance by the Lessee with the provisions thereof will not involve
any prohibited transaction within the meaning of Section 406 of ERISA or
Section 4975 of the Code. The representation of the
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Lessee in the preceding sentence is made in reliance upon and subject to
the accuracy of the representation of each Participant in Section 3.5(c) as
to the source of funds to be used by such Participant in financing the
acquisition of the Facility.
(ii) Each Plan is in compliance with the applicable provisions of
ERISA, the Code and other federal or state law, except for such
non-compliance which would not reasonably be expected to have a
Material Adverse Effect. Each Plan intended to qualify under Section
401(a) of the Code has received a favorable determination letter from
the IRS and to the Lessee's knowledge, nothing has occurred which
would cause the loss of such qualification.
(iii) There are no pending, or to the Lessee's knowledge,
threatened claims by any Governmental Authority, with respect to any
Plan which has resulted or could reasonably be expected to result in a
Material Adverse Effect. There has been no prohibited transaction or
other violation of the fiduciary responsibility rule with respect to
any Plan which could reasonably be expected to result in a Material
Adverse Effect.
(iv) No ERISA Event has occurred or is reasonably expected to
occur with respect to any Pension Plan, other than as specified in
Schedule 3.2(r) hereto.
(v) No Pension Plan (other than the Multiemployer Plans) has any
Unfunded Pension Liability.
(vi) Neither the Lessee nor any ERISA Affiliate has incurred, nor
does it reasonably expect to incure, any liability under Title IV of
ERISA with respect to any Pension Plan (other than premiums due and
not delinquent under Section 4007 of ERISA), other than as specified
in Schedule 3.2(r) hereto.
(vii) Neither the Lessee nor any ERISA Affiliate has transferred
any Unfunded Pension Liability to any Person or otherwise engaged in a
transaction that could be subject to Section 4069 of ERISA.
(viii) A complete list of all the Lessee's affiliates (within the
meaning specified in Section V(a)(1) of Prohibited Transaction
Exemption 95-60 (issued July 12, 1995)) and each Pension Plan
currently in effect is set forth on Schedule 3.2(r).
(s) Environmental Matters. To the knowledge of the Lessee after
reasonable inquiry:
(i) neither the Lessee nor the Leased Property is in material
violation of any applicable Environmental Law;
(ii) the Lessee has obtained all material Governmental Approvals
required for the operations of the Facility by any applicable
Environmental Law;
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(iii) there is no and has never been a material Release or
threatened material Release or disposal of any Hazardous Material at
the Site and the Site is not adversely affected by any material
Release or threatened material Release originating or emanating from
any other property;
(iv) except as disclosed in the reports on Schedule 3.2(s), none
of which disclosures, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect, the Site
does not contain and has not contained any: (v) underground storage
tank, (w) material amounts of asbestos containing building material,
(x) any landfills or dumps, (y) hazardous waste treatment, storage or
disposal facility as defined pursuant to RCRA or any comparable state
law, or (z) site on or nominated for the National Priority List
promulgated pursuant to CERCLA or any state priority list promulgated
pursuant to any comparable state law;
(v) no circumstances exist that could be reasonably expected to
(A) form the basis of any Environmental Claims against the Leased
Property that individually or in the aggregate could reasonably be
expected to have a Material Adverse Effect or (B) cause the Leased
Property to be subject to any restrictions on ownership, occupancy,
use or transferability under any Environmental Law;
(vi) to the Lessee's knowledge, no Hazardous Materials that have
been generated at or transported from the Leased Property or any part
thereof have been disposed at any location that is listed or proposed
for listing on the National Priority List promulgated pursuant to
CERCLA or any state priority list promulgated pursuant to any
comparable state law, or any location that is or has been the subject
of a CERCLA response action, and all Hazardous Materials generated,
used, treated, handled or stored at or transported to or from the
Leased Property or any part thereof and any property currently or
formerly owned or operated by the Lessee have been disposed of in
compliance in all material respects with all Environmental Laws and
applicable Environmental Permits;
(vii) the Lessee has not received any written or other notice,
mandate, order, Lien or request which remains pending under an
Environmental Law concerning any of the Leased Property or any part
thereof or relating to an alleged violation of an Environmental Law
concerning the Leased Property or any part thereof or relating to any
potential adverse action in any way involving environmental, health or
safety matters affecting the Leased Property or any part thereof;
(viii) there is no proceeding pending or, to Lessee's knowledge,
threatened against the Lessee by any Federal, state, or local court,
tribunal, administrative agency, department, commission, board or
other authority or instrumentality with respect to the presence or
Release of any Hazardous Material from the Leased Property or any part
thereof; and
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<PAGE>
(ix) no Hazardous Materials have been Released from or on the
Leased Property or any part thereof for which Remedial Action could be
required under any Environmental Law or may be necessary to prevent or
eliminate an imminent and substantial endangerment to human health or
the environment.
(t) Security Interests. The Indenture and the Deed of Trust create a
valid and perfected first priority lien and security interest in the
Collateral described therein, subject to Permitted Encumbrances, securing
the payment of all Secured Indebtedness, and all filings and other actions
necessary or desirable to perfect and protect such lien and security
interest have been duly taken at or prior to the Closing.
(u) Insurance. The Leased Property (including the Facility) is covered
by the insurance required by Section 7 of the Facility Lease covering such
Leased Property and all premiums due in respect of such insurance have been
paid.
(v) Coverage. The amount of the installment of Periodic Rent payable
under the Facility Lease on each Rent Payment Date during the Basic Term
thereof will equal or exceed the sum of the interest payments and the
payments or prepayments of principal due on such Rent Payment Date on the
Series A Notes. The amount of Casualty Value and Termination Value under
the Facility Lease payable on any date will equal or exceed the sum of the
principal amount of the Series A Notes which will remain unpaid on such
date plus accrued interest thereon.
(w) Leasehold Interest. The Lessee has good and marketable title to
the Site for the Facility, free and clear of all Liens other than (i) the
interest of the Owner Trustee under the Site Lease covering the Site and
the interest of the Lessee under the Facility Lease in the Site; (ii) any
Liens thereon for taxes, assessments, levies, fees and other governmental
and similar charges not due and payable; (iii) any Liens of mechanics,
suppliers, materialmen and laborers for work or service performed or
materials furnished in connection with the Facility which are not due and
payable and are insured over by the Title Policy relating to the Facility
issued at Closing; (iv) any exceptions to title set forth on Schedule B to
the Title Policy relating to the Site issued at Closing; (v) the leases set
forth on Schedule 3.2(w) hereto; and (vi) minor encumbrances, easements or
reservations, rights of others for rights-of-way, utilities and other
similar purposes, zoning or other restrictions as to the use of real
properties, and leases and subleases thereof, in each case, which (A) are
necessary or appropriate for the conduct of the activities of the Lessee on
the Site or customarily exist on properties of business entities engaged in
similar activities and similarly situated and (B) do not in any event
materially impair the use or value of the Site.
(x) Complete Facility. (i) Exhibit B to the Facility Lease contains a
complete description of the entire Facility, which is located on the Site.
Such items, together with the Site Lease Property for the Facility,
constitute an integrated and self-contained pulp mill. The Owner Trustee's
title and interest in the Leased Property under the Facility Lease is
sufficient to permit during the Term of the Site Lease for the Site of the
Facility (i) the locating, occupying, owning, selling, leasing, connecting,
operating, maintaining,
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replacing, renewing, repairing and removing of the Facility, (ii) ingress
to and egress from the Leased Property leased under the Facility Lease,
(iii) the operating of the Leased Property leased under the Facility Lease
in such a manner as to cause the Facility to perform on a daily basis, in
commercial operation, the functions for which it was specifically designed
at Design Capacity in accordance with the Plans therefor, and (iv) the
preservation and enforcement by the Owner Trustee of its rights in and to
the Leased Property leased under the Facility Lease and the easements and
other rights in respect of the Site Lease Property described or referred to
in the Site Lease for the Site of the Facility.
(ii) There is presently no default by the Lessee or, to the
Lessee's knowledge, by any other party with respect to (1) any
easements, rights-of-way, licenses, utilities and other services which
would materially and adversely affect the services relating to the
Facility or (2) the James River Agreement, the James River Easement,
the Railway License or, except with respect to the matters addressed
in Section 14.14, the County Road Documents.
(iii) All utility services necessary for the operation for its
intended purposes of the Facility are installed and operational.
(iv) None of the Permitted Encumbrances will interfere in any
material respect with the use or possession of the Leased Property or
any part thereof or any other asset used in connection therewith or
the use of or the exercise by the Owner Trustee of its rights either
under any Operative Agreement or to the Leased Property.
(v) The Facility is situated wholly within the boundary lines of
the Site and does not encroach upon any contiguous or adjoining
property; except as disclosed in writing, neither the Site nor any
part thereof is considered part of a larger tax lot; the Facility does
not violate any rights granted under any easements or rights of way or
any covenants or restrictions affecting the Site or any part thereof,
and any future violation will not result in a reversion or forfeiture
of title, right of re-entry or power of termination; and the
easements, rights-of-way, covenants and restrictions affecting the
Site or any part thereof do not and will not interfere in any material
respect with the use or occupancy of the Leased Property or any part
thereof, or any asset owned or used in connection therewith, nor will
the exercise of rights or remedies thereunder result in any damage to
the Leased Property or any part thereof or diminution of value of the
Leased Property or any part thereof.
(vi) Except as addressed in Section 14.14, all Permits that are
or will become Applicable Permits shall have been obtained, except
Applicable Permits customarily obtained or which are permitted by
Applicable Law to be obtained after the Closing Date (and the Lessee,
having completed all appropriate due diligence in connection
therewith, has no reason to believe that such Permits
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will not be granted in the usual course of business prior to the date
that such Permits are required by Applicable Law). All such obtained
Permits are in proper form, in full force and effect and are not
subject to any further appeal, consent or contest or to any
unsatisfied condition that may allow modification or revocation.
(y) Casualty Occurrence. No Casualty Occurrence has occurred, and the
Leased Property may be used for the purposes contemplated by the Lessee in
accordance with the Facility Lease and the other Operative Agreements.
(z) Recordation and Filing. The Memorandum of Facility Lease and
Memorandum of Site Lease have been duly recorded and are in a form
sufficient to provide notice of the interests purported to be created by
the Facility Lease and Site Lease, respectively. Upon the recordation of
the Memorandum of Site Lease in the county in which the Site is located,
the Memorandum of Site Lease will have been recorded or filed in such place
in which recording or filing is required to provide notice, under
Applicable Law, of the interests created by the Site Lease and to protect
the validity and effectiveness thereof, and all Taxes, fees and other
public charges payable in connection with the filing and recordation of the
Memorandum of Site Lease have been paid. Upon the recordation of the
Memorandum of Facility Lease in the county where the Facility is located,
the Memorandum of Facility Lease will have been recorded or filed in such
place in which recording or filing is required to provide notice, under
Applicable Law, of the interests created by such Facility Lease and to
protect the validity and effectiveness thereof, and all Taxes, fees and
other public charges payable in connection with the filing and recordation
of the Memorandum of Facility Lease have been paid.
(aa) Trade Secrets and Patents. (i) The leasing of the Site by the
Owner Trustee, the ownership of the Facility by the Owner Trustee and the
leasing and operation of the Facility by the Lessee, do not and will not
conflict with, infringe on, or otherwise violate any copyright, trademark,
trade name, trade secret or patent rights of any other Person.
(ii) The Lessee has all rights to all patents, patent
applications, trademarks (whether registered or not), trademark
applications, trade names, proprietary computer software, "know-how"
and copyrights used or to be used in the ordinary course of the
operation of the Facility (the "Intellectual Property Rights") that
are necessary for the operation thereof, including the right to assign
the Intellectual Property Rights. There is no judicial proceeding
pending or, to the knowledge of the Lessee, threatened, involving any
claim of any infringement, misuse or misappropriation by the Lessee or
any Affiliate thereof of any patent, trademark, trade name, copyright,
license or similar intellectual property right owned by any third
party related to the Intellectual Property Rights.
(bb) (i) All Canadian Pension Plans have been registered under the
Income Tax Act (Canada) and other applicable Canadian pension legislation.
To the Lessee's knowledge, nothing has occurred which would cause the loss
of such registration.
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<PAGE>
(ii) All contributions required to make the Canadian Pension
Plans fully funded under the Income Tax Act (Canada) and
other applicable Canadian pension legislation have been
made.
(iii) All Canadian Pension Plans are in compliance with the
Income Tax Act (Canada) and other applicable Canadian
pension legislation, except for such noncompliance which
would not reasonably be expected to have a Material Adverse
Effect.
(cc) The Lessee is not and has not been within the immediately
preceding five (5) years a participating employer in any negotiated cost
plan or substantially similar plan under applicable Canadian law. The
required contributions from any Subsidiary of the Lessee which is a
participating employer in any negotiated cost plan, or substantially
similar plan, under applicable Canadian law have been remitted. Each
Subsidiary of the Lessee which is a participating employer in any
negotiated cost plan, or substantially similar plan, under applicable
Canadian law has complied with all of its obligations under such a plan,
except such noncompliance which would not reasonably be expected to have a
Material Adverse Effect.
Section 3.3. Warranties and Representations of the Indenture Trustee. The
Indenture Trustee warrants and represents that as of the Closing Date:
(a) The Indenture Trustee is a national association duly organized,
validly existing and in good standing under the laws of the United States
of America and has the corporate power and authority to enter into and
perform its obligations under the Indenture Trustee Agreements.
(b) The Indenture Trustee Agreements have been duly authorized, have
been executed and delivered by the Indenture Trustee and constitute valid
and binding obligations of the Indenture Trustee enforceable against the
Indenture Trustee in accordance with the terms hereof and thereof, except
as such terms may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting the rights of creditors generally and except as
equitable remedies such as specific performance may be in the discretion of
the courts.
(c) The execution and delivery of the Indenture Trustee Agreements and
compliance by the Indenture Trustee with all of the provisions thereof do
not and will not contravene any law governing its banking or trust powers,
or any order of any court or governmental authority or agency applicable to
or binding on the Indenture Trustee or its articles of association or its
by-laws.
(d) There are no proceedings pending or, to the knowledge of the
Indenture Trustee, threatened, and to the knowledge of the Indenture
Trustee there is no existing basis for any such proceedings, against or
affecting the Indenture Trustee in or before any court or before any
governmental authority or arbitration board or tribunal which, if adversely
determined, might impair the ability of the Indenture Trustee to perform
its obligations under the Indenture Trustee Agreements.
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(e) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body governing its
banking or trust powers is required for the due execution, delivery and
performance by the Indenture Trustee of the Indenture Trustee Agreements.
Section 3.4. Private Offering. (a) The Owner Trustee warrants and
represents to the Lessee, the Participants and the Indenture Trustee that
neither the Owner Trustee nor any Person authorized or employed by the Owner
Trustee as agent, broker, dealer or otherwise in connection with the placement
of the Beneficial Interest or any similar Security or the Series A Notes or any
similar Security has offered any of the Beneficial Interest or any similar
Security or the Series A Notes or any similar Security for sale to, or solicited
offers to buy any thereof from, or otherwise approached or negotiated with
respect thereto with, any prospective purchaser.
(b) The Lessee warrants and represents to the Owner Trustee, the
Participants and the Indenture Trustee that:
(i) neither the Lessee nor any Person authorized or employed by
the Lessee as agent, broker or otherwise in connection with the
offering or sale of the Beneficial Interest or any similar Security
has offered any of the Beneficial Interest or any similar Security for
sale to, or solicited offers to buy any thereof from, or otherwise
approached or negotiated with respect thereto with, any prospective
purchaser, other than the Owner Participant, which was offered the
Beneficial Interest at private sale for investment and which the
Lessee or such agent had reasonable grounds to believe, and did
believe, and, as to the Owner Participant, after reasonable inquiry
does believe, has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks
of investment in the Beneficial Interest; and
(ii) neither the Lessee nor any Person authorized or employed by
the Lessee as agent, broker, dealer or otherwise in connection with
the offering or sale of the Series A Notes or any similar Security has
offered any of the Series A Notes or any similar Security for sale to,
or solicited offers to buy any thereof from, or otherwise approached
or negotiated with respect thereto with, any prospective purchaser,
other than the Note Purchasers and 60 other institutional investors,
each of which was offered a portion of the Series A Notes at private
sale for investment and each of which the Lessee or such agent had
reasonable grounds to believe, and did believe, and, as to the Note
Purchasers, after reasonable inquiry does believe, has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of investment in the Series A Notes.
(c) The Owner Trustee and the Lessee agree that neither the Owner
Trustee nor the Lessee nor anyone acting on the behalf of either or both of
the Owner Trustee and the Lessee will offer
(i) the Beneficial Interest or any part thereof or any similar
Security for issue or sale to, or solicit any offer to acquire any of
the Beneficial Interest from anyone so as to
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bring the issuance and sale of the Beneficial Interest within the
provisions of Section 5 of the Securities Act of 1933, as amended, or
(ii) the Notes or any part thereof or any similar Security for
issue or sale to, or solicit any offer to acquire any of the Notes
from, anyone so as to bring the issuance and sale of the Notes within
the provisions of Section 5 of the Securities Act of 1933, as amended.
Section 3.5. Representations and Covenants of the Participants.
(a) Representations and Covenants of the Owner Participant. The Owner
Participant warrants and represents to the Note Purchasers, the Owner Trustee
and the Lessee that as of the Closing Date:
(i) The Owner Participant is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the corporate power and authority to carry on its
present business and operations, to own or lease its Properties and to
enter into and perform its obligations under the Owner Participant
Agreements.
(ii) The Owner Participant Agreements have been duly authorized,
executed and delivered by the Owner Participant and constitute valid and
binding obligations of the Owner Participant enforceable against the Owner
Participant in accordance with the terms hereof and thereof, except as such
terms may be limited by bankruptcy, insolvency, moratorium or other similar
laws affecting the rights of creditors generally and except as equitable
remedies such as specific performance may be in the discretion of the
courts.
(iii) The execution and delivery by the Owner Participant of the Owner
Participant Agreements and compliance by the Owner Participant with all of
the provisions thereof do not and will not contravene any law or any order
of any court or governmental authority or agency applicable to or binding
on the Owner Participant or contravene the provisions of, or constitute a
default under, its articles of association or by-laws or any indenture,
mortgage, contract or any agreement or instrument to which the Owner
Participant is a party or by which it or any of its property may be bound
or affected.
(iv) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required
for the due execution, delivery or performance by the Owner Participant of
the Owner Participant Agreements.
(v) The Trust Estate is free of liens and rights of others resulting
from claims against the Owner Participant not related to the transactions
contemplated by the Operative Agreements.
(b) Purchase for Investment. Each Participant represents to each other
Participant, the Owner Trustee and the Lessee that such Participant is
purchasing the Interest (as hereinafter defined) to be acquired by it for the
account of such Participant or for the account of one or more
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pension or trust funds of which it is trustee, in each case for investment and
with no present intention of distributing or reselling such Interest or any part
thereof, but without prejudice, however, to the right of such Participant at all
times to sell or otherwise dispose of all or any part of such Interest under a
registration under the Securities Act of 1933, as amended, or under an exemption
from such registration available under such Act; provided that the disposition
of such Interest shall at all times be within its control, subject, in the case
of the Beneficial Interest, to compliance with the provisions of Section 11. If
any Participant is purchasing for the account of one or more pension or trust
funds, such Participant represents that it is acting as sole trustee and has
sole investment discretion with respect to the acquisition of the Interest to be
acquired by it pursuant to this Agreement.
The Beneficial Interest and the Series A Notes are sometimes referred to in
this Section 3.5 collectively as the "Interests" and individually as an
"Interest".
(c) Source of Funds. Each Participant represents that at least one of the
following statements is an accurate representation as to the source of funds to
be used by such Participant to make its investment pursuant to Section 1 (the
"Source"):
(i) the Source is an "insurance company general account" within the
meaning of United States Department of Labor Prohibited Transaction Class
Exemption ("PTCE") 95-60 (issued July 12, 1995) and there is no employee
benefit plan, treating as a single plan, all plans maintained by the same
employer or employee organization, with respect to which the amount of the
general account reserves and liabilities for all contracts held by or on
behalf of such plan, exceed ten percent (10%) of the total reserves and
liabilities of such general account (exclusive of separate account
liabilities) plus surplus, as set forth in the NAIC Annual Statement filed
with the Source's State of domicile; or
(ii) the Source is either (A) an insurance company pooled separate
account, within the meaning of PTCE 90-1 (issued January 29, 1990), or (B)
a bank collective investment fund, within the meaning of the PTCE 91-38
(issued July 12, 1991) and, (except as disclosed to each other Participant,
the Owner Trustee and the Lessee in writing pursuant to this paragraph
(ii)), no employee benefit plan or group of plans maintained by the same
employer or employee organization beneficially owns more than 10% of all
assets allocated to such pooled separate account or collective investment
fund; or
(iii) the Source constitutes assets of an "investment fund" (within
the meaning of Part V of the QPAM Exemption) managed by a "qualified
professional asset manager" or "QPAM" (within the meaning of Part V of PTCE
84-14 issued March 13, 1984 (the "QPAM Exemption")), no employee benefit
plan's assets that are included in such investment fund, when combined with
the assets of all other employee benefit plans established or maintained by
the same employer or by an affiliate (within the meaning of Section V(c)(1)
of the QPAM Exemption) of such employer or by the same employee
organization and managed by such QPAM, exceed 20% of the total client
assets managed by such QPAM, the conditions of Part 1(c) and (g) of the
QPAM Exemption are satisfied, neither the QPAM nor a Person controlling or
controlled by the QPAM (applying the
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definition of "control" in Section V(e) of the QPAM Exemption) owns a 5% or
more interest in such Participant and (A) the identity of such QPAM and (B)
the names of all employee benefit plans whose assets are included in such
investment fund have been disclosed to each other Participant, the Owner
Trustee and the Lessee in writing pursuant to this paragraph (iii); or
(iv) the Source is a governmental plan; or
(v) the Source is one or more employee benefit plans, or a separate
account or trust fund comprised of one or more employee benefit plans, each
of which has been identified to each other Participant, the Owner Trustee
and the Lessee in writing pursuant to this paragraph (v); or
(vi) the Source does not include assets of any employee benefit plan
(other than a plan exempt from the coverage of ERISA) and does not include
assets of any entity whose underlying assets include "plan assets" as
determined under United States Department of Labor Regulation Section
2510.3-101.
SECTION 4. CLOSING CONDITIONS.
Section 4.1. Conditions Precedent to Investment by each Participant. The
obligations of each Participant to make its investment pursuant hereto on the
Closing Date shall be subject to the following conditions:
(a) Execution of Operative Agreements. At or before the Closing, the
Operative Agreements shall have been duly executed and delivered by the
parties thereto and shall be in full force and effect, and no default shall
exist in the performance by any party thereto (other than such Participant)
of any of its obligations thereunder.
(b) Transfer of Title, Etc. The Seller shall have executed and
delivered to the Owner Trustee a warranty deed and bill of sale, in form
and substance satisfactory to such Participant, covering the Facility,
without representation or warranty (except as to Liens arising by, through
or under the Seller) and there shall have been delivered to such
Participant's special counsel such instruments as may be necessary or
desirable to terminate all interests of the Seller, whether as secured
party or otherwise, in the Facility and the Leased Property, other than the
interests of the Lessee under the Facility Lease.
(c) Intentionally omitted.
(d) Survey. Not less than three Business Days prior to the Closing
Date, there shall have been delivered to such Participant a survey of the
Site and the Facility located on such Site prepared as of a current date by
a registered civil engineer or surveyor licensed in the State where such
Site is located in accordance with the standard detail requirements for
"Class A" land title surveys adopted by the American Land Title Association
and the American Congress on Surveying & Mapping, as revised and in effect
on the date thereof, showing in reasonable detail the locations and
dimensions of such Site
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and the Facility located on such Site, showing no encroachments upon such
Site by adjacent buildings or structures and no encroachments upon adjacent
property showing the location of surveyable Schedule B Exceptions to said
title policies, and showing no other defects except Permitted Encumbrances.
(e) Title Insurance. At the Closing, there shall have been delivered,
with respect to the Facility, to the Owner Trustee an American Land Title
Association Leasehold Owners--1992 title insurance policy with extended
coverage and to the Indenture Trustee an American Land Title Association
Leasehold Loan Policy--1992 of title insurance, both issued by a title
insurance company qualified to do business in the State where the Site for
the Facility is located designated by the Lessee and not objected to by any
Participant, with respect to such Site, satisfactory in substance and form
to special counsel to such Participant, insuring the leasehold interest of
the Owner Trustee under the Site Lease for such Site for an amount equal to
the Facility Cost of the Facility located on such Site and insuring the
lien of the Indenture Trustee under the Deed of Trust covering such Site as
a holder of a first lien of record on the leasehold interest of the Owner
Trustee under the Site Lease for such Site, against loss or damage by
reason of the failure of the Deed of Trust covering such Site to create the
lien it purports to create upon the leasehold interest of the Owner Trustee
in such Site, such lender's policy to be in an amount equal to the original
principal amount of the Series A Notes issued on the Closing Date and such
policies to have no exceptions to the coverage thereof other than Permitted
Encumbrances and such other exceptions as shall be acceptable to such
Participant in its sole discretion. Such policies shall contain all
endorsements required by the Participants including, without limitation, a
comprehensive endorsement and mechanics lien coverage.
(f) Opinions of Counsel. At the Closing, such Participant shall have
received the favorable written opinions of Stoel Rives LLP, counsel for the
Lessee, Squadron, Ellenoff, Plesent & Scheinfeld LLP, special New York
counsel for the Lessee, Davis Wright Tremaine, local counsel for the
Participants, Morris, James, Hitchens & Williams, counsel for the Owner
Trustee, Ray Quinney & Nebeker, counsel for the Indenture Trustee, and
Chadbourne & Parke LLP, special counsel to the Owner Participant,
substantially in the respective forms set forth in Annex II hereto.
(g) Insurance Certificate. At or before the Closing, such Participant
shall have received certificates or other satisfactory evidence of the
maintenance of the insurance required pursuant to Section 7 of the Facility
Lease covering the Facility in the form contemplated by Section 7(c) of
such Facility Lease.
(h) Intentionally omitted.
(i) Recording of Leases. At or before the Closing, the Site Lease
covering the Site of the Facility and the Facility Lease covering the
Facility (or notices or memoranda thereof) and such other documents as are
deemed necessary or appropriate by such Participant shall have each been
recorded or filed for record in such public offices as may be necessary or
appropriate in order to protect the rights of the Owner Trustee thereunder
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and (if such Participant is a Note Purchaser) to perfect the right, title
and interest of the Indenture Trustee in and to the Collateral.
(j) Secretary's Certificates; Good Standing Certificates; Etc. The
Participants shall have received on or before the Closing Date the
following, each dated the Closing Date (unless otherwise specified) and in
form and substance satisfactory to the Participants:
(i) copies of the resolutions of the board of directors of the
Lessee, approving the execution, delivery and performance by the
Lessee of the Lessee Agreements and the transactions contemplated
thereby, certified as of such Closing Date by the Secretary or an
Assistant Secretary of the Lessee;
(ii) a certificate of the Secretary or Assistant Secretary of the
Lessee certifying the names and true signatures of the officers of the
Lessee authorized to execute, deliver and perform, as applicable, the
Lessee Agreements on behalf of the Lessee;
(iii) the certificate of incorporation of the Lessee as in effect
on the Closing Date, certified by the Secretary of State of the state
of formation, and the Lessee's by-laws as in effect on the Closing
Date, certified by the Secretary or Assistant Secretary of the Lessee
as of the Closing Date; and
(iv) a good standing certificate for the Lessee from the
Secretary of State of its state of incorporation, dated such Closing
Date;
(k) Intentionally Omitted.
(l) Documents Relating to the Site. The Lessee shall deliver, or cause
to be delivered, to the Participants documentation with respect to the
condition of the Site, the real estate Taxes applicable to such Site and
such other documents and agreements relating to the operation of the
Facility or any part thereof as the Participants may reasonably request, in
form and substance reasonably acceptable to the Participants.
(m) Environmental Matters. A Phase I environmental site assessment of
the Site by the Environmental Consultant shall have been conducted, at the
sole cost and expense of the Lessee, and the Participants shall have
received a copy of the Environmental Consultant's report on its Phase I
environmental site assessment, which shall be in form and substance
satisfactory to the Participants (in their sole discretion).
(n) Illegality. No change shall have occurred in Applicable Law which,
in the opinion of the Participants, would make it illegal for such
Participant, and no change in circumstances shall have occurred which would
otherwise make it illegal or otherwise in contravention of guidance issued
by regulatory authorities for such Participant, to participate in the
transactions to be contemplated on the Closing Date; and no action or
proceeding shall have been instituted nor shall action before any court or
Governmental
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Authority be threatened which in the opinion of counsel for such
Participant is not frivolous, nor shall any order have been issued or
proposed to be issued by any court or Governmental Authority, as of the
Closing Date, to set aside, restrain, enjoin or prevent the consummation of
any of the transactions contemplated by this Agreement or any of the other
Operative Agreements.
(o) Proceedings Satisfactory. All proceedings taken in connection with
the transactions contemplated hereby and all documents and papers relating
thereto shall be satisfactory to such Participant and its special counsel,
and such Participant and such special counsel shall have received copies of
such documents and papers as such Participant or such special counsel may
reasonably request in connection therewith or as a basis for such special
counsel's closing opinion, all in form and substance reasonably
satisfactory to such Participant and such special counsel.
Section 4.2. Additional Conditions Precedent to Investments by Owner
Participant. The obligation of the Owner Participant to make its investment
pursuant hereto on the Closing Date shall be subject to the conditions specified
in Section 4.1 and the following additional conditions:
(a) Tax Opinion. At or before the Closing, the Owner Participant shall
have received from Chadbourne & Parke LLP, its special counsel, a favorable
opinion in form and substance satisfactory to the Owner Participant as to
the Federal income tax consequences of the transactions contemplated
hereby.
(b) Independent Appraisal. At or before the Closing, the Owner
Participant shall have received the Appraisal.
(c) No Change in Law. On the Closing Date, there shall not have
occurred a change or proposed change in the Code or the treasury
regulations thereunder, no administrative pronouncement shall have been
issued and no Supreme Court decision shall have been rendered, in each
case, which is applicable to the transactions contemplated by the Operative
Agreements and which could be adverse to the Owner Participant and for
which there has not been an adjustment to Periodic Rent.
Section 4.3. Additional Conditions Precedent to Series A Note Purchases.
The obligation of each Note Purchaser to purchase and pay for Series A Notes
pursuant hereto on the Closing Date shall be subject to the conditions specified
in Section 4.1 and the following additional conditions:
(a) Recording of Indenture. At or before the Closing, the Indenture
(or a notice or memorandum with respect thereto) and the Deed of Trust
shall have been recorded or filed in all public offices as may be necessary
or appropriate in order to perfect the lien and security interest granted
thereby as against creditors of and purchasers from the Owner Trustee.
(b) Legal Investment. The Series A Notes to be issued on the Closing
Date shall on such Closing Date qualify as a legal investment for such Note
Purchaser under any
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laws regulating investments to which it may be subject, and such Note
Purchaser shall have received such evidence as it may reasonably request to
establish compliance with this condition.
(c) Opinion of Counsel. On the Closing Date, such Note Purchaser shall
have received the favorable written opinion of Chapman and Cutler, special
counsel for the Note Purchasers, substantially in the form set forth in
Annex II hereto.
SECTION 5. SPECIAL RIGHTS OF NOTE PURCHASERS.
Notwithstanding any provision to the contrary in this Agreement, the
Indenture or the Notes relating to the manner and place of payment, all amounts
payable to each Note Purchaser with respect to any Notes held by such Note
Purchaser or a nominee for such Note Purchaser shall be paid to the Indenture
Trustee and shall be paid by the Indenture Trustee to such Note Purchaser
(without any presentment thereof and without any notation of such payment being
made thereon) by check, duly mailed, by first class mail, postage prepaid, or
delivered to such Note Purchaser at the address for payments for such Note
Purchaser set forth in Schedule 1 hereto or, if wire transfer to a bank account
is designated for such Note Purchaser in said Schedule 1 or in a written notice
from such Note Purchaser to the Owner Trustee and the Indenture Trustee, by wire
transfer of immediately available Federal Reserve funds to the bank so
designated for credit to the account and marked for attention as so designated,
provided that such bank has facilities for the receipt of a wire transfer, or in
such other manner or to such other address in the United States as may be
designated by such Note Purchaser in a written notice from such Note Purchaser
to the Owner Trustee and the Indenture Trustee. In the case of any wire
transfer, the Indenture Trustee will transfer from the office of the Indenture
Trustee not later than 9:00 A.M., New York City Time, on each date any payment
or prepayment of principal or interest on the Notes or any other payment due to
the Note Purchasers is received, provided funds therefor have been received by
the Indenture Trustee in cash or in solvent credits acceptable to it. Each Note
Purchaser agrees that if such Note Purchaser shall sell or transfer any Note
such Note Purchaser will notify the Indenture Trustee of the name and address of
the transferee and such Note Purchaser will, prior to the delivery of such Note,
make a notation on such Note of the date to which interest has been paid thereon
and of the amount of any prepayments made on account of the principal thereof.
SECTION 6. CLO2 SYSTEM.
Section 6.1. Lessee Rights Relating to CLO2 System. Each party hereto
agrees that the Lessee shall have the right to consummate permanent financing of
the CLO2 System (including, without limitation, through a leveraged lease or
single-investor true lease) ("CLO2 Financing") upon completion of construction
of the CLO2 System; provided, that such right shall be conditioned upon
fulfillment of the following conditions:
(a) the Lessee shall have paid to each of the Owner Participant, the
Owner Trustee, the Indenture Trustee and each holder of a Note, on an
after-tax basis, an amount equal to all out-of-pocket costs and expenses
(including reasonable attorney's fees and expenses) reasonably incurred by
such Person with respect to the CL02 Financing;
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(b) in the opinion of the Owner Participant's tax counsel, the CL02
Financing should not affect the status of the Facility Lease as a "true
lease" for income tax purposes or result in any non-de minimis risk of any
other material adverse income tax consequences to the Owner Participant,
the Owner Trustee or any Affiliate of either thereof;
(c) the representations and warranties of the Lessee set forth herein
shall be true and correct in all material respects on and as of the date of
the consummation of the CLO2 Financing with the same effect as though made
on and as of the date thereof and each of the Owner Trustee and the
Indenture Trustee shall have received an Officer's Certificate of the
Lessee to such effect and to the effect that no Lease Default or Lease
Event of Default is in existence, or will exist after taking into account
the CLO2 Financing;
(d) all Governmental Approvals related to the Lessee and the CLO2
System shall have been obtained, other than such approvals the absence of
which could not reasonably be expected to result in a Material Adverse
Effect;
(e) the Lessee shall have (i) represented that neither the CLO2 System
nor any financing thereof impairs the continuing operation of the Facility
in accordance with its original function and purpose and that neither the
CL02 System nor any financing thereof diminishes the value, utility,
condition or remaining economic useful life and estimated residual value of
the Facility to the Owner Trustee below the value, utility, condition,
remaining economic useful life and estimated residual value thereof to the
Owner Trustee immediately prior to the installation of the CL02 System
assuming that the Facility was then in the condition required to be
maintained by the terms of the Facility Lease and (ii) covenanted to ensure
the continuing accuracy of the foregoing representation; and
(f) Documentation of the CLO2 Financing and any amendment to the
Operative Agreements shall be in form and substance satisfactory to the
Owner Trustee, each Participant and the Indenture Trustee and shall address
the respective ownership, Lien and security interests and intercreditor
rights of the Owner Trustee, the Indenture Trustee, the Participants and
the lenders and equity participants in the CL02 Financing (including
without limitation, the disposition of the CL02 System upon any termination
of the Facility Lease) which interests and rights shall be based upon the
relative cost of the Facility and the CL02 System; provided that, in no
event shall the obligations of the Lessee under the Facility Lease be
junior to the obligations of the Lessee with respect to any lender or
equity participant under any CL02 Financing documentation; and provided
further that (i) the Owner Participant may, but has no obligation to,
submit bids with respect to participation in the CL02 Financing on the same
basis as any other prospective lender or equity participant, and (ii) each
Note Purchaser may, but has no obligation to, submit bids with respect to
participation in the CL02 Financing on the same basis as any other
prospective lender.
Section 6.2. Financing of CLO2 System.
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(a) Lessor. The Owner Participant agrees to consider in its sole discretion
(i) making an equity investment in respect of the CLO2 System proposed by the
Lessee and not in violation of the Facility Lease and/or (ii) permitting an
additional equity investor or investors to become additional beneficiaries of
the Trust Estate. In addition, the Owner Trustee will, subject to the Owner
Participant's agreement pursuant to the immediately preceding sentence, or
pursuant to the exercise by the Lessee of its rights and fulfillment of its
obligations under Section 19(g) of the Facility Lease, permit, at the Lessee's
expense, the issuance of Improvement Notes in order to finance the CLO2 System
as contemplated by Section 6.1; provided that, as a condition to such issuance
the Owner Trustee shall first make a written offer to sell to the Note
Purchasers such Improvement Notes, which offer shall not expire or be revoked
for a period (to be specified in such offer) of not less than 60 days, and if
the Note Purchasers shall reject or fail to accept such offer within such offer
period, the Owner Trustee may issue such Improvement Notes to any other Person
upon terms substantially similar to those offered to the Note Purchasers.
Whether one or more of the Note Purchasers agrees to purchase all or any part of
the Improvement Notes, the Improvement Notes shall be issued in accordance with
the provisions of Section 2.02 of the Indenture and in accordance with the
following additional conditions:
(i) the aggregate principal amount of the Improvement Notes shall not
exceed (A) U.S. $35,200,000 and (B) 80% of the CLO2 System Cost;
(ii) the Improvement Notes shall have a final maturity date not later
than the final maturity date of the Series A Notes;
(iii) the weighted average remaining life to maturity of the
Improvement Notes as of the date of such issuance shall not be longer than
the weighted average remaining life to maturity of the Series A Notes;
(iv) the Owner Participant shall have received an opinion satisfactory
to it from Owner Participant's tax counsel to the effect that completion of
the CLO2 System and the issuance of the Improvement Notes should not affect
the status of the Facility Lease as a "true lease" for income tax purposes
or cause or create any non-de minimis risk of any other material adverse
tax consequences to the Owner Participant; and
(v) no Lease Default, Lease Event of Default, Indenture Event of
Default or, Casualty Occurrence or purchase of the Facility pursuant to
Sections 13(d), 19(f) or 19(g) of the Facility Lease shall have occurred as
of the date of the issuance of the Improvement Notes.
The Owner Participant will use its reasonable best efforts to cooperate
with such financing and to permit an additional equity investor or investors to
become additional beneficiaries of the Trust Estate. The Improvement Notes will
be issued under the Indenture and will be secured pari passu with the Series A
Notes. If the Owner Participant does not agree to make an equity investment in
the CLO2 System (unless the Lessee has exercised its option to cause the Owner
Participant to transfer the Beneficial Interest pursuant to Section 19(g) of the
Facility Lease) and the Owner Trustee does not issue the Improvement Notes, then
the Lessee shall have the right to arrange separate financing thereof; provided,
however, that such separate financing shall not be
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secured by the CLO2 System. Except as otherwise provided in any CLO2 Financing
documentation, including any waiver, or consent in connection therewith, which
Owner Participant may execute, neither the Owner Participant nor any of its
Affiliates shall claim any tax benefits or attributes associated with the CLO2
System, shall not take any actions which are inconsistent with the Lessee's
ownership thereof, and shall, if requested by Lessee and subject to receipt of
indemnifications reasonably acceptable to the Owner Participant and payment by
the Lessee of all of the Owner Participant's reasonable expenses in connection
therewith, take such action as may be requested by Lessee to confirm Lessee's
ownership thereof.
(b) Documentation. (i) At any time or from time to time, the Owner Trustee
may execute and deliver the Improvement Notes in an aggregate principal amount
not exceeding the amount permitted by Section 6.2(a)(i) after (1) satisfaction
of the conditions set forth in Sections 6.1 and 6.2(a) hereof and Section 2.02
of the Indenture, (2) receipt by the Owner Trustee of an amount in immediately
available funds equal to 100% of the aggregate principal amount of the
Improvement Notes, (3) all of the reasonable fees and expenses (including,
without limitation, all legal fees and expenses) of the Owner Trustee that were
incurred in connection with the financing of the CLO2 System and the issuance of
the Improvement Notes or any proposed or actual amendment to the Operative
Agreements in connection therewith, and the Indenture Trustee, the Owner
Participant and the Note Purchasers that were incurred in connection with the
issuance of the Improvement Notes or any proposed or actual amendment to the
Operative Agreements in connection therewith, shall have been paid by the Lessee
and (4) receipt by the Owner Trustee of the documents referred to below (in form
and substance reasonably satisfactory to the Owner Trustee and the Owner
Participant):
(A) an Indenture Supplement containing the text of the Improvement
Notes (which, except for the term of payment thereof, shall be of
substantially the same effect as the text of the Series A Notes); the date
of maturity of the Improvement Notes, which shall not extend beyond the
final maturity of the Series A Notes; the date from which and the date or
dates on which, interest is payable; the terms for the repayment of the
principal amount of the Improvement Notes;
(B) a Lease Supplement, duly authorized, executed and delivered by the
Lessee and the Owner Trustee, providing for adjustments in Rent, Casualty
Value, Termination Value, and the Early Purchase Price under the Facility
Lease required to ensure that payments of such amounts will be adequate to
provide for all payments when due required under the Series A Notes and the
Improvement Notes, together with such instruments of conveyance, assignment
and transfer, if any, necessary to subject such Lease Supplement to the
Lien of the Indenture and the other Operative Agreements, and evidence as
to the due recording or filing of each thereof and of financing or similar
statements with respect thereto;
(C) such instruments of conveyance, assignment and transfer duly
executed and delivered by the respective parties thereto, and such evidence
of the due filing thereof or of financing statements with respect thereto,
as may be reasonably requested to convey to the Lessor all property
included in the CLO2 System, if any, and to subject such property
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to the Lien of the Indenture and the Deed of Trust, subject to no Liens
except Permitted Encumbrances;
(D) originals or certified copies of all corporate actions and
governmental approvals and permits necessary for the due and valid issue of
the Improvement Notes, the due and valid authorization, execution, delivery
and performance by the Lessor of the Improvement Note documentation, and
the due and valid authorization, execution, delivery and performance by the
Lessee and the Owner Trustee of the Lease Supplement and the creation of
the Lien thereof referred to above, all of which corporate actions and
governmental approvals and permits shall have been duly obtained and shall
be in full force and effect; together with evidence as to the due
occurrence of such authorization, execution, delivery and performance;
(E) an appraisal and environmental phase I downdate as and to the
extent reasonably deemed necessary by any Participant;
(F) such other instruments, certificates, opinions of counsel, surveys
and title endorsements as may be reasonably requested by the Owner Trustee
or any Participant; and
(G) such modifications, amendments, waivers or supplements to the
Operative Agreements as may be reasonably requested by the Owner Trustee,
the Lessee or the prospective holders of the Improvement Notes in order to
effectuate the financing contemplated by this Section 6.2.
Section 6.3. Burdensome Buyout Date. Each party hereto further agrees that
if the CLO2 Financing shall not have been consummated on the Burdensome Buyout
Trigger Date (a "Burdensome Buyout Event"), the Lessee shall have a right to
purchase the Facility in accordance with the terms set forth in Section 19(g) of
the Facility Lease.
SECTION 7. GENERAL TAX INDEMNITY.
Section 7.1. Tax Indemnitee Defined. For purposes of this Section 7, "Tax
Indemnitee" means each Participant, the Owner Participant Guarantor, the Owner
Trustee, Wilmington Trust Company, the Trust Estate, the Indenture Trustee both
in its individual capacity and as trustee, each of their respective Affiliates
and each of their respective successors or assigns permitted under the terms of
the Operative Agreements, including successive holders of the Notes.
Section 7.2. Taxes Indemnified.
(a) Withholding. All payments by the Lessee to any Tax Indemnitee in
connection with the transactions contemplated by the Operative Agreements shall
be free and clear of, and without deduction for, withholdings of any nature
whatsoever (and at the time that the Lessee is required to make any payment upon
which any withholding is required the Lessee shall pay an additional amount such
that the net amount actually received will, after such withholding and any
incremental taxes on such amounts, equal the full amount of the payment then
due) and shall be
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free of expense to each Tax Indemnitee for collection or other charges,
provided, however, that no such additional amounts shall be paid by the Lessee
and the Lessee assumes no responsibility regarding any withholdings imposed (1)
on the Lessor or the Owner Participant by reason of any transfer of the Leased
Property or any interest in the Operative Agreements by the Lessor or the Owner
Participant other than a transfer pursuant to Section 13 or 19 of the Facility
Lease or any transfer which occurs in connection with the occurrence or
continuance of a Lease Default or Lease Event of Default or (2) on the Indenture
Trustee or any holder by reason of a transfer of the Notes to a holder who is
not a U.S. Person, provided that, for the avoidance of doubt, neither the Lessor
nor the Owner Participant shall be responsible for any Taxes incurred by reason
of an event described in this clause (2) and shall receive any amounts owed to
it from the Indenture Trustee without diminution for any such Taxes. If, for any
reason, the Lessee is required to make any payment to a taxing authority with
respect to, or as a result of, any withholding tax imposed on any Tax Indemnitee
in respect of the transactions contemplated by the Operative Agreements which
withholding tax is not the responsibility of the Lessee under this Section 7
then such Tax Indemnitee shall pay to the Lessee within 30 days of receiving
written notice thereof an amount which equals the amount paid by the Lessee with
respect to, or as a result of, such withholding tax.
(b) In General. Subject to the exclusions stated in Section 7.3, whether or
not the Facility is accepted under a Facility Lease the Lessee agrees to
indemnify and hold harmless each Tax Indemnitee, on an after-tax basis, against
all fees (including, without limitation, license fees and registration fees),
taxes (including, without limitation, income, gross receipts, franchise, excise,
conduct of business, ad valorem, sales, rental, use, value added, property,
transfer and stamp taxes), levies, assessments, imports, duties, charges or
withholdings of any nature, together with any and all penalties, additions to
tax, fines or interest thereon ("Taxes") imposed upon any Tax Indemnitee, the
Lessee or all or any part of the Leased Property by any federal, state or local
government, political subdivision, or taxing authority in the United States or
its possessions, by any government or taxing authority of or in a foreign
country or by any international authority, upon, with respect to or in
connection with:
(a) the Leased Property or any part thereof or interest therein;
(b) the acquisition, financing, ownership, leasing, possession,
purchase, acceptance, rejection, condition, registration, return, use,
storage, operation, return, transfer of title, maintenance, repair,
improvement, replacement, substitution, delivery, redelivery, non-delivery,
construction, manufacture, insuring, modification, transfer, control,
occupancy, servicing, mortgaging, location, refinancing, disposition,
subleasing, repossession, abandonment, shut-down, sale or other application
or disposition of or with respect to the Leased Property or any part
thereof or interest therein;
(c) the rental payments, receipts or earnings arising from the Leased
Property or payable pursuant to the Facility Lease;
(d) the Operative Agreements or otherwise in connection with the
transactions contemplated thereby;
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(e) the payment of principal or interest or premium on or other
amounts payable with respect to the Notes or as a result of the purchase,
holding, refinancing or transfer thereof or otherwise relating to any
transaction contemplated hereby; and
(f) without limitation of the foregoing and for the avoidance of
doubt, the James River Easement, the James River Agreement, the Railway
License and the County Road Documents.
Section 7.3. Taxes Excluded. The indemnity provided for in Section 7.2
shall not extend to any of the following:
(a) as to any Tax Indemnitee, Taxes imposed by any taxing authority of
or in the United States on, based on, or measured by or with respect to the
gross or net income or receipts of such Tax Indemnitee or any Affiliate
thereof (including any minimum or alternative minimum Taxes and any Taxes
on or measured by items of tax preference but excluding any sales, use,
license, property, value added (subject to clause (c) below) or rental
Taxes) ("Income Taxes");
(b) as to any Tax Indemnitee, Taxes imposed by any taxing authority of
or in the United States on, based on, measured by or with respect to
capital or net worth or similar Taxes to the extent that such Taxes do not
exceed the Taxes that would have been imposed had the Tax Indemnitee not
entered into the Operative Agreements;
(c) as to any Participant, United States Federal valued added taxes in
the nature of or in lieu of any income tax;
(d) as to any Tax Indemnitee, Taxes imposed with respect to the
Facility after the earliest of (1) the return of possession of the Facility
to the Owner Participant or the placement of such Facility in storage at
the request of the Owner Participant, in either case pursuant to Section 16
of the Facility Lease covering the Facility, (2) the termination of the
Term pursuant to Section 19(f) or 19(g) of the Facility Lease with respect
to the Facility, or (3) the discharge in full of the Lessee's obligation to
pay the Termination Value or the Casualty Value and all other amounts due,
if any, under Section 13 of the Facility Lease; provided that the exclusion
set forth in this clause (d) shall not apply to Taxes to the extent such
Taxes relate to events occurring or matters arising prior to or
simultaneously with such time;
(e) as to any Tax Indemnitee, Taxes which arise directly out of or are
directly caused by any breach by such Tax Indemnitee of any of its
representations, warranties or covenants in any of the Operative
Agreements, or the gross negligence or willful misconduct of such Tax
Indemnitee;
(f) as to any Tax Indemnitee, any Taxes to the extent such Taxes
result from the failure of such Tax Indemnitee to file tax returns, reports
or statements properly and on a timely basis (unless such failure is
related to the failure of the Lessee to perform properly and on a timely
basis its obligations under Section 7.8);
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(g) as to any Tax Indemnitee, Taxes which become payable as a result
of a sale, assignment, transfer or other disposition (whether voluntary or
involuntary) by such Tax Indemnitee of all or any portion of its interest
in the Leased Property or any part thereof, the Trust Estate or any of the
Operative Agreements or rights created thereunder, including, without
limitation, a revocation of the Trust Agreement, other than a disposition
which occurs as the result of the exercise of remedies for a Lease Event of
Default, any disposition which occurs in connection with the occurrence and
continuance of a Lease Event of Default or a purchase of the Facility
pursuant to the Facility Lease;
(h) as to any Tax Indemnitee, Taxes imposed by any jurisdiction that
would not have been imposed on such Tax Indemnitee but for activities of
such Tax Indemnitee in such jurisdiction unrelated to the transactions
contemplated by the Operative Agreements;
(i) as to the Indenture Trustee or the holder of a Note (or any
successor indebtedness), any Tax in the nature of an intangible or similar
Tax imposed upon or with respect to the value of its interest in the Notes
(or any successor indebtedness) by any taxing authority;
(j) as to the Owner Trustee or the Indenture Trustee, Taxes which are
based on or measured by its fees or compensation;
(k) as to any Tax Indemnitee, penalties, interest or additions to tax
to the extent imposed as a result of Taxes which are excluded from
indemnification hereunder; and
(l) as to any Tax Indemnitee, any foreign Taxes imposed with respect
to the Facility or any portion or part thereof, or the transactions
contemplated by the Operative Agreements, unless such Taxes result for the
use, registration, or location of the Facility or any portion or part
thereof, or the incorporation, organization or location of a user, lessee
or assignee (whether or not in possession) of the Facility or any portion
or part thereof (other than the Lessor, the Owner Participant or any
Affiliate thereof), in, or any payment in respect thereof being made by the
Lessee or any Affiliate thereof from, the foreign jurisdiction imposing
such Taxes.
Section 7.4. All Tax Obligations in this Section, Etc. Notwithstanding any
other provision anywhere contained in the Operative Agreements, it is understood
that all of the Lessee's obligations with respect to Taxes are set forth in this
Section 7 and in the Tax Indemnity Agreement.
Section 7.5. Payments to Lessee. (a) If any Tax Indemnitee shall realize a
Tax benefit (net of any Tax detriment not otherwise paid or indemnified against
by the Lessee hereunder) as a result of any Taxes paid or indemnified against by
the Lessee under this Section 7 (whether by way of deduction, credit, allocation
or apportionment or otherwise), such Tax Indemnitee shall pay to the Lessee an
amount equal to the amount of such Tax benefit, increased by the Tax
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Indemnitee's additional saved Taxes attributable to the payment being made to
the Lessee hereunder.
(b) Upon receipt by a Tax Indemnitee of a refund or credit of all or part
of any Taxes paid or indemnified against by the Lessee, such Tax Indemnitee
shall pay to the Lessee an amount equal to the amount of such refund plus any
interest received by or credited to such Tax Indemnitee with respect to such
refund increased or decreased, as the case may be, by the Tax Indemnitee's net
additional or saved taxes attributable to the receipt of such amounts from the
taxing authority and the payment being made to the Lessee hereunder.
(c) If at the time a payment described in Section 7.5(a) or (b) shall be
due to the Lessee a Lease Default or Lease Event of Default shall have occurred
and be continuing, such amount shall not be payable until such Lease Default or
Lease Event of Default shall have been cured.
(d) The aggregate of all amounts paid by a Tax Indemnitee to the Lessee
pursuant to this Section 7.5 shall in no case exceed the sum of all amounts paid
to such Tax Indemnitee by the Lessee, other than contest costs, plus amounts
payable to the Lessee under Section 7.5(b).
Section 7.6. Procedures. Lessee will endeavor in good faith to determine
and timely pay to the applicable authority all Taxes which it will be obligated
to indemnify under this Section 7 except those that the Lessee intends to
contest pursuant to Section 7.7. Any amount payable to a Tax Indemnitee pursuant
to Section 7.2 shall be paid within 30 days after receipt of a written demand
therefor from such Tax Indemnitee accompanied by a written statement describing
in reasonable detail the basis for such indemnity and the computation of the
amount so payable, provided that such amount need not be paid prior to the later
of (i) the date on which such Taxes are paid or payable (including without
limitation by a reduction of a refund with respect to unindemnified Taxes), or
(ii) in the case of amounts which are being contested pursuant to Section 7.7
hereof, the time such contest (including all appeals) is finally resolved. Any
amount payable to the Lessee pursuant to Section 7.5 shall be paid promptly
after a Tax Indemnitee realizes a net tax benefit or receives a refund giving
rise to a payment under Section 7.5, and shall be accompanied by a written
statement by such Tax Indemnitee setting forth in reasonable detail the basis
for computing the amount of such payment. Such statement shall be final, binding
and conclusive upon the parties unless within 15 days following the Lessee's
receipt of any computation from such Tax Indemnitee, the Lessee requests that an
independent nationally recognized accounting firm selected by such Tax
Indemnitee and reasonably acceptable to the Lessee determine whether such
computations of such Tax Indemnitee are correct. Such accounting firm shall be
requested to make the determination contemplated by this Section 7.6 within 30
days of its selection. In the event such accounting firm shall determine that
such computations are incorrect, then such firm shall determine what it believes
to be the correct computations. The Tax Indemnitee shall cooperate with such
accounting firm and supply it with all information necessary to permit it to
accomplish such determination (other than income tax returns). The computations
of such accounting firm shall be final, binding and conclusive upon the parties,
and the Lessee shall have no right to inspect the books, records or tax returns
of any Tax Indemnitee to verify such computation or for any other purpose. All
fees and expenses of the accounting firm payable under this Section 7.6 shall be
borne by the Lessee; provided, however, that such fees and expenses will be paid
by the Tax Indemnitee if the verification results in an
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adjustment in the Lessee's favor of ten percent or more of the indemnity payment
or payments computed by the Tax Indemnitee.
Section 7.7. Contest. If a written claim is made against a Tax Indemnitee
for Taxes with respect to which the Lessee may be liable for indemnity
hereunder, the Tax Indemnitee shall give the Lessee prompt notice in writing of
such claim (and in any event within 30 days after its receipt) and shall
promptly furnish the Lessee with copies of the claim and all other writings
received from the taxing authority relating to the claim; provided however, that
the failure of such Tax Indemnitee timely to provide such written notice shall
not affect the Lessee's obligations under this Section 7.7 except to the extent
that the same precludes the Lessee from contesting such Taxes. The Tax
Indemnitee shall not pay such claim prior to the 30 days after providing the
Lessee with such written notice, unless required to do so by law or unless
deferral of payment would cause adverse consequences to the Tax Indemnitee. The
Tax Indemnitee shall in good faith, with due diligence and at the Lessee's
expense, if requested in writing by the Lessee, contest (including pursuing all
appeals permitted hereby) in the name of the Tax Indemnitee (or, if requested by
the Lessee and permissible as a matter of law, in the name of the Lessee or an
Affiliate), or shall permit or, at such Tax Indemnitee's election, require the
Lessee to contest in either the name of the Lessee or an Affiliate or with the
Tax Indemnitee's consent (not to be unreasonably withheld), in the name of the
Tax Indemnitee the validity, applicability or amount of such Taxes by,
(a) resisting payment thereof if practical;
(b) not paying the same except under protest if protest is necessary
and proper;
(c) if the payment be made, using reasonable efforts to obtain a
refund thereof in appropriate administrative and judicial proceedings; or
(d) taking such other reasonable action as is reasonably requested by
the Lessee from time to time.
provided, however, that if the contest is carried on in the name of the Lessee
or an Affiliate, or is being brought by the Lessee in the name of the Tax
Indemnitee, such contest shall be undertaken by the Lessee, at the Lessee's
expense and at no after-tax cost to the Tax Indemnitee, unless at such time the
Tax Indemnitee determines in its reasonable good faith judgment that either (x)
such claim is not severable from other Taxes in dispute before the same taxing
authority without adversely affecting the Tax Indemnitee with respect to such
other Taxes or the resolution of the dispute or (y) based upon the Lessee's
conduct of such contest, the Lessee's continued control of such contest is
reasonably likely to have a material adverse impact on the Tax Indemnitee in
which case the Tax Indemnitee shall conduct such contest.
In no event shall any Tax Indemnitee be required or the Lessee be permitted
to contest any Taxes for which the Lessee is obligated to indemnify pursuant to
this Section 7 unless: (1) such Lessee shall have acknowledged its liability to
such Tax Indemnitee for an indemnity payment pursuant to this Section 7 as a
result of such claim if and to the extent such Tax Indemnitee or the Lessee, as
the case may be, shall not prevail in the contest of such claim provided,
however, that
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such acknowledgment shall be of no force or effect to the extent that such
contest is resolved on a basis that clearly demonstrates that, without such
acknowledgment pursuant the terms of this Agreement, the Lessee would not
otherwise be liable to the Tax Indemnitee for the Tax so contested; (2) such Tax
Indemnitee shall have received the opinion of independent tax counsel selected
by such Tax Indemnitee and satisfactory to the Lessee furnished at Lessee's sole
expense, to the effect that a reasonable basis exists for contesting such claim
or, in the event of an appeal, that it is more likely than not that an appellate
court will reverse or substantially modify the adverse determination (and
provided that no appeal shall be required to the United States Supreme Court);
(3) the Lessee shall have agreed to pay such Tax Indemnitee on demand (and at no
after-tax costs to such Tax Indemnitee) all reasonable costs and expenses that
such Tax Indemnitee actually incurs in connection with contesting such claim
(including, without limitation, all costs, expenses, reasonable legal and
accounting fees, disbursements, penalties, interest and additions to the Taxes);
(4) no Lease Event of Default shall have occurred and shall have been
continuing; (5) such Tax Indemnitee shall have determined that the action to be
taken will not result in any substantial danger of sale, forfeiture or loss of,
or the creation of any Lien (except if such Lessee shall have adequately bonded
such Lien or otherwise made provision to protect the interests of such Tax
Indemnitee in a manner reasonably satisfactory to such Tax Indemnitee) on the
Leased Property or any portion thereof or any interest therein; (6) the amount
of such claims alone, or, if the subject matter thereof shall be of a continuing
or recurring nature, when aggregated with identical potential claims with
respect to this transaction shall be at least $25,000; (7) if such contest shall
be conducted in a manner requiring the payment of the claim, the Lessee shall
have paid the amount required (and at no after-tax costs to the Tax Indemnitee);
and (8) such claim or liability does not involve the possibility of criminal
sanctions or liability to such Tax Indemnitee. The Lessee shall cooperate with
the Tax Indemnitee with respect to any contest controlled and conducted by the
Tax Indemnitee and the Tax Indemnitee shall consult with the Lessee regarding
the conduct of such contest and in furtherance of the foregoing, the Lessee
shall have the right to attend any proceeding relating to matters for which it
is obligated to indemnify hereunder but shall not be permitted to actively
participate in any discussion. The Tax Indemnitee shall not discriminate against
any proposed adjustment due to its indemnified nature as compared with other
proposed adjustments involving potential tax liability of the Tax Indemnitee and
shall not, without the written consent of the Lessee, settle such proposed
adjustment. The Tax Indemnitee shall cooperate with the Lessee with respect to
any contest controlled and conducted by the Lessee and the Lessee shall consult
with the Tax Indemnitee regarding the conduct of such contest. The Tax
Indemnitee shall have the right to attend any proceeding relating to matters for
which it may be indemnified hereunder but shall not be permitted to actively
participate in any discussion.
Notwithstanding anything contained in this Section 7.7 to the contrary, no
Tax Indemnitee shall be required to contest any claim if the subject matter
thereof shall be of a continuing or recurring nature and shall have previously
been decided adversely to the Tax Indemnitee pursuant to the contest provisions
of this Section 7.7 unless there shall have been a change in the law (including,
without limitation, amendments to statutes or regulations, administrative
rulings or court decisions) enacted, promulgated or effective after such claim
shall have been so previously decided, and such Tax Indemnitee shall have
received an opinion of independent tax counsel selected by such Tax Indemnitee
and reasonably satisfactory to Lessee, furnished at the Lessee's sole expense,
to the effect that such change is favorable to the position which such Tax
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Indemnitee or the Lessee, as the case may be, had asserted in such previous
contest and as a result of such change, there is a reasonable basis to contest
such claim.
Section 7.8. Reports. In the event any reports with respect to Taxes are
required to be made, the Lessee will either prepare and file such reports (and
in the case of reports which are required to be filed with respect to the
Facility, such reports shall be prepared and filed in such manner as to show as
required the interests of each Tax Indemnitee in such Facility) or, if it shall
not be permitted to file the same, it will notify each Tax Indemnitee of such
reporting requirements, prepare such reports in such manner as shall be
satisfactory to each Tax Indemnitee and deliver the same to each Tax Indemnitee
within a reasonable period prior to the date the same is to be filed. The
Lessee's obligations pursuant to the previous sentence shall be subject to
Lessee's knowledge (having made good faith and reasonable efforts to inform
itself) of the necessary reports; provided, however that a Tax Indemnitee's
failure to file any report as a result of the Lessee's failure to provide such
report shall not subject the Tax Indemnitee to the exclusion in Section 7.3 (f)
hereof. The Lessee shall provide such information as the Owner Participant or
the Owner Trustee may reasonably require from the Lessee to enable the Owner
Participant and the Owner Trustee to fulfill their respective tax filing, tax
audit, and tax litigation obligations.
Section 7.9. Survival. The provisions of this Section 7 shall continue in
full force and effect, notwithstanding the expiration or termination of any
Operative Agreement, until all obligations hereunder have been met and all
liabilities hereunder paid in full.
SECTION 8. INDEMNITIES OF THE OWNER TRUSTEE AND THE OWNER PARTICIPANT.
Each of Wilmington Trust Company and the Owner Participant (referred to in
this Section as the "Indemnitors") hereby severally agrees for the benefit of
the other Indemnitor, the Indenture Trustee and the Note Purchasers (referred to
in this Section as the "Indemnitees") that at all times the Trust Estate shall
be free of any Lien arising as a result of claims against such Indemnitor not
related to the transactions contemplated by the Operative Agreements and to such
Indemnitor's interest in the Trust Estate (except Permitted Encumbrances other
than Lessor's Liens attributable to such Indemnitor) and that such Indemnitor
will at its own cost and expense promptly take such action as may be necessary
duly to discharge any such Lien, provided that no such Lien need be discharged
so long as it is being contested by Permitted Contest. Each Indemnitor further
agrees to indemnify and hold harmless the Indemnitees from and against any costs
or expenses (including legal fees and expenses) incurred, in each case, as a
result of the imposition or enforcement of any such Lien.
Each Indemnitor hereby severally agrees for the benefit of the Lessee that
at all times the Leased Property under the Facility Lease shall be free of any
Lien which impairs the right, title or interest of the Lessee under the Facility
Lease and which arises as a result of claims against such Indemnitor not related
to the transactions contemplated by the Operative Agreements and to such
Indemnitor's interest in such Leased Property, except Permitted Encumbrances
(other than Lessor's Liens attributable to such Indemnitor), and that such
Indemnitor will at its own cost and expense promptly take such action as may be
necessary duly to discharge any such Lien, provided that no such Lien need be
discharged so long as it is being contested by Permitted Contest; and such
Indemnitor further agrees to indemnify and hold harmless the Lessee from and
against any
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costs or expenses (including legal fees and expenses) incurred, in each case, as
a result of the imposition or enforcement of any such Lien which impairs the
right, title or interest of the Lessee under the Facility Lease, except
Permitted Encumbrances (other than Lessor's Liens attributable to such
Indemnitor).
The agreements of Wilmington Trust Company in this Section 8 are made in
its individual capacity and not as Owner Trustee, notwithstanding the provisions
of Section 14.8(b) or any similar provision of any other Operative Agreement.
SECTION 9. INDEMNIFICATION.
Section 9.1. General Indemnity. The Lessee hereby agrees, whether or not
any of the transactions contemplated hereby shall be consummated, to assume
liability for, and does hereby agree to indemnify, protect, defend, save and
keep harmless, on an after tax basis and at no after tax cost to the Indemnified
Party, each Indemnified Party from and against any and all liabilities,
obligations, losses, damages, Environmental Claims, penalties, claims (including
claims by any employee of the Lessee or the Seller or any of their respective
contractors), actions, suits and related costs, expenses and disbursements,
including reasonable legal fees and expenses, of whatsoever kind and nature (for
purposes of this Section 9 collectively called "Expenses"), imposed on, asserted
against or incurred by any Indemnified Party as a result of claims threatened or
asserted against such Indemnified Party in any way relating to or arising out of
(i) this Agreement and the other Operative Agreements, including the Notes and
the offering or sale thereof, (ii) the construction, installation, ownership,
delivery, lease, sublease, possession, use, operations or condition of the
Leased Property under the Facility Lease (including, without limitation, latent
and other defects, whether or not discoverable by the Indemnified Party or the
Lessee, and any claim for patent, trademark or copyright infringement and any
claim arising under the strict liability doctrine in tort), (iii) the sale or
other disposition of the Leased Property under the Facility Lease or any portion
thereof pursuant to Section 8, 13, 15 or 19 of such Facility Lease, or (iv)
without limitation of the foregoing and for the avoidance of doubt, the James
River Easement, the James River Agreement, the Railway License and the County
Road Documents, except only that the Lessee shall not be required to indemnify
any Indemnified Party pursuant to this Section 9 for (A) any Taxes or other
impositions, and (B) Expenses resulting from the willful misconduct, gross
negligence or willful breach of contract of such Indemnified Party. If any
Indemnified Party shall have knowledge of any claim or liability hereby
indemnified against it shall give prompt written notice thereof to the Lessee;
provided, however, that the failure of such Indemnified Party to give such
notice shall not relieve the Lessee of any of its obligations hereunder except
to the extent the same causes the Lessee's indemnification obligations to exceed
the obligations of the Lessee had the Lessee received such notice.
Section 9.2. Payments, Survival and other Provisions. All amounts payable
by the Lessee pursuant to this Section 9 shall be payable directly to the
parties entitled to indemnification. All the indemnities contained in this
Section 9 shall continue in full force and effect notwithstanding the expiration
or other termination of this Agreement, the Facility Lease or any other
Operative Agreement and are expressly made for the benefit of, and shall be
enforceable by, each Indemnified Party. The Lessee's obligations under this
Section 9 shall be that of primary
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obligor irrespective of whether the Indemnified Party shall also be indemnified
with respect to the same matter under any other agreement by any other Person.
Section 9.3. No Guarantee of Residual Value or Notes. The indemnities and
assumptions of liabilities set forth in this Section 9 do not guarantee a
residual value of the Facility or guarantee the payment of the Notes; provided
that the foregoing shall not limit the provisions of Section 12(b) of the
Facility Lease.
SECTION 10. TRANSACTION ECONOMICS.
The Periodic Rent, Casualty Value, Termination Value and Early Purchase
Price for the Facility being purchased on the Closing Date shall be as set forth
in the form of Facility Lease attached hereto as Exhibit C.
SECTION 11. RESTRICTIONS ON TRANSFER OF BENEFICIAL INTEREST.
The Owner Participant agrees that it shall not sell, convey, assign,
pledge, mortgage encumber or otherwise transfer any of its Beneficial Interest
and further agrees that the obligations under the Owner Participant Guaranty
shall not be transferred, in each case prior to the expiration or earlier
termination of the Term of the Facility Lease, unless:
(a) The Person to whom such transfer is to be made (a "Transferee") is
not subject at the time of the transfer to an Insolvency Proceeding and is
an "affiliated company" or a "qualified investor" or any other Person
agreeable to each Note Purchaser and the Lessee as evidenced by their
respective prior written consents delivered to the Owner Participant or
Owner Participant Guarantor, as applicable. The term "affiliated company"
shall mean any company (the "Parent") owning, directly or indirectly, not
less than 80% of the Voting Stock of the Owner Participant or the Owner
Participant Guarantor, any company (the "Holding Company") owning, directly
or indirectly, not less than 80% of the Voting Stock of the Parent, and any
company not less than 80% of the Voting Stock of which is owned, directly
or indirectly, by the Holding Company, the Parent or such Owner Participant
or Owner Participant Guarantor or any entity with which such Owner
Participant or Owner Participant Guarantor merges or consolidates or which
acquires substantially all of its assets. The term "qualified investor"
means any Person existing under the laws of the United States of America or
any jurisdiction thereof which is an institutional investor, which, so long
as no Lease Default under clause (i), (ii), (vi), (vii) or (viii) of
Section 15(a) of the Facility Lease or any Lease Event of Default shall
have occurred and be continuing, is not a Disqualified Assignee (as defined
below), and which (in the case of any banking institution or insurance
company) has capital, surplus and undivided profits (or the equivalent) of
at least U.S.$50,000,000 or (in the case of any other transferee) has a net
worth of at least U.S.$50,000,000; provided that, such Transferee may have
a capital, surplus and undivided profits or net worth, as the case may be,
of less than U.S.$50,000,000 if all of the capital stock and other
Securities of such Transferee are owned by a Person that would constitute a
permitted transferee hereunder and such Person guarantees, or, in the case
of a transfer by the Owner Participant where the Owner Participant
Guarantor remains the same Person as before such transfer, such
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Person continues to guaranty the obligations of such transferee of the
Owner Participant, under the Operative Agreements by instrument in
substantially the form of the Owner Participant Guaranty or otherwise
satisfactory to the Owner Trustee, each other Participant and the Lessee.
"Disqualified Assignee" means a Person engaged, as a material part of its
business, in activities in the forest products industry, excluding a Person
engaged in such activities solely as a result of passive investments
(including the temporary ownership of manufacturing facilities as a result
of the exercise of such Person's remedies in connection with such
investments).
(b) The Indenture Trustee, the Note Purchasers and the Lessee shall
have received 20 days' prior written notice of such transfer specifying the
name and address of any proposed transferee and such additional information
as shall be necessary to determine whether the proposed transfer satisfies
the requirements of this Section 11.
(c) Such Transferee enters into an agreement or agreements in form and
substance reasonably satisfactory to the Lessee, the Owner Trustee and the
Note Purchasers whereby, in the case of a transfer by the Owner
Participant, such Transferee confirms that it shall be deemed a party to
this Agreement, and each other Owner Participant Agreement, and in the case
of a transfer by the Owner Participant Guarantor, such Transferee confirms
that it is party to the Owner Participant Guaranty, and agrees to be bound
by all the terms of, and to undertake all of the obligations and
liabilities of the transferring Owner Participant or Owner Participant
Guarantor, as applicable, contained in, the Owner Participant Agreements or
the Owner Participant Guaranty, if applicable, to the extent of the
interest transferred and in which the Transferee shall make representations
and warranties comparable to those of the Owner Participant or Owner
Participant Guarantor contained herein and in the other Owner Participant
Agreements or, as applicable, in the Owner Participant Guaranty.
(d) An opinion of counsel of the Transferee (which counsel shall be
reasonably acceptable to the Lessee and the Note Purchasers), confirming
(i) the existence, power and authority of, and due authorization, execution
and delivery of all relevant documentation by, the Transferee (with
appropriate reliance on certificates of corporate officers or public
officials as to matters of fact), and (ii) that each agreement referred to
in subparagraph (c) above is the legal, valid and binding obligation of the
Transferee, enforceable against the Transferee in accordance with the terms
thereof (subject to customary qualifications as to bankruptcy and equitable
principles), shall be provided, prior to such transfer, to the Lessee, the
Note Purchasers and the Indenture Trustee, which opinion shall be in form
and substance reasonably satisfactory to each of them.
(e) After giving effect to such transfer, there shall not be more than
two Owner Participants in the aggregate.
(f) All fees, expenses and charges of the parties hereto (including,
without limitation, legal fees and expenses of special counsel) incurred in
connection with each transfer of such Beneficial Interest shall be paid by
the Owner Participant or the Owner Participant Guarantor, as applicable.
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(g) Such transfer does not involve the use of an amount which
constitutes assets of an employee benefit plan (other than a governmental
plan exempt from the coverage of under ERISA) or such Transferee makes the
representation regarding the source of funds contained in Section 3.5(c)
hereof.
(h) After giving effect to such transfer, no Indenture Default
attributable to any Owner Participant, any Owner Participant Guarantor or
the Owner Trustee shall have occurred and be continuing.
(i) The Owner Participant or Owner Participant Guarantor, as
applicable, shall deliver to the Lessee, the Owner Trustee, the Note
Purchasers and the Indenture Trustee, an Officer's Certificate certifying
as to compliance with the transfer requirements contained herein.
Upon any such transfer, (i) except as the context otherwise requires, such
Transferee shall be deemed the "Owner Participant" or "Owner Participant
Guarantor", as the case may be, for all purposes, and shall enjoy the rights and
privileges and perform the obligations of the Owner Participant or Owner
Participant Guarantor, as applicable, to the extent of the interest transferred
hereunder and under each other Owner Participant Agreement, and, except as the
context otherwise requires, each reference in this Agreement and each other
Operative Agreement to the "Owner Participant" or "Owner Participant Guarantor",
as the case may be, shall thereafter be deemed to include such Transferee for
all purposes to the extent of the interest transferred, (ii) the transferor
shall be released from all obligations hereunder and under each other Owner
Participant Agreement and, if applicable, under the Owner Participant Guaranty,
or by which such transferor is bound to the extent such obligations are
expressly assumed by a Transferee, and (iii) in the event of a transfer by the
Owner Participant to a Transferee that is a qualified investor (whether or not
an affiliated company) having capital surplus and undivided profits or net
worth, as the case may be, of $50,000,000, any Owner Participant Guarantor prior
to such transfer shall be released from all obligations under the Owner
Participant Guaranty, and under the other Operative Agreements; and provided,
further, that in no event shall any such transfer or assignment waive or release
the transferor, or the Owner Participant Guarantor prior to transfer in the case
referred to in clause (iii) of this paragraph, from any liability on account of
any breach of any of its representations, warranties, covenants or obligations
set forth in the Owner Participant Agreements or the Owner Participant Guaranty,
if applicable, or for any fraudulent or willful misconduct. Any transfer or
assignment of the Beneficial Interest in violation of this Section 11 shall be
void and of no effect. No consent of the Lessee otherwise required hereunder
shall be required if any Lease Event of Default shall have occurred and be
continuing. Notwithstanding any transfer, the transferor Owner Participant or
Owner Participant Guarantor, as the case may be, shall be entitled to all
benefits accrued and all rights vested prior to such transfer, including,
without limitation, rights to indemnification under any Operative Agreements and
also shall remain liable to the extent provided in the Operative Agreements, for
facts, circumstances, acts or omissions that occurred prior to or
contemporaneously with such transfer.
Notwithstanding anything to the contrary contained herein, each of the
Owner Participant and Owner Participant Guarantor shall not mortgage, pledge,
assign or otherwise hypothecate the Beneficial Interest, or any portion thereof,
as collateral security.
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SECTION 12. LESSEE ASSUMPTION OF NOTES.
Section 12.1. Assumption. (a) In the event that the Lessee shall have
elected to assume the rights and obligations of the Owner Trustee under the
Indenture and the Notes in connection with the purchase by the Lessee of the
Facility and termination of the Facility Lease pursuant to Section 19(f) or
19(g) thereof, the Lessee shall so notify the Indenture Trustee and each holder
of a Note and, so long as no Lease Default or Lease Event of Default shall have
occurred and be continuing on the purchase date and date of assumption (the
"Assumption Date") specified in such notice, which date shall be not less than
30 nor more than 60 days after the date of the Indenture Trustee's receipt of
such notice, upon delivery to the Indenture Trustee of the documents referred to
below, the Lessee shall assume all of the rights and obligations of the Owner
Trustee under the Indenture and under the Notes then outstanding and in
connection therewith (and as a condition thereto) Lessee shall satisfy, or cause
to be satisfied the following conditions precedent:
(i) (A) an instrument of assumption (the "Assumption Agreement")
pursuant to which the Lessee irrevocably and unconditionally assumes and
undertakes, with full recourse to the Lessee, the Owner Trustee's
obligations (the "Assumed Obligations") with respect to principal, interest
and all other amounts (including, without limitation, the Make-Whole
Amount) payable to the holders of the Notes or the Indenture Trustee under
the Notes, the Indenture and the Participation Agreement and which
incorporates therein events of default substantially similar in scope and
effect to those set forth in the Facility Lease (and eliminating those no
longer relevant with respect to the Owner Participant) and covenants
substantially similar to the covenants of the Lessee under the Facility
Lease, and (B) if requested by a Majority in Interest, the Lessee shall
also issue, and the Indenture Trustee shall also authenticate, new Notes
evidencing such assumption and the full recourse nature of the Lessee's
obligations thereunder;
(ii) a deed of trust, given by the Lessee, in form and substance
satisfactory to the holders of the Notes, covering the Site and the
Facility and such other instruments and documents (including, without
limitation, Uniform Commercial Code financing statements) as may be
necessary (or reasonably requested by a Majority in Interest or the
Indenture Trustee) for the security interest of the Indenture Trustee in
the Facility and in the other rights, property and interests included in
the Indenture Estate to continue to be (or in the case of such deed of
trust to be) perfected and duly recorded in all places necessary or, in the
reasonable opinion of a Majority in Interest, advisable;
(iii) an insurance report dated the Assumption Date of an independent
insurance broker and the certificates of insurance, each in form and
substance reasonably satisfactory to the holders of the Notes and the
Indenture Trustee as to the due compliance as of the Assumption Date with
the terms of Section 7 of the Facility Lease (as incorporated into the
Assumption Agreement and as relates to the holders of the Notes and the
Indenture Trustee);
(iv) evidence that as of the Assumption Date the Lessee has good title
to the Facility and the Site free and clear of all Liens other than the
Lien of, and the security
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interest created by, the Indenture, the deed of trust referred to in clause
(ii) above and other Permitted Encumbrances (other than Lessor's Liens);
(v) a certificate from the Lessee that no Lease Default or Lease Event
of Default shall have occurred and be continuing as of the Assumption Date;
(vi) an opinion (or opinions) of counsel to the Lessee reasonably
satisfactory to the holders of the Notes and the Indenture Trustee in form
and substance reasonably satisfactory to the holders of the Notes and the
Indenture Trustee, addressed to the Note Purchasers and the Indenture
Trustee and dated the Assumption Date, with customary qualifications, to
the effect that (A) the execution, delivery and performance of the
Assumption Agreement, the deed of trust referred to in paragraph (ii) of
this Section 12.1 and all other instruments and documents executed and
delivered by the Lessee in connection with the assumption of the
obligations contemplated by this Section 12.1 or otherwise necessary for
the continued perfection of the security interests referred to in clause
(ii) above have, in each instance, been duly authorized by all necessary
action, and duly executed and delivered; (B) the Assumption Agreement, such
deed of trust and all such other documents and instruments referred to
above are legal, valid and binding obligations of the Lessee enforceable in
accordance with their terms (with customary qualifications); (C) execution
and delivery by the Lessee of the Assumption Agreement and all such other
documents and instruments referred to above do not and will not contravene
any provision of the Lessee's certificate of incorporation or by-laws or
any law or regulation applicable to the Lessee or any agreement, mortgage
or instrument known to such counsel to which the Lessee is a party or by
which the Lessee is bound; (D) after giving effect to the transactions
contemplated by the Assumption Agreement, the respective Liens of the
Indenture and each such deed of trust continue to constitute valid and duly
perfected Liens on the Collateral described therein; and (E) to such
further effect with respect to such other matters (including, without
limitation, any matters included in the opinion delivered on the Closing
Date pursuant to Section 4.1(f) of this Agreement, to the extent such
matters are relevant at the time of the assumption contemplated by this
Section 12.1) as a Majority in Interest may reasonably request;
(vii) such other documentation or evidence reasonably requested by a
Majority in Interest (in form and substance reasonably satisfactory to the
holders of the Notes and the Indenture Trustee), including amendments to
the Operative Agreements, to give effect to the foregoing and in order to
establish the authority of the Lessee, the Owner Trustee, the Indenture
Trustee and the Owner Participant to consummate the transactions
contemplated by the assumption and the taking of all corporate proceedings
in connection therewith.
(b) It shall be a condition of any transaction contemplated by Section
12.1(a) that such instruments as the Owner Trustee or the Owner Participant may
reasonably request, prepared at the sole cost and expense of the Lessee,
evidencing the release and discharge of the Owner Trustee from any liability on
or with respect to the Notes or the Indenture or the Deed of Trust (other than
liabilities accrued prior to the date of the assumption) and discharging the
Lien of the
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Indenture Trustee upon the purchase price of the Facility being distributed to
the Owner Trustee, shall be delivered to the Owner Trustee.
Section 12.2. No Other Assumption; Payment of Expenses. Neither the Lessee
nor any other Person may assume the Notes except pursuant to and in accordance
with the provisions of Section 12.1. Lessee shall pay all reasonable costs and
expenses (including counsel's reasonable fees and disbursements) of the Owner
Trustee, the Participants and the Indenture Trustee in connection with the
consummation of the transactions contemplated by Section 12.1.
SECTION 13. REFINANCING OF NOTES.
So long as no Lease Default or Lease Event of Default shall be in
existence, the Lessee shall have the right not more than twice during the Term
of the Facility Lease to request the Owner Participant and the Owner Trustee to
effect an optional prepayment of all, and not less than all, of the Notes
pursuant to Section 2.10(e) of the Indenture as part of a refunding or
refinancing operation. As soon as practicable after receipt of such request, the
Owner Participant and the Lessee will enter into an agreement, in form and
substance reasonably satisfactory to the parties thereto, as to the terms of
such refunding or refinancing as follows:
(a) the Lessee, the Owner Participant, the Indenture Trustee, the
Owner Trustee, and any other appropriate parties will enter into a
financing or loan agreement (which may involve an underwriting agreement in
connection with a public offering), in form and substance reasonably
satisfactory to the parties thereto, providing for (i) the issuance and
sale by the Owner Trustee or such other party as may be appropriate on the
date specified in such agreement (for the purposes of this Section 13, the
"Refunding Date") of debt Securities in an aggregate principal amount (in
the lawful currency of the United States) equal to the principal amount of
the Notes outstanding on the Refunding Date plus, at the discretion of the
Lessee, but subject to the rights of Owner Participant set forth in the
provisions following clause (h) of this Section, the accrued and unpaid
interest thereon and underwriting fees, having the same maturity date as
said Notes and having a weighted average life to maturity which is not less
than or greater than the remaining weighted average life to maturity of
said Notes (in each case calculated in accordance with standard financial
practice) by more than three months, (ii) the application of the proceeds
of the sale of such debt Securities to the prepayment of all such Notes on
the Refunding Date, and (iii) payment by Lessee to the Person or Persons
entitled thereto of all other amounts, in respect of accrued interest, or
any Make-Whole Amount or other premium, if any, payable on such Refunding
Date;
(b) the Lessee and the Owner Trustee will amend the Facility Lease
such that (i) if the Refunding Date is not a Rent Payment Date and the
accrued and unpaid interest on the Notes is not otherwise paid pursuant to
clause (a) above, the Lessee shall on the Refunding Date prepay that
portion of the next succeeding installment of Periodic Rent as shall equal
the aggregate interest accrued on the Notes outstanding to the Refunding
Date, (ii) Periodic Rent payable in respect of the period from and after
the Refunding Date shall be recalculated to preserve the Net Economic
Return which the Owner Participant would have realized had such refunding
not occurred, provided that the net present value of
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Periodic Rent shall be minimized to the extent consistent therewith, and
(iii) amounts payable in respect of Casualty Value and Termination Value
from and after the Refunding Date shall be appropriately recalculated to
preserve the Net Economic Return which the Owner Participant would have
realized had such refunding not occurred (it being agreed that any
recalculations pursuant to subclauses (ii) and (iii) of this clause (b)
shall be performed in accordance with the requirements for the adjustment
in Periodic Rent contained in Section 4(f) of the Facility Lease);
(c) the Owner Trustee will enter into an agreement to provide for the
securing thereunder of the debt Securities issued by the Owner Trustee
pursuant to clause (a) above in like manner as the Notes and/or will enter
into such amendments and supplements to the Indenture and the Deed of Trust
as may be necessary to effect such refunding or refinancing, which
agreements, amendments and/or supplements shall be reasonably satisfactory
in form and substance to the Owner Participant and the Lessee; provided
that, notwithstanding the foregoing (but subject to the provisions of
clause (a) above), the Lessee reserves the right to set the economic terms
and other terms not customarily negotiated between an Owner Participant and
a lender of the refunding or refinancing transaction to be so offered;
provided, further, that no such amendment or supplement will increase the
obligations or have any adverse impact on the rights of the Owner
Participant under the Operative Agreements without the consent of the Owner
Participant;
(d) in the case of a refunding or refinancing involving a public
offering of debt Securities, neither the Owner Trustee nor the Owner
Participant shall be the "issuer" for Securities law purposes, the offering
materials (including any registration statement) for the refunding or
refinancing transaction shall be reasonably satisfactory to the Owner
Participant and the Lessee shall provide satisfactory indemnity to the
Owner Trustee and the Owner Participant with respect thereto;
(e) unless otherwise agreed by the Owner Participant, the Lessee shall
pay to the Owner Trustee as Supplemental Rent an amount equal to the
Make-Whole Amount or other premium, if any, payable in respect of Notes
outstanding on the Refunding Date, and all reasonable fees, costs and
expenses of such refunding or refinancing;
(f) the Lessee shall give the Indenture Trustee not less than 25 days
prior written notice of the Refunding Date;
(g) the Owner Participant, the Owner Trustee and the Indenture Trustee
shall have received (i) such opinions of counsel as they may reasonably
request concerning compliance with the Securities Act of 1933, as amended,
and any other applicable law relating to the sale of Securities and (ii)
such other opinions of counsel and such certificates and other documents,
each in form and substance satisfactory to them, as they may reasonably
request in connection with compliance with the terms and conditions of this
Section 13; and
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(h) all necessary authorizations, approvals and consents shall have
been obtained;
provided, however, that the Lessee will, to the extent then known, promptly
provide to the Owner Participant, the Owner Trustee and the Indenture
Trustee substantially final terms and conditions of any such refunding or
refinancing not less than 30 days prior to the execution and delivery of
the documents contemplated hereunder in connection therewith; and provided,
further, that (x) no refunding or refinancing of the Notes will be
permitted if within 30 days after receipt by the Owner Participant of a
request from the Lessee to effect a refunding or refinancing pursuant to
this Section 13 and of information regarding the terms of such refunding or
refinancing necessary to render the opinion referred to below, the Owner
Participant reasonably determines (which determination may, at the Owner
Participant's election but at the Lessee's expense, be supported by a
written opinion of independent tax counsel selected by the Owner
Participant) that there will be a risk of adverse tax or other consequences
(including, without limitation, a non-de minimis risk of materially adverse
tax consequences resulting from the application of Section 467 of the Code
and the Treasury Regulations thereunder or from the payment by the Lessee
of Supplemental Rent referred to in clause (e) above) to the Owner
Participant or the Owner Trustee resulting from the refunding or
refinancing and gives notice of such determination in reasonable detail to
the Lessee; (y) the Lessee shall pay to or reimburse the Participants, the
Owner Trustee and the Indenture Trustee for all costs and expenses
(including reasonable attorneys' fees) paid or incurred by them in
connection with such refunding or refinancing; and (z) no refunding or
refinancing of the Notes will be permitted if it shall cause the Owner
Participant to account for the transaction contemplated hereby as other
than a "leveraged lease" under the Financial Accounting Standards Board
("FASB") Statement No. 13, as amended (including any amendment effected by
means of the adoption by FASB of a new statement in lieu of FASB Statement
No. 13). The Owner Participant agrees to cooperate in good faith with the
Lessee in effecting any such refunding or refinancing; provided that in no
event, in connection with or after giving effect to, such refunding or
refinancing shall the Owner Participant be exposed to any unindemnified
non-de minimis risk (including tax risk) to which it is not exposed prior
to such refunding or refinancing.
Notwithstanding the foregoing, if the Lessee shall fail to effectuate a
refinancing pursuant to the requirements of this Section 13, including, without
limitation, the payment of all amounts due and owing pursuant to Section 2.10(e)
of the Indenture, the Facility Lease and the Indenture shall continue in full
force and effect.
SECTION 14. MISCELLANEOUS.
Section 14.1. Amendments. This Agreement may, from time to time and at any
time, be amended or supplemented, by an instrument or instruments in writing
executed by the parties hereto.
Section 14.2. Notices. All communications under this Agreement shall be in
writing or by facsimile and any such notice shall become effective (i) upon
personal delivery thereof, including,
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without limitation, by overnight mail or courier service, (ii) upon receipt
thereof, in the case of notice by United States mail, certified or registered,
postage prepaid, return receipt requested, or (iii) upon confirmation of receipt
thereof, in the case of notice by facsimile, provided such transmission is
promptly further confirmed in writing by either of the methods set forth in
clause (i) or (ii) above, in each case addressed to the parties hereto at their
addresses set forth beneath their respective signatures below (or in the case of
the Note Purchasers on Schedule 1 hereto) or at such other place as any such
party may designate by notice given in accordance with this Section 14.2.
Section 14.3. Survival. All warranties, representations and covenants made
by any party herein or in any certificate or other instrument delivered by any
party to any other party under this Agreement shall be considered to have been
relied upon by such other party and shall survive the consummation of the
transactions contemplated hereby on the Closing Date regardless of any
investigation made by such other party or on behalf of such other party. All
statements in any such certificate or other instrument by the Owner Participant,
the Owner Trustee or the Lessee or on behalf of the Owner Participant, the Owner
Trustee or the Lessee under this Agreement shall constitute warranties and
representations by the Owner Participant, the Owner Trustee, or, as the case may
be, the Lessee hereunder.
Section 14.4. Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of, and shall be enforceable by, the parties
hereto and their respective successors and permitted assigns including each
successive holder of the Beneficial Interest and each successive holder of any
Note issued and delivered pursuant to this Agreement or the Indenture whether or
not an express assignment to any such holder of rights under this Agreement has
been made.
Section 14.5. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW
OF THE STATE OF NEW YORK EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH
STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER
THAN SUCH STATE BUT INCLUDING SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS
LAW.
Section 14.6. Counterparts. This Agreement may be executed in any number of
counterparts, each executed counterpart constituting an original but all
together only one Agreement.
Section 14.7. Headings and Table of Contents. The headings of the sections
of this Agreement and the Table of Contents are inserted for purposes of
convenience only and shall not be construed to affect the meaning or
construction of any of the provisions hereof.
Section 14.8. Limitations of Liability.
(a) Liabilities of the Participants. No Participant shall have any
obligation or duty to the Lessee, to any other Participant or to others with
respect to the transactions contemplated hereby except those obligations or
duties of such Participant expressly set forth in this Agreement
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and the other Operative Agreements and no Participant shall be liable for
performance by any other party hereto of such other party's obligations or
duties hereunder. Without limitation of the generality of the foregoing, under
no circumstances whatsoever shall any Participant be liable to the Lessee, nor
shall any Participant be liable to any other Participant, for any action or
inaction on the part of the Owner Trustee or the Indenture Trustee in connection
with the transactions contemplated herein, whether or not such action or
inaction is caused by willful misconduct or gross negligence of the Owner
Trustee or the Indenture Trustee.
(b) No Recourse to Wilmington Trust Company. It is expressly understood and
agreed by and between the Owner Trustee, Wilmington Trust Company, the Lessee,
the Owner Participant, the Indenture Trustee, each Note Purchaser and any holder
of the Notes and their respective successors and assigns that, subject to the
proviso to this paragraph, this Agreement is executed by Wilmington Trust
Company, not individually or personally but solely as trustee under the Trust
Agreement in the exercise of the power and authority conferred and vested in it
as such trustee, that each and all of the representations, warranties,
undertakings and agreements herein made on the part of the Owner Trustee are
made and intended not as personal representations, warranties, undertakings and
agreements by Wilmington Trust Company or for the purpose or with the intention
of binding Wilmington Trust Company personally, but are made and intended for
the purpose of binding only the Trust Estate, that this Agreement is executed
and delivered by Wilmington Trust Company solely in the exercise of the powers
expressly conferred upon Wilmington Trust Company as trustee under the Trust
Agreement, that actions to be taken by the Owner Trustee pursuant to its
obligations hereunder may, in certain instances, be taken by the Owner Trustee
only upon specific authority of the Owner Participant, that, subject to the
proviso to this paragraph, nothing herein contained shall be construed as
creating any liability of Wilmington Trust Company, individually or personally,
or any incorporator or any past, present or future subscriber to the capital
stock of, or stockholder, officer or director of Wilmington Trust Company, to
perform any covenant either express or implied contained herein, all such
liability, if any, being expressly waived by the Lessee, the Indenture Trustee,
each Note Purchaser and any holder of the Notes and any person claiming by,
through or under such persons, and that so far as Wilmington Trust Company,
individually or personally is concerned, subject to the proviso to this
paragraph, the Lessee, the Indenture Trustee, each Note Purchaser and any holder
of the Notes and any person claiming by, through or under such persons shall
look solely to the Trust Estate for the performance of any obligation of
Wilmington Trust Company under this Agreement; provided, however, that nothing
in this Section 14.8 shall be construed to limit in scope or substance those
representations and warranties of Wilmington Trust Company made expressly in its
individual capacity set forth in Section 3.1 or the indemnities of Wilmington
Trust Company in its individual capacity set forth in Section 8. The term "Owner
Trustee" as used in this Participation Agreement shall include any trustee
succeeding Wilmington Trust Company as trustee under the Trust Agreement or the
Owner Participant if the trust created thereby is revoked. Any obligation of the
Owner Trustee hereunder may be performed by the Owner Participant, and any such
performance shall not be construed as revocation of the trust created by the
Trust Agreement. Nothing contained in this Agreement shall restrict the
operation of the provisions of the Trust Agreement with respect to its
revocation or the resignation or removal of the Owner Trustee thereunder.
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(c) No Recourse to Owner Participant. All payments of principal and
interest and premium, if any, to be made under the Notes or the Indenture shall
be made only from the income and proceeds from the Indenture Estate and only to
the extent that the Indenture Trustee shall have sufficient income or proceeds
from the Indenture Estate to make such payments in accordance with the terms of
Article III of the Indenture. Each of the parties to this Agreement agrees that
neither the Owner Participant nor its permitted successors and assigns is or
shall be personally liable for any amount payable by the Owner Participant or
the Owner Trustee under any Operative Agreement, or for damages resulting from
the breach of its or the Owner Trustee's obligations under any Operative
Agreement, except as expressly provided in Section 8.
Section 14.9. Purchase of Beneficial Interest by Lessee; Termination of
Trust by Owner Participant. (a) Anything to the contrary herein or in the other
Operative Agreements notwithstanding, the Lessee shall not purchase or otherwise
acquire the Beneficial Interest or any part thereof.
(b) Anything to the contrary herein or in the other Operative Agreements
notwithstanding, the Owner Participant hereby acknowledges and agrees that the
Trust established under the Trust Agreement shall not be subject to revocation
or termination by the Owner Participant prior to the payment in full and
discharge of the Notes and all other indebtedness secured by the Indenture and
the release of the Indenture and the Deed of Trust and the liens and security
interests granted thereby.
Section 14.10. Certain Limitations in Reorganization. The holder of any
Note and the Indenture Trustee agree that, should the Trust Estate or the Trust
become a debtor subject to the reorganization provisions of the Bankruptcy
Reform Act of 1978 or any successor provision, they shall, upon the request of
the Owner Participant, make the election referred to in Section 1111(b)(1)(A)(i)
of Title I of such Act or any successor provision. Notwithstanding such
election, if (1) the Trust Estate or the Trust becomes a debtor subject to the
reorganization provisions of the Bankruptcy Reform Act of 1978 or any successor
provision, (2) pursuant to such reorganization provisions the Owner Participant
is held to have recourse liability to the debtor or the trustee of the debtor
directly or indirectly on account of any amount payable as principal, interest
or premium on the Notes, and (3) the holder of any Note or the Indenture Trustee
actually receives any Excess Amount which reflects any payment by the Owner
Participant on account of (2) above, then such Noteholder or the Indenture
Trustee, as the case may be, shall promptly refund to the Owner Participant such
Excess Amount. For purposes of this Section 14.10, "Excess Amount" means the
amount by which such payment exceeds the amount which would have been received
by any Noteholder or the Indenture Trustee if the Owner Participant had not
become subject to the recourse liability referred to in (2) above. Nothing
contained in this Section 14.10 shall prevent any Noteholder or the Indenture
Trustee from enforcing any personal obligation (and retaining the proceeds
thereof) of the Owner Participant under this Agreement to the extent herein
provided, for which the Owner Participant has agreed by the terms of this
Agreement to accept personal responsibility.
Section 14.11. Amendment of Indenture, Deed of Trust and Trust Agreement.
The Lessee hereby consents in all respects to the execution and delivery of the
Indenture, of the Deed of Trust and of the Trust Agreement and to all of the
terms of each; it being agreed that such consent shall
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not be construed to require the Lessee's consent to any future supplement to, or
amendment, waiver or modification of the terms of the Indenture, the Deed of
Trust, the Trust Agreement or any Note.
Section 14.12. Submission to Jurisdiction. Each of the Lessee, the Owner
Participant, the Owner Trustee, the Note Purchasers and the Indenture Trustee
(i) hereby irrevocably submits to the nonexclusive jurisdiction of the Supreme
Court of the State of New York, New York County (without prejudice to the right
of any party to remove to the United States District Court for the Southern
District of New York) and to the nonexclusive jurisdiction of the United States
District Court for the Southern District of New York for the purposes of any
suit, action or other proceeding arising out of this Agreement, the other
Operative Agreements, or the subject matter hereof or thereof or any of the
transactions contemplated hereby or thereby brought by any of the parties hereto
or their successors or assigns; (ii) hereby irrevocably agrees that all claims
in respect of such action or proceeding may be heard and determined in such New
York State court, or in such federal court; and (iii) to the extent permitted by
Applicable Law, hereby irrevocably waives, and agrees not to assert, by way of
motion, as a defense, or otherwise, in any such suit, action or proceeding any
claim that is not personally subject to the jurisdiction of the above-named
courts, that the suit, action or proceeding is brought in an inconvenient forum,
that the venue of the suit, action or proceeding is improper or that this
Agreement, the other Operative Agreements, or the subject matter hereof or
thereof may not be enforced in or by such court.
Section 14.13. Waiver of Jury Trial. The parties hereto waive any right to
have a jury participate in resolving any dispute, whether sounding in contract,
tort, or otherwise, between them arising out of, connected with, related to or
incidental to the relationship established between them in connection with this
Agreement or any other Operative Agreement or any other instrument, document or
agreement executed or delivered in connection herewith or therewith or the
transactions related hereto or thereto. The parties hereto hereby agree and
consent that any such claim, demand, action or cause of action shall be decided
by court trial without a jury and that any of them may file an original
counterpart or a copy of this Agreement with any court as written evidence of
the consent of the parties hereto the waiver of their right to a trial by jury.
Section 14.14. Complete Facility. The Lessee covenants and agrees, without
limiting its obligations under the Facility Lease and the other Operative
Agreements, that it shall obtain and maintain all licenses, rights and
easements, and provide access to such utility services, sufficient to permit
during the Term of the Site Lease (i) the locating, occupying, owning, selling,
leasing, connecting, operating, maintaining, replacing, renewing, repairing and
removing of the Facility, (ii) ingress to and egress from the Leased Property,
(iii) intake and discharge of water and other utilities necessary for the
operation of the Facility, (iv) the operating of the Leased Property in such a
manner as to cause the Facility to perform on a daily basis, in commercial
operation, the functions for which it was specifically designed at Design
Capacity in accordance with the Plans therefor, and (v) the preservation and
enforcement by the Owner Trustee of its rights in and to the Leased Property and
the easements and other rights with respect to the Site Lease Property described
or referred to in the Site Lease, except such licenses, rights and easements the
absence of which would not cause a Material Adverse Effect. The Lessee shall
have such access to the Leased Property as shall be reasonably necessary to
comply with its obligations under this Section.
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The Lessee further covenants and agrees:
(a) that during the Site Lease Term, the Lessee shall not, without the
Owner Trustee's, the Indenture Trustee's and each Participant's prior
written consent, terminate the Railway License, the James River Agreement,
the James River Easement, or except in connection with the actions set
forth in clause (c) of this Section 14.14, the County Road Documents;
(b) that during the Site Lease Term, the Lessee shall send copies of
all notices (other than notices relating to pricing or other operations in
the ordinary course of business) given or received under the Railway
License, the James River Agreement, the James River Easement and the County
Road Documents to the Owner Trustee, the Indenture Trustee and each
Participant within five (5) Business Days after receipt thereof;
(c) that the Lessee shall, on or before the date which is 60 days
following the Closing Date, (i) use its best efforts to cause the railroad
which is the licensor under the Railway License to consent in writing to
the transfer and assignment of the rights under the Railway License from
American Can Company to the Lessee, and its successors and assigns
(including the Owner Trustee and the Indenture Trustee) and (ii) use its
best efforts to obtain the reinstatement, renewal or replacement with the
equivalent of any expired County Road Documents in the name of the Lessee,
and its successors and assigns (including the Owner Trustee and the
Indenture Trustee).
[signature page follows]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be executed and delivered, all as of the date first above written.
POPE & TALBOT, INC.
By: MICHAEL FLANNERY
-------------------------------------
Name: Michael Flannery
Title: President and CEO
By: MARIA M. POPE
-------------------------------------
Name:
Title:
Suite 200
1500 SW First Avenue
Portland, Oregon 97201
Attention: Chief Financial Officer
Fax: (503) 220-2722
WILMINGTON TRUST COMPANY, not
individually (except to the extent
expressly stated herein) but solely as
Owner Trustee
By: JAMES P. LAWLER
-------------------------------------
Name: James P. Lawler
Title: VP
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration
Fax: (302) 651-8882
With a copy to Owner Participant
-49-
<PAGE>
SELCO SERVICE CORPORATION
By: H. RUSSELL WILKS
-------------------------------------
Name: H. Russell Wilks
Title: Vice President
SELCO Service Corporation
c/o Key Corp Leasing
54 State Street, 9th Floor
Albany, New York 12207
Attention: Leveraged Lease Administrator
Fax: (518) 488-5222
-50-
<PAGE>
FLEET CAPITAL CORPORATION
By: EDWARD W. O'BRIEN
-------------------------------------
Name: Edward W. O'Brien
Title: Vice President
-51-
<PAGE>
HELLER FINANCIAL LEASING, INC.
By: WALTER R. SCHOULTZ
-------------------------------------
Name: Walter R. Schoultz
Title: Vice President
-52-
<PAGE>
THE CIT GROUP/EQUIPMENT FINANCING INC.
By: SUSAN WILLIAMS
-------------------------------------
Name: Susan Williams
Title: Senior Credit Analyst
-53-
<PAGE>
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not individually (except
to the extent expressly stated herein)
but solely as Indenture Trustee
By: BRETT R. KING
-------------------------------------
Name: Brett R. King
Title: Vice President
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Services
Fax: (802) 246-5053
-54-
================================================================================
FACILITY LEASE
Dated September 30, 1999
Between
WILMINGTON TRUST COMPANY
not in its individual capacity but solely as Owner Trustee,
LESSOR
and
POPE & TALBOT, INC.,
Lessee
================================================================================
This Facility Lease and the rentals and other sums due and to become due
hereunder have been assigned for security to and are subject to a security
interest in favor of First Security Bank, National Association, as Indenture
Trustee under a Trust Indenture and Security Agreement dated as of September 15,
1999 between said Indenture Trustee and the Owner Trustee, as Debtor.
Information concerning such security interest may be obtained from the Indenture
Trustee at its address set forth in Section 20 of this Facility Lease.
<PAGE>
TABLE OF CONTENTS
SECTION HEADING PAGE
PARTIES...................................................................... 1
SECTION 1. INTERPRETATION OF THIS LEASE................................ 1
SECTION 2. ACCEPTANCE OF LEASED PROPERTY............................... 1
SECTION 3. TERM OF LEASE............................................... 1
SECTION 4. RENT PAYMENTS............................................... 1
SECTION 5. INDEMNITIES................................................. 4
SECTION 6. LESSEE'S COVENANTS.......................................... 4
Section 6.1. Nature of Business.......................................... 4
Section 6.2. Mergers and Consolidations.................................. 5
Section 6.3. Lessee Financial Covenants.................................. 5
Section 6.4. Pension Plans............................................... 6
Section 6.5. Certain Notices............................................. 6
SECTION 7. INSURANCE................................................... 8
SECTION 8. MAINTENANCE; MAINTENANCE COSTS AND WARRANTIES;
REPLACEMENT OF PARTS; ALTERATIONS; MODIFICATIONS
AND ADDITIONS...............................................12
SECTION 9. LOCATION AND USE; NO ASSIGNMENT BY LESSEE...................17
SECTION 10. LIENS.......................................................19
SECTION 11. OWNERSHIP AND MARKING.......................................19
SECTION 12. DISCLAIMER OF WARRANTIES; NET LEASE.........................20
SECTION 13. CASUALTY OCCURRENCES; CONDEMNATION;
EARLY TERMINATION; ETC......................................23
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<PAGE>
SECTION 14. ASSIGNMENT BY OWNER TRUSTEE.................................26
SECTION 15. DEFAULTS....................................................27
SECTION 16. RETURN OF FACILITY TO OWNER TRUSTEE.........................32
SECTION 17. [INTENTIONALLY LEFT BLANK]..................................35
SECTION 18. FINANCIAL STATEMENTS AND REPORTS;
INSPECTION AND CERTIFICATES.................................35
SECTION 19. OPTIONS TO RENEW AND PURCHASE...............................38
SECTION 20. MISCELLANEOUS...............................................43
Signatures...................................................................47
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<PAGE>
ATTACHMENTS TO FACILITY LEASE:
SCHEDULE 1 -- Schedule of Periodic Rent Percentages
SCHEDULE 1A -- Schedule of Periodic Rent Allocations
SCHEDULE 2 -- Schedule of Casualty Value
SCHEDULE 3 -- Schedule of Termination Value
SCHEDULE 4 -- Schedule of the Early Purchase Date, Early Purchase
Price and Installment Amounts and Dates
EXHIBIT A -- Description of Major Components of the Facility
EXHIBIT B -- Description of the Facility
EXHIBIT C -- Description of the Site
EXHIBIT D -- Pricing Assumptions
EXHIBIT E -- Form of Lease Supplement
ANNEX I -- Definitions
-iii-
<PAGE>
FACILITY LEASE
FACILITY LEASE, dated September 30, 1999 (this "Lease"), is between
WILMINGTON TRUST COMPANY, a Delaware banking corporation, not in its individual
capacity but solely as owner trustee (the "Owner Trustee") under the Trust
Agreement, as lessor hereunder, and POPE & TALBOT, INC., a Delaware corporation
(the "Lessee").
SECTION 1. INTERPRETATION OF THIS LEASE.
(a) Definitions. The capitalized terms used in this Lease shall have the
respective meanings indicated in Annex I hereto unless elsewhere defined herein
or the context hereof shall otherwise require.
(b) Accounting Principles. Where the character or amount of any asset or
liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Lease, this shall be done in accordance with generally accepted
accounting principles at the time in effect, to the extent applicable, except
where such principles are inconsistent with the requirements of this Lease.
(c) Directly or Indirectly. Where any provision in this Lease refers to
action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken directly
or indirectly by such Person.
SECTION 2. ACCEPTANCE OF LEASED PROPERTY.
The Owner Trustee does hereby lease and let the Leased Property to the
Lessee and the Leased Property is hereby accepted by the Lessee hereunder and
declared to be and constitute the property leased hereunder, all for the Rent
and the Term hereinafter stipulated and upon the terms and conditions herein set
forth.
SECTION 3. TERM OF LEASE.
The basic term of this Lease (the "Basic Term") shall commence on the
Closing Date and shall expire January 2, 2012, subject to earlier termination
pursuant to Sections 13, 15 and 19.
SECTION 4. RENT PAYMENTS.
The Lessee agrees to pay the Owner Trustee the following hereunder:
(a) Rent for Facility. The Lessee hereby agrees to pay to the Owner
Trustee Rent for the Facility (the "Periodic Rent") on each semiannual Rent
Payment Date during the Facility Lease Term, unless the Facility Lease is
earlier terminated in accordance with the express provisions hereof, in an
amount equal to the percentage set forth under the column entitled "Total
Periodic Rent Percentage" opposite such Rent
<PAGE>
Payment Date on Schedule 1 multiplied by the Facility Cost. The Periodic
Rent payable on each Rent Payment Date pursuant to this Section 4(a) shall
be in satisfaction of the Lessee's obligation to pay the Periodic Rent
allocated to each full or partial calendar year during the Facility Lease
Term as set forth on Schedule 1A.
(b) Rent for Site Lease Property. The Lessee agrees to pay the Owner
Trustee Rent for the Site Lease Property (the "Periodic Site Rent") payable
for the Term in consecutive semiannual installments (other than the first
Site Lease Rent payment, which shall be in respect of the period from the
Closing Date to the first Rent Payment Date), each in an amount equal to
the Periodic Site Rent Amount, payable in arrears on each Rent Payment
Date; provided that, so long as the Lessee shall be the landlord under the
Site Lease, the Lessee's obligation to make Periodic Site Rent payments
shall be satisfied by its concurrent right to receive Site Rent under the
Site Lease.
(c) Supplemental Rent. The Lessee agrees to pay to the Owner Trustee,
or to whosoever shall be entitled thereto, any and all Supplemental Rent
promptly as the same shall become due and owing, and in the event of any
failure on the part of the Lessee to pay any Supplemental Rent, the Owner
Trustee shall have all rights, powers and remedies provided for herein or
by law or equity or otherwise in the case of nonpayment of Periodic Rent.
Lessee will, in addition to any other Rent due and payable hereunder, also
pay, as Supplemental Rent, (i) in the case of the termination of this Lease
pursuant to Section 13(d), on the Termination Date, an amount equal to the
Make-Whole Amount, if any, with respect to the principal amount of each
Note to be prepaid as a result of such termination, (ii) in the case of the
purchase of the Facility pursuant to Section 19(f) or 19(g), unless Lessee
shall have assumed the Notes as provided in the Participation Agreement, on
such date of purchase, an amount equal to the Make-Whole Amount, if any,
with respect to the principal amount of each Note to be prepaid as a result
of such purchase, and (iii) in the case of any refinancing of the Notes
pursuant to Section 13 of the Participation Agreement, on the Refunding
Date, an amount equal to the Make-Whole Amount, if any, with respect to the
aggregate principal amount of the Notes being prepaid.
(d) Place and Manner of Payment. All payments to be made by the Lessee
under this Lease shall be made as follows:
(i) Each installment of Periodic Rent shall be paid to the Owner
Trustee by wire transfer to the principal office of the Owner Trustee
at the address thereof provided for payments in Section 20(c);
provided that until the Lessee shall have received notice from the
Indenture Trustee that all Secured Indebtedness has been fully paid
and satisfied, all such payments shall be made by wire transfer to the
office of the Indenture Trustee designated in Section 20(c) or as
otherwise designated from time to time in writing by the Indenture
Trustee;
(ii) The entire amount of any payment of Casualty Value or
Termination Value pursuant to Section 13, of any payment of the
purchase price of the Facility pursuant to Section 19(b), Early
Purchase Price pursuant to
-2-
<PAGE>
Section 19(f) or Burdensome Buyout Price pursuant to Section 19(g),
and any payment pursuant to Section 15 hereof shall be paid to the
Owner Trustee by wire transfer to the principal office of the Owner
Trustee at the address thereof provided for payments in Section 20(c);
provided that until the Lessee shall have received notice from the
Indenture Trustee that all Secured Indebtedness has been fully paid
and satisfied, all such payments shall be made by wire transfer to the
office of the Indenture Trustee designated in Section 20(c) or as
otherwise designated from time to time in writing by the Indenture
Trustee;
(iii) The amount of any payment owing to the Owner Trustee or the
Owner Participant pursuant to Section 7 or 9 of the Participation
Agreement (and by incorporation by reference herein, Section 5 hereof)
and Section 7 hereof (but, in the case of Section 7 hereof, only with
respect to public liability insurance) shall be made directly to the
party to receive the same without regard to the assignment of this
Lease pursuant to Section 14 hereof; and
(iv) All payments other than those above specified shall be made
by the Lessee directly to the party entitled to receive the same.
The Lessee agrees that it will make payments due hereunder by wire
transfer where specified above in immediately available funds consisting of
lawful currency of the United States of America no later than 10:00 A.M.
Portland, Oregon time on the date due to the party to whom such payment is
to be made to such account in any United States bank as such party may from
time to time direct in writing, and where not so specified, such payment
shall be made by check of the Lessee drawn on a bank located in the
continental United States and mailed to the party to receive the same at
the address herein provided or at such other address as the Lessee shall
have been previously advised in writing.
(e) Overdue Payments. The amount of any installment of Periodic Rent
or Periodic Site Rent or any payment of Supplemental Rent remaining unpaid
after the due date thereof shall bear interest at the Late Rate from and
after the due date of such installment or payment and such interest shall
be paid by the Lessee, on demand as Supplemental Rent.
(f) Adjustment of Rent. The Periodic Rent percentage, Casualty Value,
Termination Value and Early Purchase Date and Early Purchase Price tables
attached hereto as Schedules 1, 2, 3 and 4 respectively, have been
calculated on the assumptions (the "Pricing Assumptions") set forth in
Exhibit D hereto.
If for any reason the Closing Date or the Transaction Costs related to
the Facility set forth in Exhibit D hereto shall prove to be incorrect,
then the Owner Participant acting in good faith shall, prior to the first
Rent Payment Date, recompute the factors for Periodic Rent, the Casualty
Value and Termination Value tables and the Early Purchase Date and Early
Purchase Price in order to provide the Owner Participant with the same Net
Economic Return as if such assumptions were accurate; provided, that such
-3-
<PAGE>
adjustments shall comply with the Guidelines and all provisions of the Code
and the Treasury Regulations thereunder, in each case as in effect on the
date of such adjustment, including, without limitation, Section 467 of the
Code and the Treasury Regulations thereunder, in each case as in effect on
the date of such adjustment; and provided, further, that in such
recomputation (i) each installment of Periodic Rent shall be in an amount
sufficient to pay on each installment date the principal of, and interest
on, the Notes due on such date without acceleration, (ii) the Casualty
Value and Termination Value as of any date shall be sufficient to pay the
aggregate unpaid principal amount of, and interest on, the Notes
outstanding as of such date and (iii) the Early Purchase Price shall at all
times exceed the appraiser's estimated fair market value for the Early
Purchase Date. Such recomputation shall be based upon the assumptions and
methods of calculation utilized by the Owner Participant in computing the
amounts thereof originally set forth in this Lease. On or before the first
Rent Payment Date, the Owner Trustee and the Lessee shall execute and
deliver a Lease Supplement, substantially in the form of Exhibit E hereto,
reflecting any revisions to Schedules 1, 2, 3 and 4 hereto, and the
adjustments shall be effective as of said first Rent Payment Date.
(g) Verification of Rental Adjustments. Each notice to the Lessee from
the Owner Participant setting forth the results of any calculation or
recalculation pursuant to paragraph (f) above shall be accompanied by a
letter from the Owner Participant setting forth the reasons for such
calculation or recalculation and stating that such calculation or
recalculation was made using the same methods and, except as to the change
or changes in circumstance giving rise to such adjustment, the same
assumptions as were used in computing the factors for Periodic Rent,
Casualty Values and Termination Values and the Early Purchase Date and
Early Purchase Price in effect prior to such adjustment.
SECTION 5. INDEMNITIES.
The Lessee's indemnity obligations are set forth in Sections 7 and 9 of the
Participation Agreement, which Sections are incorporated herein by reference as
though fully set forth in this Section 5. The Lessee's indemnity obligations
contained in Sections 7 and 9 of the Participation Agreement shall survive the
termination of any of this Lease and the other Operative Agreements and shall
survive the transfer of any Note or the Beneficial Interest and payment of any
or all Notes and the extinguishment of the Beneficial Interest.
SECTION 6. LESSEE'S COVENANTS.
Section 6.1. Nature of Business. Neither the Lessee nor any Subsidiary will
engage in any business if, as a result, the general nature of the business,
taken on a consolidated basis, which would then be engaged in by the Lessee and
its Subsidiaries would be substantially changed from the growing and harvesting
of timber and manufacture and sale of wood products and related businesses
engaged in by the Lessee and its Subsidiaries on the date of this Lease and
described in the Private Placement Memorandum and other businesses incidental or
reasonably related thereto.
-4-
<PAGE>
Section 6.2. Mergers and Consolidations. The Lessee will not consolidate
with, or be a party to a merger with, or sell, lease or otherwise dispose of all
or substantially all of its assets to, any other Person; provided, however, that
the Lessee may consolidate or merge with, or sell all or substantially all of
its assets to, any business entity if:
(i) the surviving or continuing entity or the entity to which all or
substantially all of the Lessee's assets are sold (the "Surviving Entity")
shall be either the Lessee or an entity organized under the laws of the
United States or any state thereof which conducts at least a majority of
its business and has at least a majority of its assets within the United
States, and in the case of any such consolidation or merger in which the
Lessee is not the Surviving Entity or in the case of any such sale, the
Surviving Entity shall (A) expressly assume in writing the due and punctual
performance and observance of all of the covenants in the Operative
Agreements to be performed or observed by the Lessee, and (B) furnish to
the Owner Trustee, the Indenture Trustee and each Participant an opinion of
independent counsel to the effect that the instrument of assumption has
been duly authorized, executed and delivered and constitutes the legal,
valid and binding contract and agreement of the Surviving Entity
enforceable in accordance with its terms (subject to customary limitations
relating to bankruptcy and the enforcement of equitable remedies), which
counsel and opinion shall be reasonably satisfactory to the Owner Trustee
and the Indenture Trustee; and
(ii) at the time of such consolidation or merger or such sale and
after giving effect thereto (A) no Default or Event of Default shall have
occurred and be continuing and (B) the Adjusted Net Worth of the Surviving
Entity shall not be less than the Adjusted Net Worth of the Lessee
immediately prior to such consolidation or merger or such sale.
Section 6.3. Lessee Financial Covenants. Lessee covenants and agrees that
it shall:
(a) maintain a Fixed Charge Coverage Ratio of at least 1.05 to 1, as
measured by reference to the amounts reported for the Lessee's immediately
preceding four fiscal quarters on a rolling basis; provided, however, that
if the Lessee does not meet the Fixed Charge Coverage Ratio for any fiscal
quarter, then the Lessee must maintain, on a consolidated basis, a minimum
balance of $35,000,000 in United States Dollars or United States cash
equivalents (and/or an equivalent amount in Canadian Dollars or Canadian
cash equivalents) until such time as the Lessee is in compliance with the
Fixed Charge Coverage Ratio;
(b) maintain a ratio of Total Funded Debt to Total Adjusted
Capitalization of no more than (i) 62.5% for the fiscal years ending
December 31, 1999, December 31, 2000 and December 31, 2001 and (ii) 55.0%
thereafter; and
(c) maintain a minimum Adjusted Net Worth as of the end of each fiscal
quarter of not less than the sum of (i) U.S.$123,807,000, (ii) 50% of
cumulative consolidated positive net income for each fiscal quarter ending
after March 31, 1999 and (iii) 100% of the value (net of underwriters'
discounts and customary out-of-pocket costs
-5-
<PAGE>
and expenses of issuance) of any Equity Interests issued by the Lessee
since March 31, 1999.
Section 6.4. Pension Plans. (a) The Lessee will not and will not permit any
ERISA Affiliate to withdraw from any Multiemployer Plan if such withdrawal would
result in withdrawal liability (as described in Part 1 of Subtitle E of Title IV
of ERISA) that could reasonably be expected to have a Material Adverse Effect.
The Lessee will not and will not permit any ERISA Affiliate to permit any
employee benefit plan maintained by it to be terminated in a manner which could
result in the imposition of a Lien on any Property of the Lessee or any
Subsidiary pursuant to Section 4068 of ERISA.
(b) The Lessee agrees that all contributions required to be made to the
Canadian Pension Plans to make them fully funded under the Income Tax Act
(Canada) and other applicable Canadian pension legislation will continue to be
made at the time required under applicable Canadian pension legislation.
(c) The Lessee agrees that the required contributions from any Subsidiary
of the Lessee which is a participating employer in any negotiated cost plan, or
substantially similar plan, under applicable Canadian law will continue to be
remitted at the time required under applicable Canadian pension legislation.
Section 6.5. Certain Notices.
(a) Liens. Upon the attachment of an aggregate amount of U.S. $250,000 or
more of Liens on the Leased Property or any part thereof (in either case
excluding any Liens constituting Permitted Encumbrances), the Lessee shall
promptly (and in no event later than ten (10) Business Days after it shall have
obtained knowledge thereof) notify the Owner Trustee and the Indenture Trustee
of the attachment of all such Liens and the full particulars thereof unless the
same shall have been removed or discharged by the Lessee.
(b) Notices of Noncompliance with Applicable Laws. The Lessee shall furnish
to the Owner Trustee and the Indenture Trustee, within five (5) Business Days
after receipt thereof, a copy of any notice or order of any Governmental
Authority asserting that the Lessee is not in compliance with, or may be liable
for contamination originating from or on the Site or the Facility under, any
Applicable Law, if such non-compliance or liability could reasonably be expected
to have a Material Adverse Effect.
(c) Plans and Specifications; Operating Manuals. The Lessee shall maintain
or cause its Affiliates to maintain throughout the Site Lease Term, and keep on
file at its office, a complete set of plans and specifications, including
"as-built" plans and specifications as and when available, with respect to the
Facility (which shall reflect all material Parts incorporated or installed in or
attached to the Facility and all material Alterations made pursuant to Section 8
hereof; provided, however, that such plans and specifications shall as of any
date not be required to reflect any such Parts so incorporated, installed or
attached or any such Alteration made within forty-five (45) days prior to such
date). Upon the expiration of the Term, unless the Lessee has exercised its
option to purchase the Facility and has paid all amounts due and owing in
-6-
<PAGE>
connection therewith, the Lessee shall deliver to the Owner Trustee and the
Indenture Trustee or to the Owner Trustee's designee or the Indenture Trustee's
designee, as the case may be, a complete set of such plans and specifications
and all work drawings and similar documents with respect to the Leased Property
maintained pursuant to the requirements of this Section 6.5(c).
(d) Environmental Event. The Lessee shall promptly, but in any case within
five (5) Business Days, notify each Participant, the Owner Trustee and the
Indenture Trustee if (i) any event has occurred or any condition is discovered
in, on, from or involving the Leased Property or any part thereof involving the
presence, emission or release of Hazardous Materials or the violation of any
applicable Environmental Law that could reasonably be anticipated to result in
penalties or other liabilities in an aggregate amount in excess of
U.S.$1,000,000, or (ii) the Lessee has received notification that it, the Leased
Property or any part thereof is the subject of an Environmental Claim or has
knowledge of any conditions or occurrences at the Leased Property that could
reasonably form the basis of a material Environmental Claim, in either case that
could reasonably be expected to result in any ordered remediation or corrective
action or other liability related to an event or condition with respect to the
Leased Property or any part thereof the cost of which liability is reasonably
expected to exceed U.S.$1,000,000, or (iii) any material and actual or imminent
restriction on the ownership, occupancy, use, productivity or transferability of
the Leased Property arising in connection with any Release, threatened Release
or disposal of a Hazardous Material or any breach or violation of any
Environmental Law, or (iv) any other environmental, natural resource, health or
safety condition which could reasonably be expected to materially and adversely
affect the ability of the Lessee to perform its obligations under the Operative
Agreements (each of (i) through (iv) an "Environmental Event").
Following the receipt of a notice pursuant to the immediately preceding
paragraph, the Owner Trustee may require the Lessee to conduct, or cause to be
conducted, an environmental study by an environmental consultant reasonably
satisfactory to the Owner Trustee (the cost and expenses of such environmental
consultant to be borne by the Lessee) of the Leased Property or any applicable
part thereof on which such Environmental Event or Release shall have occurred,
the scope of which study shall be limited to confirming the magnitude and
anticipated cost of the liability resulting in the Environmental Event and to
provide a copy of the environmental consultant's report on its study to the
Owner Trustee. Notwithstanding the foregoing, if a pattern, in the reasonable
opinion of the Owner Trustee, of such Environmental Events exists, the Owner
Trustee may conduct or require the Lessee to conduct a more comprehensive
environmental study (the cost and expense of such study to be borne by the
Lessee) of the Leased Property or the applicable part thereof to determine the
scope and nature of such pattern. If it is the reasonable opinion of the Owner
Trustee that (i) an Environmental Event has occurred or exists and a Permitted
Remediation (as defined below) is not available or the Environmental Event
cannot be cured through a Permitted Remediation or (ii) the Environmental Event
will result in the cessation of operation of the Facility or the applicable part
thereof for 30 days or more such Environmental Event shall, at the option of the
Owner Trustee, be deemed a Casualty Occurrence with respect to the Leased
Property or the applicable part thereof (an "Environmental Trigger"). A
"Permitted Remediation" means any remediation of an Environmental Event (a) the
cost of which remediation is not anticipated, in the reasonable opinion of the
Owner Trustee, to exceed U.S.$5,000,000; provided that such amount shall be
increased to $15,000,000 if either (1) the Adjusted Net Worth of the Lessee at
the time of
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<PAGE>
determination is not less than the amount set forth in Section 6.3(c)(i), or (2)
the Lessee then carries environmental insurance with respect to the Leased
Property and shall demonstrate to the reasonable satisfaction of the Owner
Trustee and the Indenture Trustee that the insurers thereunder have confirmed
coverage of such remediation under such insurance; provided further that if such
insurance coverage is less than $15,000,000 (at a time when clause (1) is not
applicable), the applicable amount for purposes of determining a Permitted
Remediation shall be the greater of $5,000,000 and the amount of such coverage
(but in no event greater than $15,000,000), (b) during and after which such
Environmental Event it could not be expected to result in any additional
environmental liability incurred by the Owner Trustee for which the Owner
Trustee has not received additional indemnification in an amount and from a
Person satisfactory to the Owner Trustee in its sole discretion and (c)
permitted and effected in material compliance with all applicable Environmental
Laws.
Irrespective of whether an Environmental Trigger has occurred, the Lessee
shall promptly initiate, at its sole cost and expense (provided that, without
derogating from any of the Lessee's obligations hereunder or under of the other
Operative Agreements, nothing herein contained shall be deemed to release or
waive any of the Lessee's rights against any other Person liable to the Lessee
with respect to any Environmental Event or condition), such actions as may be
necessary to comply in all material respects with all applicable Environmental
Laws and to alleviate any significant risk to human health or the environment if
the same arises from an Environmental Event or a condition on or in respect of
the Leased Property or any part thereof, whether existing prior to, on or after
the date of this Lease. Once the Lessee commences such actions, the Lessee shall
thereafter diligently and expeditiously proceed to comply materially and in a
timely manner with all Environmental Laws and to so alleviate any significant
risk to human health or the environment.
SECTION 7. INSURANCE.
(a) Required Insurance Coverages and Limits. The Lessee agrees that it will
at its own cost and expense at all times during the Term:
(i) Keep the Leased Property insured against physical loss including
by fire, windstorm, explosion, flood, subsidence, earthquake, earth
movement and collapse and with all-risk coverage and against all such other
risks as are insured against by the Lessee with respect to property of a
similar character owned or leased by the Lessee, in an amount not less than
the greater of (A) the replacement value of the Facility and (B) the
Casualty Value of the Facility as of the next preceding Rent Payment Date,
which insurance shall (v) cover all materials, equipment, tools and
supplies stored on the Site and to become part of the Leased Property, (w)
cover all portions of the Leased Property while in transit, (x) include
boiler and machinery insurance, (y) include coverage against loss caused by
explosion and breakdown and (z) waive any condition requiring that the
Leased Property be in use or ready for use,
(ii) Maintain commercial general liability insurance with respect to
the Leased Property including liability coverage for premise-operations,
contractual liability, product liability, builder's risk, workmen's
compensation, and owned, non-owned and hired car
-8-
<PAGE>
auto liability, which coverage shall be against damage because of bodily
injury, including death, or damage to property of others, such insurance to
afford protection to the limit of not less than U.S.$1,000,000 combined
single limit per occurrence in respect of bodily injury or property damage
liability and U.S.$2,000,000 in the aggregate and a U.S.$35,000,000
umbrella liability for liabilities in excess of the single limit amounts,
and
(iii) Maintain such other insurance covering such risks and in such
amounts as is customary by corporations owning, operating or leasing
property or engaged in the same or similar business, similarly situated
with the Leased Property and/or the Lessee, to the extent available on
commercially reasonable terms.
The Lessee agrees to maintain all insurance provided for under this Section
7 with good and responsible insurance companies of recognized national
reputation reasonably acceptable to the Owner Trustee and the Participants. Any
policies of insurance carried in accordance with this Section 7 and any policies
taken out in substitution or replacement for any of such policies (1) shall name
the Insured Parties as additional insureds, (2) shall provide that in respect of
the interest of the Insured Parties in such policies the insurance shall not be
invalidated by any action or inaction of the Lessee or any other Person and
shall insure the Insured Parties' interests as they appear, regardless of any
breach or violation of any warranty, declaration or condition contained in such
policies by the Lessee or any other Person, (3) shall provide that, if such
insurance is cancelled for any reason whatsoever, or any substantial change is
made in the coverage which adversely affects the interest of any Insured Party
or if such insurance is allowed to lapse for nonpayment of premium, such
cancellation, change or lapse shall not be effective as to such Insured Party
for 30 days after receipt by such Insured Party of written notice from such
insurers of such cancellation, change or lapse, (4) shall provide that no
Insured Party shall have any obligation or liability for premiums in connection
with such insurance, (5) shall provide that such insurance shall be primary
without right of contribution from any other insurance which may be carried by
any Insured Party with respect to its interest as such in the Leased Property,
(6) shall provide that the insurers shall waive any rights of subrogation
against the Insured Parties, except for claims as shall arise from the willful
misconduct or gross negligence of any such Insured Party, and (7) shall provide
that such insurers shall waive any right of setoff, counterclaim or any other
deduction, whether by attachment or otherwise, in respect of any liability of
any Insured Party. Each liability policy shall expressly provide that all of the
provisions thereof, except the limits of liability, shall operate in the same
manner as if there were a separate policy covering each insured. Each policy
covering casualty insurance required to be carried by paragraph (a)(i) of this
Section 7 shall provide either (y) that any payments for any loss or damage to
the Leased Property shall be paid to the Indenture Trustee (or, if the Secured
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Indebtedness shall have been fully paid and satisfied, to the Owner Trustee), as
loss payee, or (z) that (i) any payments for any loss or damage to the Leased
Property constituting a total or constructive loss or a Casualty Occurrence
shall be paid to the Indenture Trustee (or, if the Secured Indebtedness shall
have been fully paid and satisfied, to the Owner Trustee), as loss payee, (ii)
any payments for any loss or damage to the Leased Property which do not
constitute a total or constructive loss or a Casualty Occurrence and are not in
excess of U.S.$2,500,000 shall be paid to the Lessee (unless the insurer shall
have received notice of a Default or Event of Default, in which case such
payments shall be paid to the Indenture Trustee (or, if the Secured Indebtedness
shall have been fully paid and satisfied, to the Owner Trustee), as loss payee,
and (iii) any payments for any loss or damage to the Leased Property which do
not constitute a total or constructive loss or a Casualty Occurrence and are in
excess of U.S.$2,500,000 shall be paid to the Indenture Trustee (or, if the
Secured Indebtedness shall have been fully paid and satisfied, to the Owner
Trustee), as loss payee), in each case under a standard mortgage loss payable
clause (which clause specifies payment solely to the Indenture Trustee or, if
the Secured Indebtedness shall have been fully paid and satisfied, solely to the
Owner Trustee, and which clause acknowledges that the loss payee shall have no
obligation for unpaid premiums) reasonably satisfactory to the Indenture
Trustee. Any such insurance may be carried under blanket policies maintained by
the Lessee so long as such policies otherwise comply with the provisions of this
Section 7(a). If general public liability insurance shall be carried under any
blanket policy which is subject to aggregate annual claim limitations, the
Lessee shall keep the Owner Trustee advised from time to time of the amount of
any such limitations and the amounts of claims which reduce the available policy
limits.
(b) Adjustment and Payment of Losses. The loss, if any, under any casualty
insurance required to be carried by paragraph (a)(i) of this Section 7 shall be
adjusted with the insurance companies by the Lessee, or otherwise collected,
including the filing of proceedings deemed advisable by the Lessee, subject to
the reasonable approval of the Owner Trustee (and the Indenture Trustee unless
the Secured Indebtedness shall have been fully paid and satisfied) if the loss
exceeds U.S.$2,500,000. The loss so adjusted shall be paid in accordance with
the antepenultimate sentence of Section 7(a). Losses covered by liability
insurance shall be adjusted by and paid to the Person suffering such loss. The
loss, if any, under such insurance shall be adjusted and paid as provided in
this Lease.
(c) Evidence of Insurance. The Lessee shall, on or before the Closing Date,
furnish the Owner Trustee and the Indenture Trustee with certificates or other
satisfactory evidence of maintenance of the insurance required hereunder and
shall with respect to any renewal policy or policies, furnish certificates
evidencing such renewal not less than ten days prior to the expiration date of
the original policy or policies. Each such certificate or other evidence of
insurance shall identify the insurance carrier, the type of insurance, the
coverage limits, annual aggregate limits, if any, and the policy term. Upon the
reasonable request of the Owner Trustee, the Indenture Trustee or any
Participant, the Lessee shall provide, or cause to be provided, a report by
Marsh USA Inc. or another firm of independent insurance brokers (which may be
the Lessee's regular insurance agency) chosen by the Lessee and satisfactory to
the Owner Trustee and the Indenture Trustee setting forth the insurance obtained
by the Lessee pursuant to this Section 7 and then in effect (or to be in effect,
in the case of renewals) and stating whether, in the opinion of such firm, such
insurance complies with the requirements of this Section 7. The Lessee will
cause such firm to advise each Insured Party in writing promptly of any default
in the payment of any premium and of any other act or omission on the part of
the Lessee of which such firm has knowledge and which might invalidate or render
unenforceable, in whole or in part, any insurance on the Leased Property. The
Lessee will also cause such firm to advise each Insured Party in writing
promptly upon such firm acquiring knowledge that an interruption or reduction of
any insurance carried and maintained on the Leased Property pursuant to this
Section 7 will occur.
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(d) Application of Insurance Proceeds. All insurance proceeds from policies
required to be maintained hereunder received by or payable to the Owner Trustee
on account of any damage to or destruction of the Leased Property or any part
thereof (less the actual costs, fees and expenses incurred in the collection
thereof) shall be applied or dealt with as follows:
(i) All such proceeds actually received on account of any such damage
or destruction other than a Casualty Occurrence shall be paid over to the
Lessee or as it may direct from time to time as restoration, replacement
and rebuilding of the Leased Property ("Restoration") progresses to pay (or
reimburse the Lessee for) the cost of Restoration, if the amount of such
proceeds received by the Owner Trustee, together with such additional
amounts, if any, theretofore expended by the Lessee out of its own funds
for Restoration are sufficient to pay the estimated cost of completing
Restoration, but only upon a written application of the Lessee accompanied
by an Officer's Certificate of the Lessee stating that no Default or Event
of Default has occurred and is continuing under this Lease and showing, in
reasonable detail, (A) the nature of Restoration, (B) that such Restoration
is intended to restore the Facility to Design Capacity (normal wear and
tear excepted), (C) the actual cash expenditures made to date for
Restoration, and (D) the estimated cost (which, if requested by the Owner
Trustee, shall be verified by an accompanying certificate of an engineer or
architect not an employee of the Lessee) to complete Restoration. Upon the
written request of the Lessee, accompanied by evidence reasonably
satisfactory to the Owner Trustee that Restoration has been completed and
the costs thereof paid in full, that the Facility is capable of operating
at Design Capacity (normal wear and tear excepted) and that the Leased
Property is not subject to mechanics' or similar Liens for labor or
materials supplied in connection therewith, the balance, if any, of such
proceeds shall be paid over or assigned to the Lessee or as it may direct.
(ii) All such proceeds received or payable on account of a Casualty
Occurrence shall be paid over or assigned to the Lessee or as it may direct
after receipt by the Owner Trustee (or, so long as the Secured Indebtedness
shall not have been fully paid and satisfied, the Indenture Trustee) of the
Casualty Value of the Facility and payment of all other amounts due
hereunder.
(iii) Pending application pursuant to subparagraph (i) or (ii) above,
all such proceeds held from time to time by the Owner Trustee (or, so long
as the Secured Indebtedness shall not have been fully paid and satisfied,
the Indenture Trustee) shall be invested and reinvested by the Owner
Trustee or the Indenture Trustee, as the case may be, in accordance with
the provisions of Section 20(i).
(e) Insurance for Own Account. Nothing in this Section 7 shall limit or
prohibit the Owner Trustee, any Participant, the Owner Participant Guarantor or
the Lessee from obtaining, at its own expense, additional insurance for its own
account and any proceeds payable thereunder shall be payable in accordance with
the insurance policy relating thereto, provided that no such insurance may be
obtained which would limit or otherwise adversely affect the coverage of any
insurance required to be maintained pursuant to this Section 7, and provided,
further, that nothing in this clause (e) shall impose any obligation on the
Owner Trustee, any Participant, the Owner Participant Guarantor or the Lessee to
obtain any such additional insurance.
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<PAGE>
(f) Application of Payments During Existence of an Event of Default. Any
amount referred to in this Section 7 which is payable to or retainable by the
Lessee shall not be paid to or retained by the Lessee if at the time of such
payment or retention a Default or Event of Default shall have occurred and be
continuing, but shall be held by or paid over to the Owner Trustee (or, so long
as the Secured Indebtedness shall not have been fully paid and satisfied, the
Indenture Trustee) as security for the obligations of the Lessee under this
Lease and, if a Default or Event of Default shall have occurred and be
continuing, applied against the Lessee's obligations hereunder as and when due.
At such time as there shall not be continuing any such Default or Event of
Default, such amount shall be paid to the Lessee in accordance with the
foregoing provisions of this Section 7 to the extent not previously applied in
accordance with the preceding sentence.
SECTION 8. MAINTENANCE; MAINTENANCE COSTS AND WARRANTIES; REPLACEMENT OF PARTS;
ALTERATIONS; MODIFICATIONS AND ADDITIONS.
(a) Maintenance. The Lessee at its sole cost and expense shall maintain,
service and repair the Leased Property to keep it (i) in as good operating
condition and capable of operating at Design Capacity, (ii) in such condition so
as to have the capacity and functional ability to perform, on a daily basis in
commercial operation, the functions for which it was designed, in accordance
with the Plans, and (iii) in such condition as the Lessee would, in the prudent
management of its own properties, maintain, service and repair similar property
owned by the Lessee and in any event, to the extent required to maintain the
Leased Property in good repair in a manner consistent with prudent industry
practice and in compliance in all material respects with all Applicable Laws,
rules and regulations, noncompliance with which might result in the imposition
of a penalty on any Indemnified Party or materially adversely affect the Leased
Property or the operation thereof. The Lessee shall comply with such repair and
maintenance standards and schedules as are required to enforce warranty claims
against the manufacturers and suppliers of the Leased Property or which are
otherwise established by such manufacturers and suppliers as recommended
operating procedures and any standards imposed by any insurance policies in
effect with respect to the Leased Property. The Lessee shall maintain at the
Facility, in accordance with the Lessee's practices existing on the date of this
Lease, a maintenance log with respect to the Leased Property, which shall
include the details of all material maintenance and repairs performed on the
Leased Property. In the event of any damage to or destruction of the Leased
Property, or any part thereof, by fire or other casualty, unless this Lease
shall be terminated pursuant to Section 13, the Lessee shall, at its own
expense, with reasonable promptness, repair, restore or rebuild the same so that
upon the completion of such repair, restoration or rebuilding the Leased
Property shall be in the condition required by the provisions of this Section
8(a) and so that the current and residual value and utility of the Leased
Property shall be at least equal to the current and residual value and utility
of the Leased Property immediately prior to the occurrence of such casualty
assuming that the Leased Property was then in the condition required to be
maintained by the terms of this Lease.
(b) Maintenance Costs and Warranties. The Lessee agrees to pay all costs,
expenses, fees and charges incurred in connection with (i) the use and operation
of the Leased Property by the Lessee during the Term hereof, including but not
limited to repairs, maintenance, storage and servicing as provided in this
Section 8 and (ii) the preserving and protecting of the Leased
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Property, and the repairing, maintaining and servicing of the Leased Property as
provided in this Section 8, during the period after a termination of the
Lessee's right of possession of the Facility and the Site pursuant to Section 15
and prior to the interest of the Owner Trustee in the Leased Property being
leased or sold to a third person (not the Owner Trustee, the Indenture Trustee,
or any Participant, or any Affiliate of any thereof, in connection with the
exercise of their rights in the Leased Property under the Operative Agreements)
by the Owner Trustee (or the Indenture Trustee or any Participant, or any
Affiliate thereof, in connection with the exercise of their rights under the
Operative Agreements). So long as no Event of Default has occurred and is
continuing, the Owner Trustee hereby constitutes the Lessee the agent and
attorney-in-fact of the Owner Trustee for the purpose of exercising and
enforcing, and with full right, power and authority to exercise and to enforce,
all of the right, title and interest of the Owner Trustee in, under and to the
warranties and obligations of any supplier of goods or services in respect of
the Leased Property and agrees to execute and deliver such further instruments
as may be necessary to enable the Lessee to obtain goods or services furnished
for the Leased Property by said suppliers. The Owner Trustee shall have no other
obligation or duty with respect to any of such matters. Any proceeds obtained by
the Lessee from the enforcement of the warranties and obligations of any
supplier of goods or services in respect of the Facility shall be held by the
Lessee and applied from time to time to the repair and maintenance of the
Facility, and any balance thereof remaining at the expiration of the Term shall
be paid over to the Owner Trustee or as it may direct, unless the Lessee has
exercised its option to purchase the Facility and all amounts due and owing by
the Lessee under this Lease or any of the other Operative Agreements have been
paid in full, in which case the balance remaining shall be paid to the Lessee.
(c) Replacement of Parts and Components. The Lessee at its sole cost and
expense, will, with reasonable promptness, replace all appliances, parts,
instruments, appurtenances, accessories, furnishings and other equipment of
whatever nature:
(i) which may from time to time constitute a part of the Facility
(herein for the purpose of this Section 8 collectively called "Parts"), and
(ii) which may from time to time be incorporated or installed in or
attached to the Site Lease Property (herein for the purpose of this Section
8 collectively called "Components")
and which may from time to time become worn out, lost, stolen, destroyed,
seized, confiscated, damaged beyond repair or permanently rendered unfit for use
for any reason whatsoever. All replacement Parts and Components shall be free
and clear of all Liens and rights of others except Permitted Encumbrances and
shall be in as good operating condition as, and shall have a current and
residual value, useful life and utility at least equal to, the Parts or
Components replaced, assuming that such replaced Parts or Components were in the
condition required to be maintained by the terms hereof, and shall be in the
condition and repair required to be maintained by the terms hereof.
All Parts owned by the Owner Trustee at any time removed from the Facility
shall remain the property of the Owner Trustee, no matter where located, until
such time as such Parts shall be replaced by Parts which have been incorporated
or installed in or attached to the Facility and
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<PAGE>
which meet the requirements for replacement Parts specified above. Immediately
upon any such replacement Part becoming incorporated or installed in or attached
to the Facility as above provided, without further act, (A) title to the removed
Part shall thereupon vest in the Lessee or such person as shall be designated by
the Lessee, free and clear of all rights of the Owner Trustee, and shall no
longer be deemed a Part hereunder, (B) title to such replacement Part shall
thereupon vest in the Owner Trustee, free and clear of all Liens (other than
Permitted Encumbrances) and (C) such replacement Part shall become subject to
this Lease and be deemed part of the Facility for all purposes to the same
extent as the Parts originally incorporated or installed in or attached to such
Facility.
(d) Required Alterations. The Lessee, at its sole cost and expense, shall,
with reasonable promptness, make such repairs, alterations, modifications,
reconfigurations, improvements and additions (herein for the purpose of this
Section 8 collectively, including, for the avoidance of doubt, the CLO2 System,
called "Alterations") to the Leased Property, and shall obtain and maintain all
applicable Permits necessary for the construction and operation of such
Alterations, as may be required from time to time to meet the requirements of
Applicable Law or of any insurance policies in effect with respect to the Leased
Property unless prior to the time at which such Alterations became required
pursuant to such Applicable Law or insurance policies the Lessee shall have
given the Owner Trustee notice of the termination of this Lease pursuant to
Section 13(d). If the Lessee determines in good faith that the cost of any
Alteration (other than the CLO2 Alteration required under this Section 8(d)) is
greater than $1,000,000, the Lessee may request a determination of the Fair
Market Sales Value of the Facility pursuant to Section 19(a) of this Lease and
may, upon not less than 90 days' prior written notice to the Owner Trustee,
elect to close the Facility and either purchase the Facility or terminate this
Facility Lease pursuant to the next succeeding paragraph.
Such written notice shall be accompanied by an Officer's Certificate of the
Lessee specifying the required Alteration, the Lessee's good faith determination
of the cost of such Alteration and that, as a result of such cost, the Lessee
has elected to close the Facility. Such written notice shall specify either (i)
that the Lessee has elected to and shall purchase the Facility pursuant to
Section 19(f), provided that the Early Purchase Date for purposes of Section
19(f) shall be the next succeeding Rent Payment Date that is at least 90 days
after the date of such written notice and the Early Purchase Price for purposes
of Section 19(f) shall be the greater of Fair Market Sales Value of the
Facility, as determined in accordance with Section 19(a) hereof and the
Termination Value on such Early Purchase Date, or (ii) that the Lessee has
elected to and shall terminate this Lease pursuant to Section 13(d) as of the
next succeeding Rent Payment Date that is at least 180 days after the date of
such written notice.
(e) Optional Alterations. (i) The Lessee, at its sole cost and expense, may
from time to time make such Alterations to the Facility as the Lessee may deem
desirable in the proper conduct of its business and which are not inconsistent
with, and would not impair, the continuing operation of the Facility in
accordance with its original functional purpose; provided, that any such
Alteration made by the Lessee pursuant to this paragraph shall not diminish the
value, utility, condition or remaining economic useful life and estimated
residual value of the Facility to the Owner Trustee below the value, utility,
condition, remaining economic useful life and estimated residual value thereof
to the Owner Trustee immediately prior to such Alteration
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<PAGE>
assuming that the Facility was then in the condition required to be maintained
by the terms of this Lease. Unless the Lessee has exercised its option to
purchase the Facility pursuant to Section 19 of this Lease and has paid all
amounts due and owing under this Lease or any of the other Operative Agreements,
at the Owner Trustee's request, the Lessee will remove any readily removable
Alterations under this paragraph prior to the end of the Term at the Lessee's
sole cost and expense.
(ii) The Lessee, at its own expense, shall have the right to erect,
alter or abandon structures, improvements, personal property, ramps,
ditches, roadways, drainage and sanitary systems, supply lines for
materials and utilities on the Site Lease Property, to grant licenses,
rights, and easements respecting the same and otherwise to affect the Site
Lease Property in any manner which the Lessee shall deem necessary or
advisable for the operation of the Facility or the Site Lease Property as
originally erected or from time to time altered by the Lessee; provided
that there shall be no material interference with or impairment of the
operation of the Leased Property and no adverse effect on the current or
residual value, useful life or utility of the Leased Property resulting
therefrom, and that all such licenses, rights and easements granted
pursuant to this sentence shall be subject and subordinate to this Lease
and the Site Lease. Provided that the foregoing conditions have been met
and subject to all other provisions of this Lease, including, without
limitation, maintenance requirements, the Owner Trustee agrees to accept
such structures, improvements, personal property, ramps, ditches, roadways,
drainage and sanitary systems, supply lines for materials and utilities
thereon, in an "as-is" condition at the time the Lessee's rights under this
Lease of possession and use of the Facility and the Site shall cease.
(f) Title to Parts. (i) Title to all Parts and Alterations (other than the
CLO2 System and the CLO2 System Prior to Completion, the disposition of each of
which shall be governed by Section 8(i)) incorporated or installed in or
attached to the Facility shall without further act vest in the Owner Trustee
free and clear of all Liens (other than Permitted Encumbrances) and shall be
deemed to constitute a part of the Facility and be subject to this Lease in the
following cases:
(A) such Part or Alteration is in replacement of or in substitution
for, and not in addition to, any Part constituting a part of the Facility
at the time of the acceptance thereof hereunder or any such original part;
(B) such Part or Alteration is required to be incorporated or
installed in or attached to the Facility pursuant to the terms of
paragraphs (a), (c) or (d) of this Section 8; or
(C) such Part or Alteration cannot be readily removed from the
Facility without (1) impairing the continuing operation of the Facility in
accordance with its original functional purpose, (2) materially damaging
the Facility, or (3) materially diminishing the value of the Facility or
diminishing the utility, condition, remaining economic useful life or
estimated residual value, below the value, utility, condition, remaining
economic useful life and estimated residual value thereof immediately prior
to such removal, assuming that the Facility was then in the condition
required to be
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<PAGE>
maintained by the terms of this Lease and (except in the case of a Part or
Alteration referred to in clause (A) or (B) above) such Part had not been
added, or such Alteration made, to the Facility.
(ii) Title to any other Parts and Alterations (other than the CLO2
System or the CLO2 System Prior to Completion, the disposition of each of
which shall be governed by Section 8(i)) shall remain with the Lessee and
such Parts and Alterations shall not be deemed to constitute part of the
Facility in determining either the Fair Market Sales Value or the Fair
Market Rental Value of the Facility; provided, however, that any such part
which is not removed by the Lessee prior to the termination of this Lease
shall become the property of the Owner Trustee.
(g) Option to Purchase Additional Parts and Optional Alterations. The Owner
Trustee shall have the option upon the expiry or earlier termination of the Term
hereunder to purchase any right, title or interest of the Lessee (to the extent
that such right, title or interest is transferable) in and to any Part that
remains the property of the Lessee pursuant to Section 8(f)(ii) for the Fair
Market Sales Value thereof as of such date. The Owner Trustee shall give the
Lessee written notice at least 60 days prior to the expiry or earlier
termination of the Term as to its election to exercise the purchase option
provided for in the preceding sentence; provided however, that if this Lease is
terminated due to the occurrence of an Event of Default hereunder, only 15 days
prior written notice prior to the return of the Leased Property shall be
required.
(h) Other Parties Not Obligated to Maintain or Repair. The Owner Trustee,
the Indenture Trustee and each Participant shall not under any circumstances be
required to make any repairs, replacements, Alterations or renewals of any
nature or description to the Leased Property, make any expenditure whatsoever in
connection with this Lease or maintain the Leased Property in any way. The
Lessee waives any right to (i) require the Owner Trustee, the Indenture Trustee
or any Participant to maintain or repair all or any part of the Facility or (ii)
make repairs at the expense of the Owner Trustee, the Indenture Trustee or any
Participant pursuant to any Applicable Law, contract, agreement, or covenant,
condition or restriction in effect at any time during the Term.
(i) CLO2 Collateral. As security for the due and punctual payment and
performance by the Lessee of its obligations hereunder and under the other
Operative Agreements, the Lessee hereby grants, bargains, assigns, pledges and
confirms to the Owner Trustee a security interest in and Lien upon, all right,
title and interest in, to and under the CLO2 System Prior to Completion and the
CLO2 System and all proceeds of each of the foregoing (the "CLO2 Collateral")
and consents to the assignment of such security interest in and Lien upon the
CLO2 Collateral to the Indenture Trustee pursuant to the Indenture, as security
for the payment of the Notes. To perfect the security interest and Lien granted
by the Lessee to the Owner Trustee in the CLO2 Collateral, the Lessee shall
execute and deliver to the Owner Trustee UCC financing statements in proper form
for filing with respect to the Lien and the security interest created hereunder
in the CLO2 Collateral and with respect to the assignment of such security
interest and Lien as contemplated hereby. Title to the CLO2 Collateral shall,
without further act, vest in the Owner Trustee, and such title shall be free and
clear of all Liens (other than Permitted Encumbrances) upon the
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occurrence of the date by which written notice of the exercise of the Burdensome
Buyout option pursuant to Section 19(g) is required to be given without such
notice having been given.
SECTION 9. LOCATION AND USE; NO ASSIGNMENT BY LESSEE.
(a) Location and Use. (i) The Lessee agrees that the Facility will be used
solely in the conduct of its business and solely by qualified personnel and will
at all times be and remain in the exclusive possession and control of the Lessee
at the Site, provided that the Lessee may deliver possession of any part or
portion of the Facility to any manufacturer, contractor, supplier or mechanic
designated by the Lessee for purposes of realizing the benefits of any warranty
or in order to comply with the obligations and rights of the Lessee under
Section 8, but the rights of any such party in possession of such part or
portion of the Facility shall be subject and subordinate to the terms of this
Lease, including without limitation, the right of the Owner Trustee to take
possession of the Facility pursuant to Section 15. In the event that pursuant to
the foregoing sentence hereof any part or portion of the Facility having a value
in excess of 1% of the then Casualty Value is removed from Linn County, Oregon,
the Lessee shall give the Owner Trustee and the Indenture Trustee not less than
30 days' prior written notice of such removal and shall deliver to the Owner
Trustee and the Indenture Trustee promptly after such removal, and in any event
within 10 days thereafter, the opinion of the Lessee's counsel that such removal
shall not impair or adversely affect the ownership of such part or portion of
the Facility by the Owner Trustee, that all necessary recordings and filings
under Applicable Law have been duly made in the public offices wherein such
recordings or filings are necessary to protect the validity and effectiveness of
this Lease and the Indenture (including the maintenance of the perfection of
security interest thereof in the removed part or portion) and that all fees,
taxes and charges payable in connection therewith have been paid in full by the
Lessee. The Lessee shall not change the use of the Leased Property as a pulp
mill without the Owner Trustee's prior written consent. The Lessee will not do
or permit any act or thing that may impair the value of the Leased Property or
any part thereof (provided that actions by the Lessee expressly required by
Section 8 of this Lease shall not be deemed to impair the value of the Leased
Property) or that materially increases the dangers, or poses an unreasonable
risk of harm, to third parties (on or off the Leased Property) arising from
activities thereon, or that constitutes a public or private nuisance or waste to
the Leased Property or any part thereof. The Lessee agrees that it will not use
the Leased Property if it has failed to procure or maintain insurance to the
extent required by Section 7 herein.
(ii) The Lessee agrees that the Leased Property will at all times be
maintained, used and operated under and in compliance in all material respects
with all Applicable Laws; provided, however, that the Lessee may contest the
application of any such rule, regulation or order in good faith and by
appropriate proceedings, but only so long as such proceedings do not involve any
danger of criminal liability or a material danger of civil liability of the
Owner Trustee, the Indenture Trustee or any Participant, or a material danger of
the sale, forfeiture or loss of the Leased Property, any portion thereof or any
interest of the Owner Trustee, the Indenture Trustee or any Participant therein.
The Lessee and the Leased Property shall comply in all material respects with
all applicable Environmental Laws and the Lessee shall obtain and maintain in
good standing all Governmental Approvals required for the operations of the
Facility by any applicable Environmental Law. The Lessee shall not (A) own or
operate on the Site (1) except in
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compliance in all material respects with Environmental Laws, any underground
storage tank, (2) except in compliance in all material respects with
Environmental Laws, material amounts of asbestos containing building material,
or (3) landfill or dump, (B) use, generate, treat, store or dispose of Hazardous
Materials at or on the Site in quantities materially greater than that which is
customary for operations similar to those of the Lessee at the Site, or (C)
conduct any activity on the Site or use the Leased Property in any manner (1)
which would cause the Leased Property to become a hazardous waste treatment,
storage or disposal facility within the meaning of RCRA or any similar state law
or local ordinance, (2) so as to cause a material Release or threat of Release
of any Hazardous Material from or at the Site, to cause the Site to become a
site on or nominated for the National Priority List promulgated pursuant to
CERCLA or any state priority list promulgated pursuant to any similar state law,
or (3) so as to cause a discharge of pollutants or effluents into any water
source or system, or the discharge into the air of any emissions, which would
require a permit under the Federal Water Pollution Control Act, 33 U.S.C.
ss.ss.1251 et seQ., or the Clean Air Act, 42 U.S.C. ss.ss.741, et seq., or any
similar state law or local ordinance, unless such a perMit shall be in full
force and effect and such discharge shall be in full compliance therewith. At
its sole expense (but without thereby waiving any claims it may have against
third parties), the Lessee will conduct any investigation, study, sampling and
testing, and undertake any cleanup, removal, remedial or other response action
necessary to remove, clean up or abate any material quantity of Hazardous
Material which is Released or disposed of at or on the Site in accordance with
any applicable Environmental Law and any order or directive from a Governmental
Authority having jurisdiction, except to the extent the Lessee is diligently
contesting any applicable Environmental Law or any order or directive from a
Governmental Authority, so long as such contest is in good faith and by
appropriate proceedings, but only so long as reserves deemed by the Lessee to be
adequate are maintained and such proceedings do not involve any danger of
criminal liability or a material danger of civil liability of the Owner Trustee,
the Indenture Trustee or any Participant, or a material danger of the sale,
forfeiture or loss of the Leased Property, any portion thereof or any interest
of the Owner Trustee, the Indenture Trustee or any Participant therein.
(b) No Assignment by Lessee; Permitted Subleases. The Lessee agrees that,
without the prior written consent of the Owner Trustee and the Indenture
Trustee, the Lessee will not assign, transfer (except a transfer in accordance
with Section 6.2) or sublease its right in respect of the Leased Property under
this Lease, or permit its rights or interest hereunder to be subject to any Lien
other than Permitted Encumbrances; provided that the Lessee may, without the
consent of the Owner Trustee or the Indenture Trustee, enter into (i)
year-to-year subleases of a portion or portions of the Site for agricultural
purposes on terms consistent with the Lessee's practice with respect to such
subleases as of the Closing Date and not interfering with the use and operation
of the Facility, and (ii) any other sublease of the Leased Property subject to
the following conditions: (A) the sublessee shall agree in writing to comply
with all of the terms and provisions of this Facility Lease during the period of
said sublease, (B) the rights of any person who receives possession of the
Leased Property shall be subject and subordinate to all the terms of this Lease,
(C) such sublease shall expressly state that it is subject and subordinate to
the terms of this Facility Lease and all rights of the Owner Trustee hereunder,
including, without limitation, the right of the Owner Trustee to repossess the
Leased Property pursuant to Section 15 hereof and to avoid such sublease upon
termination of this Facility Lease notwithstanding the fact that no default may
have occurred and be continuing under such sublease, (D) no such
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sublease shall extend beyond the remaining Term of this Lease, (E) such sublease
shall expressly prohibit by its terms any sub-sublease by the sublessee
thereunder and shall not contain any option for the sublessee to purchase the
Leased Property or any part thereof except that Lessee may grant to any such
sublessee an option to purchase the Leased Property, or assign to a sublessee
its options to purchase the Leased Property under Sections 19(b), (f) or (g),
provided that (i) the sublessee's purchase price payable to the Lessee with
respect to its options shall exceed the price payable under the Lessee's
corresponding options under Sections 19(b), (f) or (g), and (ii) the sublessee's
purchase option is exercisable only on the same dates and subject to the same
notices as the Lessee's options under Sections 19(b), (f) or (g), as the case
may be, (F) the sublessee shall not at the date of execution of such sublease be
subject of any bankruptcy, liquidation or similar proceeding or have a negative
net worth (as set forth in such sublessee's most recent available financial
statements), and (G) such sublease shall be assigned to the Owner Trustee as
security for the Lessee's obligations hereunder and under the other Operative
Agreements and further assigned by the Owner Trustee to the Indenture Trustee as
additional collateral under the Indenture, in each case pursuant to agreements
in form and substance reasonably satisfactory to the Owner Trustee and the
Indenture Trustee, and the Lessee shall cause such agreements (or financing
statements or other notices with respect thereto) to be filed in all public
offices necessary to perfect the rights of the Owner Trustee and the Indenture
Trustee in such sublease.
No assignment or sublease of any of the rights of the Lessee hereunder shall
relieve the Lessee of any of its obligations, liabilities or duties hereunder
which shall be and remain those of a principal and not a guarantor.
SECTION 10. LIENS.
The Lessee agrees that it will keep the Leased Property free and clear of
any and all Liens other than Permitted Encumbrances. Lessee shall promptly, at
its own expense, take such action as may be necessary to duly discharge any such
Lien if the same shall arise at any time.
SECTION 11. OWNERSHIP AND MARKING.
(a) Ownership. The Lessee acknowledges and agrees that it does not and will
not have or obtain any title to the Facility, nor any property right or
interest, legal or equitable, therein except its right and interest as lessee
hereunder and subject to all the terms hereof. The Lessee understands and
acknowledges that the Facility is owned by the Owner Trustee, and mortgaged to
the Indenture Trustee pursuant to the Indenture.
(b) Facility Personal Property. It is the intent of the parties hereto that
the Facility shall be and remain personal property notwithstanding the manner in
which the Facility may be attached or affixed to realty. Further, the Lessee and
the Owner Trustee agree that the Facility shall for purposes of the laws of the
State of Oregon be personal property and not real property. In the event that,
notwithstanding the foregoing, a court of competent jurisdiction shall make a
final determination that some part or portion of the Facility constitutes real
property under Applicable Law, then this Lease shall be deemed to be and shall
be construed as a divisible and severable contract between the Owner Trustee and
the Lessee for the leasing of, respectively, (i)
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the part or portion of the Facility so determined to constitute real property
under Applicable Law and (ii) the remainder of the Facility, all to the same
extent and with the same force and effect as though a separate lease had been
entered into by the Owner Trustee and the Lessee in respect of the part or
portion of the Facility so determined to constitute real property and the
remainder of the Facility, and the amount of each installment of Rent payable in
respect of the part or portion of the Facility so determined to constitute real
property shall bear the same relationship to the aggregate amount of such
installment of Rent as the cost to the Owner Trustee of such part or portion of
the Facility so determined to constitute real property shall bear to the
Facility Cost.
There shall be no merger of this Facility Lease nor of the leasehold estate
created hereby with any other estate in the Facility or the Site, or any part
thereof, by reason of the fact that the same Person may acquire or own such
estates, directly or indirectly.
(c) Marking. The Lessee shall promptly cause each component of the Facility
identified in Exhibit A hereto to be plainly, permanently and conspicuously
marked by stenciling or by a metal tag or plate affixed thereto, setting forth
the following legend:
THIS FACILITY IS OWNED BY WILMINGTON TRUST COMPANY AS OWNER
TRUSTEE, IS LEASED BY SAID OWNER TRUSTEE TO POPE & TALBOT,
INC. AND IS SUBJECT TO A SECURITY INTEREST GRANTED TO FIRST
SECURITY BANK, NATIONAL ASSOCIATION, AS INDENTURE TRUSTEE.
The Lessee covenants and agrees to replace any stenciling, tag or plate and sign
or marker which may be removed or destroyed or become illegible and to indemnify
each Indemnified Party against any liability, loss or expense incurred by any of
them as a result of the failure to maintain such markings.
SECTION 12. DISCLAIMER OF WARRANTIES; NET LEASE.
(a) Disclaimer of Warranties. Without waiving any claim the Lessee or the
Owner Trustee may have against any seller, supplier or manufacturer, the Lessee
acknowledges and agrees that (i) the Leased Property is of a design, capacity
and manufacture selected by the Lessee, (ii) the Lessee is satisfied that the
Leased Property is suitable for its purposes, (iii) the Owner Trustee is not a
manufacturer nor a dealer in property of such kind, (iv) the Leased Property is
leased hereunder subject to the rights of any parties in possession of the Site
and the state of the title to the Site and the rights of ownership in the Site
at the time the Leased Property becomes subject to this Lease and to all
applicable zoning regulations, restrictions, laws and ordinances, building
restrictions, and other laws and governmental regulations now in effect or
hereafter adopted and in the state and condition of every part thereof when the
same first becomes subject to this Lease, without representation or warranty of
any kind by the Owner Trustee, and (v) THE OWNER TRUSTEE LEASES THE LEASED
PROPERTY AS-IS WITHOUT WARRANTY OR REPRESENTATION EITHER EXPRESS OR IMPLIED AS
TO (A) THE FITNESS FOR ANY PARTICULAR PURPOSE OR MERCHANTABILITY OR DESIGN OR
QUALITY OF THE LEASED PROPERTY, (B) THE ABSENCE OF ANY INFRINGEMENT OF ANY
PATENT, TRADEMARK OR COPYRIGHT, (C) THE OWNER TRUSTEE'S TITLE THERETO OR
INTEREST THEREIN, (D) THE LESSEE'S RIGHT TO THE QUIET
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ENJOYMENT THEREOF, OR (E) ANY OTHER MATTER WHATSOEVER. It is agreed that, as
between the Indemnified Parties and the Lessee, all risks incident to the
matters discussed in the preceding sentence are to be borne by the Lessee. The
provisions of this Section 12 have been negotiated by the Owner Trustee and the
Lessee and are intended to be a complete exclusion and negation of any
representations or warranties of the Indemnified Parties, express or implied,
with respect to the Leased Property that may arise pursuant to any law now or
hereafter in effect, or otherwise.
(b) Net Lease; Non-Terminability. (i) This Lease is a net lease, and it is
intended that the Lessee shall pay all costs and expenses of every character,
whether seen or unforeseen, ordinary or extraordinary or structural or
non-structural, in connection with the use, operation, maintenance, repair and
reconstruction of the Leased Property by the Lessee, including the costs and
expenses particularly set forth in this Lease. The Rent which the Lessee is
obligated to pay shall be paid without notice or demand and without set-off
(other than with respect to Periodic Site Rent as expressly provided in Section
4(b)), counterclaim, abatement, suspension, deduction or defense.
(ii) Except as otherwise expressly provided, this Lease shall not
terminate, nor shall the Lessee have any right to terminate this Lease or be
entitled to abatement, suspension, deferment or reduction of any Rent which the
Lessee is obligated to pay hereunder, nor shall the obligations hereunder of the
Lessee be affected, by reason of (A) any defect in the condition,
merchantability, design, construction, operation, durability, quality or fitness
for use of the Leased Property or any portion thereof or the failure of the
Leased Property to comply with all Applicable Laws, including any inability to
use the Leased Property by reason of such non-compliance; (B) any defect in
title or rights to the Leased Property, or the existence of any Liens with
respect to the Leased Property or any part thereof; (C) any damage to, removal,
abandonment, salvage, loss, theft, contamination of, scrapping or destruction of
the Leased Property or any portion thereof; (D) the taking of the Leased
Property or any portion thereof by condemnation, confiscation, requisition,
eminent domain or otherwise; (E) any prohibition, limitation, restriction,
prevention, interruption, cessation or curtailment of or interference with any
use or possession of the Leased Property or any portion thereof, or any eviction
by paramount title or otherwise; (F) the termination or loss of the Owner
Trustee's interest under the Site Lease or any other lease, sublease,
right-of-way, easement or other interest in personal or real property upon or to
which any portion of the Leased Property is located, attached or appurtenant or
in connection with which any portion of the Leased Property is used or which
otherwise affects or may affect the Owner Trustee's ownership of or right to use
the Leased Property or any portion thereof; (G) the inadequacy or incorrectness
of the description of any portion of the Leased Property or the failure of this
Lease to demise to the Lessee the Leased Property or any portion thereof; (H)
the Lessee's acquisition or ownership of all or any part of the Leased Property
otherwise than pursuant to an express provision of this Lease; (I) any change,
waiver, extension, indulgence or other action or omission or breach in respect
of any obligation or liability of or by the Owner Trustee, the Indenture Trustee
or any Participant; (J) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceedings relating to the
Lessee, the Owner Trustee, the Indenture Trustee, any Participant or any other
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Person, or any action taken with respect to this Lease by any trustee or
receiver of the Lessee, the Owner Trustee, the Indenture Trustee, any
Participant or any other Person, or by any court in any such proceeding; (K) any
setoff, counterclaim, recoupment, defense or other right or claim that the
Lessee has or might have against any Person, including without limitation the
Owner Trustee, the Indenture Trustee, any Participant or any vendor,
manufacturer, contractor of or for the Leased Property for any reason
whatsoever; (L) any failure on the part of the Owner Trustee or any other Person
to perform or comply with any of the terms of this Lease, of any other Operative
Agreement or of any other agreement or any breach of any representation or
warranty of, or any act or omission of the Lessee, the Owner Trustee, the
Indenture Trustee or any Participant under this Lease or any of the other
Operative Agreements, or any claims, rights or remedies occurring or arising as
a result of any other business dealings between or among the Lessee and any of
the Owner Trustee, the Indenture Trustee and any Participant; (M) any invalidity
or unenforceability or illegality or disaffirmance of this Lease against or by
the Lessee or any provision hereof or any of the other Operative Agreements or
any provision of any thereof or any lack of right, power or authority of the
Lessee, the Owner Trustee, the Indenture Trustee or any Participant to enter
into any Operative Agreement or any of the transactions contemplated thereby;
(N) the impossibility or illegality of performance by the Lessee, the Owner
Trustee, the Indenture Trustee, any Participant or any of them; (O) any action
by any court, administrative agency or other Governmental Authority; or (P) any
other cause or circumstances whether similar or dissimilar to the foregoing and
whether or not the Lessee shall have notice or knowledge of any of the
foregoing, it being the intention of the parties hereto that the obligations of
the Lessee shall be absolute and unconditional and shall be separate and
independent covenants and agreements and shall continue unaffected unless and
until the covenants have been terminated pursuant to an express provision of
this Lease.
Each Rent payment made pursuant to this Lease by Lessee shall be final and
the Lessee will not seek to recover all or any part of such payment from the
Owner Trustee, the Indenture Trustee or any Participant for any reason
whatsoever. If for any reason whatsoever this Lease shall be terminated in whole
or in part by operation of law or otherwise except as specifically provided
herein or as otherwise agreed, the Lessee nonetheless agrees to pay to the Owner
Trustee or to whomsoever shall be entitled thereto, an amount equal to each Rent
payment at the time such payment would have become due and payable in accordance
with the terms hereof had this Lease not been terminated in whole or in part.
The obligation of the Lessee in the immediately preceding sentence shall survive
the expiration or termination of this Lease other than in accordance with its
terms. Nothing contained in this Section 12(b) shall be construed to otherwise
limit the right of the Lessee to make any claim it might have against the Owner
Trustee or any other Person or to pursue such claim in such manner as the Lessee
shall deem appropriate.
The Lessee covenants that it will remain obligated under this Lease in
accordance with its terms and will take no action to terminate, rescind or avoid
this Lease, notwithstanding the bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding-up or other
proceeding affecting the Owner Trustee or the Owner Participant or any assignee
of the Owner Trustee or the Owner Participant or any other action with respect
to this Lease which may be taken in any such proceeding by any trustee or
receiver of the Owner Trustee or of any assignee of the Owner Trustee or by any
court or any of the foregoing actions which may be taken by or against any of
the Owner Trustee's predecessors in interest in the Facility.
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Except as expressly provided herein, the Lessee waives all rights now or
hereafter conferred by law (y) to quit, terminate, rescind or surrender this
Lease or the Leased Property or any part thereof, or (z) to any abatement,
suspension, deferment, return or reduction of the Rent.
SECTION 13. CASUALTY OCCURRENCES; CONDEMNATION; EARLY TERMINATION; ETC.
(a) Casualty Occurrence. In the event of a Casualty Occurrence, the Lessee
shall promptly and fully inform the Owner Trustee and the Indenture Trustee in
writing in regard thereto and shall, on the Casualty Termination Date, pay to
the Owner Trustee (or, so long as the Secured Indebtedness shall not have been
fully paid and satisfied, the Indenture Trustee) an amount equal to the sum of
(i) the Casualty Value of the Facility determined as of the Casualty Termination
Date, (ii) if the Casualty Termination Date is a Rent Payment Date, any Periodic
Rent (other than Periodic Rent payable "in advance" on such date) and the
Periodic Site Rent due on the Casualty Termination Date, and (iii) all other
Supplemental Rent then due. Notwithstanding such Casualty Occurrence, the
Lessee's obligation to pay Rent hereunder due and payable as to the Facility on
or prior to the payment date of such Casualty Value shall continue. Upon receipt
by the Owner Trustee (or, so long as the Secured Indebtedness shall not have
been fully paid and satisfied, the Indenture Trustee) of such payments and all
other sums then due and payable by the Lessee under this Lease and the other
Operative Agreements and release of the Lien of the Indenture pursuant to
Section 9.01 thereof, this Lease shall terminate, and the Owner Trustee will
transfer to the Lessee all the Owner Trustee's right, title and interest, if
any, in and to the Leased Property on an "as-is", "where-is" basis, without
recourse or warranty, express or implied, except for a warranty against Lessor's
Liens attributable to the Owner Trustee or Wilmington Trust Company.
(b) Certain Government Requisitions. In the event that during the Term the
use of the Leased Property is requisitioned or taken by any Governmental
Authority under the power of eminent domain or otherwise under circumstances
which do not constitute a Casualty Occurrence in respect thereof, the Lessee's
duty to pay Periodic Rent, Periodic Site Rent and Supplemental Rent shall
continue for the duration of such requisition or taking. Unless a Default or
Event of Default shall have occurred and be continuing, the Lessee shall be
entitled to receive and retain for its own account all sums payable for any such
period by such Governmental Authority as compensation for requisition or taking
of possession. If a Default or Event of Default shall have occurred and be
continuing, the Lessee shall be deemed to the extent of any such compensation so
received to be the agent of the Owner Trustee in collecting and receiving the
same and shall segregate and hold in trust and promptly remit any such
compensation so received to the Owner Trustee for crediting against any sums
then due and owing hereunder to the Owner Trustee, its successors and assigns.
(c) Application of Payments with Respect to a Casualty Occurrence. The
Owner Trustee shall receive the entire amount payable by any Governmental
Authority or instrumentality or agency thereof or other Person with respect to a
Casualty Occurrence (other than proceeds of insurance maintained by the Lessee,
the application of which shall be governed by Section 7 hereof). Such amount,
after deducting all expenses, including attorneys' fees, incurred by the Owner
Trustee in or as a result of such condemnation proceedings shall be applied
promptly as follows: so much of such payments as shall not exceed the Casualty
Value
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required to be paid by the Lessee pursuant to Section 13 shall be applied in
reduction of the Lessee's obligation to pay such Casualty Value, if not already
paid by the Lessee, or, if already paid by the Lessee and no Default or Event of
Default exists, shall be applied to reimburse the Lessee for its payment of such
Casualty Value. The balance, if any, of such payments shall be retained by the
Owner Trustee, unless, prior to the Casualty Occurrence, the Lessee shall have
irrevocably exercised (subject to Section 19(e)) its option to purchase the
Facility, the Casualty Value for the Facility shall have been determined
pursuant to Section 19(e) and the Lessee shall have paid in full all sums due
and owing by the Lessee under this Lease or any of the other Operative
Agreements, in which event the balance shall be paid to the Lessee.
(d) Early Termination. So long as no Default or Event of Default shall have
occurred and be continuing, the Lessee may, upon not less than 180 days' prior
written notice to the Owner Trustee (which notice shall not be revocable without
the consent of the Owner Participant), terminate this Lease on or after the
seventh anniversary of the Closing Date (or, if earlier, the date referred to in
clause (ii) of the second paragraph of Section 8(d)) or as of any succeeding
Rent Payment Date if the Facility, in the good faith judgment of the Lessee as
determined by the Board of Directors, shall have become uneconomic, obsolete or
surplus to the needs of the Lessee so as to be no longer useful in the conduct
of Lessee's business. Such written notice shall designate the date on which
termination is to become effective, which shall be a date set forth on Schedule
3 hereto (the "Termination Date") and shall be accompanied by a certified copy
of the resolutions of the Board of Directors making such determination and by an
Officer's Certificate of the Lessee setting forth the determination that the
Facility has become uneconomic, obsolete or surplus to the needs of Lessee and a
statement in reasonable detail of the basis for such determination. For the
purposes of this Section 13(d), interest rates payable by the Lessee on its
indebtedness for borrowed money or finance charges payable by the Lessee in
connection with the acquisition of its equipment under conditional sale
contracts, leases or other arrangements for deferred payment shall be
disregarded in the determination of any right of termination provided herein.
Following the giving of such notice, the Lessee, as agent for the Owner Trustee,
shall dispose of the Facility and transfer all of the Owner Trustee's right,
title and interest in and to the Site Lease on the Termination Date for the best
price obtainable unless the Owner Participant shall notify the Lessee that it
elects to retain ownership of the Facility in accordance with and to the extent
permitted by the last paragraph of this Section 13(d), provided that no such
disposition shall be to the Lessee or any Affiliate of the Lessee. The Lessee
shall certify to the Owner Trustee in writing the amount of each bid so received
and the name and address of the party submitting such bid promptly upon receipt
thereof. The Owner Trustee may obtain bids, but shall be under no duty to
solicit bids, inquire into the efforts of the Lessee to obtain bids or otherwise
take any action in connection with arranging such dispositions. Prior to such
disposition and after such termination, the Facility shall not be used by the
Lessee or any Affiliate of the Lessee.
Any disposition pursuant to this Section 13(d) shall be on an "as-is",
"where-is" basis, without recourse, representation or warranty, express or
implied, except for a warranty against Lessor's Liens attributable to the Owner
Trustee or Wilmington Trust Company. At such time as the Secured Indebtedness
shall have been fully paid and satisfied, the Indenture Trustee shall release
the Lien of the Indenture pursuant to Section 9.01 thereof. In disposing of the
Facility, the Lessee shall take such action as the Owner Trustee shall
reasonably request to terminate any
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contingent liability which the Owner Trustee or the Owner Participant might have
arising out of such disposition. The Lessee shall remain liable under all
provisions of this Lease (other than its obligation to pay Periodic Rent and
Periodic Site Rent for the period after the Termination Date as of which
Termination Value is determined) as if this Lease were in full force and effect,
until such time as the Facility shall have been disposed of in accordance with
the provisions of this Section 13(d). If, on the Termination Date, (x) the Owner
Participant shall not have elected to retain the Facility, (y) the Facility
shall have not been sold pursuant to and in accordance with the provisions of
this Section 13(d) or (z) the Lessee does not make all payments required
pursuant to and in accordance with the provisions of this Section 13(d),
Lessee's notice of termination shall be deemed to be withdrawn as of such date
and this Lease shall continue in full force and effect with respect to the
Facility and the Lessee shall pay the reasonable costs, expenses and liabilities
incurred by the Owner Trustee, the Indenture Trustee and the Participants as a
result of Lessee's having given such notice of termination.
Any proceeds from the disposition of the Facility pursuant to this Section
13(d) shall be paid to and retained by the Owner Trustee (or, so long as the
Secured Indebtedness shall not have been fully paid and satisfied, the Indenture
Trustee). In the case of a disposition of the Facility pursuant to this Section
13(d), on the Termination Date, the Lessee shall pay to the Owner Trustee (or,
so long as the Secured Indebtedness shall not have been fully paid and
satisfied, the Indenture Trustee) (i) all payments of any Periodic Rent (other
than Periodic Rent payable "in advance" on the Termination Date) and Periodic
Site Rent through and including the Termination Date, (ii) the excess, if any,
of (A) the Termination Value of the Facility as of the Termination Date, over
(B) the net cash proceeds from the disposition of the Facility pursuant to this
Section 13(d) (after the deduction of all costs and expenses of the Lessee, the
Owner Trustee, the Indenture Trustee and the Participants that have not been
previously paid by the Lessee in connection with such disposition) received by
the Owner Trustee (or, so long as the Secured Indebtedness shall not have been
fully paid and satisfied, the Indenture Trustee) and the Persons entitled
thereto, (iii) an amount equal to the Make-Whole Amount, if any, in respect of
the principal amount of the Notes to be prepaid in accordance with Section
2.10(b) of the Indenture and (iv) all other sums then due and payable by the
Lessee under this Lease and the other Operative Agreements. Any amount of such
net proceeds in excess of such payments by the Lessee shall be retained by the
Owner Trustee or the Indenture Trustee, as the case may be.
The Owner Trustee may, at any time prior to 15 days prior to the
Termination Date, give written notice to Lessee and the Indenture Trustee that
the Owner Trustee elects irrevocably to terminate this Lease with respect to the
Facility on the Termination Date. On the Termination Date the Owner Participant
shall pay to the Indenture Trustee sufficient funds to enable the Owner Trustee
to pay in full the aggregate unpaid principal amount of all Notes then
outstanding, together with accrued interest thereon to such Termination Date,
plus the Make-Whole Amount, if any, thereon and all other Secured Indebtedness
due and payable on such Termination Date to the holders of the Notes under the
Operative Agreements (but without relieving the Lessee of its obligations to
make all payments of Supplemental Rent owed by the Lessee in connection
therewith under the last sentence of Section 4(c)). Effective on full payment to
the Indenture Trustee of all the foregoing amounts and on the Lessee's full
payment of the installment of Periodic Rent (other than Periodic Rent payable
"in advance" on the Termination Date) and Periodic Site Rent due on such
Termination Date plus all other amounts
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of Rent due on or prior to such Termination Date including, without limitation,
Supplemental Rent in the amount of the Make-Whole Amount, if any, due to the
Indenture Trustee under the preceding sentence, this Lease shall terminate;
provided that this Lease, notwithstanding anything else to the contrary
contained herein, shall continue in full force and effect unless such amounts
are paid in full. If, after giving an irrevocable notice, the Owner Participant
fails to make the required payment on the Termination Date, the Owner Trustee
shall have no further rights to make the election provided for under this
paragraph.
SECTION 14. ASSIGNMENT BY OWNER TRUSTEE.
(a) Right to Assign. This Lease and all Rent and all other sums due or to
become due hereunder may be assigned as collateral security for the Secured
Indebtedness in whole or in part by the Owner Trustee without the consent of the
Lessee, but the Lessee shall be under no obligation to any assignee of the Owner
Trustee (other than the Indenture Trustee) except upon written notice of such
assignment from the Owner Trustee. Upon notice to the Lessee of any such
assignment, the Rent and other sums payable by the Lessee which are the subject
matter of the assignment shall be paid to or upon the written order of the
assignee. Such notice is hereby given of the assignment of this Lease and all
the Rent and other sums due and to become due under this Lease (other than
Excepted Property) to the Indenture Trustee under and pursuant to the Indenture,
and the Lessee agrees to make all payments of Rent hereunder (including, without
limitation, Rent constituting Excepted Property) in accordance with the
provisions of Section 4.
(b) Obligation and Right of Assignee. Any assignee pursuant to this Section
14 shall not be obligated to perform any duty, covenant or condition required to
be performed by the Owner Trustee under any of the terms hereof, but on the
contrary, the Lessee and the Owner Trustee by their respective executions hereof
each acknowledge and agree that notwithstanding any such assignment each and all
of such duties, covenants or conditions required to be performed by the Owner
Trustee shall survive any such assignment and shall be and remain the sole
liability of the Owner Trustee. Without limiting the foregoing, the Lessee
acknowledges and agrees that the rights of such assignee in and to the Rent
shall not be subject to any abatement whatsoever, and shall not be subject to
any defense, setoff, counterclaim or recoupment or reduction of any kind for any
reason whatsoever whether by reason of failure of or defect in the Owner
Trustee's title or any interruption from whatsoever cause in the use, operation
or possession of the Leased Property or any part thereof or any damage to or
loss or destruction of the Leased Property or any part thereof or by reason of
any other indebtedness or liability, howsoever and whenever arising, of the
Owner Trustee or of any other Person to the Lessee or to any other Person, or
for any cause whatsoever, it being the intent hereof that the Lessee shall be
unconditionally and absolutely obligated to pay such assignee all of the Rent,
subject only to the provisions of the Indenture relating to Excepted Property.
(c) Amendments; Exercise of Remedies. Unless and until the Lessee shall
have received written notice from the Indenture Trustee that the Lien of the
Indenture has been released (i) no amendment or modification of, or waiver by or
consent or approval of the Owner Trustee in respect of, any of the provisions of
this Lease shall be effective unless the Indenture Trustee shall have joined in
such amendment, modification, waiver or consent or shall have given its prior
written consent thereto, and (ii) except as otherwise provided in the Indenture,
the
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Indenture Trustee shall have the sole right to exercise all rights, privileges
and remedies and to make elections, demands or the like and to take any other
discretionary action (either in its own name or in the name of the Owner Trustee
for the use and benefit of the Indenture Trustee) which by the terms of this
Lease or by Applicable Law are permitted or provided to be exercised by the
Owner Trustee.
SECTION 15. DEFAULTS.
(a) Events of Default. The following events shall constitute Events of
Default (whether any such event shall be voluntary or involuntary or come about
or be effected by operation of law or pursuant to or in compliance with any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) The Lessee shall default in the payment when due of any
installment of Periodic Rent or of Periodic Site Rent or of any Casualty
Value or Termination Value payable pursuant to Section 13 or Early Purchase
Price payable pursuant to Section 19 and such default shall continue for a
period of five Business Days; or
(ii) The Lessee shall default in the payment of any Supplemental Rent
(other than Casualty Value, Termination Value or Early Purchase Price) and
such default shall continue for a period of five Business Days after
written notice thereof shall have been received by the Lessee; or
(iii) The Lessee shall default in the observance or performance of any
covenant required to be observed or performed by the Lessee under Section
6.2, Section 6.3 or Section 10 (which in the case of a default under
Section 10 shall have been continuing for a period of five Business Days)
or shall default in the maintenance of the insurance coverage required by
Section 7 or shall make or permit any unauthorized assignment or transfer
of this Lease, or of the Lessee's interest in the Leased Property, or any
portion thereof or, for any reason whatsoever, shall fail to complete
construction of the CLO2 System on or prior to January 31, 2001 and
otherwise within the limitations of Section 6 of the Participation
Agreement; or
(iv) The Lessee shall default in the observance or performance of any
other covenant required to be observed or performed by the Lessee hereunder
or under any other Lessee Agreement and such default shall continue for
more than 30 days after the earlier of (A) the day on which a Responsible
Officer of the Lessee first obtains knowledge of such default, or (B) the
day on which written notice thereof shall have been received by the Lessee,
or such longer period, not to exceed 90 days, as may be necessary to cure
any such default that can be cured within such period, so long as the
Lessee is diligently proceeding to cure such default and such default does
not involve any material danger of the sale, forfeiture or loss of any part
of the Leased Property; or
(v) Any representation or warranty made by the Lessee herein or in any
other Lessee Agreement (except the Tax Indemnity Agreement) or in any
statement or certificate furnished by the Lessee to the Owner Trustee or
the Indenture Trustee or any
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Participant in connection with the transactions contemplated by the
Operative Agreements or furnished by the Lessee pursuant hereto proves
untrue in any material respect as of the date of issuance or making
thereof; or
(vi) A custodian, liquidator, trustee, receiver or similar official is
appointed for the Lessee or any Subsidiary or for the major part of the
Property of either and is not discharged within 60 days after such
appointment; or
(vii) The Lessee or any Material Subsidiary becomes insolvent or
bankrupt, is generally not paying its debts as they become due or makes an
assignment for the benefit of creditors, or the Lessee or any Subsidiary
applies for or consents to the appointment of a custodian, liquidator,
trustee, receiver or similar official for the Lessee, such Subsidiary or
for the major part of the Property of any of them; or
(viii) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors, are instituted by or against
the Lessee or any Subsidiary and, if instituted against the Lessee or any
Subsidiary, are consented to or are not dismissed within 60 days after such
institution; or
(ix) The Lessee, or any Person on behalf of the Lessee, shall contest
or deny the validity or enforceability of this Lease or the other Lessee
Agreements or its obligations hereunder or thereunder; or
(x) An order or decree requiring a split-up or divestiture of the
Lessee is outstanding against the Lessee and such order or decree remains
unstayed and in effect for more than 30 consecutive days.
(b) Remedies. Upon the occurrence of any Event of Default and at any time
thereafter so long as the same shall be continuing, the Owner Trustee (or, so
long as the Secured Indebtedness shall not have been fully paid and satisfied,
the Indenture Trustee) may, at its option, declare this Lease to be in default
by a written notice to the Lessee (provided that no such written notice shall be
required with respect to any Event of Default under Section 15(a)(vi), (vii) or
(viii)) and at any time thereafter, so long as the Lessee shall not have
remedied all outstanding Events of Default, the Owner Trustee (or, so long as
the Secured Indebtedness shall not have been fully paid and satisfied, the
Indenture Trustee) may do one or more of the following as the Owner Trustee or
the Indenture Trustee, as the case may be, in its sole discretion shall elect,
to the extent permitted by, and subject to compliance with any mandatory
requirements of, Applicable Law then in effect:
(i) the Owner Trustee or the Indenture Trustee, as the case may be,
may proceed by appropriate court action or actions, either at law or in
equity, to enforce performance by the Lessee of the applicable covenants
and terms of this Lease or to recover damages for the breach thereof;
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(ii) the Owner Trustee or the Indenture Trustee, as the case may be,
may, upon 10 days prior written notice to the Lessee, (provided that no
such written notice shall be required with respect to any Event of Default
under Section 15(a)(vi), (vii) or (viii)) terminate this Lease, and,
whether or not this Lease has been so terminated, enter upon the Site and
take immediate possession of the Facility and the Site and remove all or
any part of the Facility by summary proceedings or otherwise, all without
liability to the Lessee for or by reason of such entry or taking of
possession, whether for the restoration of damage to property caused by
such taking or otherwise;
(iii) the Owner Trustee or the Indenture Trustee, as the case may be,
may sell the Facility and its interest in the Site Lease Property or any
part thereof at public or private sale, as the Owner Trustee or the
Indenture Trustee, as the case may be, may determine, free and clear of any
rights of the Lessee and without any duty to account to the Lessee with
respect to such sale or for the proceeds thereof (except to the extent
required by paragraph (vi) below if the Owner Trustee or the Indenture
Trustee, as the case may be, elects to exercise its rights under said
paragraph), in which event the Lessee's obligation to pay Periodic Rent and
Periodic Site Rent hereunder for the period commencing on the date of such
sale shall terminate (except to the extent that Periodic Rent or Periodic
Site Rent, as the case may be, is to be included in computations under
paragraph (v) or paragraph (vi) below if the Owner Trustee or the Indenture
Trustee, as the case may be, elects to exercise its rights under either of
said paragraphs);
(iv) the Owner Trustee or the Indenture Trustee, as the case may be,
may hold, keep idle or lease to others the Leased Property or any part
thereof, as the Owner Trustee or the Indenture Trustee, as the case may be,
in its sole discretion may determine, free and clear of any rights of the
Lessee and without any duty to account to the Lessee with respect to such
action or inaction or for any proceeds with respect thereto, except that
the Lessee's obligation to pay Periodic Rent and Periodic Site Rent for the
period commencing when the Lessee shall have been deprived of possession
pursuant to this Section 15 shall be reduced by the net proceeds, if any,
received by the Owner Trustee or the Indenture Trustee, as the case may be,
from leasing the Leased Property or such part to any person other than the
Lessee for any period during the Term;
(v) whether or not the Owner Trustee or the Indenture Trustee, as the
case may be, shall have exercised, or shall thereafter at any time
exercise, any of its rights under paragraph (i), (ii), (iii) or (iv) above,
the Owner Trustee or the Indenture Trustee, as the case may be, by written
notice to the Lessee specifying a payment date which shall be not earlier
than 10 days after the date of such notice, may demand that the Lessee pay
to the Owner Trustee or the Indenture Trustee, as the case may be, and the
Lessee shall pay to the Owner Trustee or the Indenture Trustee, as the case
may be, on the payment date specified in such notice, as liquidated damages
for loss of a bargain and not as a penalty (in lieu of the Periodic Rent
and Periodic Site Rent due after the Rent Payment Date coinciding with or
immediately preceding the payment date specified in such notice), any
unpaid Periodic Rent and Periodic Site Rent due for all periods up to and
including the Rent Payment Date next succeeding the date of such notice and
any and all unpaid Supplemental Rent due hereunder before or during the
exercise of remedies
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hereunder, including, without limitation, all legal fees and other costs
and expenses incurred by the Owner Trustee or the Indenture Trustee, as the
case may be, the Indenture Trustee or any Participant by reason of the
occurrence of any Event of Default or the exercise of remedies with respect
thereto, plus whichever of the following amounts the Owner Trustee or the
Indenture Trustee, as the case may be, in its sole discretion, shall
specify in such notice (together with interest on such amount at the Late
Rate from the payment date specified in such notice to the date of actual
payment): (A) an amount equal to the excess, if any, of the Casualty Value
(plus interest at the Late Rate on such Casualty Value from the Rent
Payment Date as of which such Casualty Value was calculated to the payment
date specified in such notice) computed as of the Rent Payment Date
coinciding with or immediately preceding the payment date specified in such
notice, over the fair market rental value (computed as hereafter in this
Section 15(b) provided) of the Facility for the remainder of the then
current Term after discounting such fair market rental value to present
worth as of the payment date specified in such notice at a discount rate
equal to the Specified Rate in effect on the date of such notice,
compounded semiannually on the Rent Payment Dates; or (B) an amount equal
to the excess, if any, of the Casualty Value (plus interest at the Late
Rate on such Casualty Value from the Rent Payment Date as of which such
Casualty Value was calculated) computed as of the payment date specified in
such notice over the fair market sales value of the Facility (computed as
hereafter in this Section 15(b) provided) as of the payment date specified
in such notice;
(vi) if the Owner Trustee or the Indenture Trustee, as the case may
be, shall have sold the Facility and its interest in the Site Lease
Property pursuant to paragraph (iii) above, the Owner Trustee or the
Indenture Trustee, as the case may be, in lieu of exercising its rights
under paragraph (v) above, may, if it shall so elect, demand that the
Lessee pay to the Owner Trustee or the Indenture Trustee, as the case may
be, and the Lessee shall pay to the Owner Trustee or the Indenture Trustee,
as the case may be, as liquidated damages for loss of a bargain and not as
a penalty, any unpaid Periodic Rent and Periodic Site Rent due for periods
up to and including the Rent Payment Date next following the date of such
sale and any and all unpaid Supplemental Rent due hereunder before or
during the exercise of remedies hereunder, including, without limitation,
all legal fees and other costs and expenses incurred by the Owner Trustee,
the Indenture Trustee or any Participant by reason of the occurrence of any
Event of Default or the exercise of remedies with respect thereto, plus the
amount of any deficiency between the net after tax cash out-of-pocket
proceeds of such sale and the Casualty Value of the Facility, computed as
of the Rent Payment Date next following the date of such sale, together
with interest at the Late Rate on the amount of such deficiency from the
Rent Payment Date as of which such Casualty Value is computed until the
date of actual payment;
(vii) In lieu of exercising its rights under paragraph (v) above, the
Owner Trustee or the Indenture Trustee, as the case may be, may by notice
to the Lessee require the Lessee to pay on demand to the Owner Trustee or
the Indenture Trustee, as the case may be, and the Lessee hereby agrees
that it will so pay to the Owner Trustee or the Indenture Trustee, as the
case may be, as liquidated damages for loss of a bargain and not
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as a penalty (in lieu of the Periodic Rent and Periodic Site Rent due after
the Rent Payment Date next succeeding the date of such notice) any unpaid
Periodic Rent and Periodic Site Rent due for all periods up to and
including the Rent Payment Date next succeeding the date of such notice and
any and all unpaid Supplemental Rent due hereunder before or during the
exercise of remedies hereunder, including, without limitation, all legal
fees and other costs and expenses incurred by the Owner Trustee, the
Indenture Trustee or any Participant by reason of the occurrence of any
Event of Default or the exercise of remedies with respect thereto, plus an
amount equal to Casualty Value computed as of the Rent Payment Date next
succeeding the date of such notice (or if such date is a Rent Payment Date,
then computed as of such Rent Payment Date), together with interest, to the
extent permitted by law, at the Late Rate on such amount of Casualty Value
from the date as of which such Casualty Value was computed to the date of
actual payment; and upon such payment of liquidated damages and the payment
of all other Rent then due hereunder, the Owner Trustee or the Indenture
Trustee, as the case may be, shall assign and transfer the Facility and its
interest in the Site Lease Property to Lessee, as-is, where-is, without
recourse or warranty, express or implied, except for a warranty against
Lessor's Liens attributable to the Owner Trustee or Wilmington Trust
Company, and the Owner Trustee or the Indenture Trustee, as the case may
be, shall execute and deliver such documents evidencing such assignment and
transfer as the Lessee, at its sole cost and expense, shall reasonably
request. In addition, promptly after the Lessee makes the payment of
Casualty Value as aforesaid, the fair market sales value of the Facility as
of the date of which Casualty Value was determined will be determined. If
the fair market sales value of the Facility as of such date is determined
to exceed the Casualty Value paid pursuant to the first sentence of this
paragraph (vii), the Lessee shall, within 30 days after such determination,
pay the amount of such excess to the Owner Trustee or the Indenture
Trustee, as the case may be; and
(viii) the Owner Trustee may exercise any other right or remedy which
may be available to it under Applicable Law.
In addition, the Lessee shall be liable, except as otherwise provided
above, for any and all unpaid Rent due hereunder before or during the exercise
of any of the foregoing remedies and for all legal fees and other costs and
expenses incurred by the Owner Trustee, the Indenture Trustee or any Participant
by reason of the occurrence of any Event of Default or the exercise of the
remedies with respect thereto, including all costs and expenses incurred in
connection with the surrender of the Leased Property or redelivery of the
Facility in accordance with Section 16 hereof or in placing the Leased Property
in the condition required by said Section 16 and any premium payable on the
Notes. For the purpose of paragraphs (v) and (vii) above, the "fair market
rental value" or the "fair market sales value" of the Leased Property shall mean
such value as determined by the Owner Trustee or the Indenture Trustee, as the
case may be. Such fair market sales value and such fair market rental value
shall be determined on the basis specified in Section 19, except that the
assumptions set forth in clause (i) of Section 19(a) shall not be made (unless
the Facility is still located at the Site, in which case the then remaining Site
Lease Term shall be considered), but such determination shall instead be made on
an "as-is, where-is" basis, taking into account the actual condition and
location of the Facility. At any sale pursuant to this Section 16, any
Participant may bid for and purchase the Facility and the Owner
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Trustee's interest in the Site Lease Property. To the extent permitted by
Applicable Law, the Lessee hereby waives any rights now or hereafter conferred
by statute or otherwise which may require the Owner Trustee or the Indenture
Trustee, as the case may be, to sell, lease or otherwise use the Leased Property
in mitigation of the Lessee's damages as set forth in this Section 16 or which
may otherwise limit or modify any of the Owner Trustee's or the Indenture
Trustee's, as the case may be, rights and remedies in this Section 16.
SECTION 16. RETURN OF FACILITY TO OWNER TRUSTEE.
(a) Surrender at Site. Except in the event that the Facility shall be sold
to a third party pursuant to Section 13 or the Lessee shall purchase the
Facility pursuant to Section 19, but including return of the Facility on account
of the exercise of remedies pursuant to Section 15(b) hereof, the Lessee will at
its own expense surrender possession of the Leased Property to the Owner Trustee
or (if the Secured Indebtedness has not been fully paid and satisfied) the
Indenture Trustee, at the Site at the end of the Term hereof.
At the time of such surrender,
(i) the Lessee shall also surrender to the Owner Trustee one copy of
the Plans and all other logs, catalogs, software, documents, instruments,
plans, maps, surveys, blueprints, diagrams, schematics, property casualty
inspection reports, fire and boiler inspection reports, as built diagrams,
specifications, manuals, technical drawings and other materials relating to
the Leased Property and the Technology;
(ii) all equipment which is leased under this Facility Lease shall be
in such condition that it is capable of performing the task for which it
was originally intended at its design rating or capacity; furthermore, it
shall be capable of immediately being used by a second user without the
need for major overhaul, refurbishment or replacement for a period of not
less than ten (10) years from the expiration of the Basic Term, normal
routine maintenance procedures and associated expenses excepted;
(iii) all equipment which is part of the Facility shall be properly
lubricated and all surfaces and components shall be properly coated with a
protective coating from the elements;
(iv) the Leased Property shall be free from all Liens except those for
which the Owner Trustee or the Owner Participant is responsible under
Section 8 of the Participation Agreement, Liens described in clauses (f),
(g) and (h) of the definition of "Permitted Encumbrances" and the
exceptions to title described in Schedule B to the Title Policy issued on
the Closing Date to the Owner Trustee;
(v) the Facility shall be immediately capable of being operated at the
Site by an operator other than the Lessee or any Affiliate of the Lessee
without the need for any Alterations;
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(vi) the Facility shall be in compliance in all material respects with
all then existing Applicable Laws governing its use, operation and sale;
(vii) any Hazardous Materials, other than those used in the normal
operation of the Facility and used and stored in compliance with
Environmental Laws, shall have been removed from the Leased Property by a
licensed waste disposal firm, provided that upon the written request of the
Owner Trustee, the Lessee shall also remove Hazardous Materials used in the
normal operation of the Facility which have been used and stored in
compliance with Environmental Laws to the extent that such Hazardous
Materials are not useable in the normal operation of the Facility or
salable; and
(viii) the Leased Property shall be in at least the operating
condition required by the terms hereof, including, without limitation, the
provisions of Section 8(a).
(b) Engineer's Report. Unless the Lessee has exercised its option to
purchase the Facility and has paid all amounts due and owing in connection
therewith, not less than 90 days and not more than 180 days prior to the last
day of the Term (or the date on which the Facility is otherwise returned to the
Owner Trustee or the Indenture Trustee in the event that the Secured
Indebtedness has not been fully paid and satisfied), the Lessee shall provide to
the Owner Trustee, the Owner Participant, and the Indenture Trustee (in the
event that the Secured Indebtedness has not been fully paid and satisfied) an
inspection report prepared by a qualified independent engineer selected by the
Lessee and reasonably satisfactory to the Owner Trustee, the Owner Participant,
and the Indenture Trustee (in the event that the Secured Indebtedness has not
been fully paid and satisfied) certifying whether or not the Facility is (i) in
good working order, (ii) capable of performing substantially at the original
manufacturer's performance specifications at the time the Facility was
originally designed and (iii) capable of performing at its Design Capacity. In
the event that such report indicates that the Facility does not satisfy the
requirements of clause (i), (ii) or (iii) of the preceding sentence, the Owner
Trustee or the Indenture Trustee (in the event that the Secured Indebtedness has
not been fully paid and satisfied) may elect either (A) to deem that the Leased
Property is not returned until the earlier of (1) the date on which the Facility
is properly repaired to satisfy such requirements and (2) one year after the
last day of the Term, in which case the Lessee shall continue to be obligated
under all the terms and conditions of this Lease (including without limitation
the provisions relating to insurance, indemnification and risk of loss), except
that the Lessee shall not be required to pay Periodic Rent and Periodic Site
Rent after the expiration of the Basic Term or any Renewal Term, as the case may
be, but the Lessee shall pay to the Owner Trustee or the Indenture Trustee, as
the case may be, as liquidated damages, and not as a penalty, for the failure of
the Lessee to return the Leased Property to the Owner Trustee or the Indenture
Trustee, as the case may be, at the expiration of the Term as required by the
provisions of this Section 16, an amount equal to 120% of the daily equivalent
of (y) the arithmetic average of the Periodic Rent during the Basic Term, or (z)
if the failure to return occurs after a Renewal Term, the arithmetic average of
the Periodic Rent during such Renewal Term, or (B) to terminate this Lease, in
which case the Lessee shall pay to the Owner Trustee or the Indenture Trustee,
as the case may be, the Termination Value. If the Owner Trustee or the Indenture
Trustee, as the case may be, elects the option specified in clause (A) above and
the Facility has not been properly repaired one year after the last day of the
Term, the Lessee shall pay to the Owner Trustee or the Indenture Trustee,
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as the case may be, the Termination Value for the Facility and title to the
Facility shall vest in the Lessee upon such payment.
(c) Environmental Report. Unless the Lessee has exercised its option to
purchase the Facility and has paid all amounts due and owing in connection
therewith, not less than 90 days and not more than 180 days prior to the last
day of the Term (or the date on which the Facility is otherwise returned to the
Owner Trustee or the Indenture Trustee, as the case may be), the Lessee shall
provide to the Owner Trustee the Owner Participant, and the Indenture Trustee
(in the event that the Secured Indebtedness has not been fully paid and
satisfied) an inspection report prepared by a reputable environmental consulting
firm selected by the Owner Trustee and reasonably satisfactory to the Owner
Participant or the Indenture Trustee, as the case may be, certifying whether or
not the Site and the Facility are in compliance with CERCLA, RCRA and in all
material respects with all other then existing Environmental Laws. In the event
that such report indicates that the Site or the Facility is not in compliance
with all then existing Environmental Laws or that Remedial Action could be
required at the Leased Property, the Owner Trustee or the Indenture Trustee, as
the case may be, may elect either (A) to deem that the Leased Property is not
returned until the earlier of (1) the date on which the Site and the Facility
are in compliance with all then existing Environmental Laws and (2) one year
after the last day of the Term, in which case the Lessee shall continue to be
obligated under all the terms and conditions of this Lease (including without
limitation the provisions relating to insurance, indemnification and risk of
loss), except that the Lessee shall not be required to pay Periodic Rent and
Periodic Site Rent after the expiration of the Basic Term or any Renewal Term,
as the case may be, but the Lessee shall pay to the Owner Trustee or the
Indenture Trustee, as the case may be, as liquidated damages, and not as a
penalty, for the failure of the Lessee to return the Leased Property to the
Owner Trustee or the Indenture Trustee, as the case may be, at the expiration of
the Term as required by the provisions of this Section 16, an amount equal to
120% of the daily equivalent of (y) the arithmetic average of the Periodic Rent
during the Basic Term, or (z) if the failure to return occurs after a Renewal
Term, the arithmetic average of the Periodic Rent during such Renewal Term, or
(B) to terminate this Lease, in which case the Lessee shall pay to the Owner
Trustee or the Indenture Trustee, as the case may be, the Termination Value for
the Facility and title to this Facility shall vest in the Lessee upon such
payment. If the Owner Trustee or the Indenture Trustee, as the case may be,
elects the option specified in clause (A) above and the Facility has not been
properly repaired one year after the last day of the Term, the Lessee shall pay
to the Owner Trustee or the Indenture Trustee, as the case may be, the
Termination Value for the Facility.
(d) Storage. Following the surrender of the Facility as provided in Section
16(a) above, upon the written request of the Owner Trustee or the Indenture
Trustee, as the case may be, the Lessee agrees to store the Facility at the Site
in the condition requested by the Owner Trustee or the Indenture Trustee, as the
case may be, at the expense of the Lessee for a period of one year. The Owner
Trustee or the Indenture Trustee, as the case may be, may during the storage
period obtain bids for purchase of the Facility on an "as-is", "where is" a
basis, and at its sole option, may elect to accept or reject any such bids for
the Facility. The Lessee shall continue to be obligated under all the terms and
conditions of this Lease (including without limitation the provisions relating
to insurance (to the extent such insurance is
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commercially reasonably available to the Lessee), indemnification and risk of
loss (to the extent the insurance is commercially reasonably available to the
Lessee)) during the storage period set forth above, except that, the Lessee
shall not be required to pay Periodic Rent and Periodic Site Rent after the
expiration of the Basic Term or any Renewal Term, as the case may be. Neither
the Lessee nor any Affiliate shall be entitled to operate on a commercial basis
the Facility during such period. The Lessee shall have such access to the Leased
Property as shall be reasonably necessary to enable the Lessee to comply with
its obligations under this Section 16(d).
SECTION 17. [INTENTIONALLY LEFT BLANK].
SECTION 18. FINANCIAL STATEMENTS AND REPORTS; INSPECTION AND CERTIFICATES.
(a) Reports and Rights of Inspection. The Lessee will keep, and will cause
each Subsidiary to keep, proper books of record and account in which full and
correct entries will be made of all dealings or transactions of or in relation
to the business and affairs of the Lessee or such Subsidiary, in accordance with
generally accepted accounting principles applicable to the Lessee or such
Subsidiary, as the case may be, in any such case consistently applied (except
for changes disclosed in the financial statements furnished to the Owner
Trustee, the Indenture Trustee and each Participant pursuant to this Section
18(a) and concurred in by the independent public accountants referred to in
Section 18(a)(ii) hereof), and will furnish to the Owner Trustee, the Indenture
Trustee and each Participant (in duplicate if so specified below or otherwise
requested):
(i) Quarterly Statements. As soon as available and in any event within
60 days after the end of each quarterly fiscal period (except the last) of
each fiscal year, duplicate copies of:
(A) consolidated balance sheets of the Lessee as of the close of
such quarter setting forth in comparative form the amount as of the
close of the corresponding period of the preceding fiscal year and the
amount as of the close of said preceding fiscal year, and
(B) consolidated statements of income and cash flows of the
Lessee for such quarterly period and the year to date period setting
forth in comparative form the amount for the corresponding periods of
the preceding fiscal year,
all in reasonable detail and certified as complete and correct, by an
authorized financial officer of the Lessee;
(ii) Annual Statements. As soon as available and in any event within
120 days after the close of each fiscal year of the Lessee, duplicate
copies of:
(A) consolidated balance sheets of the Lessee as of the close of
such fiscal year, and
(B) consolidated statements of income and cash flows of the
Lessee for such fiscal year,
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in each case setting forth in comparative form the consolidated figures for
the preceding fiscal year, all in reasonable detail and accompanied by an
opinion thereon of a firm of independent public accountants of recognized
national standing selected by the Lessee to the effect that the
consolidated financial statements have been prepared in accordance with
GAAP consistently applied (except for changes in application in which such
accountants concur) and present fairly the financial condition and results
of operations of the Lessee and that the examination of such accountants in
connection with such financial statements has been made in accordance with
generally accepted auditing standards and accordingly, includes such tests
of the accounting records and such other auditing procedures as were
considered necessary in connection therewith;
(iii) SEC and Other Reports. Promptly upon their becoming available,
one copy of each financial statement, report, notice or proxy statement
sent by the Lessee to all holders of Equity Interests in the Lessee
generally and of each regular or periodic report, and any registration
statement or prospectus filed by the Lessee or any Subsidiary with any
securities exchange or the Securities and Exchange Commission or any
successor agency, and copies of any orders in any proceedings to which the
Lessee or any of its Subsidiaries is a party, issued by any governmental
agency, Federal or state, having jurisdiction over the Lessee or any of its
Subsidiaries, other than reports or licenses granted by any such
governmental agency with respect to the timber;
(iv) Notice of Default or Claimed Default. Immediately upon a
Responsible Officer of the Lessee becoming aware of the existence of a
Default or an Event of Default or that the Owner Trustee has given notice
or taken any other action with respect to an Event of Default or a claimed
default under this Lease, or a default in the payment of the principal,
premium, if any, sinking fund or interest with respect to indebtedness for
borrowed money, or an event of default with respect to any indebtedness for
borrowed money or in the instrument under which such indebtedness is
outstanding permitting the holders thereof to accelerate the maturity
thereof, a written notice specifying the nature of the Default, Event of
Default, default or claimed default and any such notice given or action
taken by the Owner Trustee and what action the Lessee is taking or proposes
to take with respect thereto;
(v) ERISA Reporting. Prompt written notice, and in any event within
ten days after a Responsible Officer of the Lessee learns of its
occurrence, of the following and the action the Lessee has taken, is taking
or proposes to take with respect thereto and, when known, any action taken
or threatened by the Internal Revenue Service, Department of Labor or the
PBGC with respect thereto: (A) a Reportable Event with respect to any
employee benefit plan; (B) the institution of any steps by the Lessee, any
ERISA Affiliate, the PBGC or any other Person to terminate any employee
benefit plan pursuant to Sections 4041(c) or 4042 of ERISA; (C) the
institution of any steps by the Lessee or any ERISA Affiliate to withdraw
from any Multiemployer Plan, within the meaning of ERISA which would result
in a material adverse effect on the business, profits or financial
condition of the Lessee and its Subsidiaries taken as a whole; (D) a
"prohibited transaction" within the meaning of Section 406 of ERISA in
connection with any employee benefit plan which would result in a material
adverse effect on the business or
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financial condition of the Lessee; or (E) any increase in the liability of
the Lessee with respect to any post-retirement welfare benefits which would
result in a material adverse effect on the business or financial condition
of the Lessee; and
(vi) Notice of Litigation. Prompt written notice, and in any event
within five Business Days after a Responsible Officer of the Lessee first
obtains knowledge thereof, with respect to the institution of any suit or
proceeding against the Lessee or any Subsidiary thereof which if determined
adversely could, individually or in the aggregate with other suits and
proceedings, reasonably be expected to have a material adverse effect on
the business, profits, Properties or financial condition of the Lessee.
(vii) Information in Respect of Damages and Taxes. Such information
and data as the Owner Trustee, the Indenture Trustee or any Participant may
from time to time reasonably request as to location and the existence and
status of any claims for damages (whether against the Leased Property or
against the Owner Trustee or the Lessee) arising out of the use, operation
or condition of the Leased Property, the taxes of the nature provided to be
paid by the Lessee under Section 7 of the Participation Agreement which
have been assessed and the amount of such taxes paid, and such other data
pertinent to the Leased Property and the condition, use, repair and
operation thereof as any such party from time to time may reasonably
request. Without limiting the foregoing, the Lessee agrees that, without
any such request, it will furnish the Owner Trustee, the Indenture Trustee
and each Participant with prompt written notice of (A) any claim for
damages arising out of the use, operation or condition of the Leased
Property if the amount of such claim exceeds U.S.$1,000,000 and (B) any
damage, loss, theft or destruction, partial or complete, of any of the
Leased Property, if the amount thereof exceeds U.S.$2,500,000;
(viii) Eau Claire Facility. The Lessee shall promptly, but in any case
within five (5) Business Days, after a Responsible Officer of the Lessee
receives written notice of any failure of Plainwell Paper Company to
fulfill its obligation to make ongoing contributions with respect to its
obligations for the Eau Claire Facility under the Paper Industry
Union-Management Pension Fund resulting from the sale of the Tissue
Business to Plainwell Paper Company (which failure has not been corrected
within the applicable grace period), notify the Owner Trustee and the
Indenture Trustee in writing of the receipt of any such notice; and
(ix) Requested Information. With reasonable promptness, such other
data and information as the Owner Trustee, the Indenture Trustee or any
Participant may reasonably request including, without limitation, any
information required to be provided to such Note Purchaser or a prospective
purchaser of the Notes by Rule 144A(d)(4) under the Securities Act.
(b) Officer's Certificates. Within the periods provided in Sections
18(a)(i) and 18(a)(ii), the Lessee shall deliver to the Owner Trustee, the
Indenture Trustee and each Participant a certificate signed by the chief
financial officer of the Lessee stating that such officer has reviewed the
provisions of this Lease and the other Operative Agreements and setting forth:
(i) the information and computations (in sufficient detail) required in order to
establish whether
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the Lessee was in compliance with the requirements of Section 6.3, at the end of
the period covered by the financial statements then being furnished and (ii)
whether there existed as of the date of such financial statements and whether,
to the best of his knowledge, there exists on the date of the certificate or
existed at any time during the period covered by such financial statements any
Default or Event of Default and, if any such condition or event exists on the
date of the certificate, specifying the nature and period of existence thereof
and the action the Lessee is taking and proposes to take with respect thereto.
(c) Intentionally Omitted.
(d) Property Report. Each set of financial statements of the Lessee
delivered pursuant to Section 18(a)(ii) will be accompanied by a report of an
officer of the Lessee familiar with the status and condition of the Leased
Property which describes the status, condition and location of the Leased
Property, describing any Alteration or repair to the Facility having a cost
exceeding U.S.$1,000,000, any warranty claim in an amount exceeding
U.S.$1,000,000 against any supplier of goods or services in connection with the
Leased Property, any period of 45 or more consecutive days during which the
Facility was not in operation and any violation of governmental rules or
regulations involving the Facility or the operation thereof which could
reasonably be expected to have a Material Adverse Effect, in each case during
the period since the previous report (or, in the case of the first such report,
since the date of this Lease), and describing the circumstances thereof, and
stating whether any Leased Property is then in the condition required by this
Lease and, if not, what the Lessee is doing or intends to do in connection
therewith.
(e) Inspection. Without limiting the foregoing, the Lessee will permit the
Owner Trustee, the Indenture Trustee and each Participant (or such Persons as
the Owner Trustee, the Indenture Trustee or such Participant may designate) to
visit and inspect the Leased Property, to examine all their books of account,
records, reports and other papers, to make copies and extracts therefrom, and to
discuss their respective affairs, finances and accounts with their respective
officers, employees, and independent public accountants (and by this provision
the Lessee authorizes said accountants to discuss with the Owner Trustee, the
Indenture Trustee, such Participant or such Person so designated the finances
and affairs of the Lessee and its Subsidiaries with or without an officer or
employee of the Lessee or any of its Subsidiaries being present) all at such
reasonable times and as often as may be reasonably requested; provided that
unless a Default or Event of Default shall have occurred and shall be
continuing, the Owner Trustee, the Indenture Trustee and such Participant shall
give the Lessee at least 10 days' prior written notice of any such visit,
examination or proposed discussion. The Lessee shall not be required to pay or
reimburse the Owner Trustee, the Indenture Trustee or such Participant for
expenses which it may incur in connection with any such visitation or inspection
except in the case of any such visitation or inspection which shall occur while
a Default or Event of Default shall have occurred and shall be continuing.
SECTION 19. OPTIONS TO RENEW AND PURCHASE.
(a) Determination of Fair Market Sales Value and Fair Market Rental Value.
Not more than 24 months nor less than 14 months prior to the expiration of the
Basic Term and any
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Renewal Term, the Lessee may notify the Owner Trustee in writing that the Lessee
desires a determination of the Fair Market Sales Value of the Facility as of the
end of such Term and/or the Fair Market Rental Value of the Facility for a
permitted Renewal Term, as specified in Section 19(c), commencing upon the
expiration of the then current Term and the Fair Market Sales Value of the
Facility as of the end of such Renewal Term. Thereafter, the Owner Trustee and
the Lessee shall consult for the purpose of determining such Fair Market Sales
Value and Fair Market Rental Value, and any values agreed upon in writing shall
constitute such Fair Market Sales Values and Fair Market Rental Value. If the
Owner Trustee and the Lessee fail to agree upon such values within 45 days after
the Lessee's notice pursuant to the first sentence of this paragraph, the Lessee
may request that such values be determined by the Appraisal Procedure. The
Lessee's request for a determination of Fair Market Value shall not obligate the
Lessee to exercise any of the options provided in this Section 19. All costs and
expenses of any Appraisal Procedure pursuant to this Section 19 shall be borne
by the Lessee.
(b) End of Term Options to Purchase. So long as no Default under clause
(vi), (vii) or (viii) of Section 15(a) or Event of Default has occurred and is
continuing, the Lessee shall have the right on the date of the expiration of the
Basic Term to purchase the Facility at a price equal to the Fair Market Sales
Value determined as of the end of such Basic Term pursuant to Section 19(a). The
Lessee shall give to the Owner Trustee irrevocable written notice not more than
two years and at least one year prior to the end of the Basic Term of its
election to exercise the purchase option provided for in the preceding sentence.
Payment of the purchase price shall be made on the date of purchase at the place
of payment specified in Section 4(d) hereof in immediately available funds to
the Owner Trustee (or, so long as the Secured Indebtedness shall not have been
fully paid and satisfied, the Indenture Trustee), against delivery of a
quitclaim deed and bill of sale transferring and assigning to the Lessee all
right, title and interest of the Owner Trustee in and to the Facility on an
"as-is" "where-is" basis without recourse or warranty, express or implied,
except for a warranty against Lessor's Liens attributable to the Owner Trustee
or Wilmington Trust Company. The Owner Trustee shall not otherwise be required
to make any representation or warranty as to the condition of the Leased
Property or any other matters. At such time as the Secured Indebtedness shall
have been fully paid and satisfied, the Indenture Trustee shall release the Lien
of the Indenture pursuant to Section 9.01 thereof.
Upon expiration of each Renewal Term, so long as no Default under clause
(vi), (vii) or (viii) of Section 15(a) or Event of Default has occurred and is
continuing, the Lessee shall have the right to purchase the Facility at a price
equal to the Fair Market Sales Value thereof determined as of the end of such
Renewal Term pursuant to Section 19(a). The Lessee shall give the Owner Trustee
irrevocable written notice at least one year prior to the end of such Renewal
Term of its election to exercise the purchase option provided for in the
preceding sentence. Following such notice, the Lessee shall purchase the
Facility on the terms and conditions set forth in this Section 19(b). In the
event of any purchase of the Facility by the Lessee pursuant to this Section
19(b) and payment of all Rent and other sums due and owing by the Lessee
pursuant to this Lease or any of the other Operative Agreements (with payment
and application of the amount thereof necessary to fully pay and satisfy the
Secured Indebtedness and discharge of the Lien of the Indenture to be made
pursuant to Section 9.01 thereof), the Owner Trustee shall, concurrently with
such purchase, transfer its right, title and interest in and to the Site Lease
to the Lessee on an "as-is" "where-is" basis without recourse or warranty,
express or implied, except
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for a warranty against Lessor's Liens attributable to the Owner Trustee or
Wilmington Trust Company. At such time as the Secured Indebtedness shall have
been fully paid and satisfied, the Indenture Trustee shall release the Lien of
the Indenture pursuant to Section 9.01 thereof.
(c) End of Term Options to Renew. So long as no Default or Event of Default
shall have occurred and be continuing, and assuming that this Lease has not been
earlier terminated, the Lessee shall have the right to renew this Lease for no
more than two Renewal Terms of one year each, commencing at the expiration of
the Basic Term or the preceding Renewal Term, as the case may be. All of the
provisions of this Lease shall be applicable during each Renewal Term except
that the Casualty Values shall be determined in accordance with Section 19(d)
and Periodic Rent shall be the product of (x) the Fair Market Rental Value of
the Facility for such Renewal Term, determined in accordance with Section 19(a)
and (y) 105%; provided that if prior to the time such renewal option is
exercisable the IRS has clarified that fair market renewal term options are not
includible in the "lease term" as defined by Section 467 of the Code and the
Treasury Regulations thereunder, the number in clause (y) shall be 100%. The
Lessee shall give to the Owner Trustee irrevocable written notice at least one
year prior to the end of the Basic Term or the current Renewal Term, as the case
may be, of its election to exercise the renewal option provided for in this
Section 19 for a Renewal Term or an additional Renewal Term commencing upon the
expiration of such Term.
(d) Casualty Value During Renewal Term. The Casualty Value as of the
commencement of each Renewal Term shall be the Fair Market Sales Value of the
Facility as of the end of the Basic Term or the preceding Renewal Term, as the
case may be (determined in accordance with Section 19(a)), and on each Casualty
Termination Date during such Renewal Term shall decline on a straight-line basis
to a value for the final Casualty Termination Date for such Renewal Term equal
to the Fair Market Sales Value of the Facility as of the end of such Renewal
Term (determined in accordance with Section 19(a)).
(e) Casualty Occurrence. Notwithstanding any request by the Lessee for a
determination of Fair Market Sales Value pursuant to this Section 19, the
provisions of Section 13 shall continue in full force and effect until the date
of purchase and the passage of ownership of the Facility unless the Lessee shall
have exercised the option by irrevocable written notice to purchase pursuant to
Section 19(b), 19(f) or 19(g), in which event the amount of "Casualty Value"
shall equal the greater of (i) the option purchase price, Early Purchase Price
or Burdensome Buyout Price, as applicable, (plus any other amounts payable in
connection therewith) and (ii) the Casualty Value which would have applied but
for the exercise of such purchase option. If the Lessee has exercised any of its
options to purchase or renew under this Section 19 and a Casualty Occurrence
occurs before the closing of such purchase or commencement of the Renewal Term,
as applicable, the Lessee may, by written notice to the Owner Trustee (and, so
long as the Secured Indebtedness has not been fully paid and satisfied, the
Indenture Trustee) given promptly upon such Casualty Occurrence, elect to
rescind the exercise of such option.
(f) Early Purchase Option. So long as no Default under clause (vi), (vii)
or (viii) of Section 15(a) or Event of Default shall have occurred and be
continuing, the Lessee may, upon not less than 90 days' prior written notice to
the Owner Trustee (and so long as the Secured
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Indebtedness has not been fully paid and satisfied, the Indenture Trustee) elect
to purchase the Facility on the Early Purchase Date at a price equal to the
Early Purchase Price. Such written notice shall be irrevocable. On the Early
Purchase Date, the Lessee shall pay to the Owner Trustee (or, so long as the
Secured Indebtedness shall not have been fully paid and satisfied, the Indenture
Trustee) at the place of payment specified in Section 4(d) hereof in immediately
available funds (i) all payments of Periodic Rent (other than Periodic Rent
payable "in advance" on the Early Purchase Date) and Periodic Site Rent through
and including such Early Purchase Date, (ii) the Early Purchase Price, (iii) an
amount equal to the Make-Whole Amount, if any, in respect of the principal
amount of the Notes to be prepaid in accordance with Section 2.10(d) of the
Indenture and (iv) all other Rent and sums then due and payable by the Lessee
under this Lease and the other Lessee Agreements. Upon application of all such
sums to the payment in full and satisfaction of the Secured Indebtedness
pursuant to the Indenture and release of the Lien thereof pursuant to Section
9.01 of the Indenture or the assumption of the Notes in accordance with Section
12 of the Participation Agreement, as the case may be, the Owner Trustee shall
then and thereupon deliver a quitclaim deed and bill of sale transferring and
assigning to the Lessee all right, title and interest of the Owner Trustee in
and to the Facility on an "as-is" "where-is" basis without recourse or warranty,
express or implied, except for a warranty against Lessor's Liens attributable to
the Owner Trustee or Wilmington Trust Company. The Owner Trustee shall not
otherwise be required to make any representation or warranty as to the condition
of the Leased Property or any other matters. In the event of any such purchase
and receipt by the Owner Trustee (or, so long as the Secured Indebtedness has
not been fully paid and satisfied, the Indenture Trustee) of all of the amounts
provided in this Section 19(f) the obligation of the Lessee to pay Periodic Rent
and Periodic Site Rent hereunder shall cease and the Term shall end. In the
event the Lessee exercises its option to assume the Notes in accordance with
Section 12 of the Participation Agreement, the principal amount of such Notes so
assumed shall be deducted from the Early Purchase Price and no Make-Whole Amount
shall be payable under this Section 19(f). If, on the Early Purchase Date, the
Lessee shall fail to pay all amounts required to be paid pursuant to this
Section 19(f), Lessee's notice of early purchase shall be deemed to be withdrawn
as of such date, this Lease shall continue in full force and effect with respect
to the Facility and the Lessee shall pay the reasonable costs, expenses and
liabilities incurred by the Owner Trustee, the Indenture Trustee and the
Participants as a result of the Lessee's having given such notice. The Lessee
may elect to pay the Early Purchase Price in installments in the amounts
(subject to reduction in the case of the first installment if the Lessee elects
to assume the Notes in accordance with Section 12 of the Participation
Agreement) and on the dates set forth in Schedule 4; provided however, if the
Lessee does not elect to assume the Notes in accordance with Section 12 of the
Participation Agreement, after giving effect to the payment and application of
the first installment of the Early Purchase Price the Notes shall have been paid
in full; provided finally, that if the Lessee so elects to pay the Early
Purchase Price in installments, the Lessee (a) unless the Lessee shall have
assumed the Notes in accordance with Section 12 of the Participation Agreement,
shall grant the Owner Trustee a Lien and security interest in the Leased
Property pursuant to agreements reasonably satisfactory in scope, form and
substance to the Owner Participant, securing the unpaid amount of the Early
Purchase Price, (b) shall provide a letter of credit in the amount of the unpaid
Early Purchase Price, in scope, form and substance reasonably satisfactory to
the Owner Participant, issued by a bank or trust company organized under the
laws of the United States or any State thereof, the long term debt of which bank
or trust company is rated A2, by
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Standard & Poor's Ratings Group, a division of McGraw Hill, Inc., and A by
Moody's Investors Service, Inc., or (c) shall grant the Owner Trustee a Lien and
security interest in Property of the Lessee reasonably acceptable to Owner
Participant (other than the Leased Property) pursuant to agreements reasonably
satisfactory in scope, form and substance to the Owner Participant, securing the
unpaid amount of the Early Purchase Price.
(g) Burdensome Buyout Option. (i) So long as no Default under clauses (vi),
(vii) and (viii) of Section 15(a) or Event of Default shall have occurred and be
continuing, upon the occurrence of a Burdensome Buyout Event the Lessee may,
upon not less than 30 days' prior written notice to the Owner Trustee and, so
long as the Secured Indebtedness has not been fully paid and satisfied, the
Indenture Trustee, elect to purchase the Facility on the Burdensome Buyout
Purchase Date at a price equal to the higher of Fair Market Sales Value and
Termination Value, in each case as of the Burdensome Buyout Purchase Date (the
"Burdensome Buyout Price"). Such written notice shall be irrevocable. On the
Burdensome Buyout Purchase Date, the Lessee shall pay to the Owner Trustee (or,
so long as the Secured Indebtedness shall not have been fully paid and
satisfied, the Indenture Trustee) at the place of payment specified in Section
4(d) hereof in immediately available funds (i) all payments of Periodic Rent
(other than Periodic Rent payable "in advance" on the Burdensome Buyout Purchase
Date) and Periodic Site Rent through and including such Burdensome Buyout
Purchase Date, (ii) the Burdensome Buyout Price, (iii) an amount equal to the
Make-Whole Amount, if any, in respect of the principal amount of the Notes to be
prepaid in accordance with Section 2.10(d) of the Indenture, and (iv) all other
Rent and sums then due and payable by the Lessee under this Lease and the other
Operative Agreements. Upon application of all such sums to the payment in full
and satisfaction of the Secured Indebtedness pursuant to the Indenture and
release of the Lien thereof pursuant to Section 9.01 of the Indenture or
assumption of the Notes in accordance with Section 12 of the Participation
Agreement, the Owner Trustee shall then and thereupon deliver a quitclaim deed
and bill of sale transferring and assigning to the Lessee all right, title and
interest of the Owner Trustee in and to the Facility on an "as-is" "where-is"
basis, without recourse or warranty, express or implied, except for a warranty
against Lessor's Liens attributable to the Owner Trustee or Wilmington Trust
Company. The Owner Trustee shall not otherwise be required to make any
representation or warranty as to the condition of the Leased Property or any
other matters. In the event of any such purchase and receipt by the Owner
Trustee and/or the Indenture Trustee, as the case may be, of all of the amounts
provided in this Section 19(g), the obligation of the Lessee to pay Periodic
Rent and Periodic Site Rent hereunder shall cease and the Term shall end. In the
event the Lessee exercises its option to assume the Notes in accordance with
Section 12 of the Participation Agreement, the principal amount of such Notes so
assumed shall be deducted from the Burdensome Buyout Price and no Make-Whole
Amount shall be payable. If, on the Burdensome Buyout Purchase Date, the Lessee
shall for any reason whatsoever fail to pay all amounts required to be paid
pursuant to this Section 19(g), the Lessee's notice of Burdensome Buyout
election shall be deemed to be withdrawn as of such date and this Lease shall
continue in full force and effect with respect to the Facility and the Lessee
shall pay the reasonable costs, expenses and liabilities incurred by the Owner
Trustee, the Indenture Trustee and the Participants as a result of the Lessee's
having given such notice.
(ii) Upon the occurrence of a Burdensome Buyout Event and in lieu of, and
not in addition to, the Lessee's option to purchase under Section 19(g)(i), so
long as no Default under
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clause (vi), (vii) or (viii) of Section 15(a) or Event of Default has occurred
and is continuing, the Lessee may (subject to the Lessee's arrangement for
fulfillment of the requirement set forth in the immediately following sentence
hereof) require the Owner Participant on the Burdensome Buyout Purchase Date to
assign to a Person designated by the Lessee the Beneficial Interest. Such
assignment shall comply with the provisions of Section 11 of the Participation
Agreement. Lessee shall give the Owner Participant not less than 30 days prior
written notice of the exercise of its rights hereunder. Upon payment by the
Lessee to the Owner Participant of the Beneficial Interest Assignment Price,
which price shall be paid from the account of Lessee in immediately available
funds to an account designated by the Owner Participant, the Owner Participant
shall assign the Beneficial Interest to the Person designated by the Lessee
without any representation, warranty or recourse, express or implied, except a
representation and warranty that the Owner Participant has not, prior to the
date of such transfer, transferred the Beneficial Interest, is the sole owner
and holder of the Beneficial Interest and the Beneficial Interest is assigned
and transferred free and clear of all Liens other than Permitted Encumbrances
attributable to Owner Participant. The Lessee shall pay (i) all reasonable costs
and expenses of the Owner Participant, including expenses of outside counsel of
Owner Participant's choosing, in connection with such assignment and (ii) any
amounts due and payable to the Owner Participant under the Operative Agreements
attributable to the period prior to consummation of the assignment of the
Beneficial Interest. For the avoidance of doubt, Lessee agrees (A) that tax and
other indemnity obligations (i) relating to the period prior to such transfer in
favor of Owner Participant and (ii) relating to the transfer documentation
relating to the transfer of the Beneficial Interest shall survive the assignment
and (B) that exercise of any assignment pursuant to this Section 19(g)(ii) shall
be conditioned upon release of Owner Participant and the Owner Participant
Guarantor from any liability relating to the Operative Agreements attributable
to the period following consummation of such assignment.
(h) Site Reduction. If Lessee shall not have exercised any of its options
to purchase the Leased Property pursuant to this Section 19, as of the date
which is one year prior to the expiration of the Term of this Facility Lease,
the Lessee and the Lessor agree to effect a subdivision of the Site so that for
any period of time after the end of the Basic Term hereof, the "Site" shall
consist solely of the area sufficient and appropriate to operate the Facility
and all easements necessary for the operation thereof.
SECTION 20. MISCELLANEOUS.
(a) No Waiver. No delay or omission to exercise any right, power or remedy
accruing to the Owner Trustee upon any breach or default by the Lessee under
this Lease shall impair any such right, power or remedy of the Owner Trustee,
nor shall any such delay or omission be construed as a waiver of any breach or
default, or of any similar breach or default hereafter occurring; nor shall any
waiver of a single breach or default be deemed a waiver of any subsequent breach
or default. All waivers under this Lease must be in writing, but any breach or
default, once waived in writing, shall not be deemed to be continuing for any
purpose of the Operative Agreements. All remedies either under this Lease or by
law afforded to the Owner Trustee shall be cumulative and not alternative. Any
provision of this Lease prohibited by any law now or hereafter in effect shall
be ineffective to the extent of such provision without invalidating the
remaining provisions hereof.
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(b) Right of Owner Trustee to Perform. If the Lessee shall fail to comply
with the covenants herein contained, the Owner Trustee may, but shall not be
obligated to, (i) make advances to perform the same, and (ii) enter upon the
Leased Property to perform any and all acts required by the Lessee's covenants
herein contained and to take all such action thereon as in the Owner Trustee's
opinion may be necessary or appropriate therefor. All payments so made by the
Owner Trustee and all costs and expenses (including without limitation,
reasonable attorneys' fees and expenses) incurred in connection therewith shall
be payable by the Lessee upon demand as additional rent hereunder, with interest
at the Late Rate. No entry shall be deemed an eviction of the Lessee or a
repossession of the Leased Property, and no such advance, performance or other
act shall be deemed to relieve the Lessee from any default hereunder.
(c) Notices. All communications under this Lease shall be in writing or by
facsimile and any such notice shall become effective (i) upon personal delivery
thereof, including, without limitation, by overnight mail or courier service,
(ii) upon receipt thereof, in the case of notice by United States mail,
certified or registered, postage prepaid, return receipt requested, or (iii)
upon confirmation of receipt thereof, in the case of notice by facsimile,
provided such transmission is promptly further confirmed in writing by either of
the methods set forth in clause (i) or (ii) above, in each case addressed to the
parties hereto at the following addresses as follows:
If to the Owner Trustee: Wilmington Trust Company,
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Fax: (302) 651-8882
Attention: Corporate Trust Administration
with a copy to the Owner Participant
If to the Lessee: Pope & Talbot, Inc.
1500 SW First Avenue
Suite 200
P.O. Box 8171
Portland, Oregon 97201
Attention: Chief Financial Officer
Fax: (503) 220-2722
If to the Owner Participant: SELCO Service Corporation
c/o Key Corp Leasing
54 State Street, 9th Floor
Albany, New York 12207
Attention: Leveraged Lease Administrator
Fax: (518) 488-5222
with a copy to OP Guarantor
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If to the Noteholders: At their respective addresses
for notices set forth in the
Register referred to in the
Indenture
If to the Indenture Trustee: First Security Bank, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Services
Fax: (801) 246-5053
or at such other place as any such party may designate by notice given in
accordance with this Section.
(d) Further Assurances. The Lessee will at its own expense, do, execute,
acknowledge and deliver all and every such further acts, deeds, conveyances,
transfers and assurances as the Owner Trustee or the Indenture Trustee may
reasonably request in order to protect the right, title and interest of the
Owner Trustee hereunder or under the Site Lease or the perfection or protection
of the Lien granted by the Indenture and the Deed of Trust. Without limiting the
foregoing, the Lessee agrees at its own expense to cause this Lease and all
supplements and amendments hereto, the Site Lease and all supplements and
amendments thereto, the Indenture and all supplements and amendments thereto,
the Deed of Trust and all supplements and amendments thereto and all financing
and continuation statements and similar notices required by Applicable Law at
all times to be kept recorded and filed in such manner and in such places as the
Owner Trustee or the Indenture Trustee may reasonably request in order to
protect the right, title and interest of the Owner Trustee hereunder or under
the Site Lease or to protect the rights of the Indenture Trustee under the
Indenture and the Deed of Trust. No such recording or filing shall constitute an
acknowledgment or implication by the Lessee that this Lease constitutes a
chattel mortgage or security agreement or creates a lien or security interest
under Applicable Law.
(e) Opinions of Counsel. The Lessee agrees at its own expense to furnish to
the Owner Trustee and the Indenture Trustee promptly after the execution and
delivery of any supplement and amendment hereto, promptly after the execution
and delivery of any supplement and amendment to the Site Lease and promptly
after the execution and delivery of any supplement and amendment to the
Indenture or the Deed of Trust, an opinion of counsel reasonably satisfactory to
the Owner Trustee and the Indenture Trustee (who may be independent counsel to
the Lessee) stating that in the opinion of such counsel, such supplement or
amendment to this Lease or such supplement or amendment to the Site Lease or
such supplement or amendment to the Indenture or the Deed of Trust (or a
financing statement, continuation statement or similar notice thereof if and to
the extent required by Applicable Law) has been properly recorded or filed for
record in all public offices in which such recording or filing is necessary to
protect the right, title and interest of the Owner Trustee hereunder or under
the Site Lease or, as the case may be, to perfect (or continue the perfection
of) the Liens provided by the Indenture and the Deed of Trust as a valid Lien
and security interest in the Collateral.
-45-
<PAGE>
(f) Successors and Assigns. This Lease shall be binding upon and shall
inure to the benefit of, and shall be enforceable by, the Owner Trustee and the
Lessee and their respective successors and permitted assigns.
(g) Counterparts; Uniform Commercial Code. This Lease may be executed in
any number of counterparts, each counterpart constituting an original but all
together one Lease; provided, however, that to the extent that this Lease
constitutes chattel paper (as such term is defined in the Uniform Commercial
Code) no security interest in this Lease may be created through the transfer or
possession of any counterpart hereof other than the counterpart bearing the
receipt therefor executed by the Indenture Trustee on the signature page hereof,
which counterpart shall constitute the only "original" hereof for purposes of
the Uniform Commercial Code.
(h) GOVERNING LAW. THIS LEASE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE
OF NEW YORK EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT
WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH
STATE BUT INCLUDING SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
(i) Investment of Funds. The Owner Trustee (or if the Secured Indebtedness
has not been fully satisfied and discharged, the Indenture Trustee) shall, upon
the written direction of the Lessee, invest and reinvest any funds from time to
time held by the Owner Trustee or the Indenture Trustee, as the case may be,
which constitute proceeds of insurance held by the Owner Trustee or the
Indenture Trustee, as the case may be, pursuant to Section 7 (referred to in
this paragraph as "Funds") in such direct obligations of the United States of
America or obligations for which the full faith and credit of the United States
is pledged to provide for the payment of principal and interest, maturing not
more than 90 days from the date of such investment, as may be specified in any
such direction. Upon any sale or payment of any such investment, the proceeds
thereof, plus any interest received by the Owner Trustee or the Indenture
Trustee, as the case may be, thereon shall be held by the Owner Trustee (or if
the Secured Indebtedness has not been fully satisfied and discharged, the
Indenture Trustee) as part of the Fund from which such investment was made or
application as a part of such Fund. If such proceeds (plus such interest and
earned discount) shall be less than the cost of such investment, the Owner
Trustee or the Indenture Trustee, as the case may be, will not more than three
Business Days thereafter notify the Lessee of the amount of such deficiency and
the Lessee will promptly pay to the Owner Trustee an amount equal to such
deficiency. Any payment in respect of such deficiency shall be held and applied
by the Owner Trustee or the Indenture Trustee, as the case may be, as part of
the Fund from which such investment was made. The Lessee will pay all expenses
incurred by the Owner Trustee or the Indenture Trustee, as the case may be, in
connection with the purchase and sale of such investments
[signature page follows]
-46-
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee and the Lessee have caused this Lease
to be executed and delivered by their respective duly authorized officers, all
as of the date first above written.
WILMINGTON TRUST COMPANY, not in its
individual capacity but solely as Owner
Trustee
By JAMES P. LAWLER
--------------------------------------
Name: James P. Lawler
Title: VP
POPE & TALBOT, INC., as Lessee
By
--------------------------------------
Name:
Title:
-47-
<PAGE>
This Facility Lease and the rentals and other sums due and to become due
hereunder have been assigned for security to and are subject to a security
interest in favor of First Security Bank, National Association, as Indenture
Trustee under a Trust Indenture and Security Agreement dated as of September 15,
1999 between said Indenture Trustee and the Owner Trustee hereunder, as debtor.
Information concerning such security interest may be obtained from the Indenture
Trustee at its address set forth in Section 20 of this Facility Lease.
[Form of Indenture Trustee's receipt to appear only in "original"
counterpart for purposes of Section 20(g)]
Receipt of this original counterpart of the foregoing Lease is hereby
acknowledged this ____ day of ___________, 1999.
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, as Indenture Trustee
By BRETT R. KING
--------------------------------------
Name: Brett R. King
Title: Vice President
-48-
Exhibit 11.1
<TABLE>
<CAPTION>
POPE & TALBOT, INC.
STATEMENT SHOWING CALCULATION OF AVERAGE
COMMON SHARES OUTSTANDING AND EARNINGS
PER AVERAGE COMMON SHARE
Three months ended Nine months ended
September 30, September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding 13,481,441 13,481,441 13,481,441 13,481,441
Application of the "treasury stock"
method to the stock option plan 76,794 - 38,988 -
----------- ----------- ----------- -----------
Total common and common equivalent
shares, assuming dilution 13,558,235 13,481,441 13,520,429 13,481,441
=========== =========== =========== ===========
Net income (loss) $ 7,160,000 $(6,753,000) $ 7,805,000 $ 6,602,000
=========== =========== =========== ===========
Diluted net income (loss) per common share $ .53 $ (.50) $ .58 $ .49
=========== =========== =========== ===========
The computation of basic net income per common share is not included because the computation
can be clearly determined from the material contained in this report.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE POPE &
TALBOT, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 98,168
<SECURITIES> 15,848
<RECEIVABLES> 74,461
<ALLOWANCES> 0
<INVENTORY> 75,586
<CURRENT-ASSETS> 274,934
<PP&E> 449,019
<DEPRECIATION> 224,893
<TOTAL-ASSETS> 536,661
<CURRENT-LIABILITIES> 102,261
<BONDS> 199,259
0
0
<COMMON> 13,972
<OTHER-SE> 151,250
<TOTAL-LIABILITY-AND-EQUITY> 536,661
<SALES> 357,205
<TOTAL-REVENUES> 357,205
<CGS> 319,107
<TOTAL-COSTS> 319,107
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,891
<INCOME-PRETAX> 12,603
<INCOME-TAX> 6,443
<INCOME-CONTINUING> 6,160
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,805
<EPS-BASIC> .58
<EPS-DILUTED> .58
</TABLE>
